CEO Pay From Subsidies that Skirt Shareholders, Workers
|July 14, 2014||Posted by Staff under Corruption, Subsidies & Waste & Public Debt|
This 2014 excerpt of Investors Daily, July 9, is by Russell S. Sobel.
Equilar reports a 6% annual increase in average compensation for the 200 highest-paid chief executives. Their companies receive tax breaks, subsidies, or other assistance from the federal government.
When federal money is up for grabs, businesses invest resources to secure it through a process known as “rent seeking.” Rather than making the entire business more profitable, however, this money remains at the executive level.
In fact, it’s not clear that shareholders or workers are getting a real return on their companies’ lobbying investments.
In the wake of the financial crisis, businesses have rushed to ensure that their interests were and continue to be heard in Washington. With more than 12,000 registered federal lobbyists seeking influence in policymaking, the reported expenditures on lobbying federal government in 2013 topped $3 billion.
Programs such as the Troubled Asset Relief Program (TARP) and the American Recovery and Reinvestment Act of 2009 (or the “stimulus”) doled out more than $1 trillion in federal subsidies, grants, and contracts directly to specific private businesses.
It’s now a common belief that business success depends partly on a company’s ability to secure favors through political connections. This “cronyism” — rather than consumer-driven market forces — picks the winners and losers in the marketplace. Such logic is taught in actual business-school classes.
Political activity and connections do not lead to higher profits for the vast majority of firms or industries, with the only notable exception being banking-related firms [they use mortgages to capture land rents].
We see no statistically significant correlation between firm or industry profitability and firm (or industry) lobbying or political action committee activity.
If lobbying and political efforts do not increase returns for firm shareholders, why would firm executives channel resources in this direction? Our research suggests that — while measures of firm performance and profitability are not correlated with political activity — the compensation of top firm executives is strongly correlated.
Ed. Notes: Robbing the public treasury to pay insider schmoozers might be legal but it’s not moral.
And if it’s only banks that lately have gained, the others must keep up their lobbying to at least not lose market share.
Further, companies in brand new fields such as IT don’t need handouts to grow since those recently launched industries are growing rapidly anyway.
Finally, the only solution is to remove the power of discretionary spending from politicians to the public. That means, putting the budget on the ballot as some towns in Brazil do or better yet, paying citizens a dividend, like Singapore often does, and that city state is often rated the world’s best for business.
From whence the surplus? From society’s spending for assets never created by anyone’s labor or capital (or lobbying for privilege). Goods like land, oil, EM spectrum, ecosystem services, etc, yield huge rents that society — via its agency, government — should be seeking, recovering (site value is socially generated), and sharing. Doing so allows the repeal of most taxes and subsidies. Called geonomics, the policy has worked wherever tried.