This Week

Billionaires, billionaire investor Warren Buffett likes to quip, “should leave their kids enough to do anything but not enough to do nothing.”

Last week, Buffett served notice he would keep to that maxim. The world's second-richest man announced a series of philanthropic contributions worth an amazing $37.4 billion. Should this stunning display of munificence change how we think about grand concentrations of private wealth?

We tackle this question — and much more — in this week's Too Much.

Greed at a Glance: Wall Street's Competition

An Alabama jury last week found Richard Scrushy, former CEO of the giant HealthSouth rehabilitation hospital chain, guilty of bribery, conspiracy, and mail fraud. Scrushy, whose personal fortune topped out at about $300 million late in the 1990s, had professed his complete innocence. Noted an angry Scrushy after the verdict: “It is very sad that this could happen in this country.” In other sad health-related news last week, a business survey found that 95 percent of Fortune 500 companies plan to reduce retiree health benefits over the next five years — and 14 percent expect to end retiree health coverage completely . . .

This spring's corporate annual meeting season has come and gone, and no one may be more grateful to see it go than Angelo Mozilo, the CEO of Countrywide Financial, America's top mortgage lender. Last month, at the company's annual meeting in California, shareholder activists led by the AFSCME public employee union advanced a resolution that called for an yearly advisory shareholder vote on Countrywide's executive pay. That move outraged Mozilo, who last year took home $2.8 million in salary, $19.6 million in bonus, $726,314 in perks, $18.4 million in new stock options, and $119 million from cashing out options he already held. Retorted Mozilo: “Entrepreneurs are not going to come into the public arena if every move they make is one that is going to be criticized no matter what move they make.” The AFSCME resolution won 43 percent of the shareholder vote . . .

The CEO of the world's biggest pharmaceutical company knows the real reason why executive pay has become a red-hot issue — and he's spilling the beans! Henry McKinnell, the top exec at drugmaker Pfizer and the chair of the Business Roundtable, reveals in the latest issue of Fortune magazine that “an unholy alliance” of environmentalists, animal-rights activists, and hedge funds is trying to “inflame the issue of CEO pay” to seize control of corporate decision-making and push “their narrow interests.” Any loss of control would certainly not be in McKinnell's interest. He took in $16 million in total compensation last year and stands to collect, upon retirement, an $83 million lump-sum pension . . .

Move over, Wall Street, the “City” is coming. The “City” — London's version of Wall Street — is vying to become the powerhouse of world finance, in the process filling the UK capital with domestic and foreign rich who are “ordering top-of-the-range cars and yachts, pushing up prices in the most expensive restaurants, and lavishing truly staggering sums on almost every type of consumer good.” These swells, notes British journalist Martin Hickman, “live behind elaborate security systems and move about the streets in chauffeured cars” and may “be diminishing whatever glue sticks together the city's social fabric.” One sign of London's times: Berry Bros. and Rudd, a local wine shop, recently sold a case of a 1959 Richebourg grand cru burgundy to a “City” slicker — at over $18,000 a bottle . . .

Move over, London, Moscow is coming. The Russian capital, says a new Mercer consulting group study, has become the world's most expensive city to live, mainly because Russia's wealthy have sent prices soaring for the city's scarce decent housing. In Moscow's ritzy Rublyovka suburb, new homes now start at $12.6 million. Russia's 36 richest people now hold $119 billion in total net worth, a sum that equals about a quarter of the country's annual gross domestic product.

A New All-Time American Pay Gap Record

Modern America's workplaces, the Economic Policy Institute reported last week, have never been more unequal.

In 2005, the highest-paid personages in these workplaces — corporate CEOs — took home 821 times more than the lowest-paid, workers who labor at the current $5.15 federal minimum-wage.

Over the last 40 years, the latest EPI data show, the gap between top and bottom in America's workplaces has exploded by nearly sixteen-fold. In 1965, CEOs took home only 51 times more than minimum-wage workers.

Last year's record workplace pay gap, notes EPI President Larry Mishel, reflects “both the extraordinary growth of CEO pay and also the diminishing value of the federal minimum wage.”

The minimum wage has not risen a penny since 1997.

“Adjusting for inflation,” EPI's Mishel adds, “the purchasing power of the minimum wage is now at its lowest since 1955.”

Warren's Good Deed: How Loud Should We Cheer?

Last week's blockbuster announcement by billionaire Warren Buffett — that he would shortly start giving away $37.4 billion, about 85 percent of his fortune — raises an obvious question for people who worry about inequality.

That question: If our deepest deep-pockets are going to recycle their vast fortunes back into society, through charity, why make a fuss about our contemporary top-heavy distribution of income and wealth?

Buffett himself, interestingly enough, has been worrying about inequality for years. He has spoken out against the accounting rules that encourage CEO pay windfalls. And he has consistently opposed estate tax repeal.

“I can’t think of anything that’s more counter to a democracy that dynastic wealth,” Buffett told reporters last Monday. “The idea that you win the lottery the moment you’re born, it just strikes me as outrageous.”

A century ago, most Americans shared that outrage. But their outrage went beyond massive inheritances. Americans back then, in our first grotesquely unequal “Gilded Age,” feared massive accumulations of private wealth pure and simple, inherited or not, and advocated progressive tax rates steep enough to trim grand wealth down to democratic size.

In our contemporary United States, grand fortunes no longer engender the same fear. Yet Americans today actually have more reason to fear gross economic inequality than our forbears a century ago. Those forbears feared for our democracy. But the problems that flow from top-heavy distributions of income and wealth, researchers have documented over recent years, go far beyond the character of our politics.

Growing gaps between our richest and everyone else, these researchers make clear, breed speculation, nurture corruption, increase the cost of housing, overburden the environment, and limit our time for leisure. People in unequal societies, epidemiologists add, live shorter lives than their counterparts in societies that share wealth more equitably.

Grand concentrations of private wealth don’t even turn out to turbocharge charitable giving. Average Americans actually give a higher proportion of their available dollars to charities than high-income people.

How then should we react to the generosity of Warren Buffett? We should certainly be grateful that Buffett’s billions will be going for medicines and better schools, not to subsidize estate tax-repealing ideologues.

But we also need to recognize that the billions Buffett is contributing to the Bill and Melinda Gates Foundation amount, in world scale, to not much more than peanuts. Buffett’s donation doubles the Gates Foundation’s potential spending per poor person worldwide, notes Forbes editor Paul Maidment, but only from 50 cents a year to $1.

A century ago, America's leading reformers refused to let grand philanthropic gestures distract them from fighting for a more equal America. They continued to do battle against the “predatory plutocrats” — newspaper publisher Joseph Pulitzer's phrase — who so dominated their nation's political and economic life. And their perseverance would eventually forge, by the mid 20th century, a more equal America.

Can we start moving again toward a more equal nation? Sure, but not if we wait for bandaids from billionaires. We need to fix what ails our body politic. And that fixing will take, above all else, openly confronting the maldistribution of income and wealth that’s making our society sick.

We have more on Buffett's billions and the struggle for social decency.

Stat of the Week: In the Cubicles, Slumping Salaries

Salary and wage increases for employees in the United States will rise just 3.5 percent in 2007, projects the Conference Board, a leading national business group, after analyzing employer salary budgets for next year. Between May 2005 and May 2006, inflation rose at a 4.2 percent rate.

Between the end of March 2005 and the end of March 2006, adds the Labor Research Association, corporate profits rose 23.8 percents.

Quote of the Week:
Why Pay Excess Ought To Trouble Us

“Corporate compensation in America is offending a lot of people needlessly and it should be fixed. It is really dangerous to have a lot of envy taking sway in the world.”
Charles Munger, vice chairman, Berkshire Hathaway Inc., the investment powerhouse run by Warren Buffett, June 26, 2006, in a speech delivered at Stanford University's Directors' College

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