Wednesday, July 30, 2008

Business Geek

I'm going to put my business geek hat on for a few minutes.

Many of you know I have been reading "The Age of Turbulence" by Alan Greenspan. While I agree on a lot of things he talks about (he's less political and more economical than a lot of people realize, which is why he is considered to be "controversial" in Washington, D.C.), I have found, on occasion, some things were my opinions differ.

Yesterday I finished the chapter on Corporate Governance and found a serious flaw in his thinking. Corporate Governance isn't only about making sure their corporation doesn't become the next poster child for Enron. It's also about who determines which people will hold which jobs at the top level, and how much they will get paid.

Let me give you one example: many of us shop at Wal-Mart. Their workers make a little over minimum wage, about $7 - 10 per hour on an hourly basis. Consider this: the CEO of Wal-Mart makes between $11,000 - 12,000 per hour. The other executives at Wal-Mart are also making top dollar. So while the average employee has to work 2 jobs before they can break even on their expenses and afford food, the executives are eating steak while dining at their country clubs.

Alan Greenspan tells people in his book that the role of corporate governance lies with the shareholders, not with the government. While this is would be true in the pure form of capitalism, it is not true in the real world. There does need to be more accountability of who works and where and how much they make with corporate executive positions.

There are officers the shareholders do vote on in the basic structure of the corporation, however these are people the CEO has already hand picked. Their wages are currently not voted on by shareholders. I agree with Alan Greenspan that some of these practices need to be changed with more involvement of the shareholders.

However there is one thing Greenspan is not understanding, and that is who the shareholders casting these votes are. Those who are wealthy enough to own actual shares of stock do not care much about those making minimum wages at their jobs. Those who are in the shrinking "middle class" invest using mutual funds and/or pension trusts, with managers calling the shots and casting the votes. These are also made up of wealthy managers who do not see nor care much about the plight of people making minimum wages. They own nice homes and send their children to private schools, the best money can buy.

The one thing Greenspan and I agree on the most, however, is how this will all play out in the end. There are a lot of the wealthy who will be retiring within the next 10 years. These are the baby boomers. When they retire, there will not be the numbers of workers able to replace these people. According to numbers and charts I've seen, the actual numbers of people in the workforce contributing to Social Security and Medicare is actually going to decrease in the coming years. Add to this the problem of better paying jobs being outsourced to other countries, so those left contributing to the retirement of these baby boomers will be earning less money. These two items, coupled with the added draw on both of these programs and you have a recipe for trouble.

The wealthy people, who for years thumbed their noses at the working poor in America, will soon find themselves at their mercy. Their undercutting the wages and education of America's future workforce is going to come back to haunt them. It will be interesting to see how this works out and what these wealthy people will do when (not if) this happens.


WarriorFlower said...

I think I am out of a lot of loops. Maybe I am out of fruit loops, too. I think I try not to involve myself much in economic debate, mostly because I have no idea what I am talking about. I also don't know a whole lot about which lobbyists are lining which candidate's pockets with how much green. (And I wonder, here, if Alan Greenspan, who has plenty to do with monetary issues, ever got jokes about spanning the green... as in dollars. Do you think anybody really plays up to silly jokes like that?)

Dawn Bushman said...

He's gotten a lot of criticism (and rightly so) for not regulating lenders more before bailing them out, so I think people have made comments like that before, just not as a joke.