unacknowledged assumptions

1 Comment Posted on by noah_roberts1 20th century, business, state, and society, unacknowledged assumptions, Uncategorized

Plans To Lower CEO Pay Actually Increase CEO Pay…?

Noah Roberts

In movies and TV shows depicting corporate America, CEO’s and business executives are usually portrayed in the same way. What comes to mind for me is the show “Suits” where top executives in the law firm wear their expensive suits, drive their expensive cars, and have the nicest and largest office in a huge office building. But, why do we have these stereotypical depictions of business executives? Why were they ever paid so much and are their salaries still growing exponentially today?

In Planet Money’s podcast “When CEO Pay Exploded”, they review the events in the 1990’s that resulted in a boom in CEO pay. Before 1990 CEO pay was consistently increasing by a little each year. No matter the performance of the company, the CEO would continually have an increase in salary. During the 1990 recession, where executives were being paid more and more while employees were being laid off, the economist Kevin Murphy wrote a paper on changing the way CEO’s were paid. This launched campaigns for people like Bill Clinton who proposed a new Tax Code that would change the pay of CEO’s. This ultimately resulted in a use of Stock options as payment, which did not work out the way the government intended. However, in the early 2000’s, companies realized the effect on their companies by issuing stock options to executives and have changed pay scales.

The overarching idea throughout this podcast is Business, State, and Society. After Kevin Murphy’s paper on the principal that CEO’s should be based on company performance and not given a base salary, Bill Clinton proposed a new tax code. This tax code would prevent big companies from writing off more than a million dollars of their CEO’s salary. This was to discourage a high base pay. However, they did add in section 4C of the tax code saying that if companies paid based on company performance, they could write off all of the salary. This encouraged stock options to be offered to executives as a form of pay. Where if an executive performed well, they could possess a stock at a certain price and sell it for a gain if the company improved, or a loss if the company did not perform well. Ultimately, this did motivate CEO’s to try to advance their company.

However, this held both Unacknowledged Assumptions and Unintended Consequences. Economists like Kevin Murphy assumed that companies would lower base pay because they were offering stock options as a way for CEO’s to make more money. The reality, though, was quite different. If you were a CEO, you wouldn’t want to lower your own salary, and if you were on the board of executives and liked the CEO, you wouldn’t want to risk losing him or her to another company that would offer more money. This resulted in a same base pay with the addition of a 40% growth in stock options. Consequently, the average CEO salary for Fortune 500 companies dramatically increased from $4 million to $8 million between 1992 and 1996.

Image result for planet money ceo pay

Although, this increase in stock primarily happened due to another Unacknowledged Assumption made by corporations. Due to a weird accounting rule, stock options could be expensed at zero cost, and in result, businesses genuinely thought they were issuing stock to their workers with a zero cost. All they had to do when an employee cashed in was create a stock and give it to them to sell. This led to greater effects on everyone associated with the company. Employees that had their retirement based in stock, or citizens that had many shares of stock were being greatly affected. Their stocks were now worth significantly less because of how many shares the companies were creating out of thin air to pay salaries with.

Eventually, the companies did realize the affects of issuing a lot of stock and stopped giving it out so freely. This has actually resulted in a decrease in average CEO salary over the past few years, going against what most may think. Although one could make a fair argument that executives are still overpaid, we do know that the salaries aren’t going anywhere but down for now.

 

Picture from Planet Money

1 Comment Posted on by matt_pouchain1 business, state, and society, unacknowledged assumptions

Oppression in the Job Market and the Black Power Movement.

In chapter 7 of MJ, Kenneth Lipartito alleges the existence of  “whites only” policies and remarks that the overlaying majority of the woman hired where white single females. Consequently to the ongoing black employee oppression and discrimination, numerous movements pro-black culture were gaining popularity. One of the major movement in the late 19th century was the Black Power Movement. The popular TV shows called “Independent Lens” featured by PBS, the documentary debuts the arrival of Swedish filmmakers to explore the Black Power Movement. As the movement was classified as a “violent threat” by the U.S media, a lot of intangible data was acquired by the filmmakers. Some may claim that the movement was basically a necessarily a black narcissistic movement, as it raised the pride of negros.  However, the effect of the movements goes much further than raising pride, as it built a column/foundation to the modern movement “black lives matter”.  Just as the police and their actions were the prime focus of Black Lives Matter, the law enforcement was targeted during the Black Power movement. The main difference between the two movements was that the Black power movement was an unadulterated black movement, meaning that whites did not chant it.

In the 1970ʻs the Black Power movement began to spread throughout America. The movement was a political and social movement that incentivized racial pride and equality by empowering Black people to reclaim a sense of culture that was taken from them over generations of enslavement. To expand my knowledge in the subject, I consulted the data presented by the government’s national archives. Due to the aggressivity of the movement,  Federal agencies and collections have records that are directly related to the Black Power movement, including information on various organizations, such as the Nation of Islam (NOI), Deacons for Defense and Justice, and the Black Panther Party for Self-Defense (BPP). The documentation also includes records on individuals, such as Malcolm X, Fred Hampton, Stokely Carmichael, and Shirley Chisholm. In fact, the first articulation of “Black Power” was credited to the Student Nonviolent Coordinating Committee leader, Stokely Carmichael, who represented black activists.

The most evident of the “Big ideas” for this course that within the movement is Business, State and Society. The movement encouraged African Americans to return to their traditional, African roots. As result, clothing with traditional African patterns became more common, along with Afros and African dance groups. However, the movement brought more than new fashion statements.  Black activists encouraged their community to reclaim their African heritage and build a new African American culture through names. During this time America began seeing an increase in what they called, “black names”. While some of these names were linked to traditional African names, many of them were also invented by the African American community. Until this shift, most African American and white children shared similar, if not identical, names.  The diverse naming of African American children compared to white children began to create an even bigger divide between the two peoples. It was now easier for citizens to put their personal biases on others just by seeing a name, for names had begun to indicate culture and ethnicity as well as personal identity. But not all African Americans followed this trend. While some African American parents picked traditional African names, other continued to use classically “white names”.  Using data from California birth-certificates dating back to the 1960ʻs, we can begin to see what kind of African American parents would choose to name their child a “black name” instead of a “white name”. What Roland G. Fryer Jr., a young black economist, found was that young, undereducated, low-income black women with a similarly traditional “black name” were significantly more likely to give their child a “black name”. These women commonly lived in black communities, making the choice of giving their child a “black name” a lot easier, for it signaled their solidarity with the community and agreement with the black power movement.  This decision was also majorly influenced by outward societal pressures felt by these women, many of which surrounded the idea that a black woman giving their child a “white name” was seen as the said women trying to “act white”. This label could lead to her and her child being heavily judged by their community, and possibly becoming outcasts.

The criticisms of the movement also align with another “Big idea” for this course. The criticism reveals “unintended consequences ”. Most of the critics on the movement were focused on aggravated gender disequality generated by the movement. While some disagree, most claim that the movement the implemented a concept of black masculinity, which was extremely assertive and selective. Subsequently, it also used sexist language which excluded women. It is asserted that the Black Power movement was a call to black men and completely ignored the role of women, who thought that the movement was misleading.  Curiously, some claim that the “black gender issue” mirrored the racial issue- woman says that they were oppressed by black men just as black men were oppressed by Whites. Interesting controversy right? 

One of the main assumptions out there is that there exists systematic oppression such as white privilege and male privilege. However, the constitution does not support any form of oppression, thus there are no premises for constitutional or systematic oppression. So what are the premises of oppression? How should society deal with discrimination and oppression?

Link to the TV show: https://www.pbs.org/video/independent-lens-looking-back-at-the-black-power-movement/

1 Comment Posted on by noah_roberts1 business, state, and society, unacknowledged assumptions

The Private Business of the Public Government

Noah Roberts

To an extent, almost every American values, or is at least told to value, the free market society. We often hear references to Adam Smith and his proclamation for a free market and automatically pair it to the idea of no government interference in corporations. Many will often argue, “Let the government deal with the issues of the government, and businesses deal with the issues in business.” But, what if we shift our perspective on the relationship between innovative corporations and the government? We often look at the relationship as a black and white issue; government regulation or no government regulation. However, we should be focusing on the degree to which the government helps innovate, not regulate.

On her Freakenomics podcast “Is the Government More Entrepreneurial Than You Think?”, Mariana Mazzucato, a professor in the economics of innovation and public value at University College London, further explains this relationship. At the very start of the Podcast, Mazzucato completely flips the argument that Adam Smith wanted a free market separate from the state. She mentions how he actually wanted a free market from rent-seeking, which were activities that would extract value. This sets the foundation for the rest of the podcast where Mazzucato shows how the government is actually very involved in the innovation and investment of new companies. The state has been involved in many startup companies and industries. They are often the first to invest in the innovation of risky and uncertain technologies that private firms don’t want to invest in. This fuels her stance that the state shouldn’t be thought of as a last resort, but as a “first resort investor”. They have had plenty of successful investments, as well as plenty of failures. She brings to light, however, that the failures are always talked about and not the successes. This led to Mazzucatos’s point that the government has done a poor job of making returns on their successful investments, and that the private companies are benefiting the most of these tax funded loans given to them from the government.

The big idea most evident throughout this podcast, is the relationship between business, state, and society. Mazzucato mentions how many people think that to be more innovative we need less government. However, she disagrees. One of the most innovative parts of the U.S. economy is Silicon Valley. Most would assume that this is because of the private companies’ own research and advancement. What most fail to realize is that the government was deeply involved in investing in innovative research with programs like DARPA and ARPA-E. The government was also a leader in the exploration of fracking in the late 1920s, spending more than $130 million on extraction techniques. This point alone shows how essential the governments involvement with business innovation is. Other private companies didn’t want to take the risk of investing that much money into a business that may fail, but the government’s leadership into that field led to a very essential part of our economy. The government has also loaned money to, and invested in, multiple outside corporations. A successful company that most of the public fails to realize was given state funding is Tesla, which was given a $465 million loan. On the other hand, when the state funded company Solyndra failed after receiving a $500 million loan, every taxpayer was told about it on the news and as a result, angry with the government. The question is why was the success drowned out and the failure brought to the attention of everyone? The answer lies within the governments poor marketing of themselves. They don’t publicize their affiliation with companies like Tesla enough, which results in heavier criticism when they invest in a failing company.

The government also makes the unacknowledged assumption that having businesses give them stock when they can’t pay off the loan will cover the debt of the money given. Mazzucato mentions that the government will ask for 3 million shares of stock when a company does not completely pay off its loan. This policy doesn’t make much sense to enforce, however, when the stock is most likely not going to be worth very much. The government actually needs to be doing the exact opposite. Every time the company is able to pay off their loan, they need to give the government 3 million shares of stock. If we revisit Tesla, their stock was worth 9 dollars in 2009 and increased to 90 dollars by 2013. Mazzucato noted that this increase multiplied by 3 million would be able to pay off the debts of other loans that were not paid back in full, like Solyndra. Instead, Elon Musk has made a profit of $5 billion, while the government is left with the debts of their unreceived money.

Lastly if we revisit the relationship between business, state, and society and the capitalist nature of corporations, we can see why industries like the pharmaceutical industry are able to charge such high prices. Like the companies mentioned earlier, the state is loaning money to pharmaceutical companies for research. These loans of course come from the tax payer. Then, in the capitalist ideal of maximizing profit, the company will charge outrageous prices for new pharmaceuticals. People then have the choice to either let themselves or a family member stay ill or pay the price set before them. Essentially, this results in the customer paying for the drug twice. Once through the tax funded loan, and again on the overpriced market. The most frustrating part about the high prices may be that even though the government has the right to set a price cap for publicly funded products, they choose not to in fear of pushback saying they are anti-free market.

Overall, these points are not trying to prove that we need more government investments in the business world. What they do prove though is that the government needs be recognized as more than a by-stander waiting for things to go awry. As Mazzucato put it, “it is to be an active co-creator and co-shaper.”

 

(Picture found on politicalcartoons.com)

 

 

 

1 Comment Posted on by jeff_kirwin business, state, and society, unacknowledged assumptions Link

Trash, The Decline in the Recycling Business

Usually an afterthought for most, trash is big business in the United States. According to NPR’s “Planet Money” the recycling business in the U.S. is a one hundred billion dollar industry annually.When scrolling through the different podcast topics, I saw the one on trash and instantly became interested. I had this interest because my grandfather previously had a business in recycling and I can remember him navigating through many of the same problems that recycling businesses face today. Although the industry is often up and down, lately many recycling companies face shrinking profit margins as the value of different materials fall.

(Picture of the sign at my grandfather’s recycling facility)

The recycling business is failing for several reasons. One of them being the big idea of business, state, and society. China usually accounts for fifty percent of the worlds paper and plastic recycling, but recently that number is going down. This is due to the National Sword Policy implemented by the Chinese government that prohibits importing papers and plastics. Most recycling companies used to ship their materials to China, but they are now forced to find a new market. The new markets are in places like Southeast Asia and domestically, but they pay far less for recycled materials. This has caused paper to have a negative value. It is cheaper for businesses to pay someone to take their paper from them rather than dump it in a landfill.

The national policy created by China aligns with another big idea. The bid idea of unacknowledged assumptions. China has few natural resources to support its large population, so many companies believed they would likely always have a need for international materials. Unfortunately China is attempting to develop its own recycling capacity which means businesses have to find a new place to send their materials. The combination of state intervention causing an unacknowledged assumption has created a large hole in the market that used to be profitable.

The fluctuating price of oil is another unacknowledged assumption.One may not think about oil prices affecting plastic recycling, but it has a large affect on the market. This is true because plastic is made from petroleum. At the time of the podcast the price of oil had been declining. This makes it cheaper to manufacture plastic bags than complete the difficult process of recycling them. The drop in oil has caused several companies, including the trash giant Waste Management, to give up on recycling plastic bags. Recycling plastic bags also incorporates one attribute of capitalism. Currently, the technology involved in the process is slow and difficult, so some businesses are trying to come up with new technological ways to solve the problem.

Values of currency is another unacknowledged assumption made by some companies. When the dollar was weak, recycling was much more profitable. This is true among many industries that have business internationally. Other countries are looking to buy at the lowest price possible, so when the dollar is stronger compared to other currencies, the buyer will buy will choose the lesser currency. China used to buy most of recycled paper and and plastic from the U.S., but since the Euro has dropped there has been a shift towards buying from European countries. Now businesses are struggling to find places that will buy their product, and those that are buying are far less.

While the business continues to decline, companies must find new buyers that will purchase the materials at at decent rate.

Link to podcast: https://www.npr.org/sections/money/2018/08/15/638929347/episode-613-trash

1 Comment Posted on by trevor_rogers1 20th century, unacknowledged assumptions

The Transformation of Corporate Lobbying

Trevor Rogers

When one envisions corporate lobbyists one might picture a man in an expensive suit and a too white grin wining and dining a shady congressman. This is the image that comes to mind when we think of what a lobbyist truly does. However, lobbying is a relatively recent phenomenon, taking Washington by storm in only the last few decades. In the article, “How Corporate Lobbyists Conquered American Democracy” Lee Drutman details the history of lobbying and how the practice transformed over time into its current iteration.

The “Big Idea” that is most prevalent within lobbying is its complexity, especially its transformation over time. So let’s go through the history of lobbying and discover how it has transformed. Starting off in the Gilded Age we had a time of extreme influence by business in the government, pushing for certain legislation. This relationship was disrupted by a Great Depression and two World Wars. Now skipping ahead to the 1960’s we had a system where labor unions had significant influence in legislation, not the corporations. At this time it seemed futile for corporations to spend money lobbying for legislation, with one prominent corporate lawyer even commenting about how useless it was to try to influence legislation.

As every business executive knows, few elements of American society today have as little influence in government as the American businessman, the corporation, or even the millions of corporate stockholders. If one doubts this, let him undertake the role of ‘lobbyist’ for the business point of view before Congressional committees.”

     As we can see the attitude of businessmen towards influencing the government was essentially, “Well, we can’t get anything done, so why even try?” That was the case until 1972 when the Business Roundtable was founded by several prominent businessmen. John Harper, CEO of Alcoa, remarked ” I think we all recognize that the time has come when we must stop talking about it, and get busy and do something about it.” His comment reflects the frustration felt by businessmen at their inability to influence the legislation that so directly effected their lives. After a few corporations sent lobbyists to Washington and started actually influencing bills, such as a major labor law reform and lowering corporate taxes, they began seeing just how successful lobbying could be. There was a major shift that occurred during the late 80’s that is perfectly captured by this quotation by a lobbyist, “Twenty-five years ago…it was ‘just keep the government out of our business, we want to do what we want to do,’ and gradually that’s changed to ‘how can we make the government our partners?’ It’s gone from ‘leave us alone’ to ‘let’s work on this together.'”

  With the current state of lobbying we must now focus on another “Big Idea”, and that is the unintended consequences that came with allowing corporations and lawmakers to become such tight partners. We now are faced with a modern lobbying scene with more than the $2 billion spent to fund the House ($1.18 billion) and Senate ($860 million). For every dollar spent on lobbying for labor unions, large corporations spend 34, totally flipping the status quo from the 60’s and 70’s. Corporations are now able to play both offense and defense against government policies, getting some passed and others blocked, whichever ones they deem to have the most benefit to themselves. So how to we get back the balance? How can we reverse this pattern of corporate control? Well, Drutman has a few ideas. First, we must invest more into the Government, especially Congress. This would allow the leading policymakers to have the resources that are necessary so that they can hire and retain experienced staff, so they will not have to rely so much of lobbyists. Second, organizations that advocate for policies that are less well-funded need more financial support.

Overall, we are posed with this simple question. Who do we want creating legislation that affects this country and our own personal lives, our elected representatives or multi-billion dollar corporations?

 

 

1 Comment Posted on by elesha_coffman 20th century, business, state, and society, unacknowledged assumptions

Sample post: Shopping malls, past and future

Elesha Coffman

In a recent issue of the New York Times magazine, the “Letter of Recommendation” column touted “Dead Malls.” I was reminded of the malls I grew up with, in central Indiana in the 1980s. The best one was the Glenbrook Mall in Ft. Wayne, where my parents would do the Christmas shopping while my sister and I skated at the ice rink in the center:

(image from Pinterest; to my knowledge, I am not in the picture)

To think more about the history of shopping malls in the United States, I read Alexandra Lange’s article, “Malls and the future of American retail,” from Curbed. The article confirmed some details that I knew. Shopping malls largely date from the period after World War II, a time of increased consumer spending and suburbanization. Hundreds of malls were built in subsequent decades, but many of those are now closing or being dramatically repurposed, because people can buy things online instead and “hanging out at the mall” has lost much of the cachet it once (rather inexplicably) had. Large population shifts have also contributed to these trends. The postwar “white flight” from cities to suburbs has, in many places, reversed. The young, affluent (and still mostly white) Americans who are now gentrifying city centers do not want to drive all the way out to the suburbs, walk through an enormous parking lot, and shop in bland department stores with bad lighting. They want bold architecture, local flavor, landscaping, and spa services, and they want it all to be accessible via public transit.

The most obvious of the “Big Ideas” for this course that arises in the Lange article is unacknowledged assumptions. Shopping mall builders assumed that people would always do most of their shopping in person, back when nobody could imagine the Internet. Mall builders also assumed that suburban sprawl would just keep going and going, so a shopping center on an affordable, somewhat isolated lot would one day be surrounded by customers. This assumption about suburban sprawl was not entirely wrong, as many metro areas are still expanding in all directions, but the perception of urban centers as stylish and exciting, rather than decaying and dangerous, caught many planners by surprise.

The Lange article also highlights the interplay among business, state, and society. Malls might seem to be purely commercial spaces, but several public entities or concepts crop up in the article: the Department of Motor Vehicles (many DMV offices are located in malls), transit hubs, the Staten Island Ferry, state subsidies. Malls were always, in a sense, collaborative efforts of businesses and the state, because suburbanization would not have been possible without the G.I. Bill, which funded housing for WWII veterans, and the Eisenhower Highway System. Zoning policies, approaches to crime and education, “War on Poverty” programs, and other government interventions shaped cities and suburbs, too, as described in this paper from an undergraduate research journal at the University of Florida.

More significantly, the article speaks to Philip B. Scranton’s claim that “[i]nside a business there’s a minisociety” (MP, 9). A mall really is a minisociety, complete with food, employment, commerce, parks, social services, “mall cops,” etc. Lange argues, though, that it is a society with severe limitations:

However you remix the words “city” and “center”, however many public functions you invite in, however your sustainable landscape encourages walking (or hides the parking), it still isn’t the city. It’s a version of the city edited for the audience the owner and retailers want to attract.

All the mockery of the idea of Apple Stores as “town squares” multiplies tenfold—though malls, at least, must incorporate public bathrooms. No loitering policies, parental escort policies, and curfews explicitly exclude homeless people and teenagers from the mall. The economic mix of stores and the food options presents an implicit form of exclusion, as does the presence or absence of seating. The new urban malls must be responsible about the semi-public part of the equation.

A mall is perhaps the ideal place to examine questions of business and the meaning of society, all while sipping boba tea or looking for a good deal on shoes. Good luck finding a place to sit.