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Free Enterprise on Trial
Mitt Romney is casting the 2012 campaign as “free enterprise on trial” – defining free enterprise as achieving success through “hard work and risking-taking.” Tea-Party favorite Senator Jim DeMint of South Carolina says he’s supporting Romney because “we really need someone who understands how risk, taking risk … is the way we create jobs, create choices, expand freedom.” Chamber of Commerce President Tom Donahue, defending Romney, explains “this economy is about risk. If you don’t take risk, you can’t have success.”
Wait a minute. Who do they think are bearing the risks? Their blather about free enterprise risk-taking has it upside down. The higher you go in the economy, the easier it is to make money without taking any personal financial risk at all. The lower you go, the bigger the risks.
Wall Street has become the center of riskless free enterprise. Bankers risk other peoples’ money. If deals turn bad, they collect their fees in any event. The entire hedge-fund industry is designed to hedge bets so big investors can make money whether the price of assets they bet on rises or falls. And if the worst happens, the biggest bankers and investors now know they’ll be bailed out by taxpayers because they’re too big to fail.
But the worst examples of riskless free enteprise are the CEOs who rake in millions after they screw up royally.
Near the end of 2007, Charles Prince resigned as CEO of Citgroup after announcing the bank would need an additional $8 billion to $11 billion in write-downs related to sub-prime mortgages gone bad. Prince left with a princely $30 million in pension, stock awards, and stock options, along with an office, car, and a driver for five years.
Stanley O’Neal’s five-year tenure as CEO of Merrill Lynch ended about the same time, when it became clear Merrill would have to take tens of billions in write-downs on bad sub-prime mortgages and be bought up at a fire-sale price by Bank of America. O’Neal got a payout worth $162 million.
Philip Purcell, who left Morgan Stanley in 2005 after a shareholder revolt against him, took away $43.9 million plus $250,000 a year for life.
Pay-for-failure extends far beyond Wall Street. In a study released last week, GMI, a well-regarded research firm that monitors executive pay, analyzed the largest severance packages received by ex-CEOs since 2000.
On the list: Thomas E. Freston, who lasted just nine months as CEO of Viacom before being terminated, and left with a walk-away package of $101 million.
Also William D. McGuire, who in 2006 was forced to resign as CEO of UnitedHealth over a stock-options scandal, and for his troubles got pay package worth $286 million.
And Hank A. McKinnell, Jr.’s, whose five-year tenure as CEO of Pfizer was marked by a $140 billion drop in Pfizer’s stock market value. Notwithstanding, McKinnell walked away with a payout of nearly $200 million, free lifetime medical coverage, and an annual pension of $6.5 million. (At Pfizer’s 2006 annual meeting a plane flew overhead towing a banner reading “Give it back, Hank!”)
Not to forget Douglas Ivester of Coca Cola, who stepped down as CEO in 2000 after a period of stagnant growth and declining earnings, with an exit package worth $120 million.
If anything, pay for failure is on the rise. Last September, Leo Apotheker was shown the door at Hewlett-Packard, with an exit package worth $13 million. Stephen Hilbert left Conseco with an estimated $72 million even though value of Conseco’s stock during his tenure sank from $57 to $5 a share on its way to bankruptcy.
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But as economic risk-taking has declined at the top, it’s been increasing at the middle and below. More than 20 percent of the American workforce is now “contingent” – temporary workers, contractors, independent consultants – with no security at all.
Even full-time workers who have put in decades with a company can now find themselves without a job overnight – with no parachute, no help finding another job, and no health insurance.
Meanwhile the proportion of large and medium-sized companies (200 or more workers) offering full health care coverage continues to drop – from 74 percent in 1980 to under 10 percent today. Twenty-five years ago, two-thirds of large and medium-sized employers also provided health insurance to their retirees. Now, fewer than 15 percent do.
The risk of getting old with no pension is also rising. In 1980, more than 80 percent of large and medium-sized firms gave their workers “defined-benefit” pensions that guaranteed a fixed amount of money every month after they retired. Now it’s down to under 10 percent. Instead, they offer “defined contribution” plans where the risk is on the workers. When the stock market tanks, as it did in 2008, the 401(k) plan tanks along with it. Today, a third of all workers with defined-benefit plans contribute nothing, which means their employers don’t either.
And the risk of losing earnings continues to grow. Even before the crash of 2008, the Panel Study of Income Dynamics at University of Michigan found that over any given two-year stretch about half of all families experienced some decline in income. And the downturns were becoming progressively larger. In the 1970s, the typical drop was about 25 percent. By late 1990s, it was 40 percent. By the mid-2000s, family incomes rose and fell twice as much as they did in the mid-1970s, on average.
What Romney and the cheerleaders of risk-taking free enterprise don’t want you to know is the risks of the economy have been shifting steadily away from CEOs and Wall Street – and on to average working people. It’s not just income and wealth that are surging to the top. Economic security is moving there as well, leaving the rest of us stranded.
To the extent free enterprise is on trial, the real question is whether the system is rigged in favor of those at the top who get rewarded no matter how badly they screw up, while the rest of us get screwed no matter how hard we work.
The jury will report back Election Day. In the meantime, Obama and the Democrats shouldn’t allow Romney and the Republicans to act as defenders of risk-taking free enterprise. Americans need to know the truth. The only way the economy can thrive is if we have more risk-taking at the top, and more economic security below.
Robert Reich, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, Aftershock: The Next Economy and America’s Future; The Work of Nations; Locked in the Cabinet; Supercapitalism; and his newest, an e-book, Beyond Outrage. His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org.
62 Comments so far
Show All"The jury will report back Election Day." (!)
The article was fine, until the last paragraph. But of course, that was exactly what it was building towards.
Robert, everyone with an eye to see knows by now that "Obama and the Democrats" are a wholly owned subsidiary of Wall St.
Please cut the pretense.
Yes, despite their well timed populist platitudes, Obama and Congressional Democrats have a legacy of actively enabling the transfer of wealth from the 99% to the 1% and shifting risk from the 1% to the 99%.
Can you say: heads the 1% wins, tails the 99% looses?
nice descrpt of duopolistic coin of us pol party circus
I was with you until the last paragraph, Robert but really, is it just a matter of the Republicans vs Democrats and all will be fixed if the people vote the Dems back in? Are you saying that the Democrats should act as the defenders of risk-taking free enterprise, the same 'risk-taking free enterprise' you so cogently showed doesn't exist?
". . . Obama and the Democrats shouldn’t allow Romney and the Republicans to act as defenders of risk-taking free enterprise. Americans need to know the truth. The only way the economy can thrive is if we have more risk-taking at the top, and more economic security below."
To me this is confusing! Free enterprise is not on trial. Free enterprise is best defined as locally owned private businesses, that also have a stake in their communities, their employees, and their local environment..
The trouble begins when local business are gobbled up by big corporations to further expand their monopolistic power. This is a big difference. The corporate system is devoted only to the bottom line, it is a rigged system for stockholders and top executives. and it all works against the common good.
America is very confused about this.
The kind of "free enterprise" as Mr. Riley defines it has not existed for a great many years, if it ever really existed.
There is, and has always been a tendency in capitalism towards an ever greater concentration of capital, wealth and power. Smaller companies cannot compete against the larger, stronger business corporations, who can easily undersell them until they fail, eventually either putting them out of business, or buying them up and absorbing them into their own corporate structure.
Over time, power and wealth becomes increasingly more concentrated into fewer and fewer hands. It is one of the iron laws of capitalism, and it is for that reason that capitalism is long overdue for a trial. Not just vulture capitalism, or crony capitalism, or monopoly capitalism, but the generic idea of capitalism itself deserves closer scrutiny, because it seems that even the capitalism that begins "with locally owned private businesses, that also have a stake in their communities, their employees, and their local environment" inevitably devolve into the other, less socially desirable forms.
The big corporations can "undersell" small businesses not because they are more efficient, but because the big corporations own enough politicians to craft the rules of the game to favor corporations and penalize small business.
The private US medical insurance system is one of the most egregious manifestations of corporations buying legislation that works against small businesses. Obamacare further entrenches the insurance and pharma cartels that make it difficult for small businesses to compete with small businesses in other nations that have progressive medical insurance systems and to compete with big corporations that can self insure.
Yes absolutely...the insurance companies are in for a wind-fall! One other point though...we heard ad nauseam that the reason why unemployment is high and companies don't want to spend from their record profits is because of uncertainty of various kinds. Uncertity related to 'regulation', to funding for health care and on and on. But don't uncertainty and risk go hand in hand? By that logic therefore should those people who say we thrive on risk be....welll thriving, employing and hiring? What did I miss?
Another wind fall may be mining, however, remember that hard work and risk taking are equivalent to state sanctioned predatory theft from the workers and nature for the sole purpose of accumulation of profits/wealth that gets recapitalized through compound interest and usury fees to same workers in ever evolving cycle. Are we having fun yet?
"In the meantime, Obama and the Democrats shouldn’t allow Romney and the Republicans to act as defenders of risk-taking free enterprise. Americans need to know the truth."
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And the Truth is that Obama (who received more contributions from Wall street than any other poliotical candidate in history ... and for the 2012 election cycle has raised more money from the Street and Big Business than all the Repub candidates combined ) ... The Truth is that O and the 'Cratz are part of the problem .. not part of the solution.
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Conspicuously absent from Rubin's list of CEOs who got compensated with luxurious golden parachutes for driving their companies into the ground were his fellow Clinton Secretary Robert Rubin ... and Obama wall street fundraiser, "great friend", and Democrat Senator Jon Corzine.
Not to mention Billy Tauzin who left his Congressional seat (the day after he pushed through the 2003 Medicare pharma "reform" that prohibits Medicare from negotiating drug prices) to take a $2 million dollar per year job in the drug industry.
Although Obama criticized Tauzin during the 2008 campaign, one of Obama's first actions as president in 2009 was to cut a deal behind closed doors with Tauzin assuring that Obamacare would prohibit Medicare and other government programs from negotiating drug prices.
I don't know how many look at this as THE issue. I do.
So you won't be voting for Obama then? Good!
Not sure what you mean by "this." Rich failures getting bailouts? In the grand scheme of things, I don't see how that causes more of a problem than endless wars, high unemployment, ever decreasing financial security for the masses, and other woes.
The rich have caused all of these problems because in our hierarchical social structure the buck stops at the top. With billions of non-rich and at the most a few tens of millions of rich, the balance of power one day will assert itself.
Look at the focus on civil rights all our rich leaders put on display yesterday for MLK day. But by 1967 MLK had turned away from his civil rights past and had moved forward to his social justice anti-war position in solidarity with Malcolm X. He took a corporate bullet for that insult to the caste system and all the other "leaders" got the message and stuck to civil rights from that day forward. To hell with social justice.
Citation for the "corporate bullet"? Don't throw in bs, it damages your point. King was shot because he really pissed off one truly racist bastard. I know, I know, we all love a good conspiracy story.
As Reich says, "this" is not only about "bailouts," but about the ease with which the super wealthy can hoover up all the loose cash in the nation with nearly zero risk, if they are at least a little smart. America is becoming the land of the wealthy elite and all the rest of the little people. If you want 'opportunity,' the US is quickly becoming the wrong choice. Now, add in Romney's anti-immigrant talk and Ron Pauls' minority hatreds, and the US is on course for serious demise. Hopefully our stupidities and prejudices will somehow be overcome. Obama is the best hope, as sad as that is.
Conspiracy theory ?
By 1968 the 1% had learned from Ford Motor Company, Phelps Dodge and other corporate oppressors' experiences that hiring goons to snuff those who successfully challenge corporate power creates bad press.
Like "gangs of ny" 2012 (guilded age II), is this why nader said only the rich could save us?
However, in agreement with your other responder, you may want to check out this
http://www.projectcensored.org/top-stories/articles/us-electromagnetic-weapons-and-human-rights/ click on "read entire report..." for pdf. (extensively sourced)
Anyone who would use the term "conspiracy theory" to describe the state-sponsored murder of MLK is either a shill or dupe. Do yourself a favor and go read "An Act of State" by William Pepper. The evidence is overwhelming. The King family holds no ill will toward the patsy who was framed by the FBI.
The jury will report back by election day either by voting for the status quo (Democrat or Republican) or by rejecting corporatism all together and voting for a third party. Perhaps this is what Robert Reich meant? Though Reich served under Clinton during the nineties, he has since rejected the Democratic Party as being a sellout to corporate America, however he still recognizes that Republicans are even worse than Democrats.
And how, exactly, are Repubs "worse than Democrats?" Examples, please. Last time I checked, rape is still rape, regardless how it is done.
How about the republican Roberts court giving us citizens united, or that fact that the republicans want to privatize Social Security giving it to wall street, or Paul ryans plan for a vouture system for Medicare, the war against women's rights, every single republican signed Grover Norquists pledge to never raise taxes on the one percent, or cutting out heat assistance and weatherization programs for the elderly and poor, or voter suppression, cutting pell grants for the poor kids to get an education, public union busting, lowering the minimum wage, doing away with childlabor laws, cutting food stamps for the poor, no health care reform of any kind it was the republicans that stopped the public option, every single republican voted against any type of health care reform, the republicans want to do away with the EPA, I could go on and on but the people of CD had heard it enough.
If I may make a slight correction concerning Paul Ryan's plans for Medicare.
Paul Ryans plans for a vulture system for Medicare. The private health insurance companies will take care of elder Americans in a way that's appropriate to the laws of the jungle.
And the Democrats announced last month that their point man for implementing Ryan's plan will be US Senator Rob Wyden (D-Oregon).
Other than continuing his payroll tax holiday that defunds Social Security, Obama will take no action on gutting Social Security, Medicaid and Medicare until he is re-elected on 11/6/12.
With both houses of Congress controlled by the GOP during his second term, Obama will have all the excuses he needs to gut as many domestic programs as time allows.
You're either LYING or are misinformed. The payroll tax holiday does NOT defund SS.
what portion of your paycheck taxes have been cut? and where does employer contribution portion of payroll tax come into your calculation?
If you don't know, look it up on Google. You may not believe me anyway.
Borat is setting a new precedent that social security can be underminded and destabilized. If he wanted everyone to have stimulus money ... he could have just cut us all a check from the general fund. Why he even bring social security into the equation? Moving money from the general fund to make up for the money that SS is losing through Obama's tax "holiday" will increase the deficit. So, thanks to Barack ... now social security can and will become legitimately linked to increasing the national debt. And that will further destabilize the program and give even more ammunition to people who want to cut it, privatize it, or eliminate it altogether.
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Borat's bosses on wall street want to get their greedy hands on the trillions of dollars that go into social security. one way or another. His tax cut "holiday" is the first real step towards carrying out that goal. Ask yourself why Bohner and the republicans "caved" so quickly and so predictably on the tax cut "holiday"? Did Obummer suddenly force his will on Bohner until he cried uncle, or were they on the same side all along?
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The republicans wanted this as much as the dems ... Just like O wants (and will get) the Keystone XL as much as the repubs.
BRAVO. Well-said, and clearly stated. Interesting none of the Obama-bots have responded to your facts :) Gee, probably because they can't. Like all Obama-bots, their little brown messiah can do no wrong. And when you point out uncomfortable facts to them, they do the old "blah blah blah I cannot hear you" routine or just scream "better than the republicans!!!!" :)
hehe riiiight. Head back to remedial math, Greg R. Hmmm...let's see here....when you cut SS tax from 6 to 4%, that means....give me a moment...oh yes, less revenue going into the SS trust fund. 2% less, I believe. And what happens when this "holiday" becomes permanent, as is the case here? Hmm...i think it means that less revenue going into the SS trust fund then becomes a permanent reduction, not a temporary reduction. Now for the toughie. Get your calculators out and put on your thinking cap: what happens to Social Security, say 20 years down the road, after all those years of reduced funding? Hmm....gee, I just can't seem to come up with the answer.....
Keep drinking that Democrat kool-aid. It's mmm-mmm-good AND it allows you to maintain your illusion that you are not contributing to the demise of Amereicha! Win-win!!
How about Romney's proposed $6 trillion in new tax cuts for the wealthy on top of further extension of the Bush cuts?
I'm no fan of the Democrats either, but I do think the Republicans are even worse.
In a game of Good Cop / Bad Cop, they've got you just where they want you when you start to develop feelings of dependency towards the Good Cop.
Who is more likely to flip? the thug or the rat?
For me it's simple. There are ONLY 2 parties. The Rs say they will not raise taxes on the rich by even one penny. The Ds say the super rich should pay a dab more in taxes. The choice is clear. The hoped for result is less than satisfying. It would be easier to walk away and say it makes no difference. The only hope for a third party is if a super PAK comes along with more than a BILLION dollars to spend. Of course it's fun to imagine that one or two rich progressives would get together with OCCUPY and spend that billion. I'm sure stranger things have happened.
At the end of 2010 Obama extended the Bush tax cuts to millionaires and billionaires, giving them about $800 billion. A few weeks later he proposed a budget that cut over a trillion dollars from gvmnt programs that help the poor and working classes. Last summer O told us we that need to be willing to sacrifice a few of our own scared cows (i.e. medicare and social security) if we expect the rich to pay a few meager percentage points more in taxes. Obama called that a "fair and balanced" plan.
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Then he cynically passed a bunch of new "free trade" deals, attached them to a backdoor attack on social security; the payrolll tax "holiday" (which sets the precedent for defunding social security), and had the audacity to call it a Jobs Bill!
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There is only one political party that run this country ... the party that serves the wall street oligarchs and the corporate plutocrats. The party of Barack Obama and his golfing buddy John Boehner.
There was no excuse for Obama to extend the Bush tax cuts in 2010 when Democrats controlled both houses of Congress.
Although the GOP has unsuccessfully attempted to defund Social Security for at least 40 years, Obama had the audacity to tells us that the GOP "allowed" him to include his "payroll tax holiday" (that defunds Social Security) "in exchange" for extending the cuts.
The GOP won two, while the 99% lost two. Obama will be rewarded with the first corporate funded billion dollar campaign war chest.
In other words, resistance is futile?
(You could say equally well that with a Republican president, the Democrats would at least be forced to offer the pretense of resistance to total corporate dominance.)
Space Cadet -- Unfortunately, I think Reich is again suggesting that a vote for Obama is the answer.
Reich is like a physician who is very good at determining the disease that afflicts you -- whether it is cancer, arteriosclerosis, Ebola, etc. -- but his cure is always the same: apply leeches until your condition improves.
That second paragraph is the best comment I've read in a while. It made me laugh but the truth of it makes me wanna cry.
At least 99% of the 1% are leeches!
Its probably too late to do anything about this. Even if the Democrats continue to roll over and play dead while the Republicans dictate the shots, I'm still voting for Obama. The fact that the Democrats are saying we should tax the rich more is a good sign, even if it doesn't amount to anything. Maybe its a start. But I don't expect that any Republican president will have any answers, but will increase the deficit, reward the top .001%, and look the other way, just like they did under Bush. They certainly won't pull us out of this depression (unless you are a military contractor) but will prolong it.
By voting for Obama you vote to kill many more babies like these:
http://chris-floyd.com/march/
Obama the Childslayer, mass murderer of innocent Muslim children, women, and men. Urinator on the cadavers of innocent Muslims. Despoiler of the dead.
Any one who votes for Obama shows he or she has no respect for human life or dignity. Any one who votes for Obama condones mass murder. Any one who votes for Obama condones mass rape. Any one who votes for Obama condones Guantanamo. Any one who votes for Obama condones torture. Any one who votes for Obama condones the National Defense Authorization Act and the incarceration of US citizens without charges.
And those who would vote for Obama because Obama might make a marginal improvement in their personal situation, knowing all the above about Obama, commits an even greater moral outrage.
All the "lesser of two evils" liberals who would vote for the serial chain saw baby killer Barack Hussein Obama the Child Slayer, fall into the exact same circle of moral leprosy as those European Christians who stood silently by while their Jewish neighbors suffered and died as slave laborers and in concentration camps.
This is a wee bit over the top, isn't it? If not Obama, who should we vote for? Romney? Tell me something, it is down to Obama and Romney, who do you vote for? In your case you are probably "unsettled" enough to vote for Romney, which would be far worse than anything you have seen from Obama.
"Barack Hussein Obama the Child Slayer" - this isn't accurate, nor is it helpful. Get a grip on yourself.
As for Reich's article, can we at least agree on one thing; there isn't, has never been and nor will there ever be "free enterprise" or "free markets". They have never been free from subsidies, free from manipulation, free from lousy regulation, free from corruption, free from theft, free from anything you can think of. Capitalism isn't perfect but it is better than the alternatives. It seemed to work reasonably well in the post WW II era, from the late 40's to the early 70's, when we actually had a vibrant, growing middle class and wealth & income distribution was less skewed than it is today. It all starting going to hell in the 70's, really went to hell in the 80's and has continued the descent to where we find ourselves today. Clearly a few things have gone wrong.
It is really tiring reading the same thing over and over again and nothing, not one thing gets done to change the inequity of earnings, justical system, war, all of everyday life.
Our media is broken because our system is broken and they allowed media to be owned by a few who represent their own best interest which is more of the same.
I guess it has to be repeated over and over again for it to hit home to more people.
I cringe when i read some of the comments. I can't believe people swallow prof.Reich's propaganda without question.
Free enterprise is not the problem. Free enterprise is what creates goods, jobs and wealth. The problem is government interfering with the process by over regulating and bailing out bankrupt companies that should have been relegated to the dustbin of history.
If only the government hadn't constrained Enron, Global Crossing, Countrywide, Lehman, BP and MF Global (to name a few) with excessive regulation unemployment would be zero and the environment pristine.
Indeed, I too cringe when I read some of the comments.
Thank you for making my point. I wasn't gonna go look for examples. All the companies you listed are out of business (except for BP), not due to gov regulation but due to all kinds of accounting shenanigans that caught up with them. Now if we had let all the others go under when their time came, we would have fresh start and lessons learned today.
Under regulation has created 10 times more problems than over regulation.
Exactly, dereg led to bailouts, deep water horizon, etc.
Capitalism w/o reg destroys itself and everything else, which is where we now find ourselves.
Anyone read Vulture's Picnic yet?
The true definition of "free enterprise" should be given by the man who apparently coined the term, Lammot du Pont, as given in the book The Nazi Hydra in America, available at:
http://home.roadrunner.com/~markwrede/NonFic/NaziHydra.pdf
"The American lexicon was expanded in 1942, never before had the term “free enterprise” been used. There is no such right listed in the Constitution, nor does the Constitution grant any rights to corporations. While the founding fathers believed in an economy based on capitalism, they were hardly fools enough to allow trade to go on unregulated. With a third of the populace at the time of the revolution being former indentured servants to British corporations, corporations were closely regulated as the chapter on corporate law detailed. However, unregulated corporatism was precisely what Du Pont envisioned in his call for “free enterprise.” The best summary of “free enterprise” as envisioned by Lammot du Pont comes from his speech before a secretive meeting of the resolution committee for the National Manufacturers Association (NAM) on September 17, 1942.
'The way to view the issue is this: are there common denominators for winning the war and the peace? If there are, then, we should deal with both in 1943. What are they? We will win the war by reducing taxes on corporations, high income brackets, and increasing taxes on lower incomes, by removing unions from any power to tell industry how to produce, how to deal with their employees or anything else, by destroying any and all government agencies that stand in the way of free enterprise.'"
Can you tell me why Delphi USA declared bankruptcy several years ago and reorganized wherein its workers were hired on for a third their old salary with next to no benefits and old pension plans wiped out while Delphi Canada remained in buiness and retained its pension and benefit plans?
I would point out that a number of Canadian branches of US based companies remained in business and healthy while the US organization went bankrupt.
I would also mention Canada has more regulations .
Can you tell me why in Canada only one bank has ever went under since the depression and why during the Depression not a single Canadian bank went under or had to be bailed out while during that same period of time lietrally THOUSANDS of US banks went under ot had to be bailed out by the taxpayer?
I would point out Canada has much stricter regulations on its banking industry .
I would also point out that the US banking industry and its lack of regulations is what destroyed most of the worlds economies. I am going to suggest that this is evidence that LESS regulation and more FREEDOM of businesses to operate without oversight and regulation does more harm then good.
I guess it's because Canada only has like 6 banks and they are all huge. The collusion between them keeps them all nicely afloat while they all evenly fleece the customers.