Not all that long ago, America's prominent business and government leaders widely believed that our nation's prosperity depended on a strong middle class growing from the bottom up. Workers were rewarded for their hard work with fair wages, benefits and advancement opportunities -- and our economy and our national security were much stronger for it.
Henry Ford certainly knew this, and often said that his company would prosper only if his workers earned enough to buy the Fords they produced. And in 1953, when General Motors' president told the Senate that "what was good for the country was good for General Motors and vice versa," he was simply stating the then-commonly held belief that success for American corporations generally meant success for America and American workers.
FOR THE RECORD:
Middle class: An Op-Ed article Sept. 1 said the "top 1% of Americans —300,000 -- earn as much as the bottom 150 million combined." It is the top 0.1%.
However, over the last 25 years -- especially over the last decade -- what is good for America and what is good for much of corporate America have gotten way out of sync. Our current business culture too often emphasizes only short-term corporate profits and shareholder returns -- however and wherever they are generated -- and in the process, what is good for America is being pushed aside.
This disconnect between the national interest and corporate responsibility and interests has helped shatter the "contract with the middle class." And in the most painful measure of just how broken this contract is, based on data from 2005-2006, the top 1% of Americans -- 300,000 -- earn as much as the bottom 150 million combined. Income inequality is the greatest it has been since 1928, and for every three-year period since 1981, the top 1% of taxpayers have gained, on average, $100 billion in total earnings, while the bottom 80% have lost $100 billion.
Corporate America frequently justifies its actions, however harmful those actions may be to workers and to the local and national economies, as necessary to remain competitive globally. But globalization doesn't have to mean more job insecurity, stagnant wages for workers and little or no healthcare coverage for 75 million people. It doesn't have to mean threats to move jobs overseas and slashed benefits just because multinational corporations have almost complete mobility of capital and technology and American workers have almost none. It doesn't have to mean excessive executive compensation and preferential corporate and personal taxes. And it doesn't have to mean unfair trade practices of the sort that are contributing greatly to the extreme income inequality.
Our overseas trading partners have generally gone in a completely different direction. These countries have instead instituted economic policies to hold on to and improve the quality of their existing jobs and to induce foreign corporations to shift production facilities and technology their way. This is particularly the case throughout Asia. In China, for example, 60% of its exports come from "foreign-invested companies."
It is imperative -- way past time, in fact -- for America to be as mercantilist as are our trading partners. We must forcefully counter the illegal subsidies, the manipulated currency exchange rates and the unfair labor and environmental practices that some of them are employing to strike at our economy. Domestically, we must stop encouraging the offshoring of millions of American jobs through misguided corporate tax practices. Indeed, what other country would give tax breaks to companies shipping high-quality domestic jobs overseas and hoarding their foreign profits?
At the same time, we need to get "back to the future," where success for American corporations again means success for American workers, and where corporations are again managed with concurrent and equal responsibility to shareholders, workers and the public.
We must reform corporations from the inside by strengthening the voices of workers and shareholders. And we must reform them from the outside by limiting excessive executive compensation and by increasing transparency and accountability.
The next president and Congress need to put forward and advance a new "corporate responsibility contract" based on five reforms that will help reestablish the contract with middle-class America.
We need to modernize labor laws to give workers more of a voice. To help the 60 million workers who research says would join a union if they could, Congress must pass the proposed Employee Free Choice Act to let workers organize when a majority of them sign union cards. This legislation needs to apply to part-time and contract workers as well, and there must be quicker and tougher penalties for breaking labor laws.
We need to strengthen shareholders' rights, including the right to render advisory votes on executive compensation, to call shareholders' meetings, to recall a limited number of directors and to gain proxy access to candidate slates for boards of directors.
We need to ensure that pension promises are kept and make it much tougher to dissolve collective-bargaining agreements and raid pension plans. And retirees who have lost health and pension benefits should be reimbursed with proceeds from any future asset sales.
We need to limit excessive executive compensation. Executives should not be paid more than a reasonable multiple of average employee compensation, and, along with hedge fund and private equity managers, they should be fully taxed on their earnings at the same income tax rates that apply to their workers. Congress must also close the tax loopholes that allow executives to shelter massive amounts of earnings using both accounts overseas and tax-free deferred compensation plans here at home.
Finally, we need to create public accountability through greater transparency. Congress needs to enact a new corporate disclosure law requiring all major businesses to disclose, in annual reports to shareholders and regulators, easily understandable information regarding stock options, deferred compensation, pensions and personal benefits as well as information regarding their lobbying activities, political contributions, government contracts and subsidies, major environmental impacts and foreign supply-chain conditions.
Everyone needs to pitch in to help right the economic ship, not least of which are America's corporations. Only then will a vibrant middle class growing from the bottom up again be our economic beacon and our example to the world.
Leo Hindery Jr. is currently managing partner of a New York-based media industry private equity fund. He chairs the Smart Globalization Initiative at the New America Foundation and is an unofficial economic advisor to Democratic presidential nominee Barack Obama.