As I have perused some of it, I noted distinct parallels with the some of the discussion we have had about what has gone wrong with health care. In fact, at the root of health care dysfunction appear to be the dysfunction of the greater political economy.
Few in the One Percent Deserved the Money
A dominant slogan of the “Occupy” movement is “we are the 99 percent,” that is
‘We are the 99 percent,’ is the continuing chant of the protesters, who are now in their seventh week of marching through the streets of Manhattan. And, surprisingly, they have hit upon the crux of America’s problems with precisely this sentence. Indeed, they have given shape to a development in the country that has been growing more acute for decades, one that numerous academics and experts have tried to analyze elsewhere in lengthy books and essays. It’s a development so profound and revolutionary that it has shaken the world’s most powerful nation to its core.
Inequality in America is greater than it has been in almost a century. Those fortunate enough to belong to the 1 percent, made up of the super-rich, stand on one side of the divide; the remaining 99 percent on the other. Even for a country that has always accepted opposite extremes as part of its identity, the chasm has simply grown too vast.
The One Percent are Mostly Salaried Corporate Executives
Contrary to some propaganda, many in the one percent are not entrepreneurs, but corporate employees, albeit special ones.
Also cited as factors contributing to the rapid growth of income at the top were the structure of executive compensation….
In Health Care –
We have frequently discussed the outsized compensation given to a few top executives. CEOs of for-profit health care corporations may make tens of millions of dollars a year (here is a recent example, and many similar stories can be found here.) Even CEOs of non-profit hospital systems can make millions of dollars a year. (See this recent example, then go here for more.) Thus, a fair number of the one percent are likely to be from health care, and most of those at the top are likely to be current or former top hired executives.
The One Percent’s Wealth May be More Due to Luck than Skill, Intelligence, or Creativity
According to a recent simulation study,
by the ‘inexorable effect of chance,’ and chance alone, ‘a small proportion of entrepreneurs come to possess essentially all of the wealth. … The concentration of wealth occurs merely because some individuals are lucky by randomly receiving a series of high growth rates, and once they are ahead with exponentially growing capital, they tend to stay ahead.’
According to Fargione, greater variation in rates of return hastened the concentration of wealth. Inequality grows with time. Wealth concentration continues despite periods of recession and depression.
In Health Care-No similar study has been done in health care. However, we have documented many cases in which top health care executives’ compensation seemed to have nothing to do with their skill, originality, or ability to uphold the health care mission. How “peer benchmarking,” and the “Lake Woebegone Effect” account for immense compensation despite bad results was discussed here. A recent series of cases (with links to others) of hospital CEOs who prospered while their institutions’ finances decayed was here.
The One Percent Gamed the System, and Personally Profited from Perverse Incentives
Most fundamentally, what protest groups on the left and the right share with less activist middle-class Americans — the apolitical voters who often decide elections — is an abiding sense that the bond between work and reward has been broken. Huge financial rewards are given to executives who fail miserably and get fired. Debt relief programs help not only those who have fallen behind through no fault of their own, but also the profligate who lived beyond their means.
The list goes on: What’s inflaming voters isn’t so much inequality per se, though that’s certainly a symptom of the problem. It’s the fact that the rewards in our economic system seem increasingly divorced from American values of hard work, risk taking and innovation. Instead, these benefits are more and more likely to be awarded on the basis of connections and political power.
In Health Care-We have seen not merely cases of top health care leaders paid a lot of money for mediocre financial results. We have seen cases in which leaders got outsize pay despite evidence of organizational misconduct, or even crime. For example, see posts here, here and here that contrast one company’s multiple legal settlements and guilty pleas and its CEO’s eight-figure compensation.
The One Percent Deny Accountablity While Blaming Others for the Problems They Produce
Based on a as yet unpublished survey of top finance leaders in London, its leader, Rev Andrew Studdert-Kennedy,
said he had been ‘astonished’ by the attitudes of some City workers displayed towards the financial crisis. He said, ‘I did speak to many people about morality. I was amazed by how many banking crises there had been and how sanguine people were about them. A number of people said ‘this is just what happens – it’s the nature of banking, it’s the nature of capitalism.’
‘It’s one thing having historical perspective, but I was astonished that people didn’t try to learn a bit more. There is a recognition that there is something wrong, but a reluctance to admit they are part of the problem.’
[Brady et al]
Talk to most bank executives and they’ll still place the blame for the 2008 financial crisis on ‘irresponsible consumers’ who took out mortgages they couldn’t afford; dishonest mortgage brokers; and—at the top of the list—the government, which used Fannie Mae and Freddie Mac to finance mortgage lending to ‘people who shouldn’t own homes,’ as one senior New York bank executive put it to me recently. All of which is partly true but omits the enthusiasm with which Wall Street feasted on that market, and the fact, as Warren puts it, ‘that Wall Street made tens of billions of dollars’ from it. In short, there is no remorse, let alone a sense of obligation, because bank executives generally do not believe they were the cause of the financial collapse. As Neil Barofsky, Treasury’s former inspector general charged with oversight of TARP, the $700 billion government bailout of the banks, recalls from his interviews with bankers, the attitude instead was that ‘shit happens.’ The state of denial has been massive. On Wall Street today, says the vice-chairman of a private-equity firm, ‘there is this enormous persecution complex in the banking industry about Dodd-Frank, that everyone is going after the banks.’
In Health Care-Health care leaders and their apologists sometimes cite their awesome responsibility as a rationale for their outrageous compensation. Yet while health care leaders often decry the state of the health care system, I have yet to hear one take any responsibility for what has gone wrong.
Meanwhile, Wendell Potter has described how the leaders of one part of health care, health insurance and managed care, set up elaborate but stealthy public relations campaigns to blame the problems of health care mainly on patients and doctors, but certainly not the health insurance or managed care (see post here). This echoes how top finance leaders blame their industry’s problems on feckless consumers.
The One Percent are Not Held Accountable, and Have De Facto Impunity
So, yes, we face a threat to our capitalist system. But it’s not coming from half-naked anarchists manning the barricades at Occupy Wall Street protests. Rather, it comes from pinstriped apologists for a financial system that glides along without enough of the discipline of failure and that produces soaring inequality, socialist bank bailouts and unaccountable executives.
In our article in the last issue,1 we showed that, contrary to the claims of some analysts, the federally regulated mortgage agencies, Fannie Mae and Freddie Mac, were not central causes of the crisis. Rather, private financial firms on Wall Street and around the country unambiguously and overwhelmingly created the conditions that led to catastrophe. The risk of losses from the loans and mortgages these firms routinely bought and sold, particularly the subprime mortgages sold to low-income borrowers with poor credit, was significantly greater than regulators realized and was often hidden from investors. Wall Street bankers made personal fortunes all the while, in substantial part based on profits from selling the same subprime mortgages in repackaged securities to investors throughout the world.
Yet thus far, federal agencies have launched few serious lawsuits against the major financial firms that participated in the collapse, and not a single criminal charge has been filed against anyone at a major bank. The federal government has been far more active in rescuing bankers than prosecuting them.
[Madrick J et al]
In Health Care-We have gone on endlessly how despite numerous examples of unethical or even criminal behavior by health care organizations, almost never has any individual who authorized, directed or implemented the bad behavior suffered any negative consequences. (Look here and here.)
The One Percent Have Captured Government
The most important reason for the unaccountability of the one percent is regulatory capture, leading to corporatism:
much as the economic giants of the Gilded Age developed such enormous influence that they could dictate basic political conditions, today’s Wall Street bosses and CEOs have successfully arranged extensive deregulation for their industries. Indeed, he argues that this is the only thing that can explain how hedge fund managers suddenly started making billions of dollars a year. Former Citigroup CEO Sanford Weill, for example, kept a framed pen in his office as a symbol of his influence. It was the pen President Bill Clinton — at Weill’s instigation — used in 1999 to sign into law legislation repealing the provisions in the Glass-Steagall Act of 1933 that separated the transactions of investment and commercial banks.
At the same time, Bartels writes, the wealthy receive enormous tax breaks worth hundreds of billions of dollars.
The articles I summarized above called for the need to “save capitalism from crony capitalists,” [Kristof ND], and to seize “the high political ground” by “reform that lessens the influence of money in politics and government,” and to strengthen “the bonds between work and reward,” [Klain], and to end the impunity of the wealthy [Madrick et al].
A Vatican Council has called for the end of the “idolatry of the market,” the “ethic of solidarity,” and the “primacy of the spiritual and the ethical,” and of “politics – which is responsible for the common good – over the economy and finance.” This has also been supported by the Archbishop Of Canterbury.
In parallel, as we have said again and again, true health care reform requires competent, ethical leadership that upholds health care’s core values within a governance structure of accountability, integrity, transparency, and honesty. Tackling the deep problems in health care will require tackling the deeper problems in the global political economy which helped to generate them.
Andrews S. The woman who knew too much. Vanity Fair, November, 2011. Link here.
Brady B, Merrick J. Exclusive: cover-up at St Paul’s. The Independent, Oct 30, 2011. Link here.
Breining G. The 1 percent: how lucy they are. Minneapolis Star-Tribune, Oct 29, 2011. Link here.
Klain R. Americans want a government that ties rewards to work. Bloomberg, Oct 31, 2011. Link here.
Kristof ND. Crony capitalism comes home. NY Times, Oct 28, 2011. Link here.
Madrick J, Portnoy F. Should some bankers be prosecuted? NY Review of Books, November 10, 2011. Link here.
Pear R. Top earners doubled share of nation’s income, study finds. NY Times, Oct 25, 2011. Link here.
Schulz T. The second gilded age: has America become an oligarchy? Spiegel Online, Oct 28, 2011. Link here.