by Bill Clinton
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One of the best characteristics of Americans is that most of us applaud, not resent, the success of other people, as long as it’s fairly earned. But we’ve all read stories of the golden parachutes that bestow millions on CEOs who leave companies in worse shape than they found them. Or stories about companies that have to be downsized to cut costs enough to cover debt payments for buyouts that made a killing for those who did the deal but cost workers jobs or years without pay raises even though they had helped make their company profitable before it was brought low by new debt.
The 2010 filings of 483 companies in the S&P 500 show that their 2,591 executives in total received $14.3 billion in compensation, an average of $5.5 million. Median CEO pay at large corporations was $10.8 million, which is less than it was before the recession. But in 2009 and 2010, 179 companies in the S&P 500 raised executives’ pay even as the value of their shareholders’ stakes fell. Meanwhile, the average American worker took home $752 a week, an increase of one-half of 1 percent, which, after inflation, was a decrease in real income.
In spite of these examples, and the well-known tales of enrichment through illegal conduct at Enron, Tyco, and others, I think most Americans respect people like Steve Jobs, who made a fortune producing products or services they want to buy like the iPad and the iPhone (though we wish they were made in the United States). And most Americans cheer the success of the many U.S. companies that have retained the loyalty of their employees and the communities of which they are a part by being loyal to them. Corning, Coca-Cola, Dow Chemical, Procter & Gamble, Starbucks, and many, many others have enjoyed financial success by making good products, providing good services, and maximizing U.S. employment and community involvement, even as their operations spread across the globe.
When I was governor of Arkansas, I helped to recruit a Nucor steel plant to the economically distressed northeast corner of our state. The company made rolled steel there. Its employees earned a modest wage but received weekly bonuses based on company profits. The bonuses usually doubled earnings, putting its workers among the highest paid in our state. In addition, the employees received an education bonus of $1,500 per year for every child they had in college. The company also had a strict no-layoff policy, which meant that if income declined, the employees’ bonuses would be reduced across the board. It happened once, in a very bad year for manufacturing in the mid-1980s. The chairman and founder of the company, Ken Iverson, sent a letter to every employee, explaining that business was down 20 percent, so everyone’s bonus would be reduced by that amount, but no one would be laid off. Then he said that since he hadn’t succeeded in finding a way to keep Nucor growing in the face of a global downturn, he was cutting his pay by 60 percent.
Fast-forward to 2009, when Nucor actually lost money for the first time. Still, no one was laid off. Employees’ hours and pay were reduced, but benefits were maintained, including the now $3,000 per child for college tuition, plus supplements to help pay the college expenses of the employees themselves and their spouses. In the toughest times, the company’s culture held fast to the values of its founder. Ken Iverson was a good Republican who believed in shared benefits and shared responsibilities. We need more executives like him.
There are more than you might think. On September 11, 2001, Jimmy Dunne was one of three men who led a small investment banking firm, Sandler O’Neill & Partners, L.P., with offices on the 104th floor of the South Tower of the World Trade Center. When the second terrorist plane turned the South Tower into an inferno and brought it down, Sandler O’Neill lost 66 of its 171 employees, including the other two men who ran the firm with Dunne. Dunne was determined both to save the firm and, in spite of its dire financial straits, to do right by the families of his lost employees. In 2001, the firm paid the lost partners’ capital to their families, paid the year’s remaining salaries, and awarded bonuses to fallen employees’ families equal to or greater than the amount earned in their best year. It offered full benefits to all of the families for five years, then later extended them for another five, and set up a foundation to fund the education costs of the seventy-four children who lost a parent. Today, Sandler O’Neill has 340 employees and partners, including 57 of the 105 who survived, another shining example of the positive economic and employment rewards of a company that values long-term loyalty, shared benefits, and shared responsibilities.
Several other firms that lost people on 9/11 also made a real effort to take care of their families and the surviving employees who needed help. The hardest hit was the large bond-trading firm Cantor Fitzgerald, which lost 658 of its 950 employees. The company gave 25 percent of its profits to the families of its slain employees and provided for their health insurance for a decade. Now BGC, a trading arm of Cantor Fitzgerald, has an annual Charity Day on which it donates all the day’s income to good causes, including those that benefit men and women wounded in military service. Another trading company, ICAP, does the same thing. For every person on Wall Street who resembles the character Michael Douglas played in the Wall Street movies, there are many others who give lots of money every year to increase educational and economic opportunities for poor kids and inner-city entrepreneurs.
Most of these people are grateful for their success and know that because of current economic circumstances, they’re in the best position to contribute to solving our long-term debt problem and to making the investments necessary to restore our economic vitality. Many of them supported me when I raised their taxes in 1993, because I didn’t attack them for their success. I simply asked them, as the primary beneficiaries of the 1980s growth and tax cuts, to help us balance our budget and invest in our future by creating more jobs and higher incomes for other people. They’re smart enough to know that they can’t continue to prosper on the escalator of our increasing inequality without fundamentally weakening America and killing the goose that laid their golden eggs.
Of course, there are also a lot of other people who’ve done well, think they were entitled to all the tax cuts, and see no connection between the concentration of income and wealth at the top, the decline of both middle-class and low-income workers, and the jobless growth pattern of the last decade.
Some of them are bankrolling the antigovernment crowd. That helps to explain some of the positions its members of Congress have taken that seem inconsistent with their rhetoric. For example, the antigovernment members of Congress railed against the financial bailout, but they support repeal of the financial-reform bill, thereby stripping government regulators of their power to make banks hold more capital to cover higher risks, increasing the likelihood of future financial failures. The bill also bars future bailouts and establishes a procedure for orderly bankruptcy instead. They want to repeal that too.
Here is a different example of a Tea Party move that at first seems consistent with its antigovernment philosophy but is really about abusing a government program with weak oversight. In August 2011, a Tea Party freshman, Representative Austin Scott of Georgia, president of the Republican freshman class, introduced a bill to abolish the Legal Services Corporation. He said that poor people didn’t need government-funded attorneys because they could find representation elsewhere. He said he was just trying to save the taxpayers money. The bill was introduced three days after Legal Services lawyers won a decision from the Equal Employment Opportunity Commission that Hamilton Growers, a company in Scott’s district, had illegally discriminated against its U.S. workers in favor of Mexican migrant workers. The discrimination included deliberately giving the U.S. workers less favorable assignments and fewer work hours and engaging in a pattern of firing U.S. workers in order to hire more guest workers from Mexico, under a visa program that allows employers to hire them when they anticipate a shortage of American workers. The program was not set up to provide a way for employers to dismiss or refuse to hire American workers so that they can hire foreign workers at substandard wages with no benefits. The real purpose of the first b
ill Representative Scott sponsored was to punish Legal Services lawyers for exposing these abuses of the visa program by an employer in his district.
Ironically, in his successful 2010 campaign against a moderate Democratic incumbent, Scott promised to be tough on illegal foreign workers taking precious U.S. jobs. Though in this incident the foreign workers were technically here legally, it is still hard to see how kicking American citizens out of jobs to hire temporary immigrants is a good thing. As the Washington Post columnist Dana Milbank says, the Tea Party may have started as a populist revolt, “but it has been hijacked by plutocrats.”3
When the Tea Party first emerged, I admired its founders’ principles even when I disagreed with their policies. The early organizers were protesting a government that bailed out banks instead of holding them accountable for their unwise mortgage gambles and helped underwater home-owners who shouldn’t have taken on subprime, variable-rate mortgages in the first place. They also opposed the federal legislation to aid and restructure the auto industry, believing that American companies should live with the consequences of past mistakes. I disagreed with all these positions because I thought the failure of our financial system, the lingering home-mortgage debacle, and the loss of America’s ability to make cars and trucks would hurt tens of millions of hardworking, responsible citizens who had not contributed to our problems. Still, I admired the original Tea Party activists’ call for more responsibility in America from top to bottom. It was sad to see the movement morph into one that kept the rhetoric of accountability but applied it only to the middle class and the working poor. Now too many foot soldiers in the antigovernment brigade are fighting for policies that protect their financial backers, promote inequality, punish hardworking middle-class Americans, increase poverty, and prevent the restoration of a strong economy.
The antigovernment movement’s most cherished conviction is that we can’t raise taxes on the “job creators.” And not just while the economy is weak—not ever. Indeed, if it were up to them, they would cut taxes on high-income Americans even more, as they pledged to do in the 2010 campaign, and use the revenue shortfall as a reason to eliminate even more of the federal government than they have proposed to do in 2011.
The biggest problem with their argument is that we tried it their way for twenty of the last thirty years, and their strategy of using blanket tax cuts for high-income individuals didn’t work. In these twenty years, average job growth was under one million per year, income inequality increased dramatically, more people fell from the middle class back into poverty, and more middle-class people with nonexistent pay raises kept up with inflation by maxing out their credit cards and taking second mortgages on their homes, until household debt exceeded 125 percent of income.
The Tea Party retort, of course, is that past Republican presidents and members of Congress were committed to cutting taxes and weakening regulation but weren’t really serious about cutting spending. They say they are serious about it and that will make all the difference. They’re right about that. They are serious about it, and if their policies prevail, it will make a difference. It will make things worse.
To see why, let’s look at the impact that weak job growth, growing inequality, more money flowing to financial transactions that don’t create growth and jobs, and less public and private investment in our long-term economic success have already had. We can do that by comparing how America stacks up against our major competitors today, and how those nations’ policies compare with what the antigovernment ideologues advocate.
The first chart shows how we’re doing in various economic and quality-of-life measures compared with other countries that the International Monetary Fund classifies as “advanced.” There are thirty-three of them. Many are small, like Cyprus and Malta. Some are in deep economic trouble, like Greece. None of the rapidly rising countries like China, India, Brazil, and Russia are on the list yet, because their per capita income isn’t high enough. But the rest of our serious competitors for the future are covered.
The first column measures income inequality. We rank third, with only Singapore and Hong Kong having a more unequal distribution of income. Sweden, Norway, Austria, Germany, Denmark, and Finland have the most equal income distribution, along with a couple of smaller economies.
On unemployment, the United States, at 9 percent, ranks eighth highest, with a lower rate than Spain, claiming by far the highest rate at 20 percent, followed by Slovakia, Greece, Portugal, Slovenia, France (9.5 percent), and the Czech Republic. The lowest unemployment rate is Singapore’s at 2.3 percent, followed by Norway (3.7 percent), Denmark (4.2 percent), Australia (5.1 percent), the Netherlands (5.5 percent), Germany (7.1 percent), the United Kingdom (7.9 percent), Finland (7.9 percent), and Sweden (8.3 percent). The difference between these nations and the United States might be greater than the numbers indicate, because in the United States you’re only counted as unemployed if you’re officially looking for work. Many people have taken part-time jobs who want full-time work. They’re not counted. And in addition to the 9 percent unemployed there are about 6 percent of our people in their working years who are not counted in the unemployment numbers because they are discouraged and not “officially” looking for work, suggesting the real unemployment rate is 15 percent or higher. Overall participation in the work force by the adult population has dropped from an all-time high in 2000.
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On food insecurity, measuring the percentage of people who didn’t have enough money at some time in the last year to buy food, only twenty countries reported. The United States tied with South Korea for the highest percentage in need at 16 percent.
Our highest positive ranking on this list is eleventh, on Gallup’s Global Wellbeing Index, which measures the percentage of people thriving in the United States at 57 percent, well below Denmark’s top ranking at 82 percent.
On comparative tests, U.S. students ranked sixteenth in science, twenty-second in math. Our high school graduation rate is eighteenth, as the next chart shows. Our problems in kindergarten through twelfth-grade education are well known. In elementary school, our kids match up well with others. By the eighth grade, there’s a pretty wide gap between our students and those in the highest-scoring countries. By the eleventh grade, the gap has grown into a chasm. Though our best students continue to do reasonably well compared with other nations’ best students, we also have a higher percentage of low-performing students than they do.4,5
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An even more troubling development for our long-term economic health is the trend that can be seen in the next chart. It shows our ranking, compared with other wealthy countries, in college-graduation rates. In 1995, the United States still led the world. By 2009, while we ranked third in 55- to 64-year-olds with college degrees, we ranked sixteenth in 25- to 34-year-olds with them. This shift happened because other countries improved their graduation rates over the last decade and we didn’t. America is still at or near first in the world in the percentage of our young people who start college, but our dropout rate is higher, probably because of a decade in which incomes were flat or declining and the cost of college increased 75 percent.
I hope the Obama administration’s student-loan program will correct much of this trend. Under the new system, the federal government will lend the money directly to students, instead of guaranteeing bank loans. That will lower student-loan costs. The students also don’t need to be afraid of running up debt to get a degree, because their loans can be paid off over twenty years as a small, fixed percentage of income. That means once the program is fully implemented, no one will ever have to drop out of college again because of the cost. The new program will cost the government $60 billion less than the old system over a decade, $40 billion of which will go to increase Pell Grants and other student aid and work programs, with the remaining $20 billion used to reduce the debt.
If you’re skeptical that this syste
m will save money, don’t be. During my administration, the Education Department gave colleges the option of using this system. It saved students $9 billion, an average of $1,300 in repayment costs on every $10,000 borrowed, and saved the taxpayers $4 billion, because once the students were able to repay their loans, almost no one defaulted.
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The college graduation rate is really important, because even though many new graduates are struggling to find jobs in this economy, the unemployment rate for college graduates is 4.5 percent, half the national average, and the rate for those with professional and other postgraduate degrees is around 2 percent.
Of course, the problems of poor children begin well before they start school and stay with them after they do. According to the Children’s Defense Fund’s 2011 report on the state of America’s children, the number of children living in poverty has increased by four million since 2000, after declining for the last seven years of my presidency. By 2009, 15.6 million children were receiving food stamps, 65 percent more than ten years earlier. The number of homeless children in our schools increased 41 percent in just two years between the start of the school years 2006 and 2008, before the financial crisis. In 2010, in New York City alone, more than forty thousand schoolchildren didn’t have a permanent home, more than three times as many as in 2006. With poor children already underperforming in our schools, the fact that a large majority of states are planning to cut spending in both K–12 education and basic services will only compound the challenges these kids face in trying to educate themselves and work their way into the middle class.