Category Archives: Naked Capitalism

How Universities Are Increasingly Choosing Capitalism Over Education

Naked Capitalism | February 07 2017

Yves here. Some further observations. First, the author neglects to mention the role of MBAs in the reorientation of higher education institutions. When I went to school, the administrative layer of universities was lean and not all that well paid. Those roles were typically inhabited by alumni who enjoyed the prestige and being able to hang around the campus. But the growth of MBAs has meant they’ve all had to find jobs, and colonizing not-for-profits like universities has helped keep them off the street.

Second, this post focuses on non-elite universities, but the same general pattern is in play, although the specific outcomes are different. Universities with large endowments are increasingly hedge funds with an educational unit attached.

By Henry Heller, a professor of history at the University of Manitoba, Canada and the author of The Capitalist University. Cross posted from Alternet

The following is an excerpt from the new book The Capitalist University: The Transformations of Higher Education in the United States since 1945 by Henry Heller (Pluto Press, December 2016):

The fact that today there are over 4,000 colleges and universities in the United States represents an unparalleled educational, scientific, and cultural endowment. These institutions occupy a central place in American economic and cultural life. Certification from one of them is critical to the career hopes of most young people in the United States. The research produced in these establishments is likewise crucial to the economic and political future of the American state. Institutions of higher learning are of course of varying quality, with only 600 offering master’s degrees and only 260 classified as research institutions. Of these only 87 account for the majority of the 56,000 doctoral degrees granted annually. Moreover, the number of really top-notch institutions based on the quality of their faculty and the size of their endowments is no more than 20 or 30. But still, the existence of thousands of universities and colleges offering humanistic, scientific, and vocational education, to say nothing of religious training, represents a considerable achievement. Moreover, the breakthroughs in research that have taken place during the last two generations in the humanities and social sciences, not to speak of the natural sciences, have been spectacular.

But the future of these institutions is today imperiled. Except for a relatively few well-endowed universities, most are in serious financial difficulty. A notable reason for this has been the decline in public financial support for higher education since the 1980s, a decline due to a crisis in federal and state finances but also to the triumph of right-wing politics based on continuing austerity toward public institutions. The response of most colleges and universities has been to dramatically increase tuition fees, forcing students to take on heavy debt and putting into question access to higher education for young people from low- and middle-income families. This situation casts a shadow on the implicit post-war contract between families and the state which promised upward mobility for their children based on higher education. This impasse is but part of the general predicament of the majority of the American population, which has seen its income fall and its employment opportunities shrink since the Reagan era. These problems have intensified since the financial collapse of 2008 and the onset of depression or the start of a generalized capitalist crisis.

Mounting student debt and fading job prospects are reflected in stagnating enrollments in higher education, intensifying the financial difficulties of universities and indeed exacerbating the overall economic malaise.[1] The growing cost of universities has led recently to the emergence of Massive Online Open Courses whose upfront costs to students are nil, which further puts into doubt the future of traditional colleges and universities. These so-called MOOCs, delivered via the internet, hold out the possibility, or embody the threat, of doing away with much of the expensive labor and fixed capital costs embodied in existing university campuses. Clearly the future of higher education hangs in the balance with important implications for both American politics and economic life.

The deteriorating situation of the universities has its own internal logic as well. In response to the decline in funding, but also to the prevalence of neoliberal ideology, universities—or rather the presidents, administrators, and boards of trustees who control them—are increasingly moving away from their ostensible mission of serving the public good to that of becoming as far as possible like private enterprises. In doing so, most of the teachers in these universities are being reduced to the status of wage labor, and indeed precarious wage labor. The wages of the non-tenured faculty who now constitute the majority of teachers in higher education are low, they have no job security and receive few benefits. Although salaried and historically enjoying a certain autonomy, tenured faculty are losing the vestiges of their independence as well. Similarly, the influence of students in university affairs—a result of concessions made by administrators during the upheavals of the 1960s and 1970s—has effectively been neutered. These changes reflect a decisive shift of power toward university managers whose numbers and remuneration have expanded prodigiously. The objective of these bureaucrats is to transform universities as much as possible to approximate private and profit-making corporations, regarded as models of efficient organization based on the discipline of the market. Indeed, scores of universities, Phoenix University for example, have been created explicitly as for-profit businesses and currently enroll millions of students.

Continue reading How Universities Are Increasingly Choosing Capitalism Over Education

Why the “Maximize Shareholder Value” Theory Is Bogus

Naked Capitalism | February 03 2017

From the early days of this website, we’ve written from time to time about why the “shareholder value” theory of corporate governance was made up by economists and has no legal foundation. It has also proven to be destructive in practice, save for CEO and compensation consultants who have gotten rich from it.

Further confirmation comes from a must-read article in American Prospect by Steven Pearlstein, When Shareholder Capitalism Came to Town. It recounts how until the early 1990s, corporations had a much broader set of concerns, most importantly, taking care of customers, as well as having a sense of responsibility for their employees and the communities in which they operated. Equity is a residual economic claim. As we wrote in 2013:

Directors and officers, broadly speaking, have a duty of care and duty of loyalty to the corporation. From that flow more specific obligations under Federal and state law. But notice: those responsibilities are to the corporation, not to shareholders in particular…..Equity holders are at the bottom of the obligation chain. Directors do not have a legal foundation for given them preference over other parties that legitimately have stronger economic interests in the company than shareholders do.

And even in the early 1980s, common shares were regarded as a speculative instrument. And rightly so, since shares are a weak and ambiguous legal promise: “You have a vote that we the company can dilute whenever we feel like it. And we might pay you dividends if we make enough money and are in the mood.”

However, 1900s raiders who got rich by targeting companies that had gotten fat, defended their storming of the corporate barricades by arguing that their success rested on giving CEOs incentives to operate in a more entrepreneurial manner. In reality, most of the 1980s deals depended on financial engineering rather than operating improvements. Ironically, it was a form of arbitrage that reversed an earlier arb play in the 1960s. Diversified corporations had become popular in the 1960s as a borderline stock market scam. Companies like Teledyne and ITT, that looked like high-fliers and commanded lofty PE multiples, would buy sleepy unrelated businesses with their highly-valued stock. Bizzarely, the stock market would value the earnings of the companies they acquired at the same elevated PE multiples. You can see how easy it would be to build an empire that way.

The 1970s stagflation hit these companies particularly hard, with the result that the whole was worth less than the sum of the parts. This made for an easy formula for takeover artists: buy a conglomerate with as much debt as possible, break it up and sell off the pieces.

But CEOs recognized how the newly-installed leaders of LBO acquisitions got rich through stock awards or option-type compensation. They wanted a piece of the action.

Continue reading Why the “Maximize Shareholder Value” Theory Is Bogus

“The End of Employees”

Naked Capitalism | February 03 2017 

The Wall Street Journal has an important new story, The End of Employees, on how the big company love of outsourcing means that traditional employment has declined and is expected to fall further.

Some key sections of the article:

Never before have American companies tried so hard to employ so few people. The outsourcing wave that moved apparel-making jobs to China and call-center operations to India is now just as likely to happen inside companies across the U.S. and in almost every industry.

The men and women who unload shipping containers at Wal-Mart Stores Inc. warehouses are provided by trucking company Schneider National Inc.’s logistics operation, which in turn subcontracts with temporary-staffing agencies. Pfizer Inc. used contractors to perform the majority of its clinical drug trials last year….

The shift is radically altering what it means to be a company and a worker. More flexibility for companies to shrink the size of their employee base, pay and benefits means less job security for workers. Rising from the mailroom to a corner office is harder now that outsourced jobs are no longer part of the workforce from which star performers are promoted…

For workers, the changes often lead to lower pay and make it surprisingly hard to answer the simple question “Where do you work?” Some economists say the parallel workforce created by the rise of contracting is helping to fuel income inequality between people who do the same jobs.

No one knows how many Americans work as contractors, because they don’t fit neatly into the job categories tracked by government agencies. Rough estimates by economists range from 3% to 14% of the nation’s workforce, or as many as 20 million people.

As you can see, the story projects this as an unstoppable trend. The article is mainly full of success stories, which naturally is what companies would want to talk about. The alleged benefits are two-fold: that specialist contractors can do a better job of managing non-core activities because they are specialists and have higher skills and that using outside help keeps companies lean and allows them to be more “agile”.

The idea that companies who use contractors are more flexible is largely a myth. The difficulty of entering into outsourcing relationships gives you an idea of how complex they are. While some services, like cleaning, are likely to be fairly simple to hand off, the larger ones are not. For instance, for IT outsourcing, a major corporation will need to hire a specialist consultant to help define the requirements for the request for proposal and write the document that will be the basis for bidding and negotiation. That takes about six months. The process of getting initial responses, vetting the possible providers in depth, getting to a short list of 2-3 finalists, negotiating finer points with them to see who has the best all-in offer, and then negotiating the final agreement typically takes a year. Oh, and the lawyers often fight with the consultant as to what counts in the deal.

Continue reading “The End of Employees”

Bill Black: Not 4 Sale – Why the Corrupt, Worker-Hating New Democrats Must Be Purged

Naked Capitalism | January 26 2017

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published with New Economic Perspectives

This article explains three critical reasons why the Democratic Party’s leaders are far more insane than all but a few Democrats understand. It focuses on the leaders of the Democratic National Committee (DNC) and the New Democrats. The DNC leadership is composed of New Democrats. Debbie Wasserman Schultz had to resign in disgrace when the leaks proved that she was putting the DNC’s thumbs on the scale to favor Hillary Clinton (a New Democrat) in the presidential nomination contest against Bernie Sanders. Wasserman Schultz also took large contributions from big finance and, until she faced the prospect of a serious primary challenger, she supported efforts by predatory lenders to use Congress to bar the regulators from stopping their abuses.

Donna Brazile, a New Democrat, now runs the DNC. In this article, I show that Brazile denounced Democrats who refused to cheer President Bush’s invasion of Iraq (and his “Mission Accomplished” declaration) as so disloyal that when their country needed them they went “AWOL.” Not satisfied with that libel, she added the homophobic smear that voters would view Democrats who failed to cheer Bush’s lies and invasion as “effete.” Best of all, she said that Democrats should take as their role models Paul Wolfowitz, Richard Perle, and Frank Gaffney – Bush’s “chicken hawks” that devised the campaign of lies that led to the disastrous invasion of Iraq. Gaffney is now spreading hate of Muslims – and advising President Trump.

Continue reading Bill Black: Not 4 Sale – Why the Corrupt, Worker-Hating New Democrats Must Be Purged

Blackstone’s Tony James Touting What Looks Like Hillary’s Scheme to Gut Social Security

Yves Smith | October 19 2016 | Naked Capitalism

Readers may recall that Bill Clinton planned to privatize Social Security in the second term of his Presidency. The Monica Lewinsky scandal derailed his plan.

As the Clintons knew, only a Democrat can dismantle Social Security. Hillary looks to be picking up where Bill left off. As David Sirota describes in a must-read story, Hillary is planning to introduce mandatory retirement accounts, a scheme that Hillary has mentioned in high concept form earlier. As details emerge, this “enrich Wall Street at the expense of everyone else” program is even more attractive to pet Democratic party constituencies than the 1.0 version of going after Social Security directly. No one in the Clinton or George W. Bush administration was so audacious as to cut in private equity and hedge funds in the way this variant would.

But Hillary, and her major advisor on the plan who is also on her short list of Treasury Secretary candidates, Blackstone CEO Tony James, are too adept to label these required savings accounts as a stealth replacement for Social Security.The plan, as described in Sirota’s article parallels the way the contributions are made now to Social Security, with both employers and employees required to put aside a percentage of payroll…but not in the form of Social Security taxes, but in individual retirement accounts that in turn are put in “pooled plans run by professional managers”.

If you look at James’ speech, what he is proposing sounds innocuous, a supposed additional 3% of worker savings. But that is a nearly 25% increase over what workers are paying into Social Security now. Moreover, most experts agree that to the extent that Social Security needs fixing (30 forecasts are fraught), some not very onerous tweaks would do the trick. First and foremost would be to eliminate the payroll tax ceiling.

Continue reading Blackstone’s Tony James Touting What Looks Like Hillary’s Scheme to Gut Social Security

Don’t Celebrate Just Yet: Median Household Income In a 20-Year Decline

Naked Capitalism | September 18 2016

Lambert here: Campaign-driven happy talk about the US Census income figures has been debunked remarkably fast. Here Richard D. Wolff does a thorough demolition.

Richard D. Wolff is a Professor of Economics Emeritus at the University of Massachusetts, Amherst, and currently a Visiting Professor of the Graduate Program in International Affairs at the New School University in New York. He is the author of many books, including Democracy at Work: A Cure or Capitalism, and Imagine: Living in a Socialist USA. Originally published at The Real News Network.

DHARNA NOOR, TRNN: Welcome to the Real News Network. I’m Dharna Noor.

New statistics from the U.S. Census Bureau has raised hopes that the economy is finally recovering from the 2008 crash. The figures released on Tuesday show that the US median household income has gone up by 5.2% between 2014 and 2015, putting it at $56,516. They also showed a 1.2% decrease in the official poverty rate. These figures are being hailed as a victory for the American middle class but are average Americans really benefiting?

Joining us from New York City to discuss this is Richard D. Wolff. Richard is a Professor of Economics Emeritus at the University of Massachusetts Amherst and currently a visiting professor of the graduate program in international affairs at the New School University in New York. His latest book is Capitalism’s Crisis Deepens. Thanks for joining us today, Rick.

RICHARD WOLFF: Thank you for inviting me.

NOOR: Now Rick, some commentators like the New York Times’ Neil Irwin are saying that these new figures mark the first time in years that the U.S. economic expansion has helped the middle class rather than just the super-rich, and you, too, have pointed out in recent years that economic growth has really only been benefiting the 1%. Does this new Census Bureau report mark a shift away from that trend?

WOLFF: Absolutely not. Let’s remember, in order to understand what happens, say, to the middle class, or to any large group of people, your span of attention has to be more than one year. Things bounce around in a capitalistic economy because of its instabilities, because of the contradictions that are besetting it always. So a few months, a year or two, never explain anything. You have to have a longer vision.

Continue reading Don’t Celebrate Just Yet: Median Household Income In a 20-Year Decline

Is Toothpaste Dangerous to Your Health?

Larry Schwartz | August 27 2016 | Naked Capitalism (cross posted from Alternet)

Jerri-Lynn here. This article summarizes the sad state of affairs of Food and Drug Administration (FDA) regulation of personal care products, with companies allowed to practice self-regulation. The article also embeds a link to a New York Times article describing legislation that would give the FDA authority to initiate recalls of such products and describes the lobbying muscle, both pro and anti, that has lined up around this initiative (click on current problems below to access that article).

Note that the current status quo, under which Canada, Europe, and Japan follow the “precautionary principle” and don’t authorize the use of chemicals until it is determined they are safe, would be threatened if the Obama administration gets its way and secures passage of trade agreements that incorporate Investor-State Dispute Settlement (ISDS) mechanisms.

Moreover, such ISDS provisions, if enacted, would also allow potential challenges to current US regulations, and also potential future regulations, if major political change occurred and US regulators sought actively to increase the level of US health and safety or other regulatory protections.

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By Larry Schwartz, a Brooklyn-based freelance writer with a focus on health, science and American history. Cross posted from Alternet.

The average American will use 20 gallons of toothpaste in their lifetime, and a new study by the Cornucopia Institute, a non-profit organization that studies ecological best practices, makes clear we should all be concerned about exposure to toxic ingredients found in toothpastes. Chemicals in toothpaste are readily absorbed through the membrane that lines the mouth (oral mucosa), meaning that, regardless of whether you swallow toothpaste or not, you are exposing yourself to some level of absorption. Children, who we know often do swallow toothpaste, are even more at risk.

When we use personal care products, we make the assumption that what we have purchased is safe and won’t harm us. We might be assuming wrong. Look no further than the current problems faced by some users of Wen hair products. Unlike pharmaceuticals, which are regulated closely by the Food and Drug Administration, the cosmetic industry, which includes personal care products like shampoos, hair care and toothpaste, is free from scrutiny from the FDA. The regulatory agency has no power of review or recall over products, nor are industry products required to even list all of their ingredients. Instead, the $71 billion industry regulates itself. And that always works out great!

Continue reading Is Toothpaste Dangerous to Your Health?

Contradictions at the Kitchen Table: Sanders, Obama, and Clinton at the Democratic National Convention

Lambert Strether | July 29 2016 | Naked Capitalism

The “kitchen table” is a hoary political metaphor (“kitchen table issues”); it summons up a family, sitting round the kitchen table, looking at the wages that are coming in, and looking at the bills going out. In the days of pay envelopes, when everything was done on a cash basis, the wages might actually be distributed into envelopes, as my father did: So much for the mortgage, so much for the electric, so much for food, so much on that doctor’s bill, and maybe a little left over, for extra, to put in a coffee can in the middle of the table or on the sill of the kitchen window. Of course, with today’s fragmented and precarious work schedules, increased apartment dwelling, and the tendency of working people, especially poor people, to eat out because that saves time, the real life “kitchen table” hardly exists anymore. The kitchen table as an idea — the central household space where the working class family takes the exact measure of its material conditions — is as central as it has ever been. The kitchen table is also central to across all identities. Women, people of color, immigrants, GLBTQs, the religious: all, insofar as they are wage workers, have kitchen table issues, since they must all consider their material conditions as a prerequisite for anything else they might wish to do (“life, liberty, pursuit of happiness…”).

Given the centrality of the kitchen table issues[1] to the overwhelming majority of the American people, who are, after all, wage workers, one might assume that they would assume great prominence in the political life of the Republic. Oddly, or not (Givens and Page provide a clue why not) they do not. Perhaps it’s a difficult subject to have a “conversation” about. After all, the working class family can, with luck, control the expense side of the household balance sheet, but the income side of the balance sheet is not under their control at all; capital controls it. (Yes, it might be possible to risk leaving the $10.00 an hour job[1] to find one paying $12.00, but the $12.00 as such is no more under the individual worker’s control than the $10.00 was.) And so taking kitchen table issues seriously would require addressing power imbalances between capital, as such, and labor[3], as such, because the household balance sheet — the concrete material conditions discussed at the kitchen table — is the result of that balance. However, our political class seems incapable of taking anything seriously just now. As a superficial look the Presidential-level speeches at the Democrat National Convention will show!

Continue reading Contradictions at the Kitchen Table: Sanders, Obama, and Clinton at the Democratic National Convention

Growth of Income Inequality Is Worse Under Obama than Bush

Matt Stoller | April 11 2012 | Naked Capitalism

Yesterday, the President gave a speech in which he demanded that Congress raise taxes on millionaires, as a way to somewhat recalibrate the nation’s wealth distribution.  His advisors, like Gene Sperling, are giving speeches talking about the need for manufacturing.  A common question in DC is whether this populist pose will help him win the election.  Perhaps it will.  Perhaps not.  Romney is a weak candidate, cartoonishly wealthy and from what I’ve seen, pretty inept.  But on policy, there’s a more interesting question.

A better puzzle to wrestle with is why President Obama is able to continue to speak as if his administration has not presided over a significant expansion of income redistribution upward.  The data on inequality shows that his policies are not incrementally better than those of his predecessor, or that we’re making progress too slowly, as liberal Democrats like to argue.  It doesn’t even show that the outcome is the same as Bush’s.  No, look at this table, from Emmanuel Saez (h/t Ian Welsh).  Check out those two red circles I added.

income-growth

Yup, under Bush, the 1% captured a disproportionate share of the income gains from the Bush boom of 2002-2007.  They got 65 cents of every dollar created in that boom, up 20 cents from when Clinton was President.  Under Obama, the 1% got 93 cents of every dollar created in that boom.  That’s not only more than under Bush, up 28 cents.  In the transition from Bush to Obama, inequality got worse, faster, than under the transition from Clinton to Bush.  Obama accelerated the growth of inequality.

Continue reading Growth of Income Inequality Is Worse Under Obama than Bush

How the “Maximize Shareholder Value” Myth Weakens Companies and Economic Systems

Naked Capitalism | May 22 2016

Yves here. We’ve written from time to time that the notion that companies exist to maximize shareholder value was made up by Milton Friedman in 1970 in an intellectually incoherent New York Times op ed. It started to get traction in the 1980s as the leveraged buyout boom made people like Henry Kravis extremely rich and those who wanted in on the act were in need of intellectual air cover.

One minor quibble with this piece: Lynn Stout makes it sound as if the new “maximize shareholder value” has become a duty. If you read any guide for board members, you won’t see it listed among the things they have to worry about. It is more accurate to say that it has become so widely accepted from the standpoint of business practice that CEOs have succeeded in institutionalizing it. It’s considered to be good practice to have share-price linked pay schemes even the author of the theory that executives should be paid like entrepreneurs, Harvard Business School’s Michael Jensen, has repudiated his earlier work. Similarly, compliant compensation consultants and boards regularly find ways to justify paying CEOs for non-performance (making excuses for moving the goalposts) and overpaying for what performance there arguably was (when high CEO pay is negatively correlated with performance). In other words, the “maximize shareholder value” regime has served as an excuse for greatly increasing the level of executive pay relative to average worker compensation, often with destructive results.

An interview by David Sloan Wilson, SUNY Distinguished Professor of Biology and Anthropology at Binghamton University and Arne Næss Chair in Global Justice and the Environment at the University of Oslo. Twitter: @David_S_Wilson. Originally published at Evonomics

A bedrock assumption of economics is that firms become well adapted by competing against each other. If so, then consider a study that I reported upon earlier, which monitored the survival of 136 firms starting from the time they initiated their public offering on the US Stock Market. Five years later, the survivors—by a wide margin—were the firms that did best by their employees.

If only the fittest firms survive, then doing well by employees would have become the prevailing business practice a long time ago. That hasn’t happened, so something is wrong with the simple idea that best business practices evolve by between-firm selection. That “something” is multilevel selection, which is well known to evolutionary biologists and needs to become better known among economists and the business community.

Multilevel selection theory is based on the fact that competition can take place at all levels of a multi-tier hierarchy of units—not only among firms, but also among individuals and subunits within firms. The practices that evolve (culturally in addition to genetically) by lower-level selection are often cancerous for the welfare of the higher-level unit. By the same token, if selection did operate exclusively at the level of firms, then the outcome would often be cancerous for the multi-firm economy. When it comes to the cancerous effects of lower-level selection, there is no invisible hand to save the day.

The kind of firm selection imagined by economists, along with the invisible hand assumption that lower-level selection is robustly beneficial for the higher-level common good, would be called “naïve group selectionism” by evolutionary biologists. Its biological counterpart was roundly criticized during the 1960’s and has had a half century to mature. Modern multilevel selection theory is not naïve and has much to teach the economics profession and business community.

Continue reading How the “Maximize Shareholder Value” Myth Weakens Companies and Economic Systems