Author: ken

The Difference Language Makes

Two professors, one at Princeton, the other at Northwestern, have concluded in a recent study that power is highly concentrated in America in a way that threatens democracy. The study got a lot of press, but the language that was used describing it was particularly interesting.

Reported first by the BBC, and then widely circulated, their study showed: “When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose.” On the other hand: “when fairly large majorities of Americans favor policy change, they generally do not get it.”

In its coverage of the study, MSNBC put it this way: “Americans may like to think they live in a Democracy, but a new study suggests the opinions of a moneyed elite class are far more influential than those of the masses.” They note that the researchers referred to their finding as “economic elite domination,” but commented that “another term could also be used: Oligarchy.” (See, “U.S. More Oligarchy than Democracy, Study Suggests.”)

The BBC concluded in language what would distress an 8th grade social studies teacher extolling our “democratic system:” “if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.” (See, “Study: US is an Oligarchy, Not a Democracy.”)

The problem we have with “oligarchy” is that recently the term has been applied to Russia where a small group of “oligarchs” have profited exorbitantly from the privatization of industries previously owned by the state. Forming a partnership, in effect, with the government, they essentially run the economy, earning billions while supporting the repressive regime. That is an uncomfortable analogy for us. It feels corrupt. But now it has corroboration from academic research.

The Huffington Post, in its coverage of the story, offered an historical perspective: “A key struggle throughout US history has been whether or not the society’s resources would be mobilized to expand access and opportunities across the population, and who would pay for it.”

The article noted that the first efforts to establish a Federal income tax in peacetime occurred in 1894, exempting almost everyone except the very rich. “American oligarchs responded by using wealth power to hire a phalanx of lawyers to challenge the tax all the way to the Supreme Court. In a 5-4 decision, it was struck down as a ‘communistic threat.’”

According to The Huffington Post, “American oligarchs use their wealth power to fund conservative think tanks that have transformed the estate tax into the ‘death tax,’ and amplified messages like ‘government is the problem.’ Oligarchs also hire armies of tax lawyers, accountants, lobbyists, and wealth management specialists to create complex ‘tax products’ and shelters, and to relocate fortunes to secrecy havens scattered around the globe.”

“This offshore financial dark matter is estimated to be between $5 trillion and $25 trillion, and it is mostly untaxed. The portion of these hidden riches belonging to Americans costs the U.S. treasury $80 billion annually in lost taxes.” (See. “Oligarchy and Democracy in America.”)

This daring new use of “oligarchy” brings a breath of fresh air to the current debate about income inequality, opening up ideas seldom seen in the media.

More of the Same?

What might get us to really pay attention to the growing gap between the rich and the poor? Occupy Wall Street was a flash in the pan though it give us the memorable slogan “We are the 99 percent”. The continuing news about income disparity and escalating CEO salaries seems just too repetitive and familiar. As news, it’s as exciting as global warming.

This week, we find out that the historic supremacy of our middle class has been eclipsed. “After-tax middle-class incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States.” Will that mobilize our attention?

Not likely. It’s like the story of frogs in a pot of boiling water. If the temperature is increased gradually, they don’t notice until it’s too late. (See, “The American Middle Class Is No Longer the World’s Richest.”)

The Times notes: “both opinion surveys and interviews suggest that the public mood in Canada and Northern Europe is less sour than in the United States today.”

Yes, we are sour, but what would it take to jolt us into awareness?

Putting Two Things Together

There is good reason to believe that the world is getting more depressed. T.M. Luhrmann, Professor of Anthropology at Stamford travels a lot, frequently to the third world, so she has a chance to sample what people say and note how that changes over time. But she also cites data such as the World Health Organization’s report that “suicide rates have increased 60 percent over the past 50 years, most strikingly in the developing world.”

Writing in The New York Times, she notes the report predicts: “by 2020 depression will be the second most prevalent medical condition in the world.” She adds: The British medical journal, The Lancet, “found a 36.7 percent increase in the ‘burden’ of mental illness and substance abuse disorders across the globe.” And then: “In 2011, the Centers for Disease Control and Prevention reported that the rate of antidepressant use in the United States rose by 400 percent between 1988 and 2008.” (See, “Is the World More Depressed?”)

None of this is proof of the trend, but it is highly suggestive – and worrisome.

How does she account for it?

She mentions the usual suspect, urbanization: “cities . . . break traditions and fracture families, and they breed psychiatric illness.” But then she adds an interesting thought. “It turns out that your sense of relative social rank — where you draw a line on an abstract ladder to show where you are with respect to others — predicts many health outcomes, including depression.” In the Facebook Age, where “friends” are constantly checking each other out, “It may truly be a depressing reflection.”

But it takes more than a comparison to make one depressed. A more plausible explanation is the comparisons with others when you feel stuck and helpless yourself. If we put together the impact of social media and the world-wide phenomena of growing income inequality, we may have the answer.

In his new book, the French economist Thomas Piketty makes a convincing case that, over the long haul, growth in the return from capital outstrips growth from productivity. This is the explanation for our explosive and growing disparity in wealth. In other words, the rich get richer simply because they have more money to invest.

There are huge exceptions, of course, but that is the trend shown by the economic data that Piketty and his colleagues have exhaustively examined.

In an inverview with Eduardo Porter in The New York Times, Piketty responds to the argument that the rich in the U.S. have earned their money by creating new products, services and technologies: “This is what the winners of the game like to claim. But for the losers this can be the worst of all worlds: They have a diminishing share of income and wealth, and at the same time they are depicted as undeserving.”

He adds: “History suggests that this kind of inequality level is not only useless for growth, it can also lead to a capture of the political process by a tiny high-income and high-wealth elite.” (See, “Thomas Piketty on the Wealth Divide.”)

This might be the reason to be depressed. Even if you haven’t figured it out, you are still affected by it. We don’t know we know it, but we do.

Hints About the Real Problem

G.M.’s CEO has responded all too predictably to the Cobalt crisis by firing its senior vice president for global communications, responsible for “handling . . . the public response to the recall of nearly 2.6 million cars.” (See, The New York Times)

Killing the messenger is not exactly the same as trying to find out what went wrong – but it still seems to be the preferred strategy when big problems are uncovered at big companies.

My last post raised the question “Is G.M. too big to fix?” This seems to be more evidence that those at the top, at least, seem to think it is. They view it as primarily a public relations problem.

“Business Decisions” at GM

Could some companies be just too big to manage effectively? They may offer too many dark corners, too many layers of responsibility, too many opportunities for their executives to get distracted and forget.

Complex and intractable problems do not find solutions under such circumstances. On the other hand, these are ideal circumstances if you have anything to hide.

That seems to be what investigators and reporters are finding as they sift through over 200,000 pages of documents, looking into the Cobalt’s ignition problems that caused several deaths. The defects themselves were not hard to find – and indeed they had been found. Now two of the engineers who found them have been “suspended.”

It turns out that both of them were “deposed last year in a lawsuit filed against G.M. by the family of a Georgia woman who died in a Cobalt crash in 2010,” according to The New York Times. “In his deposition [one of the engineers] was asked by the family’s lawyer . . . whether G.M. had made ‘a business decision’ not to make the ignition switch stronger and less prone to failure.”
‘That is what happened, yes,’ he said.” (See, “GM Suspends Two Engineers.”)

But it took other documents to illuminate what exactly that meant. In 2004, “an engineer who was working for G.M., described the problem, but said, ‘After talking to Ray DeGiorgio [one of the suspended engineers], I found out that it is close to impossible to modify the present ignition switch.’”

“He added, ‘The switch itself is very fragile and doing any further changes will lead to mechanical and/or electrical problems.’”
“A month later, in March 2005, the inquiry was closed, partly because of cost issues, with this explanation: ‘The lead time for all the solutions is too long. The tooling cost and piece price are too high. None of the solutions seems to fully countermeasure the possibility of the key being turned (ignition turn off) during driving. Thus none of the solutions represents an acceptable business case.’” (See, “GM Documents Show Years of Talks on Flaw.”)

That seems to mean that the problem was too costly to fix. And that was that. The problem had been assigned, researched and then disposed of.

Clearly this is not the first time that problems have been “disappeared” in large organizations, and for sure it won’t be the last time. But what can be done about it? Will “business decisions” become the standard euphemism for abandoned dilemmas and ethical lapses? This is the kind of thing that gives big business and bad name

Mary Barra, GM’s CEO who is testifying before an angry and skeptical Congress, is under pressure to come up with something better. But Congress itself is notorious for short attention spans and easy distractions, and for sure it will move on. Will she?
Perhaps we could have a “Lost and Found” office for such problems, someplace to park them with someone assigned to remember their existence. That would not be a popular job, but perhaps the person could be paid enough to keep at it.