The Global Economy's Corporate Crime Wave
Inequality, the new dynamic of history
| Corruption and global economic forces are creating ever-greater disparities of wealth within societies -- the great policy challenge of our time. We trim, blend, and append five articles on inequality, one undated and four in 2011 from: (1) FORTUNE, May 5, on the biggest grossing firms; (2) AP, May 6, on CEO pay by R. Beck; (3) Truthout, May 5, on corporate crime by . Sachs; (4) U Maryland Econ Dpt, a background note for the World Development Report 2000 by F. Rodríguez; and (5) Guardian, Feb 6, on dynamics by K. Rogoff. |
by FORTUNE, by Rachel Beck, by Jeffrey Sachs, by Francisco Rodríguez, and by Kenneth Rogoff
- Wal-Mart rules again
In the 2010 list of 500, Wal-Mart grossed $421 billion in sales, more than any other US company. Exxon Mobil was second.
The oil giant cleared $35.6 billion in profits -- the most of any company on the list. Wal-Mart netted $16.4 billion.
This year's list has a few oddities:
• General Motors (GM, Fortune 500) rose to No. 8, despite having emerged from bankruptcy only in November.
• Two homebuilders made the list despite a national foreclosure crisis. And
• Fannie Mae, which lost more than $14 billion last year, sprang to No. 5, ahead of General Electric, mostly due to new accounting rules.
All told, the Fortune 500 generated nearly $10.8 trillion in total revenues last year, up 10.5%. Total profits soared 81%.
But guess who didn't benefit much from this giant wave of cash? Workers. We've rarely seen such a stark gulf between the fortunes of the 500 and those of ordinary Americans.
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JJS: Engorged companies endow their leaders.
- CEO pay exceeds pre-recession level
CEOs at the nation's largest companies were paid better last year than they were in 2007, back when the economy was booming, the stock market set a record high, and unemployment was roughly half what it is today. The typical pay package for the head of a company in the Standard & Poor's 500 was $9 million in 2010.
CEOs were rewarded because corporate profits soared 41% in 2010. Stocks rose 13% in 2010 and have now almost doubled since March 2009. The market's two-year run has fattened executive bonuses because some CEOs are rewarded for how the company's stock does.
Among the other findings:
• The highest-paid CEO in 2010 was Philippe Dauman of Viacom, the entertainment company that owns MTV, Nickelodeon, and Paramount Pictures. He received a pay package valued at $84.5 million, two and a half times what he made the year before.
• Six of the 10 best-paid CEOs come from media or entertainment, industries helped by a recovery in advertising and innovations in digital distribution.
• The 10 highest-paid CEOs made $440 million in 2010, a third more than the top 10 made in 2009.
Meanwhile, pay for workers grew 3% in 2010, to an average of about $40,500. The average wage was less than 0.5% of what the typical CEO made.
Government rules passed last year require almost every public company to give investors a vote at least once every three years on what it pays its executives. The votes aren't binding. Yet some companies are making changes because they don't want the attention of a negative vote.
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JJS: Enormous incomes are not always earned.
- The Global Economy's Corporate Crime Wave
A massive insider-trading ring currently on trial in New York has implicated some leading financial-industry figures. It follows a series of fines paid by America’s biggest investment banks to settle charges of various securities violations. Every Wall Street firm has paid significant fines during the past decade for fraud.
Not a single financial leader has faced jail. When companies are fined for malfeasance, their shareholders, not their CEOs and managers, pay the price. For Wall Street, corrupt practices have a solid rate of return.
In American politics, the current governor of Florida, Rick Scott, was CEO of a health-care company. Columbia/HCA was charged with defrauding the United States government by overbilling and pled guilty to 14 felonies, paying a fine of $1.7 billion. Scott lost his job but a decade later he’s back as a Republican politician.
Barack Obama hired a Wall Street “fixer,” Steven Rattner, even though Obama knew that Rattner was under investigation for giving kickbacks to government officials. Rattner settled the case with a fine of a few million dollars.
While Dick Cheney was CEO of Halliburton, the firm engaged in bribery of Nigerian officials. The company settled the case out of court, paying Nigeria a fine of $35 million.
Companies are the major funders of political campaigns in places like the US, while politicians themselves are often part owners, or at least the silent beneficiaries of corporate profits.
Given the close connections of wealth and power with the law, reining in corporate crime will be an enormous struggle. Yet the rapid and pervasive flow of information nowadays, via email and blogs, as well as Facebook, Twitter, and other social networks, could act as a deterrent. Political campaigns could be based on free online media rather than paid media.
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JJS: Taking a moral stand is practical, too.
- Inequality, Economic Growth and Economic Performance
Inequality can be harmful to long run economic growth by making economic reforms less plausible. Inequality can reduce the base of support for fundamental structural transformations necessary to embark on a path of high growth. Inequality tends to result in polarized societies and polarized societies may be in a weaker position to undertake fundamental economic reforms.
JJS: That is, until inequality drives some frustrated people to shake up the power structure.
- Inequality, the new dynamic of history
We live in an era in which globalization expands the market for ultra-talented individuals but competes away the income of ordinary employees. The internet and the financial sector continue to spawn new multimillionaires, and even billionaires, at a staggering pace. Inequality is the big wildcard in the next decade of global growth.
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JJS: Let’s hope political change will mean economic justice. Specifically, societies need to respect labor and not tax it and to recognize some wealth is common and share it. Such geonomic policy would topple hierarchy and the world would never look the same again, with people being as equal as they were in the days of the Iroquois Indians.
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Editor Jeffery J. Smith runs the Forum on Geonomics.
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Also see: Can anyone earn a billion? Do fortunes impoverish others?
Fraud wasn't a problem, it was the business plan
Wealth Gap Yawns and So Do Media |
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