Labor OtherWords Sam Pizzigati

Keeping Workers Poor is Bad for Business

At America's biggest low-wage employers, chief executives now pocket 670 times more than their workers.
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By Sam Pizzigati / OtherWords

CEOs at America’s biggest low-wage employers now take home, on average, 670 times what their typical workers make.

But we don’t just get unfairness when a boss can grab more in a year than a worker could make in over six centuries. We get bungling and inefficient businesses.

Management science has been clear on this point for generations, ever since the days of the late Peter Drucker.

Management theorists credit Drucker, a refugee from Nazism in the 1930s, for laying down “the foundations of management as a scientific discipline.” Drucker’s classic 1946 study of General Motors established him as the nation’s foremost authority on corporate effectiveness.

That effectiveness, Drucker believed, had to rest on fairness.

Corporations that compensate their CEOs at rates far outpacing worker pay create cultures where organizational excellence can never take root. These corporations create ever bigger bureaucracies, with endless layers of management that serve only to prop up huge paychecks at the top.

Drucker argued that no executive should make more than 25 times what their workers earn. And, in the two decades after World War II, America’s leading corporate chiefs by and large accepted Drucker’s perspective.

Their companies shared the wealth when they bargained with the strong unions of the postwar years. In fact, notes the Economic Policy Institute, major U.S. corporate CEOs in 1965 were only realizing 21 times the pay their workers were pocketing.

Drucker died in 2005 at age 95. He lived long enough to see Corporate America make a mockery of his 25-to-1 standard. But research since his death has consistently reaffirmed his take on the negative impact of wide CEO-worker pay differentials.

The just-released 28th annual edition of the Institute for Policy Studies Executive Excess report explores these wide differentials in eye-opening detail. The report zeroes in on the 300 major U.S. corporations that pay their median workers the least.

At these 300 firms, average CEO pay last year jumped to $10.6 million, some 670 times their $24,000 median worker pay.

At over 100 of these firms, worker pay didn’t even keep with inflation. And at most of those companies, executives wasted millions buying back their own stock instead of giving workers a raise.

Just as Drecker predicted, this unfairness has led directly to performance issues. Many of our nation’s most unequal companies, from Amazon to federal call center contractor Maximus, have seen repeated walkouts and protests from justifiably aggrieved workers.

Lawmakers in Congress, the Institute for Policy Studies points out, could be taking concrete steps to rein in extreme pay disparities. They could, for instance, raise taxes on corporations with outrageously wide pay gaps.

But with this Congress unlikely to act, the new Institute for Policy Studies report also highlights a promising move the Biden administration could take on its own. The administration could start using executive action “to give corporations with narrow pay ratios preferential treatment in government contracting.”

That would amount to a major step forward, since 40 percent of our largest low-wage employers hold federal contracts. If the Biden administration denied lucrative government contracts to companies with pay gaps over 100 to 1, those low-wage firms would have a powerful incentive to pay workers more fairly.

Various federal programs already offer a leg up in contracting to targeted groups, typically small businesses owned by women, disabled veterans, and minorities.

“Using public procurement to address extreme disparities within large corporations,” the IPS report adds, “would be a step towards the same general objective.”

And a step in that direction, as Peter Drucker told Wall Street Journal readers back in 1977, would honor the great achievement of American business in the middle of the 20th century: “the steady narrowing of the income gap between the ‘big boss’ and the ‘working man.’”

Sam Pizzigati
Sam Pizzigati

Sam Pizzigati co-edits Inequality.org at the Institute for Policy Studies. His latest books include The Case for a Maximum Wage and The Rich Don’t Always Win. This op-ed was adapted from Inequality.org and distributed by OtherWords.org.

11 comments

  1. Taxing labor and manmade capital is bad for business. Better to tax natural capital and share the revenue by a universal basic income.

  2. Flow and liquidity is best for wealth creation and the enrichment of society and superlatively efficient when debt free trading is utilized with assets that are priced by the market in real-time.

  3. Whew. So, the savagery of Capitalism is, well, less savage if the hourly is $24 an hour? Hmm, “CEOs at America’s biggest low-wage employers now take home, on average, 670 times what their typical workers make.” Ahh, come on. Just how much more power does that take home pay account for?

    Get real, and the Nickel and Dimes povery, near poverty, six paychecks away from foreclosure, one medical emergeny away from big time debt, just how much buying and manipulating and sheltering power does that 670 times really “buy” the thieves at the top?

    End of Capitalism, it’s hard to imagine. Greta the Freak sees the end of the world more viable than the end of Capitalism.

    Parenti, Michael:

    Most of the 3.5 billion earn an average of $2.50 a day. The poorest 40 percent of the world population accounts for just 5 percent of all global income. About 80 percent of all humanity live on less than $10 a day. And the poorest 50 percent maintain only 7.2 percent of the world’s private consumption. How exactly could they have accumulated an amount of surplus wealth comparable to the 85 filthy richest?

    Hundreds of millions live in debt even in “affluent” countries like the United States. They face health care debts, credit card debts, college tuition debts, and so on. Many, probably most who own homes— and don’t live in shacks or under bridges or in old vans— are still straddled with mortgages. This means their net family wealth is negative, minus-zero. They have no propertied wealth; they live in debt.

    Millions among the poorest 50 percent in the world may have cars but most of them also have car payments. They are driving in debt. In countries like Indonesia, for the millions without private vehicles, there are the overloaded, battered buses, poorly maintained vehicles that specialize in breakdowns and ravine plunges. Among the lowest rungs of the 50 percent are the many who pick through garbage dumps and send their kids off to work in grim, soul-destroying sweatshops.

    Can we really compare private jets, mansions, landed estates, super luxury vacation retreats, luxury apartments, luxury condos, and luxury cars, not to mention hundreds of billions of dollars in equities, bonds, commercial properties, art works, antiques, etc.— can we really compare all that enormous wealth against some millions of used cars, used furniture, and used television sets, many of which are ready to break down? Of what resale value if any, are such minor durable-use commodities? especially in communities of high unemployment, dismal health and housing conditions, no running water, no decent sanitation facilities, etc. We don’t really know how poor the very poor really are.

    Millions of children who number in the lower 50 percent never see the inside of a school. Instead they labor in mills, mines and on farms, under conditions of peonage. Nearly a billion people are unable to read or write. The number of people living in poverty is growing at a faster rate than the world’s population. So poverty is spreading even as wealth accumulates. It is not enough to bemoan this enormous inequality, we must also explain why it is happening.

    But for now, let me repeat: the world’s richest 85 individuals do not have the same amount of accumulated wealth as the world’s poorest 50 percent. They have vastly more. The multitude on the lower rungs—even taken as a totality—have next to nothing.

    https://dandelionsalad.wordpress.com/2014/02/18/85-billionaires-and-the-better-half-by-michael-parenti/

  4. It’s not just the lowest wage paying industries. Professional Boxers tend to do pretty well, to the extent that they don’t get ripped off by the people around them. But UFC fighters work very hard, and suffer tremendously, for a relative pittance.

    https://www.bloodyelbow.com/2022/4/21/23035094/sterling-to-ufc-are-you-telling-me-giving-fighters-an-extra-5-is-gonna-kill-you-guys

    https://www.bloodyelbow.com/2022/4/1/23005953/endeavor-ufc-owners-emanuel-whitesell-308-million-pay-packages-2021-mma-finances-news

    https://www.bloodyelbow.com/2022/6/10/23155850/documents-show-ufc-now-makes-over-1-billion-a-year-minimal-costs-and-more-growth-expected

  5. “business is the very soul of an amerikan”. Francis Grund
    only amerikans use a business term to refer to their lovers”. George Lakoff….are you a junior or silent PARTNER?
    Sam is wrong—any marxist Leninist is fully aware that these contradictions are addressed by imperialism, international exploitation, planned obsolescense—sanctions/tariffs,production for waste and exchange rather than use….the creation of artificial “needs ” via advertising
    “the business of business is to stay in business…amerikans do not know what they want or need, they live according to what they like”. David Riesman

  6. Taylorism redux. The science of exploitation. How to manage labor for capital so bizzness can more efficiently run its rackets. Wage slavery ain’t so bad when you can buy back a little more of the resources they’ve robbed us of? Whatever became of revolutionary consciousness among the working class? Oh yeah, it got replaced by reform cons among professional lackeys.

    1. Follow the Science, man. New biz with head transplants.

      Scientists are divided over the viability of head/whole body transplants, and have been since Dr. Robert J. White chopped a monkey’s head off and grafted it onto the body of another in 1970. Considered to be the first successful procedure of its kind, the ghastly experiment involved the decapitation of more than a hundred rhesus monkeys, which his own colleague called “barbaric” and found to be a worthless scientific exercise.

      Despite surviving only eight days and being paralyzed from the waist down, White and his supporters deemed the resulting Frankenstein to be “by all measures, normal”, and suffering no complications. “Whether such dramatic procedures will ever be justified in the human area,” wrote White in 1975, “must wait not only upon the continued advance of medical science but more appropriately the moral and social justification of such procedural undertakings.”

      Half a century later, this monstrous exploration has reared its bloody head once again through the work of Italian neurosurgeon, Sergio Canavero, who replicated White’s experiments with monkeys in 2015 and opened the door to performing these gruesome tests on human subjects in 2017, when he performed a “rehearsal” head transplant on two cadavers.

      Canavero has now teamed up with Chinese surgeon Xiaoping Ren to attempt the grim stunt on living persons. Claiming to have already had some success with animals, their Head Anastomosis Venture or HEAVEN project seeks to solve the spinal linkage problem faced by White and Canavero in their previous attempts, which turned all of the unfortunate victims of their experiments virtually catatonic.

      1. China (probably with generous funding from Fauci and his gain-of-function fronts) appears to lead the way in hybridization and chimera creation. Just announced success in fully automating cloned pigs (coming to a meat counter near you).

        On a related note of eugenics, fyi:
        https://infertilitymovie.org/

  7. I have a thought. Maybe Americans should rethink “business” altogether. I’m certain they should rethink wealth creation and wealth seeking. Maybe we’re doing the wrong thing to begin with, and it’s not just businesses acting like parasites and sucking their employees dry that is our biggest problem.

    Maybe it’s because the entire thing is always some form of exploitation, and there is something inherently wrong with exploitation here on Planet Earth. Maybe on Planet Western Civilization exploitation is the coolest thing you can do, but that’s not how this planet that we live on operates.

  8. Keeping Workers Poor is Bad for Business?

    Not at all, as in era of globalization where no individual country labor have any leverage to confine global speculative capital that seamlessly flows around the world in matter of seconds.

    Capital is a rogue overall destructive force, has no country, no culture, no allegiance or duty to anybody or anything but to vicious greed and brutal exploitation of human and natural resources via all means including insidious corporate propaganda of forcing commercialization of social relations under guise of lies about social responsibility.

    In last few decades old western concentrated and in most cases monopolistic capital does not even need labor or consumers anymore as any investments in mainstream economy are highly incompetetive in comparison to speculative investments in financial instruments and trading platforms especially derivatives with complex neo feudal capital structure .

    In fact financialization achieved so absurd levels that now capital does not even need shareholders and actively rob them as real managerial control not ownership over corporations is what maters. Western market capitalism quicker converge into Soviet state capitalism where ruling elites owned nothing but controlled everything.

    Entire hi tech corporate space consists of entities of neo feudal capital structure where shareholders often owning vast majority of company are just stupid peons and all they can do is shut up, watching companies defrauded or self annihilated by greed of feudal rulers. Only oligarchs have their say.

    Entire fiscal and monetary policies are being hijacked by financial speculators, mainstream economy is programmatically destroyed in maddening race for illusional profits stolen from you and me.

    One must understand that principal opposition to AFL style trade unions which themselves Don not unite but fragment working class is not as much likelihood of higher wages but the very idea of uniting workers against capitalist class as common enemy.

    And that is conflicting with corporate lies about supposed social mission of corporations, rectifying injustice, social inequality supposedly caring about our environment and other nonsense that if taken as truth and implemented would destroy capitalism itself.

    As Jesus reacted violently to money changers in Jewish temple in Jerusalem Marx reacted in the same way to so called corporate social engagement and charity to supposedly help people first exploited, robbed and hurt by the same corporate greed.

    It use to be that owners of capital “cared” about workers but it was in era of chattel slavery as they owned their workers/slaves and wanted them to maintain market value.

    Now they just rent labor force per hour rejected any notion of responsibility don’t give a shit what is happening to them whether they are poor or not as long as they are performing. If the don’t they are fired and new capital fodder is hired here or at the end of the world usually for less in real terms. It is capitalism stupid.

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