Ronald Reagan takes a lot of guff, much of it undeserved, for the reordering of priorities that has taken place during his presidency. Actually, the expensive military buildup began late in the Carter Administration. Restraints on spending for social programs would have been necessary no matter who won in 1980 and 1984.
On one level, however, the President is getting too much of a free ride. While he is not personally a cruel or heartless person, his uncritical support of laissez-faire economics and his insensitivity to the real-life concerns of American workers is serving to make greed look respectable.
Recall what’s happening in corporate America, where these days the greatest rewards frequently go to financial manipulators rather than to executives who excel in financing, developing or producing a better product.
For several years now the U.S. economy, though still the biggest and strongest in the world, has been showing unmistakable signs of infirmity. To many people, made-in-America has come to mean inferior quality. The huge deficit in this country’s international trade accounts demonstrates that we are no longer earning our way in the world but are in effect borrowing the money to sustain our standard of living.
Much of the blame is rightfully attributed to the huge deficit in the federal budget and the overvalued dollar. But economists and thoughtful business executives also see a need for more highly motivated workers. And they agree that too many U.S. corporate managers go for short-term profits at the expense of long-term competitiveness, and that too much investment capital is going into things that do nothing to enhance the health of the economy.
It would be wrong to suggest that no progress is being made in these areas. But there is a disturbing amount of activity pointing precisely in the wrong direction.
Let’s stipulate that labor costs in some U.S. industries got out of hand in the 1960s and 1970s, and must now be restrained if the exporting of even more jobs is to be avoided. But common sense tells you that workers will accept such sacrifices with more grace, and less harm to their daily productivity, if they feel that the pain is being shared. That isn’t what’s happening.
U.S. News & World Report, in a survey of executive compensation, reports that of the 100 highest-paid executives in America, over half earned more than $1 million last year in salary and bonuses alone.
To put things into sharper focus, top executives in 1979 made 29 times the income of the average manufacturing worker. Today’s multiple is 40. Chief executives of U.S. corporations typically earn almost five times as much as their Japanese counterparts, who are whipping their socks off in world markets.
However, the most disturbing thing isn’t that corporate leaders are overpaid--this is a question of values--but that so many are being rewarded for doing things that don’t add an ounce of strength to the economy.
Exhibit A is the unfriendly-takeover craze. Executive talent and energy that should be going into job-creating improvement of America’s ability to compete is being squandered on financial manipulation aimed at (1) taking over another company or (2) defending a target company against raiders.
Takeover specialists like to say that they are trying, in the interests of stockholders, to shake up companies with inept or complacent managements. Maybe we should believe in the tooth fairy, too.
Takeover king T. Boone Pickens Jr., president of Mesa Petroleum, didn’t earn $22.8 million last year for his expertise in finding or producing oil or for his ideas on improved efficiency in acquired companies. According to Business Week, he was rewarded for the $700-million profit chalked up by Mesa just from “losing” its bid to take over Gulf Oil.
The real or potential targets of takeover attempts have a whole set of “shark repellents, " few of which are demonstrably in the public interest.
These include competitive bidding up of stock prices to artificially high levels, which appeals to stockholders but doesn’t usually help a company over the long haul, plus selling off some assets and acquiring others to make the target companies unattractive for acquisition.
Then there is the trend toward creation of ESOPs, employee stock-option plans, ostensibly to make takeover bids harder. Under this device, ESOPs are created to buy all or part of a company’s stock with borrowed money. As the money is repaid, the stock is distributed to employees.
ESOPs can be, and frequently are, a legitimate, well-intentioned means of giving workers a stake in the efficient, profit-making operation of a company. But it’s noteworthy that Business Week recently did a cover story entitled, “ESOPs: Revolution or Ripoff?"--and found a number of cases that indeed would qualify as ripoffs.
Some companies use ESOPs as more of a substitute than a supplement to traditional pension systems, in which case the worker loses the protection of a diversified pension portfolio. In most instances corporate managers continue to vote the stock theoretically belonging to the employees, and in some cases award themselves hefty stock options for their trouble.
Questionable takeover tactics and ESOP arrangements are undergoing skeptical scrutiny in Washington. Basically, though, the Administration takes a relaxed attitude toward the takeover craze and other manifestations of greed in high places.
History suggests that, under the American system, anti-social behavior sooner or later brings on a backlash--a swing of the political pendulum in the other direction. But neither the Reagan Administration nor the business community seems bothered, or even aware, of the prospect.
Reagan could, if he wanted, use the enormous moral authority of the presidency to discourage the sorts of abuses that eat at the foundations of a healthy economic and political system. He has not chosen to do so.