Restoring Public Service to Private Enterprise

For years, we've been engaged in a massive de-regulatory enterprise -- dismantling the government's control over the market -- because we were assured that markets get it right, and government messes things up.

But markets will never eliminate pollution. So long as it costs money to reduce emissions or even to change over to new energy sources, but it is free to continue to dump hot-house gases into the atmosphere, profit seeking companies will pollute.

Any serious movement to protect us from global climate change must start by learning how to harness markets to the side of climate protection instead of climate destruction.

The task is overwhelming, but it is not impossible. The first step is to understand how markets really work -- when they get things right and when they don't -- and to elect a government that is willing to use its powers to press markets in the right direction and stop them from careening out of control in the wrong ones. Markets are enormously powerful tools for human welfare -- but without guidance, they are no more likely to get us where we want to go than a car without a driver.

The second is to make sure that the officers in charge of our most important business enterprises are working for us -- all of us -- and not just themselves, or even themselves and the stock market. We need to restore a sense of public service to private enterprise.

Last year, four hedge fund managers took home over $1 billion each in pay.

Seeming pikers by comparison, CEOs of Fortune 500 companies received an average over $14 million, according to the AFL-CIO's Executive PayWatch. But some did quite a bit better. For example, former Bear Sterns CEO James Cayne received about $40 million in pay last year. Then, in the bailout, he sold his stock -- pay from earlier years -- for another $61 million, for total receipts of $100 million while running his company into the ground.

That's about $7000 per hour for the CEOs and $8.5 million per hour for the highest paid of the hedge fund managers.

No one "makes" that much money. These guys aren't producing wealth. They are taking it.

Over the last couple of decades, we have taught the leaders of our most important institutions -- the great corporations that manage our economy -- that they are in business for themselves. That they are free to do whatever will makes them richest, without regard for the public.

We have a word for the idea: Corruption. Corruption isn't just bribing government officials or using company money to pay for private parties or $7000 shower curtains -- although we've seen plenty of that. Corruption means using the privileges of office for private gain. And the "free-market" ideologues of the last few decades have taught our
CEO office holders to be corrupt without shame.

Business executives, just like governmental officials, hold offices of enormous public importance. When they feel entitled to use them for purely private self-enrichment, the rest of us suffer. The money that CEOs and other top executive have been paying themselves is money that could have been invested in their companies. Median American pay is about what it was a full generation ago. The economy has grown, productivity has increased, but families with incomes below the top 10% have seen almost no benefit.

Middle class families have tried hard to make do. First, they tried working harder, supplementing the Family breadwinner, whose income was no longer enough, with the Working Mom. Then, they began borrowing. Now, we are in a crisis of over-borrowing, but even after that crisis is resolved, we will have the larger problem: all the economic growth
of the last generation has gone to the relatively well off, and most of it has gone to the extremely rich-the top tenth of a percent.

To reclaim our country, the first thing we need to do is to re-establish the notion of public service. Corporate executives need to understand that their job is to work for the good of the country -- not just themselves, and certainly not just for their shareholders (they now own a good part of those shares), but the company and its employees, its customers, and the nation as a whole.

Managers who take unreasonable pay, regardless of whether it is cash or stock or options, should be seen for what they are: raiders, who, much like the old aristocracy we thought we had defeated at the end of the middle ages, simply use their power to take more than their share. Neither boards nor shareholders will stop them: they are too easily
bought with the spoils of stealing from future investment and current employees. Condemnation might. If that doesn't work, we may need to consider returning to the taxation of the Eisenhower years, taking the ill-gotten gains of the powerful and using them to rebuild the middle class.

In the meantime, however, watch carefully, and you will see vast parts of the bailout -- meant to rescue the financial underpinnings of our economy -- sucked into the open maws of the same folks who mismanaged us into our current problem.

High executive pay is only a small part of the problem. The same culture that encourages executives to see their task as working only for themselves, or even only for the stock market, directs them to ignore the impacts on all others. Including the very foundations of our physical existence.

Corporate leadership in solving our climate problems will never happen by itself. It will require, instead, deliberate governmental decisions to change the perverse incentives our current laws create for market players to enrich themselves at the expense of the environment: first and foremost, a carbon fee that will make using dangerous fuels
expensive enough to reflect their true social costs.

But external regulation will never be enough. We also need a reform in the social understanding of the corporation, so that managers understand that when they have discretion, they are expected to exercise it on behalf of all of us, not just to please short-term stock analysts.

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