The New Deal’s Civilian Conservation Corps and the Works Progress Administration got us back on track
We’re currently working up an entry on a very cool toolbox of historical significance. But before we can get to it, we have to give you this brief history lesson to provide some context. We hope you’ll find it interesting on its own merits.
In 1933 America was doing poorly; the Great Depression meant millions of people were starving and out of work. When Franklin Delano Roosevelt took office in January of 1933, he brought with him a couple of brilliant ways to improve the lives of citizens while boosting the long-term health of the country. Two of the New Deal programs he used to do this were the Civilian Conservation Corps and the Works Progress Administration.
The Civilian Conservation Corps, as the name suggests, was focused on conservation. The CCC took hundreds of thousands, then millions, of young, unemployed men and sent them to camps. (I know that doesn’t sound promising, stick with me here!)
At the camps these men were provided food, shelter, free medical care and a living wage. They were trained in how to build, fix and grow things, and then they were put to work in teams.
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.
By the end of the 20th century, a broad consensus had emerged in the Anglo-American business world that corporations should be governed according to the philosophy often called shareholder primacy. Shareholder primacy theory taught that corporations were owned by their shareholders; that directors and executives should do what the company’s owners/shareholders wanted them to do; and that what shareholders generally wanted managers to do was to maximize “shareholder value,” measured by share price.
Today this consensus is crumbling. As just one example, in the past year no fewer than three prominent New York Times columnists have published articles questioning shareholder value thinking. Shareholder primacy theory is suffering a crisis of confidence. This is happening in large part because it is becoming clear that shareholder value thinking doesn’t seem to work, even for most shareholders.
Consider the example of the United States. The idea that corporations should be managed to maximize shareholder value has led over the past two decades to dramatic shifts in U.S. corporate law and practice. Executive compensation rules, governance practices, and federal securities laws, have all been “reformed” to give shareholders more influence over boards and to make managers more attentive to share price. The results are disappointing at best. Shareholders are suffering their worst investment returns since the Great Depression; the population of publicly-listed companies has declined by 40%; and the life expectancy of Fortune 500 firms has plunged from 75 years in the early 20th century to only 15 years today.
Correlation does not prove causation, of course. But in my book The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public, I explore the logical connections between the rise of shareholder value thinking and subsequent declines in investor returns, numbers of public companies, and corporate life expectancy. I also show that shareholder primacy is an abstract economic theory that lacks support from history, law, or the empirical evidence. In fact, the idea of a single shareholder value is intellectually incoherent. No wonder the shift to shareholder value thinking doesn’t seem to be turning out well — especially for shareholders.
Debunking the Shareholder Value Myth: History
Although many contemporary business experts take shareholder primacy as a given, the rise of shareholder primacy as dominant business philosophy is a relatively recent phenomenon. For most of the twentieth century, large public companies followed a philosophy called managerial capitalism. Boards of directors in managerial companies operated largely as self-selecting and autonomous decision-making bodies, with dispersed shareholders playing a passive role. What’s more, directors viewed themselves not as shareholders’ servants, but as trustees for great institutions that should serve not only shareholders but other corporate stakeholders as well, including customers, creditors, employees, and the community. Equity investors were treated as an important corporate constituency, but not the only constituency that mattered. Nor was share price assumed to be the best proxy for corporate performance.
As part of our ongoing symposium “Experts on Trial”, Professor Sheila Dow argues that if voters have grown contemptuous of economists’ expertise, that’s because economics has been misrepresented as a technical subject separate from politics and moral judgments
“People in this country have had enough of experts.” Thus the response of key ‘Brexit’ campaigner Michael Gove when confronted with the long list of expert bodies, such as the IMF, that were making the economic case for Britain to remain in the EU.
This is a shocking statement, particularly coming from a highly-educated former Minister of Education. As professional economists, we see ourselves as contributing to society precisely through our expertise. Yet, Gove was picking up on a trend in public discourse that gained further momentum during the US presidential election campaign, of disregarding expert opinion. Nor is it a transitory phenomenon. Empirical evidence of the gulf between expert and lay opinion on economic policy in the US has been provided by Sapienza and Zingales (2013), a gulf which was not affected when the lay subjects were made aware of expert opinion.
Out of the discourse on expertise have emerged two sequential characterisations of the zeitgeist: a “post-democratic” era which begat a “post-truth” era.
The “post-democratic” label described the trend for important policy decisions to be made on the basis of expert opinion rather than any democratic process. It refers to institutional arrangements that explicitly put executive power in the hands of experts, such as independent central banks and the European Fiscal Compact (see further Pühringer, forthcoming). The democratic deficit is further compounded by the extent to which policy-making institutions have been captured by vested interests (Morgan 2017). Seen in this light, some of the political developments of 2016 can be seen as attempts to reassert democracy.
But out of that effort has also arisen what is characterised as a “post-truth” era, implying that truth is popularly regarded as irrelevant to shaping the outcome of the democratic process. Assertions which “feel right” but have no basis in fact are accepted as valid on the grounds that they challenge the elite and its vested interests. Of course, this raises the question of what truth is, with a potential conflict between the understanding of experts and the understanding of the individual voter based on experience. Thus, for example,economists may claim that an economy is strong while individual experience is of economic vulnerability and hardship. If economic expertise is to contribute to policy debate, then the scope for different understandings needs to be addressed. But far from implying that any assertion is legitimate, this scope underlines the importance of justification of understanding, by reason and experience.
Reporter Holger Stark spent the past four years as DER SPIEGEL’s Washington correspondent during a time in which the country changed radically enough to elect Donald Trump as its president. What led this once mighty nation into decline?
On a frigid January evening one year ago, I was standing in a line of around 1,000 people in Burlington, Vermont, to see Donald Trump. I reported my very first story on the United States in 1991 and had been living in the country since 2013. I thought I knew the country well. But on that evening in January, I realized that I had been mistaken.
Burlington lay under a blanket of snow and next to me in line stood Mary and Tim Loyer, both wrapped in dark-blue parkas. Mary was unemployed and her son Tim had a job at a bar. Both told me they were Bernie Sanders supporters. Tim said he was particularly bothered by the power held by large companies, that the division of wealth was unfair and that people like him no longer had opportunities to improve their lives. It was the anthem of the working class.
When asked what he found attractive about Trump, Tim said: “Bernie and Trump are the only politicians who say what they’re thinking and do what they say,” as his mother Mary nodded along. Hillary Clinton, by contrast, is corrupt, he said. In an election pitting Trump against Clinton, Tim said he would not vote for Clinton. Again, Mary nodded.
At the entrance, security personnel patted us down and asked if we were planning on voting for Trump. Only those who said yes were allowed to proceed.
When Trump began speaking, a demonstrator stood up and yelled that Trump was a racist. The candidate paused, shook his fist and demanded that security throw the protester out. “Keep his coat. Confiscate his coat,” Trump said from the stage. It was 21 degrees Fahrenheit (-6 degrees Celsius) outside. Trump snarled as his fans jumped to their feet hooting and jeering. One was reminded of a lynch mob.
It’s amazing how Obama was able to dupe the American people into believing that the weakest expansion in the postwar era, was an “economic recovery.” Frankly, it boggles the mind.
Think about it for a minute: Productivity, business investment, personal consumption, inflation and growth have all been either sputtering-along at half speed or at historic lows for the entire period, and yet, President Flimflam has been out taking bows and high-fiving for his stellar performance as premier steward of the world’s biggest economy. It’s ridiculous. The whole storyline is completely fake.
So let’s settle this once and for all. The economic machinations that transpired under Obama cannot be accurately called a ‘recovery’, which is merely the public relations handle he used to conceal what was really going on below the surface.
And what was going on below the surface?
Why structural adjustment of course. The economy was being rejiggered in a way that deliberately kept growth weak (by withholding fiscal stimulus) in order reduce upward pressure on wages that would have pushed inflation higher forcing the Fed to raise rates. That may sound complicated, but it’s actually a very simple and straightforward way to keep inflation at bay.
But why would Obama deliberately want to slow growth merely to keep inflation low?
It’s obvious, isn’t it? Because if inflation began to rise, then the Fed would be forced to raise rates and stop shoveling trillions of dollars to the big Wall Street investment banks which, by the way, happened to be drowning in red ink at the time. In other words, the economy was deliberately strangled in order to save the banks. But then you probably knew that already, didn’t you?
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.
I was halfway through a job interview when I realized I was wrinkling my nose. I couldn’t help myself. A full-time freelance position with a long commute, no benefits, and a quarter of my old pay was the best they could do? I couldn’t hide how I felt about that, and the 25-year-old conducting the interview noticed.
“Are you interested in permanent jobs instead?” she asked.
“I could consider a permanent job if it was part-time,” I said.
She looked at me like I was speaking a foreign language and went right back to her pitch: long commute, full-time, no benefits. No way, I thought. Who would want to do that? And then it hit me: Either I had become a completely privileged jerk or my own country was not as amazing as I had once thought it to be. This wasn’t an unusually bad offer: It was just American Reality.
Now that I’m back, I’m angry that my own country isn’t providing more for its people
Before I moved to Switzerland for almost a decade, American Reality was all I knew. I was living in a two-bedroom apartment making $30,000 a year in a job where I worked almost seven days a week with no overtime pay and received 10 days of paid time off a year.
In other words, for the hours worked, I was making minimum wage, if that. The glamour of this job was supposed to make up for the hours, but in reality, working every weekend is a ticket to burnout — not success.
My husband and I were so accustomed to American Reality that when he was offered an opportunity to work in Switzerland, we both thought about travel and adventure — not about improving our quality of life. It hadn’t occurred to us that we could improve our quality of life simply by moving.
But without realizing it, or even asking for it, a better life quality came to us. And this is why, now that I’m back, I’m angry that my own country isn’t providing more for its people. I will never regret living abroad. It taught me to understand another culture. And it taught me to see my own. But it also taught me something else — to lose touch with the American version of reality.
Here are seven ways living abroad made it hard to return to American life.
1) I had work-life balance
The Swiss work hard, but they have a strong work-life balance. According to data from the Organisation for Economic Co-operation and Development, the average Swiss worker earned the equivalent of $91,574 a year in 2013, while the average American worker earned only $55,708. But the real story is that the average American had to work 219 hours more per year for this lesser salary.
Which brings us to lunch. In Switzerland, you don’t arrive to a meeting late, but you also don’t leave for your lunch break a second past noon. If it’s summer, jumping into the lake to swim with the swans is an acceptable way to spend your lunch hour. If you eat a sandwich at your desk, people will scold you. I learned this the hard way.
“Ugh,” said Tom, a Swiss art director I shared an office with at a Zurich ad agency. “It smells like someone ate their lunch in here.” He threw open the windows and fanned the air.
“They did. I ate a sandwich here,” I said.
Tom looked at me like I was crazy.
“No. Tomorrow you’re having a proper lunch. With me,” he said.
The next day, exactly at noon, we rode the funicular to a restaurant where we dined al fresco above Zurich. After lunch, we strolled down the hill. I felt guilty for being gone for an hour and a half. But no one had missed us at the office.
Lunchtime is sacred time in Switzerland. When I was on maternity leave, my husband came home for lunch to help me care for our daughter. This strengthened our marriage. Many families still reunite during weekdays over the lunch hour.
Weekends in Switzerland encourage leisure time, too. On Sundays, you can’t even shop — most stores are closed. You are semi-required to hike in the Alps with your family. It’s just what you do.
2) I had time and money
The Swiss have a culture of professional part-time work, and as a result, part-time jobs include every benefit of a full-time job, including vacation time and payment into two Swiss pension systems. Salaries for part-time work are set as a percentage of a professional full-time salary because unlike in the United States, part-time jobs are not viewed as necessarily unskilled jobs with their attendant lower pay.
During my Swiss career, I was employed by various companies from 25 percent to 100 percent. When I worked 60 percent, for example, I worked three days a week. A job that is 50 percent could mean the employee works five mornings a week or, as I once did, two and a half days a week. The freedom to choose the amount of work that was right for me at varying points of my life was wonderful and kept me engaged and happy.
When I took only 10 days for a trip to Spain, my colleagues chastised me for taking so little time off
Often, jobs in Switzerland are advertised with the percentage of work that is expected. Other times, you can negotiate what percentage you would like to work or request to go from working five days a week to four days a week, for example. There is normally little risk involved in asking.
Donald Trump said, “I’m going to make our military so big, so powerful, so strong, that nobody — absolutely nobody — is gonna mess with us.”
Simple-minded but deadly thinking at the top derives from influential groups and individuals who think we have to KILL to keep the rest of the world in line. The compliant mainstream media scares us into accepting wars and drone killings overseas, military-style defenses on our own streets, surveillance of our private lives. For the war-happy leadership of America, certain realities are better left unsaid, or at most reported quickly and quietly.
1. Terrorist Acts in the U.S. Were More Common 40 Years Ago
Terrorist acts are deadly, but the panicky reports of mainstream news sources scare us more than they should, as when a FOX reporter called ISIS “the single biggest threat in [America’s] 200-year history.”
This graphic derived from the Rand Corporation’s terrorism database shows that the frequency of terrorist acts was greatest in the 1970s and 1980s. CNN notes that “There were literally hundreds of terrorist bombings, shootings and hijackings in States during the 1970s.”
2. Violent Crime Is Down — Except Where Young Men are Left to Languish and Die
The rate of violent crime has been consistently dropping since 1993. Except in places like Chicago, where nearly half of young black men are neither working nor in school.
The New York Times summarizes the effects of constant media scares: “Americans are primed, when they hear a loud bang or screams, or see a crowd break into a run, to think in terms of mass killings and active shooters. Yet crime statistics show that over all, violence in the United States is as low as it has ever been, and experts say the fear far exceeds the risk.”
The reality of the disposable American has been building up in recent years, and new evidence keeps pouring in. Now the potential exists for greater suffering under the rule of a billionaire Cabinet that is far, far removed from average workers and renters and homeowners.
First the “Upside” — 5% of Us Are Millionaires
Depending on the source, America has anywhere from 7 million to 13.5 million millionaires — about 5% of U.S. adults, and about a 40% increase in just six years. At the other end, 90% of us have gained NOTHING since 1997, and at least half of us NOTHING since 1980.
New Evidence of an Overall Collapse
Recent studies show America at or near the bottom among developed countries in disposable income poverty, income and wealth inequality, safety net provisions, employment, economic mobility, life expectancy, infant mortality, and the well-being of children. We’ve run the table. The better part of America is equivalent to a third-world country.
Neglecting the Most Vulnerable Among Us
We have fallen far as a nation when a half-million of our children under the age of four are taking anxiety drugs, and when the great majority of American families have to spend over 10% of their income just to send their four-year-olds to pre-school. And the “American Dream” for our kids? According to one careful study, they only have about half the chance that they had fifty years ago.
Today just 100 individuals own as much wealth as the entire Black population of America. Even a middle-aged African-American with a graduate degree has only about the same odds of becoming a millionaire as a white person with a high school diploma. The common misperception is that Black youths turn to drugs at a disproportionate rate. Not true. According to the American Journal of Public Health, “drug-use disorders were most prevalent among non-Hispanic Whites, followed by Hispanics, then African Americans.” Yet “racial/ethnic minorities are disproportionately incarcerated, especially for drug crimes.”
Finding a Stable Job is Becoming Impossible for Much of America