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Michael Sandel, author of “The Tyranny of Merit, Can We Find the Common Good?” (Farrar, Straus, Giroux 2020) offers insightful analysis of the economic and cultural woes afflicting our country. A brief synopsis follows.
“From the end of World War II to the 1970’s, it was possible for those without a college degree to find good work, support a family, and lead a comfortable middle-class life. This is far more difficult today. Over the past four decades, the earnings difference between college and high school graduates — what economists call the “college premium” — has doubled. In 1979, college graduates made about 40 percent more than high school graduates; by the 2000s they made 80 percent more… In the late 1970’s, CEO’s of major American companies made 30 times more than the average worker; by 2014, they made 300 times more… The median income of American males has been stagnant, in real terms, for half a century. Although per capita income has increased 85 percent since 1979, white men without a four-year college degree make less now, in real terms, than they did then… It is not surprising that they are unhappy. But economic hardship is not the only source of their distress. The meritocratic age has also inflicted a more insidious injury on working people: eroding the dignity of work. By valorizing the “brains” it takes to score well on college admissions tests, the sorting machine disparages those without meritocratic credentials… It legitimates the lavish rewards the market bestows on the winners, and the meager pay it offers workers without a college degree. This way of thinking about who deserves what is not morally defensible… It is a mistake to assume that the market value of this or that job is the measure of its contribution to the common good… But over the last several decades, the idea that the money we make reflects the value of our social contribution has become deeply embedded. It echoes throughout the public culture… Meritocratic sorting helped entrench this idea. So did the neoliberal, or market-oriented, version of globalization embraced by mainstream parties of the center-left and center-right since the 1980’s…even as globalization produced massive inequality… Policies expected to increase GDP — such as free trade agreements, or policies that encourage companies to outsource labor to low-wage countries — can be defended only if the winners compensate the losers. The populist protest amounts to a renunciation of this project… Economic growth occurred but the winners did not compensate the losers. Instead, neoliberal globalization brought an unabated increase in inequality. Almost all of the gains of economic growth went to those at the top.
“Work is both economic and cultural. It is a way of making a living and also a source of social recognition and esteem. This is why the inequality brought about by globalization produced such anger and resentment. Those left behind by globalization not only struggled while others prospered; they also sensed that the work they did was no longer a source of social esteem… Working-class men without a college degree voted overwhelmingly for Donald Trump. Their attraction to his politics of grievance and resentment suggests they were distressed by more than economic hardship alone. So does an expression of futility that was mounting in the years leading up to Trump’s election: As the circumstances of work for those without meritocratic credentials became bleak, growing numbers of working-age men dropped out of the labor force altogether… In 1971, 93 percent of white working-class men were employed. By 2016, only 80 percent were. Of the 20 percent who did not have jobs, only a small fraction were looking for work. As if defeated by the indignities of a labor market indifferent to their skills, most had simply given up. Of Americans whose highest academic qualification was a high school diploma, only 68 percent were employed in 2017… But giving up on work was not the most grievous expression of the damaged morale of working-class Americans. Many were giving up on life itself. The most tragic expression is the increase in “deaths of despair”. Throughout the twentieth century…life expectancy steadily increased. But from 2014 to 2017, it stalled and even declined. For the first time in a century, life expectancy in the United States decreased for three straight years… Mortality rates were going up…due to an epidemic of deaths caused by suicides, drug overdoses, and alcoholic liver disease. They called them “deaths of despair” because they were, in various ways, self inflicted… Such deaths, which had been mounting for more than a decade, were especially frequent among white adults in middle age. For white men and women aged 45-54, deaths of despair increased threefold from 1990 to 2017. By 2014, for the first time, more people in this age group were dying of drugs, alcohol, and suicide than from heart disease… But mortality varies greatly by education. Since the 1990’s, death rates for college graduates declined by 40 percent. For those without a college degree, they rose by 25 percent… Deaths of despair account for much of this difference.
“The meritocratic conviction that people deserve whatever riches the market bestows on their talents makes solidarity an almost impossible project… A lively sense of the contingency of our lot can inspire a certain humility. “There but for the grace of God, or the accident of birth, or the mystery of fate, go I”. Such humility is the beginning of the way back from the harsh ethic of success that drives us apart. It points beyond the tyranny of merit toward a less rancorous, more generous public life.”
I witnessed the transformation of American capitalism over the course of my career. When I started in the early 1970s corporate culture was predominantly “benevolent capitalism”, albeit with severe racial and gender restrictions on participation. Lifetime employment was common, accompanied by generous family medical benefits, and defined benefit retirement pensions designed to replace 50-60% of preretirement income. Most companies shouldered the costs of funding those defined benefit pensions, including the investment risks associated with funding pensions over the course of decades. When Reginald Jones retired as CEO of General Electric in 1981, widely regarded as the top CEO in the country, news media reports estimated his net worth at $10 million (approximately $40-50 million in today’s dollars). Jones was wealthy, but not so rich as to be “out of touch” with his community. A defining characteristic of that era was the modesty and moderation of people at the top. People at the top did well, and many people in the middle and lower tiers also did very well, in relative terms.
Things began to change in tandem with the emergence of the “leveraged buy-out” (LBO) corporate raiders in the 1980s, often funded by “junk bond king” Michael Milken. The excesses of that era are perhaps best illustrated by media reports that Milken’s compensation was $550 million in 1987, and the 1988 story of LBO firm Kohlberg Kravis Roberts (now known as KKR) winning the $25 billion takeover battle for RJR Nabisco (memorialized in the 1989 book and 1993 movie”Barbarians at the Gate’). The basic modus operandi of the buyout firms was to use copious amounts of junk bond debt to finance corporate acquisitions, then strip costs from the target companies to increase cash flow for debt service and dividends. The corporate costs they stripped were usually employee headcount and compensation, medical and pension benefits, and research & development expenditures — i.e., they targeted the generous underpinnings of “benevolent capitalism”. For the most part the LBO raiders did not create significant economic value in the form of new products or services, but enhanced cash flows supported higher enterprise market values. Many mainstream corporate CEOs began to emulate this playbook of stripping costs, increasing cash flows, and capturing enormous compensation rewards when their company stock prices increased. General Electric CEO Jack Welsh was an avid practitioner, earning the moniker “Neutron Jack” in a twist on the US military neutron bomb which reportedly killed people while leaving property undamaged. An irony was that the LBO firms executing this “shareholder capitalism” dynamic often obtained much of their equity funding from institutional investors such as state and local government pension funds and university endowments — many of whom were touted as “socially conscious investors” while choosing to be “blind” regarding the victims of their investments.
Fast forward forty years and we arrive at today, and the prevalent American corporate business model could be characterized as “winner take all capitalism”. It is not uncommon for a Fortune 500 CEO to retire with net worth of $500 million to $1 billion, or more. Staying with the General Electric example where CEO Reginald Jones retired in 1981 with the equivalent of $40-50 million, Fortune Magazine reported that CEO Jack Welsh retired in 2001 with $417 million, and CEO Jeff Immelt resigned under pressure in 2017 with $211 million after a failed tenure in which GE’s market value declined 30 percent. Most corporate CEOs today are best characterized as “competent stewards” of the companies they inherited; very few are transformative leaders. Entrepreneurs who create new industries (e.g., Bill Gates, Steve Jobs, Elon Musk), and the rare transformative CEOs who build major companies from modest roots, arguably deserve the enormous economic rewards they receive because they create so much employment and other forms of wealth for the broader society. Most other CEOs should be compensated as competent stewards, which is more appropriately on a more modest scale consistent with Reginald Jones’ example at GE.
Meanwhile, below the top tier most employees today receive modest corporate medical benefits with significant copays and deductibles; defined contribution retirement benefits which transfer the funding and investment risks to employees; slow growth in wages; insecurity associated with outsourced software engineering, call centers, accounting, and legal research jobs to India; relocation of manufacturing jobs to Mexico, China, and Southeast Asia; and insecurity associated with growth of the “gig economy”and its associated “independent contractor” status for workers. A defining characteristic of “winner take all capitalism” is that a fortunate few at the top are enormously better-off, while most people in the middle and lower tiers are relatively worse-off. This is not good for America. Should we be surprised that many young people today express scepticism about capitalism?
I am struck by the similarities between Sandel’s description of the disparagement and loss of social esteem suffered by blue collar workers since the 1970’s, and the historical treatment of blacks in America. Also, the “expression of futility” Sandel describes in the mounting numbers of “deaths of despair” among blue collar whites is strikingly similar to an enduring plague in black America. A recent university research study bolsters the case that deaths of despair stem in part from weakening social ties and, interestingly, the faster religious attendance fell in a state the more such deaths rose. This also links to black experience where the black church was the foundation which sustained black communities through the worst years of racial oppression.
I agree with Sandel that those who have been blessed with the good fortune to reach the top should be more concerned about the welfare of our fellow citizens. We should acknowledge that little except good fortune separates us from many who have not achieved as much. We are talented and worked hard to earn success, but the same is true of many others who have not been rewarded. We should practice grace, humility, and compassion towards others — it would be good for our country, and good for our souls. America thrived previously with a “benevolent capitalism” model; perhaps we should strive to foster a new era of “benevolent and inclusive capitalism”.
What do you think?