Sense

Every so often you read something that resonates with you and are surprised at who wrote it. A year ago I wrote about Lee Iacocca’s words. Today, I read a speech by Leo Hindery and was surprised at how sensible he was. Hindery is not an academic. He is a very successful businessman in the telephone industry - CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. (TCI) and Liberty Media. He now runs his own investment company.

Like any human, he is not without problems, one of which was his association with Daschle that forced Daschle to withdraw as nominee for Health and Human Services Secretary.

Nonetheless, he has some worthwhile things to say about our economic quandary. Hindery lays most of the blame on the shift from advancing the cause of the middle class to advancing the cause of the rich, which was really a change in the sense of responsibility of corporate leaders. Hindery speaks approvingly of Reginald Jones, CEO of GE, who in 1972 said that his job was to work in behalf not only of shareholders but also in behalf of employees, customers, communities and the nation. Hindery writes that Jones then went on to say that a large fully-employed middle class growing from the bottom up would be the very best thing for his company, its shareholders, and the United States.

Jobs are a major concern for him and he’s not talking about any old job. He’s convinced that good-paying jobs are the heart of a good economy. He asserts that if you add in those who are underemployed we are really looking at a much higher unemployment rate, something on the order of 15+%.

He makes the interesting point that in other developed countries consumer spending accounts for less of the economy than in ours. Here, it was 71%. But we are now moving to a lower ratio; this movement has to be considered in any economic planning. And, of course, he laments the size of our trade deficit, the loss of manufacturing jobs and the size of the credit losses.

Hindery does not think the current economic plans are up to the job because they are

• Too small by half;
• Not nearly timely enough in some of its spend-out rates;
• Too focused on small one-time individual tax cuts [$233b]; and, most important,
• Too underperforming against the only measure that really counts, which is job creation.

He thinks we need our own Marshall Plan.

More specifically, he advocates the following:

1. A genuine national industrial & manufacturing policy plus trade policies that put American workers first and are as mercantilist as the policies that exist in the major emerging markets - especially in China, India and Brazil - and in some of the other major developed countries such as Germany.

2. A ten-year (not a two-year) program of significant public investment to upgrade and rebuild our nation's infrastructure, which will immediately create 18,000 new jobs for each $1 billion we spend [source: Univ. of Mass.-Amherst PERI] and help American companies succeed in the global marketplace.

3. Policies that encourage private investments in wind and solar PV energy, together with targeted [i.e., $50b] federal government spending related to:

• Improving energy efficiency in manufacturing facilities,
• Smart grids and smart meters,
• Ready-to-go transportation projects and clean-energy public transit vehicles, and
• Building retrofits.

These initiatives alone would very quickly create 3 million new jobs, including nearly 1 million construction jobs and 800,000 manufacturing jobs.

4. A very strong "Buy American" requirement related to all federal procurement, which now comprises about 19% of our economy, along with policies which encourage the domestic manufacturing of green energy component parts.

5. Major tax incentives for businesses of all size to invest in state-of-the-art laboratories, domestic jobs-focused R&D, and follow-on manufacturing plants and equipment.

6. Programs similar to Roosevelt's Civilian Conservation Corps and later programs like VISTA and CETA, in order to provide employment opportunities for this year's 6.4 million high school and college graduates and the graduates who will follow. To appreciate the magnitude of just this one challenge, the unemployment rate of workers with only high-school diplomas is already 19.6%, not even including the high school classes of 2009.

7. Significant expansion of job training and apprenticeship programs.

8. Public-sector employment initiatives that target urban renewal and, especially, enhanced inner-city K-12 education.

9. Passage of the Employee Free Choice Act so that the 60 million or so workers who would like to join unions can do so without obstacles, since expanding union membership is one of the clearest signposts on the road to growing the middle class from the bottom up and less income inequality.

Beyond these nine points, Hindery urges a restructuring of the financial world as well. He is at a loss to understand why TARP money was given without any charter that loans had to be made. And the stress tests which accept a 25:1 debt-to-net-capital ratio are laughable.

He closes by discussing what he feels are the root causes of the current problems, corporate irresponsibility and excessive executive and management compensation.

For the 35 years following the end of the Second World War, the critical component of making the pursuit of the American Dream fair for all Americans was how honorably government and business behaved and interacted, and for the most part they did pretty well. Now, however, Corporate America often uses the excuse of needing to "stay competitive" in the global economy to justify breaking its social contract with workers.

But the global economy doesn't have to mean more job insecurity, stagnant wages, and little or no health care or pension benefits. And it also doesn't have to mean threatening workers with moving their jobs overseas and slashing their benefits, just because multinational corporations have almost complete mobility of capital and technology and American workers have almost no mobility.

Every day in America, we tolerate the needless offshoring of millions of jobs, when CEOs could instead be demanding immediate tax cuts for manufacturers, tax credits for U.S.-based R&D expenditures, and trade agreements that incorporate anti-subsidy and anti-currency manipulation provisions and strong labor and environmental standards.

Every day in America, we are foreclosed from the benefits that would come from a meaningful carbon cap-and-trade system, because just one member of the 160-member Business Roundtable - Exxon Mobil - opposes this system, despite the fact that nearly every other developed nation in the world is in the process of implementing one.

Every day in America, a handful of insurance companies keep universal health care from the 100 million or so citizens who are either uninsured or chronically underinsured.

In my opinion the reason these things are happening is because also every day in America, the average public company CEO earns about 400 times what his average employee makes, while thousands of other managers in both business and financial services drink heartily from the same frothy trough.

For most of the last century, CEOs in the U.S. earned roughly 20 times as much as the average employee [source: EPI per NY Times, 12-18-05 and 1-01-06], and even today the ratio of CEO pay to that of the average employee has remained around 22-times in Britain, 20-times in Canada, and 11-times in Japan. But in just ten years time or so, we in America abandoned this fair and equitable relationship, both in business and in financial services.

And in the process, we not only shot our own economic foot off, but that of nearly every other economy in the world. For not only is our current extreme disparity in compensation an ethical embarrassment and an affront to workers and shareholders, but it also sadly underpins, in my opinion, almost every major corporate misbehavior of the last decade, especially including this great "financial crisis of 2008". As the infamous bank robber Willie Sutton said when asked why he robbed banks, "It's where the money is."