Over a decade ago, I met with a group of small business leaders to talk about the perils of rising income and wealth inequality, and its destabilizing impact on the economy. This was years before the 2008 economic meltdown, the Occupy movement, Thomas Piketty’s Capital, and the electrifying presidential campaign of Senator Bernie Sanders.
“Where are the business voices?” one small business leader asked me. “Where are the enlightened capitalists who understand that stagnant wages and rising wealth inequities are the real threats to the proverbial goose that lays the golden egg?”
I knew from experience that such business leaders were there. One was Jim Sinegal, the now-retired CEO of Costco, who fended off Wall Street pressure to cut wages and eloquently made the moral and business case for a higher federal minimum wage. “The more people make, the better lives they’re going to have and the better consumers they’re going to be,” Sinegal told The Washington Post. “It’s going to provide better jobs and better wages.”
Unfortunately, such voices are outliers.
The outspoken ones are often retired CEOs, who—like retired military generals—are outside the constraints of institutional group think and can honestly speak their minds. They are owners of private companies, protected from the tyranny of short-term horizons and grumpy shareholder value activists, who are hell-bent on squeezing every nickel out of an enterprise. They are among the ranks of Responsible Wealth and the Patriotic Millionaires, defending the federal estate tax against repeal because they understood the corrosive impact of concentrated wealth and monopoly power.
Most business leaders, however, are not engaged in these important debates. They see little upside at being the skunk at the country club or in the boardroom. They stand by as their local chambers of commerce and business trade associations spend money to lobby for wage and anti-tax policies that would disinvest the commonwealth and widen the wealth gap.
Breaking this code of silence, Peter Georgescu burst on the scene two years ago with an op-ed in The New York Times about the business risks of growing income inequality. Georgescu, a retired CEO of a global marketing company, lamented that the United States was becoming a “caste system,” and asked: “Are we willing to control the excessive greed so prevalent in our culture today and divert resources to better education and the creation of more opportunity?”
Teaming up with his friend, Home Depot angel investor Ken Langone, Georgescu began knocking on the doors of CEO executive suites to engage business peers about the dangers of growing inequality. “Inequality leads to unequal opportunity,” they railed, “which backfires on healthy economic growth and capitalism.” They engaged with CEOs who held the warped worldview that inequality is a good thing—that it “drives people to do better.” Georgescu pushed back, telling stories of people stuck in a death spiral of debt and the economic dead end of consumers with no disposable income.
Georgescu’s recently published book picks up on this mission. Capitalists Arise: End Economic Inequality, Grow the Middle Class, Heal the Nation brings a welcome urgency to the problem of stagnant wages, laying out a compelling business case for reversing inequality. He hopes the book will serve as a “manifesto for executives, directors, shareholders” who want to steer capitalism away from its short-term horizons.
“For the past four decades, capitalism has been slowly committing suicide,” begins Capitalists Arise. “Nearly four decades of this version of capitalism have damaged the long-term viability of businesses and helped create a vast unequal America in socioeconomic terms.”
What Georgescu means by “this version of capitalism” is the particular US flavor of hyper-extractive, deregulated markets, characterized by “shareholder primacy,” where shareholders have dominion over all other stakeholders in a company. In Georgescu’s view, healthy enterprises hold an allegiance to a variety of stakeholders, including employees, customers, the corporation itself, communities, and the nation. “Shareholder primacy has become a kind of cancer that needs to be eradicated before it destroys our way of life.”
Georgescu is a retired ad man, the former CEO and chairman of Young & Rubicam, one of the world’s largest marketing communications corporations. His book applies a lifetime of listening and trendspotting focused on the lives of middle class consumers. Shaped by his family’s flight from Soviet tyranny in Romania, Georgescu projects a bad ending for our current inequalities. “Society redistributes wealth through taxation,” he counters “or poverty gets redistributed through revolution.”
The plagues, as described in Capitalists Arise, are stagnant wages that have led to destructive debt cycles and declining mobility and opportunity. “If wealth rises to the highest ranks of our society without circulating back into the system in the form of wages and benefits, then spending inevitably declines or collapses.” We hit the choke point in the economy: the middle class pocketbook.
After meeting with peer CEOs, Georgescu is exasperated with his fellow business leaders. He wonders aloud why they don’t see the dangers to their enterprises of “precarious income inequality” and “seek productive solutions that both close the wealth gap and spur greater profitability.”
Georgescu makes the case for businesses to take a longer view of their self-interest by raising wages. “Invest in the actual value creators—the employees,” exhorts Georgescu. A fair wage would “enable employees to share amply in the productivity increases” that have mostly gone to shareholders. “Pay people enough that it makes them feel lucky and privileged to work for you.”
Like many business people, Georgescu is suspicious of public-sector solutions, preferring private sector interventions. “As of now, the business sector offers our only prospect for leadership,” he claims. Major social change, however, requires more than just voluntary private sector shifts. The brief phase of “stakeholder capitalism” that Georgescu celebrates in the decades after World War II, was not the result of benevolent CEOs but a social contract enforced by labor power and public policy. In other words, Wall Street didn’t save us—the labor and civil rights movements did, by demanding a share of productivity gains and pressing Washington to adopt shared prosperity economic policies.
One unintended takeaway from Georgescu’s book is the limits of business leadership and voluntary action. As much as Georgescu would like his peer CEOs to step up and lead, they are unlikely agents for change. If we wait for business leaders to take meaningful action, we’ll be waiting until our cities are on fire. The impetus for change will not come from, in Georgescu’s words, the “isolation chamber of the executive suite.”
Georgescu warns his peers that if they choose to isolate themselves from the needs and obligations of society, the government will move towards the “European model” of oversight of business practices. Setting aside the unlikelihood of this in the Trump era, maybe the United States could benefit from a little European influence. After all, the Nordic countries, with their strong social safety nets, have higher rates of entrepreneurship than the United States and robust private markets—but considerably greater equality.
We should celebrate the courage of early adopters of equality practices and lift up those who do speak out and buck Wall Street mind meld. We should also recognize their institutional constraints. Voluntary private sector action will not reverse four decades of rigged economic rules that benefit asset owners at the expense of wage earners.
Reversing inequality will require robust government action, at the local, state, and national level, to pave the way to high road business practices. This includes boosting the minimum wage, levying taxes in a fair and progressive manner, and making robust public investments in education, infrastructure and individual opportunity. We need government enforcement to block off low-road business practices like wage theft and discrimination, and to protect the right to organize.
The challenge today goes beyond wage inequality, where most of Georgescu’s concern is focused, but also accelerating wealth inequalities. Between 1980 and 2000, the sky-high earnings of CEOs and other highly paid occupations drove inequality. Now, financial returns from capital—from the ownership of wealth—has been the major driver of inequality. In the last 15 years, there has been a surge in capital income. As economist Emmanuel Saez writes, “It looks like the working rich who drove the upsurge in income concentration in the 1980s and 1990s are either retiring to live off their capital income or passing their fortunes onto heirs.” As a result, the distorting impact of concentrated wealth is upending any policy solution aimed at reducing income inequality. Policies that tax the top, ideally aimed at assets and wealth, are critical interventions in a program to reverse systemic inequality.
The one exception is expanding ownership of enterprises, something Georgescu touches on. He celebrates companies like Publix supermarkets and Southwest Airlines where employees have an ownership stake. Such practices scramble the “shareholder primacy” dynamic—honoring employees as long-term stakeholders and value creators.
Business leaders can find ways, as a number of global corporations have, to raise their wage floor. They can establish a reasonable pay ratio between top management and lowest paid workers, a policy long supported by business guru, Peter Drucker. They can publicly speak out in favor of policies that reduce inequality. If nothing else, they can work to neutralize the business associations whose dues they pay to stop campaigning for policies that will worsen inequality. The national business lobby, such as the United States Chamber of Commerce and the National Federation of Independent Businesses, are considerably more conservative and anti-tax then their rank and file members.
If there were ever a time for business leaders of conscience to stand up, this would be the moment. Wealthy individuals and large companies need to come home, reestablishing commitment to place. They need to bring their wealth home, leaving the offshore tax havens and global financial casinos—and invest in real economy and place-based enterprises. They need to share the wealth but recognize the limits of philanthropy and pay their fair share of taxes.
In his most vexing question to his peers, Georgescu asks, “Can we admit that our current business model has been responsible in a major way for a crisis of inequality, and can we wake up and take action now, rather than continue doing business the ways it’s been done for more than four decades until the whole system risks falling apart?”
We need a thousand more Peter Georgescus who are willing to engage their peers about the perils of extreme inequality and the wide-ranging moral choices they have. Even within institutional constraints, individual conscience and agency is possible—and there are plenty of opportunities for leadership from corporate chiefs. We need them to stand with ordinary Americans to push for serious public policy to halt the nation’s slide towards greater inequality.