Presentation by Sarah Daniels & Daniel Buffingtonrunawayinequality.org -- The Alliance for Economic Justice

How Runaway Inequality Is Destroying the American Dream

And what we can do about it.

Outline of Presentation

Part 1: What is Runaway Inequality?

Part 2: What is the cause of Runaway Inequality?

Part 3: How does Runaway Inequality impact contemporary social problems and issues?

Part 4: What can we do to reverse Runaway Inequality?

Part 1: What is runaway inequality?

Discussion QuestionsHow big is the CEO-to-worker wage gap?• How much do you think a CEO of a Top 100

company receives each year in total compensation?

• How much do you think an average worker in a Top 100 company receives?

In 2009, Americans estimated that the ratio was 40:1

Source: Leibinz Institute for the Social Sciences, International Social Survey Programme: Social Inequality IV-ISSP 2009

5 to 1

12 to 1

7 to 1

Strong Democrat Strong Republican All Americans

CEO-Worker Wage Gap: What Americans Think it Should Be

The Actual CEO-to-Worker Wage Gap

45 to 1

127 to 1

321 to 1

726 to 1794 to 1

0

100

200

300

400

500

600

700

800

900

1970 1980 1990 2010 2011-2016

Ratio of CEO-to-worker pay, Top 100 firms

Sources: author’s calculations based on data for 2013 from Equilar CEO compensation survey reported on in New York Times, June 8, 2014;average wages from Bureau of Labor Statistics, www.bls.gov/data#wages

The Changing Value of Labor

Source: Bureau of Labor Statistics

Productivity

$469

Real wages $790

1947 1954 1961 1968 1975 1982 1989 1996 2003 2010

Productivity vs. Real Wages for Non-supervisory Workers$1241

What happened to this income?

$687

Part 2: What is the cause of runaway inequality?

10%

19%

25%

Financialization45%

What is Causing Runaway Inequality?

“How much of a nation’s economy is

devoted to Wall Street-like

financial services”

Source: International Labor Organization, “Global Wage Report 2012/13: Wages and Equitable Growth”

Technology / Automation

of Labor

Globalization of Labor

Declining Gov’t Programs & Unions

How does so much value end up in financial sector?

1. Buy up a company using borrowed money2. Pay top executives primarily with stock incentives

Salary, 5.2%

Stock Options, 83.6% Other, 11.2%

Proportion of CEO pay, by source (2013)

Source: Standard & Poor’s ExecuComp database, calculations by Matt Hopkins

1. Buy up a company using borrowed money2. Pay top executives primarily with stock incentives3. Downsize the company to create cash on hand

• Reduce workforce through layoffs, automation, or sending production abroad• Lower wages & benefits• Raid pension funds or discontinue them• Speed up production• Sell off product lines & divisions• Reduce spending on Research & Development• Reduce spending on building new facilities

or revamping old ones

How does so much value end up in financial sector?

1. Buy up a company using borrowed money2. Pay top executives primarily with stock incentives3. Downsize the company to create cash on hand4. Use cash to buy back own stock, driving up price

$200K

$200K

$200K

$200K

$200K $250K

$250K$250K

$250K

Before the Stock BuybackEach owner holds 1 unit of stock worth $200K

After the Stock BuybackEach owner holds 1 unit worth $250K

Company buys & dissolves

1 unit of stock

How does so much value end up in financial sector?

1. Buy up a company using borrowed money2. Pay top executives primarily with stock incentives3. Downsize the company to create cash on hand4. Use cash to buy back own stock, driving up price

2%

24%

41%

74%

25%

42%

59%

1981 1990 2000 2008 2009 2013 2016

How does so much value end up in financial sector?

Source: William Lazonick, The Academy-Industry Research Network

1. Buy up a company using borrowed money2. Pay top executives primarily with stock incentives3. Downsize the company to create cash on hand4. Use cash to buy back own stock, driving up price5. Major shareholders sell off stock at higher prices

In strip mining (pictured), the valued mineral or ore is

extracted, but at the cost of leaving the surrounding environment devastated.

Similarly, financial strip mininginvolves extracting as

much financial value out of a company as possible,

often leaving it in ruins.

How does so much value end up in financial sector?

Change to the Prevailing Business Model

“Downsize & Distribute”Dominant after 1970s

“Retain & Reinvest”Dominant before 1970s

Part 3: How does runaway inequality impact other social problems & issues?

Corporations Stop Paying Fair Share of Taxes

6.3%

4.2%

3.2%

4.7%

3.2%

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

PERCENTAGE OF STATE & LOCAL REVENUES FROM CORPORATE TAXES

Source: Bureau of Economic Affairs, Table 3.3. State and Local Government Current Receipts and Expenditures

Corporate Tax Contribution in 2017 $54.3BCorporate Tax Contribution in 2017 at 1980 rate $106.9B

Net Loss in Corporate Tax Contributions $52.6B

Corporations Stop Paying Fair Share of Taxes

• In 2011, off-shore tax shelters cost $150B in federal taxes and $39.8B in state and local taxes

Annual Tax Revenues Lost to Tax Havens

Individual & Corporate Income Taxes Combined

Rank State Revenue Losses

1 California $7.1 billion

2 New York $4.3 billion

3 New Jersey $2.8 billion

4 Illinois $2.5 billion

5 Pennsylvania $2.1 billion

6 Minnesota $2.0 billion

7 Massachusetts $1.7 billion

8 North Carolina $1.0 billion

9 Florida $ .98 billion

10 Maryland $ .97 billion

Source: U.S. PIRG (2013) “The Hidden Cost of Offshore Tax Havens” Georgia = $ .92 billion

How does Runaway Inequality Impact the Environment?

Lack of tax revenue means reduction in environmental enforcement• Reduced budget

• NC Department of Environmental Quality (DEQ) annual budget dropped $120M

from 2007-2017

• Reduction in workforce• NC DEQ has lost one third of workforce over same period

• Inability to keep up with mandate • 40% of permits are expired or backlogged

Source: http://www.newsobserver.com/news/politics-government/state-politics/article174769781.html

When companies are caught, they claim they have no fundsIn 2018 Duke Energy requested a 14% rate hike claiming it did not have enough

funds to pay for coal ash cleanup. In 2015, Duke used $1.5B to repurchase

stocks.

How does Runaway Inequality Impact Healthcare?

• Less health insurance coverage• Lower health measures• Speed up of hospital work• Lack of innovation

(example: pharmaceuticals)

“Much of the news from the pharmaceutical industry over the past five years has been about scalingback R&D. Companies like Pfizer, AstraZeneca, and Merck have done just that, much to the delightof Wall Street analysts who have been urging pharmaceutical companies to rethink investing 17-20%of revenues into R&D and to scale this back to 10-14%. While such a decrease in spending can bringshort-term returns with respect to higher financial returns, such policies have negative long-termconsequences. Those companies that aggressively cut their R&D budgets will ultimately experienceshrinking pipelines. More importantly, for patients, these cuts will lessen the chances of coming upwith new medicines for diabetes, Alzheimer’s disease, cancer, etc.” (Forbes, Jan 3 2014)

Runaway Drug Overdose Deaths

6,094

65,000

0

13,000

26,000

39,000

52,000

65,000

1980 1985 1990 1995 2000 2005 2010 2015

DEATHS FROM DRUG OVERDOSE

Source: 2015-16 from Josh Katz, “Drug Deaths in America Are Rising Faster than Ever,” New York Times, 6/5/2017; prior years from National Center for Health Statistics, National Vital Statistics System, www.cdc.gov/nchs/data/health_policy/AADR_drug_poisoning_ involving_OA_Heroin_US_2000-2014.pdf.

Runaway Opioid Deaths

Les’s chart

Part 4: What can we do to reverse runaway inequality?

What do we do about it?

• Need to form a mass popular movement• Focusing on economic justice offers a potential

link across “silos”

An Example: The Populists, 1880-96

• Faced similar economic and political conditions as today

•Broke down major silos: race, political party, region

• Sent 6,000 educators into the field to help farmers understand the financial system

Public Policy: Reducing Relative InequalityIn order to reduce inequality, policies must be implemented that both raise up the middle and lower class, while also putting controls on financialization.

Support and empower the working & poor: • Living minimum wage• Medicare for all

Controls on Wall Street: • Reinstate limits to

corporate stock buybacks• Financial transaction tax

How to Get More InvolvedNational: Join the Reversing Runaway Inequality movement by going to www.runawayinequality.org

Current Runaway Inequality trainer map. We need more in SENC!

State: Join Raising Wages NC in their campaign for a higher state minimum wage Local: Join early efforts to form organizations dedicated to reversing runaway inequality (Alliance for Economic Justice)

Presentation by Sarah Daniels & Daniel Buffingtonrunawayinequality.org -- The Alliance for Economic Justice

How Runaway Inequality Is Destroying the American Dream

And what we can do about it.

QUESTIONS?