Between Plenty and Shameless Plenty
Published in Izvestia
(Russia) on 2 September 2010
by Georgij Bovt (link to original)
(Russia) on 2 September 2010
by Georgij Bovt (link to original)
Translated from
by Olga Creamer.
Edited by Gillian Palmer.
Many American financiers never really liked President Barack Obama, who the Republicans are calling a socialist more and more often. But the implementations of the recently signed Dodd-Frank Act can potentially annoy those who succeeded in building up their earnings by juggling stock market quotes.
The American practice of writing bills doesn’t make provision for any regulations, as is usually done in Russia. The almost two-and-a-half-thousand-page bill exhaustively covers everything that the law makers thought was necessary to say about regulating the financial field at this point. In general, the new bill includes tightening government regulation of financial operations, increasing guarantees to the investors and shareholders in case of a company’s bankruptcy (so that the state doesn’t have to bail them out on social grounds), and dramatic reduction of banks’ opportunities to gamble on financial markets with their own money (thus stimulating the crediting of businesses and consumers). Among other things, there is also a hint on regulating the bonus system.
In fact, in this regard, the new law reflects the mood of a considerable part of society. When the government was pouring tens and hundreds of billions of dollars into saving important banks and corporations, people were wondering how it was possible that the top managers, who were engaged in risky market deals and sometimes downright machinations, not only managed to dodge responsibility but stayed set for life. Bonuses and severance packages of supposedly bankrupt top managers were astonishing in their shamelessness. By the way, one of the reasons that quite a few financial corporations that had used the state help bought back their shares or paid back relatively quickly was the fact that some conditions of bailing out were regulations on top managers’ pay and limits to bonuses.
And so it happened that at the end of crisis-filled 2009, high officials, top managers, investment bankers and other experts in making money out of nothing from about 40 leading financial corporations in America received almost $150 billion in bonuses, 20 percent more than the previous year.
Actually, it’s necessary to point out that these kind of mishaps, in America and around the world, started happening not a year or two ago, but have been going on for about a quarter of the century. According to calculations by David Rothkopf, former Under Secretary of Commerce for International Trade in the Clinton administration, from his recently published book “Superclass: The Global Power Elite and the World They Are Making,” in comparison to the early ‘90s the rewards to the senior executives have multiplied many times. That’s exactly when this process developed its snowballing quality. Today an “average” top manager of a big corporation earns 364 times more than a general employee of that corporation. This gap has increased tenfold since the 1970s. In pre-crisis years, a “typical” executive of a company from Forbes' 500 list was earning on average $15.2 million a year, and someone like Apple’s Steve Jobs could earn more than $600 million. It’s interesting that golden parachutes (rewards) for the top-level resignees were not at all consistent with often grim results of their work; the rule “as you sow so shall you reap” doesn’t work. For example, having worked at The Home Depot for six years, Robert Nardelli “achieved” its market depreciation by almost 8 percent — for which he received a golden parachute of $210 million for happy retirement.
In fact, these insane incomes became one of the downsides of the actively inflating stock market; during the 1990s annual volumes of American IPOs grew from approximately $11 billion to $119 billion. Money created money, and at some point the adjective “ill-gained” became an indispensable attribute to “money.”
The American trend of super-sweet bonuses spread all over the world, setting the standards for financial and other elites in other countries. Now the big question is whether the Dodd-Frank Act will start a new trend to restore the healthier principles of capitalism, at least partially. To a certain degree the aspiration towards somehow limiting exorbitant earnings of top managers, or at least correlating them with the work result of the companies they are in charge of, has been denoted as a clear policy that political powers in several Western countries are adopting.
We, too, could learn something from all this, not just relating to certain well-known oligarchs, but also to those who amidst blooming “bureaucratic capitalism” turned out to be the true capitalist “sharks” — the officialdom. Just one “small” thing is lacking: We need to find and define the mechanism that would compare the managing results in a certain region or economic department with the manager’s personal level of prosperity.
The American practice of writing bills doesn’t make provision for any regulations, as is usually done in Russia. The almost two-and-a-half-thousand-page bill exhaustively covers everything that the law makers thought was necessary to say about regulating the financial field at this point. In general, the new bill includes tightening government regulation of financial operations, increasing guarantees to the investors and shareholders in case of a company’s bankruptcy (so that the state doesn’t have to bail them out on social grounds), and dramatic reduction of banks’ opportunities to gamble on financial markets with their own money (thus stimulating the crediting of businesses and consumers). Among other things, there is also a hint on regulating the bonus system.
In fact, in this regard, the new law reflects the mood of a considerable part of society. When the government was pouring tens and hundreds of billions of dollars into saving important banks and corporations, people were wondering how it was possible that the top managers, who were engaged in risky market deals and sometimes downright machinations, not only managed to dodge responsibility but stayed set for life. Bonuses and severance packages of supposedly bankrupt top managers were astonishing in their shamelessness. By the way, one of the reasons that quite a few financial corporations that had used the state help bought back their shares or paid back relatively quickly was the fact that some conditions of bailing out were regulations on top managers’ pay and limits to bonuses.
And so it happened that at the end of crisis-filled 2009, high officials, top managers, investment bankers and other experts in making money out of nothing from about 40 leading financial corporations in America received almost $150 billion in bonuses, 20 percent more than the previous year.
Actually, it’s necessary to point out that these kind of mishaps, in America and around the world, started happening not a year or two ago, but have been going on for about a quarter of the century. According to calculations by David Rothkopf, former Under Secretary of Commerce for International Trade in the Clinton administration, from his recently published book “Superclass: The Global Power Elite and the World They Are Making,” in comparison to the early ‘90s the rewards to the senior executives have multiplied many times. That’s exactly when this process developed its snowballing quality. Today an “average” top manager of a big corporation earns 364 times more than a general employee of that corporation. This gap has increased tenfold since the 1970s. In pre-crisis years, a “typical” executive of a company from Forbes' 500 list was earning on average $15.2 million a year, and someone like Apple’s Steve Jobs could earn more than $600 million. It’s interesting that golden parachutes (rewards) for the top-level resignees were not at all consistent with often grim results of their work; the rule “as you sow so shall you reap” doesn’t work. For example, having worked at The Home Depot for six years, Robert Nardelli “achieved” its market depreciation by almost 8 percent — for which he received a golden parachute of $210 million for happy retirement.
In fact, these insane incomes became one of the downsides of the actively inflating stock market; during the 1990s annual volumes of American IPOs grew from approximately $11 billion to $119 billion. Money created money, and at some point the adjective “ill-gained” became an indispensable attribute to “money.”
The American trend of super-sweet bonuses spread all over the world, setting the standards for financial and other elites in other countries. Now the big question is whether the Dodd-Frank Act will start a new trend to restore the healthier principles of capitalism, at least partially. To a certain degree the aspiration towards somehow limiting exorbitant earnings of top managers, or at least correlating them with the work result of the companies they are in charge of, has been denoted as a clear policy that political powers in several Western countries are adopting.
We, too, could learn something from all this, not just relating to certain well-known oligarchs, but also to those who amidst blooming “bureaucratic capitalism” turned out to be the true capitalist “sharks” — the officialdom. Just one “small” thing is lacking: We need to find and define the mechanism that would compare the managing results in a certain region or economic department with the manager’s personal level of prosperity.