We thought it might be of interest to our readers if we extended this format to our blog each month. Here is this month's question which focuses on the economy.
A generation ago the top managers in large corporations were paid straightforward salaries like everybody else. Today, CEOs are increasingly paid a portion of their salary in stocks or shares. Our question of the month is: In Fortune 500 companies (the largest American corporations) what percentage of what CEOs are paid is now, on average, issued as stocks? Is it:
a) 20% b) 40% c) 60% d) 80%
One of the principal tenets of neoliberalism is that individuals will and should try to maximize their own wealth. That includes CEOs. The average Fortune 500 CEO now takes 80% of their pay in the form of stocks or stock options. The result is that their natural inclination or priority will be to increase the price of these stocks as quickly as possible. One of the ways of doing that is to get the corporation to use its own money to buy back stock, thereby decreasing the supply of its stocks available for others to buy. The effect will be, in the short term, to increase the price of the stock. This has become so popular that buybacks now consume on average over 50% of the profits of S&P firms.
Can you see a problem here? Money that should be going into paying workers their fair share, strengthening production, and investing in research and development is being diverted so that stock holders and their CEO can make quick, easy money. In this way neoliberalism favours those who already have money over those who are trying to earn it. It has also created a stock market where the rise and fall of share values no longer accurately reflect corporate strengths and weaknesses.
This statistic came from The Corporate Contradictions of Neoliberalism, a paper published over summer in the American journal American Affairs. While last month’s blog focused on the illusions neoliberal ideology perpetrates about how money and debt are used, this month’s review looks specifically at how large corporations function in the neoliberal economy.
Why have we chosen this article to review?
Precarious employment, lower wages, decreased benefits, and mounting stress are features of 21st century society. Most analyses of the growing economic pain and uncertainty felt by an ever expanding number of people focus on globalization or automation. We are subtly told that there is nothing we can do about their impact. Globalization and automation are part of progress and unstoppable.
But, what if the big culprit behind growing inequality is the modern corporation? Under neoliberalism, the corporation has become the world’s dominant institution, with many of the largest corporations eclipsing nation states in revenues and global presence.
Fortunately, there is growing criticism of the neoliberal interpretation and idealization of the corporate world. We particularly like David Ciepley's analysis.
Ciepley asserts that there is a huge contradiction between the idealized picture neoliberal economists paint of how a healthy economy should work and the economy neoliberalism is actually sponsoring . The neoliberal corporation is at the heart of this misconception.
Misconceptions about corporate ownership
Originally, the corporation was modeled on the incorporated city, first Rome and then medieval towns. Just as the citizens of a city do not own the assets of the city, stockholders do not own the assets of the corporation. The corporation, which is an abstract legal entity created by government charter, is the sole proprietor.
In other words, contrary to what we believe, stockholders do not share ownership of a corporation. Stock is just a financial instrument - a special form of investment that a corporation is privileged to sell, in the same way that a corporation can sell shoes or cars. Stockholders can resell their investment if they can find others investor to buy their share, but they do not have any legal claim over the corporation’s assets, except at bankruptcy, “when they are last in line as heirs, not first in line as owners”.
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