The Smart Money: Economic populism

Posted Tuesday, September 24, 2013 in Analysis

The Smart Money: Economic populism

by Gina Hamilton

Economic populism, or as I prefer to call it, the rise of the angry middle class, had its modern roots in a place that one might think curious. 

Around this time of year, shareholders get proxy tickets from the companies in which they invest.  The ticket allows the shareholder to go to the annual meeting if they wish, or to vote by proxy for a number of people, recommended by the board of directors, who will vote in the shareholder's interest.  You only need one share to go to the meeting.

And for years, with the market going up, no real understanding about CEO salaries on the horizon, and without a lot of concern about whether the business was operating ethically or not, shareholders were content to do so.

However, in 2009, an interesting phenomenon began to occur.  Shareholders started showing up for the annual meetings, mostly to financial services corporations, insurance companies, and energy companies.  This unnerved the board, and especially the CEO, who was almost always the target of the shareholders' ire.  Boards of directors had given up the right to deal with CEO compensation to a subcommittee, called a "compensation committee", which invariably found that the CEO was worth twice what he was earning, and recommended compensating him accordingly.  And that wouldn't have been a problem before 2008 for the financial services companies (energy shareholders had already had a taste of this after the Enron scandal), but after the crash, shareholders started reading the fine print.

These were the people, after all, whose decisions crashed the economy and lost the shareholders a lot of money.  They began a movement to return compensation questions to the board, where the issue had to be hashed out in the annual meeting, in front of the expectant eyes of thousands of shareholders.

Shareholders wanted more, and they eventually got it.  In the Dodd-Frank Financial Services Act, shareholders have to approve executive pay increases, not the board, and certainly not some unaccountable "compensation committee".

Now, while the market is in an upswing, most shareholders have gone back to sleep a bit, but they have the tool in hand to change the corporate culture if the market falls - and the corporations know it.

A poll taken just before the election in 2012 asked this question: "Which do you think is the bigger problem in this country—unfairness in the economic system that favors the wealthy, or over-regulation of the free market that interferes with growth and prosperity?" Fifty-two percent said it was "unfairness", while 37 percent thought it was overregulation.  A poll taken in 2013 found that 61 percent thought the government should do more to close the gap between rich and poor, while 35 percent disagreed. 

Out of nowhere, Occupy Wall Street and other similar movements around the country sprang up, daring to speak about income inequality.  Although those with vested interests in the status quo decried such tactics as "class warfare", the middle class, who believed class warfare had been waged against them for years, was having none of it.  The movement had legs, and after the Arab Spring, the Occupy summer and fall had Americans from every walk of life participating.

The reason the OWS movement resonated so broadly lies in the subsequent loss of so much housing wealth.  The 2008 meltdown and its aftermath have driven down the value of residential real estate by about 35 percent, and that included most or all of the equity that millions of middle class families had in their homes in 2007. Since 2007, the bottom 80 percent of Americans have lost up to half of their net wealth.

When middle-class Americans turned to Washington, they saw the resounding success of the government’s efforts to stabilize the financial markets – where the top one percent derive most of their wealth. The rich are back to becoming even richer. That’s the way America has operated for at least the last generation. What grates on middle-class Americans this time is that they’ve been getting poorer. And Washington has done little to stabilize the market from which they derive most of their wealth, which is housing.

Unions are making inroads into areas that no one ever thought they'd find footing.  On the day after Thanksgiving, unions managed to picket thousands of Walmarts across the country, finally achieving a victory of sorts and forcing Walmart to recognize their new union, "OUR Walmart".  While few stores are currently unionized, more walkouts and protests are planned for this fall and winter.

Fast food workers are also walking off the job and picketing their employers.  Cities are insisting that workers be given "liveable wages" if new stores are to open in their cities. 

And home-care and day-care workers, such as those who care for the elderly in their homes and people who work for day-care centers, are starting to organize, too. So too are contract workers, adjunct faculty at colleges, and so-called "pink collar" jobs, working in salons and spas.

The term "union", long a dirty word by those on the right, is making a comeback in America.  Service workers may never get the big bucks, but they may soon achieve a living wage.

It's a matter of time before other service workers get unionized, and corporations know it.  They are beginning to add perks to the job in an attempt to keep unions out, such as stock options, college tuition reimbursement, and bonuses.  However, corporations, who thought they had the upper hand with unemployed people, desperate for work, are finding that as the economy improves, workers aren't too impressed with their promises.

Balancing labor and capital, historically, is the only thing that has kept both parties to the economy in check.  With capital hemmed in by its own shareholders, and labor supported by nascent unions, the pendulum in the class wars may at last be swinging back toward the center.

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