American capitalism is coming apart at the seams.
Truth be told, it’s been coming apart for decades now—and that trend has only continued during the recovery from the worst crash since the 1930s.
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Coming apart
from David Ruccio
A good indicator of the shredding of the U.S. economic and social fabric is the difference in the level of compensation of Chief Executive Officers of major American corporations compared to that of the average worker. While they labor, workers create value, some of which they receive back in the form of compensation; the rest of what they produce is the surplus, which is appropriated by the boards of directors of the enterprises that hire the workers. The boards also hire CEOs, to supervise the production of the surplus, who in turn get a cut of the surplus. In other words, the executives share in the booty created by the workers they supervise. Thus, both groups—CEOs and workers—perform labor and are compensated for their work but the source and level of their compensation couldn’t be more different.
According to the Economic Policy Institute, in 2018, average compensation (including realized capital gains) of CEOs at the top 350 American firms was $17.2 million. And for workers? It was only $56 thousand. As a result, the ratio of CEO compensation to that of workers was an astounding 278.1 to 1! In 1978, that ratio stood at 29.7 to 1. The spectacular growth in the CEO-to-average-worker-compensation ratio reflects the fact that, over that same period, CEO compensation has risen 940.3 percent while that of workers has grown only 11.9 percent.
Just in the past nine years of the so-called recovery, CEO compensation far outpaced that of workers: 52.6 percent compared to only 12.7 percent.
It should come as no surprise, then, that over the 1978-2018 period, the labor share of national income has dropped precipitously, by 8.7 percent (falling 2.1 percent just since 2009). Corporate CEOs have thus done their job—extracting more surplus from workers—and been rewarded handsomely for their efforts.
And Americans are quite aware of how unfair the U.S. corporate economy has become.
According to a 2016 survey conducted by , , and
And that’s even when Americans grossly underestimate the amount of the surplus corporate CEOs manage to capture. The typical American believes a CEO earns $1 million in pay (with an average of $9.3 million), whereas median reported compensation for the CEOs of these companies was approximately $10.3 million (with an average of $12.2 million).
In other words, CEO compensation figures are much higher than the public is aware of, and for many Americans it is simply incomprehensible that anyone can earn that much money.
Moreover, Americans are not convinced corporate CEOs should be able to capture as much of the surplus as they do. For example, according to the same survey, when respondents are given a hypothetical situation in which a company’s value increases by $100 million over the course of a year, the median respondent believes that the CEO should receive only 0.5 percent ($500,000) as compensation. In other words, as Donatiello put it, “Either the public is not sold on the idea that CEOs should share in value creation to the extent that they do. Or they do not believe that CEOs play an important role in value creation.”
Clearly, the high level of exploitation—and the subsequent distribution of a large portion of the resulting surplus to CEOs—is the source of the rending of the U.S. economic and social fabric. Unless corporations are fundamentally transformed, so that workers and society as a whole have a say in the size and distribution of the surplus, American capitalism will continue to come apart at the seams.
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—– look inside —– $5.94 / $20.00
—– look inside —– $4.90 / $8.00
—– look inside —– $15.99
—– look inside —– $5.99 / 12.99
—– look inside —– $5.93 / $12.99
—– look inside —– $4.97 / $9.90
—— Ugarteche, Puyana and Madi ——
Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
– Victor Beker and Beniamino Moro –
————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
————— Mauro Gallegati ————–
————— Herman Daly —————-
————— Asad Zaman —————
—————– C. T. Kurien —————
————— Robert Locke —————-
Real-World Economics Review Blog 
And from that comes havoc on nature from yachts to designer clothes and etc..
[Quote]
Labor advocates are also fond of appealing to their readers’ sense of fairness by arguing that CEO pay at the company proves it can afford a $15 minimum wage. But the math here also doesn’t add up. Wal-Mart CEO Doug McMillon earned a combined $19.4 million compensation package in 2015, including salary, stock options, and other perks. That makes for a dramatic sound bite. But if this money was somehow divided between all 2.3 million Wal-Mart associates, each associate would get a one-time $8.43 bonus—that’s it.
[End Quote]
It’s also been calculated that if you took the salaries of all the CEOs in the US and distributed them among the workers, it would only add three cents to their hourly wages.
It’s important to have a sense of proportion…
Please cite the source of your quotation Ahmed, as my old eyes are having trouble seeing it in above post. If it is there forgive my weak eyes. If from elsewhere provide source please.
The source for the quote is here: https://www.epionline.org/oped/why-wal-mart-can-not-afford-to-pay-workers-a-15-minimum-wage/
This article from VOX covers the same point: https://www.vox.com/2014/8/6/5970815/what-if-walmarts-ceo-took-a-pay-cut-for-his-workers
As for the salaries of CEOs only adding a few cents to the worker’s salaries, that comes from Tim Worstall’s article in Forbes: https://www.forbes.com/sites/timworstall/2016/02/13/three-cents-an-hour-the-cost-to-american-workers-of-ceos-excessive-salaries/#
I don’t view any of these as unbiased sources worth serious consideration, but mostly propaganda pieces and politically driven thinks tanks with an ideology bent to grind.
Meanwhile, finance sector’s share of corporate profit reached 40% in 2008. For doing what? Managing risk? Spare me. Backing entrepreneurs? Give me a break. The banking sector and finance sector basically writes mortgages backed by real estate; that’s it. Even today their share of private profit is 25%. For doing what?
Precisely. No one here criticizes the money system/finance even though “they own the joint”.
It’s either that they think any criticism is an “interest is the one and only problem” crank or finance backs NWER blog or they just can’t come out of their abstraction fog long enough to look at the simple but paradigm changing policies I’ve suggested here for years now.
To paraphrase James Carville: It’s the monetary paradigm….stupid
The peak share occurred in 2002.
@Rob,
Let’s take GM as an iconic US corporation. GM’s Mary Barra makes about $22 million/year. Divided by GM’s 170k employees, that works out to $129 per employee.
There are roughly 2,000 work hours in a year:
$129/2,000 = 0.0645
So that’s it, roughly 6 cents an hour in this case.
It’s just math.
Sorry Ahmed, your analysis is overly simplistic and ignores many, many, factors, to the point it is meaningless, in my view. It is not all “just math” and that comment is tone deaf in my view.
.
The idea that when it comes to economic questions “It’s just math” is a gross oversimplification of complex social issues. Salary is only one (usually small) part of CEO compensation. CEO compensation is subject to the same kind of issues as minimum wage. It is simply not all about the math, which of course, can be manipulated to support any position one wants depending on what is included or excluded form such simplistic calculations.
You simplistic (meaningless) calculation ignores that fact that when Amazon pays such a low wage to employees that they must use government welfare there is an “external” social cost to such low wages not accounted for in your calculations. You also ignore the fact that $1 to a billionaire is nothing, but to a struggling worker it may well be the difference between choosing between paying the rent or putting food on the table for one’s children. As I said, such oversimplification is tone deaf.
And more importantly, how one determines what is “proportional” is not merely a matter of doing the math, but what values determine what goes into making such social calculations. It certainly about overly simplistic math.
American colonial culture, according to historian Charles A. Beard, “In its origins it was derivative: the whole conventional heritage, from its noblest ideals to its grossest vulgarities, was European, in a strict sense, English. Like the culture of every other age, it was contingent upon the prevailing economic order, the modes of securing a livelihood, the disposition of classes, the accumulation of riches, the development of patronage and leisure, the concentration of population, and the diversification of practical experience. Of necessity also it was bent to the laws of change, affected in every sphere by transformations in the character and weight of economic classes, the growth of secular concerns, and the impact of fresh currents’, of opinion from abroad” (The Rise of American Civilization). When the troubles that would eventually end with the American Revolution began, it was not unexpected when many Americans turned to British law for protection. The claims the Americans made were consistent with the contemporary understandings of that law. Which held that English constitutional law protected all subjects (at home and abroad) from tyranny, and that the king and Parliament had to act within these laws. Notable among English liberties were the protection from internal taxation without representation in Parliament and safeguards against illegal threats to life, liberty, and property. Many Americans declared void any acts of Parliament that violated natural equity or the British constitution.
The greatest threat to this understanding of American culture thus far came during the period 1929 to 1945. After Hitler seized power in 1933 Americans began to worry that the New Deal might lead to American fascism, or American communism. During the first two decades of the 20th century many Americans disparaged or lost faith in American civilization. But with the depression, and then Hitler, and then the Russian Revolution, as the 1930’s wore on, American beliefs tended more and more to move away from the critical attitudes of the 1920’s toward a greater appreciation of American life and a revival of a kind of “old” patriotism. Some critics and expatriates of the 1920’s had fled from American life, but the Americanists of the 1930’s rushed back to it and embraced it with unbounded enthusiasm. This revived Americanism also refocused the nation’s concerns on the common American, with their sufferings, courage, struggles, and virtues. By the 1950s this had created a more conservative America; first culturally and then politically. Conservative in the traditional sense, that did not involve economics. But also, in the 1950s American economic conservatives (prominently including economists) began changing the direction of American culture toward not just economic conservatism, but radical economic conservatism. We see the results of those efforts (many surreptitious) over that period and today with such changes as extreme economic inequality, declines in political and religious conservatism (including warping Christianity), a culture of money and economic fascism, the spreading Orwellian use of language, denigration of the founding documents and principles of the US, vilification of the working- and middle-class, attacks on republican democracy, dysfunction in American institutions at all levels, and the rise of the CEO President. The CEO to worker compensation ratio is just one small, though notorious part of these changes. It’s impossible to fix the problem with the ratio without also fixing the many broader and more basic changes created in American society by radical economic conservatives over the last 75 years. America has turned back similar attacks on its cultural foundations before. Let’s hope this one can be turned back as well.
Cultures die hard and long….but when they’re dead and don’t quite know it yet LIKE NOW, it’s extremely dangerous to not have a new culture/pattern/paradigm to satisfactorily replace it.
For your own and for your progeny’s sake consider the new mega paradigm of Abundantly Direct and Reciprocal Monetary Gifting.
Craig, I’m not the person you need to convince. You’ll need money and political support for your proposal. And you’ll need popular support for it. Both difficult jobs. I suggest you get that going rather than giving me more details.