December 14, 2009, 6:15 a.m.
Tying Pay to Social Value
(brought to you by FromDC2Iowa.blogspot.com*)"There should be a relationship between what we are paid and the value our work generates for society. We've found a way to calculate that."
-- Eilis Lawlor, New Economics Foundation
Not that you've ever doubted it, I suspect, but it really does turn out that the folks who clean our hospitals are making a greater economic contribution to our society than bankers. At least that's what the New Economics Foundation has asserted and documented in a report this morning.
For the past 75 years the non-profit, independent Consumers Union, with its subscriber-supported, advertising-free Consumer Reports publication and online service, has been putting the lie to the old adage "you get what you pay for." You don't. If you're interested in the quality of products, their life expectancy, repair bills, and number of consumer complaints, you're more likely to find the answer by looking at the Consumers Union laboratory results than by looking at the price tags on the products.
This morning the New Economics Foundation (NEF) documents what many of us have suspected all along. Susan Steed, Helen Kersley, Eilis Lawlor, "A Bit Rich: Calculating the real value to society of different professions," New Economics Foundation, December 14, 2009.
It turns out that it's also a lie that we get what we, as a society, are paying for labor. Some of those who are paid the least are actually creating more social and economic value than some of the administrators and professionals -- including the Wall Street bankers -- who are paid the most. Not only is it not true that "you get what you pay for," you may very well "give more than what you're paid for" as well.
"If You Can't Trust Your Banker . . ."
[Credit: "Shady Deal at Sunny Acres," Maverick, 2nd Season, 1958. The popular early television series, Maverick, "starring James Garner and Jack Kelly, remains the most famous and widely discussed episode of the Western comedy television series Maverick. Written by Roy Huggins and Douglas Heyes and directed by Leslie H. Martinson, this 1958 second season episode depicts gambler Bret Maverick (James Garner) being swindled by a crooked banker (John Dehner) after depositing the proceeds from a late-night poker game, then recruiting his brother Bart Maverick (Jack Kelly) to mount an elaborate sting operation to recover the money." It's also the source of two oft-quoted lines: "If you can't trust your banker, whom can you trust?" and "I'm working on it." See, "Shady Deal at Sunny Acres," wikipedia.org.]
As the NEF reports, "Paid between £500,000 and £80m a year, leading bankers destroy £7 of value for every pound they generate." (This calculation looks back over 20 years and even credits the bankers with the taxes they paid over those years.)
Because the NEF is a British think tank all its numbers are in British pounds rather than dollars. I'm not going to convert all of them in this blog entry. If you want to do a rough conversion in your head as you read, assume a multiplier of 1.5 -- for example, 10 British pounds (£) would be the equivalent of 15 U.S. dollars ($). (The actual exchange rate has been bouncing around 1.4 to 1.7 for the past year.)
Here's how the NEF introduces its report:
This report takes a new approach to looking at the value of work. We go beyond how much different professions are paid to look at what they contribute to society. We use some of the principles and valuation techniques of Social Return on Investment analysis to quantify the social, environmental and economic value that these roles produce – or in some cases undermine. . . .
[T]o what extent does what we get paid confer ‘worth’? Beyond a narrow notion of productivity, what impact does our work have on the rest of society, and do the financial rewards we receive correspond to this? Do those that get more contribute more to society?
Our report tells the story of six different jobs. We have chosen jobs from across the private and public sectors and deliberately chosen ones that illustrate the problem. Three are low paid – a hospital cleaner, a recycling plant worker and a childcare worker. The others are highly paid – a City banker, an advertising executive and a tax accountant. We examined the contributions they make to society, and found that, in this case, it was the lower paid jobs which involved more valuable work.
The report goes on to challenge ten of the most enduring myths surrounding pay and work. People who earn more don't necessarily work harder than those who earn less. The private sector is not necessarily more efficient than the public sector. And high salaries don't necessarily reflect talent.
The report offers a series of policy recommendations that would reduce the inequality between different incomes and reconnect salaries with the value of work.
The full report is available as a printed document and also as a pdf file from the link, above -- though of course the NEF server is so overloaded this morning that you may need to wait to get it.
Here's some of what the BBC had to say about it this morning. Martin Shankleman, "Cleaners 'worth more to society' than bankers - study," BBC News, December 14, 2009.
The research, carried out by think tank the New Economics Foundation, says hospital cleaners create £10 of value for every £1 they are paid.
It claims bankers are a drain on the country because of the damage they caused to the global economy.
They reportedly destroy £7 of value for every £1 they earn. Meanwhile, senior advertising executives are said to "create stress".
The study says they are responsible for campaigns which create dissatisfaction and misery, and encourage over-consumption.
And tax accountants damage the country by devising schemes to cut the amount of money available to the government, the research suggests.
By contrast, child minders and waste recyclers are also doing jobs that create net wealth to the country.
The Foundation has used a new form of job evaluation to calculate the total contribution various jobs make to society, including for the first time the impact on communities and environment.
Eilis Lawlor, spokeswoman for the New Economics Foundation, said: "Pay levels often don't reflect the true value that is being created. As a society, we need a pay structure which rewards those jobs that create most societal benefit rather than those that generate profits at the expense of society and the environment".
She said the aim of the research was not to target individuals in highly paid jobs, or suggest people in low paid jobs should earn more.
"The point we are making is more fundamental - that there should be a relationship between what we are paid and the value our work generates for society. We've found a way to calculate that," she said.
A total of six different jobs were analysed to assess their overall value. These are the study's main findings:
* The elite banker
"Rather than being wealth creators bankers are being handsomely rewarded for bringing the global financial system to the brink of collapse
Paid between £500,000 and £80m a year, leading bankers destroy £7 of value for every pound they generate".
* Childcare workers
"Both for families and society as a whole, looking after children could not be more important. As well as providing a valuable service for families, they release earnings potential by allowing parents to continue working. For every pound they are paid they generate up to £9.50 worth of benefits to society."
* Hospital cleaners
"Play a vital role in the workings of healthcare facilities. They not only clean hospitals and maintain hygiene standards but also contribute to wider health outcomes. For every pound paid, over £10 in social value is created."
* Advertising executives
The industry "encourages high spending and indebtedness. It can create insatiable aspirations, fuelling feelings of dissatisfaction, inadequacy and stress. For a salary of between £50,000 and £12m top advertising executives destroy £11 of value for every pound in value they generate".
* Tax accountants
"Every pound that a tax accountant saves a client is a pound which otherwise would have gone to HM Revenue. For a salary of between £75,000 and £200,000, tax accountants destroy £47 in value, for every pound they generate."
* Waste recycling workers
"Do a range of different jobs that relate to processing and preventing waste and promoting recycling. Carbon emissions are significantly reduced. There is also a value in reusing goods. For every pound of value spent on wages, £12 of value is generated for society."
The research also makes a variety of policy recommendations to align pay more closely with the value of work.
These include establishing a high pay commission, building social and environmental value into prices, and introducing more progressive taxation.
I'm sure that before the sun sets this evening the bankers' economists, publicists and lobbyists will be doing their best to counter this awful truth. Meanwhile, there may be something here of use to Governor Culver and the Board of Regents.
Could it be that the greatest value to the State of Iowa might be to keep the cleaning crews on the payroll (and in fairness give them a raise) and get maximum savings from layoffs by getting rid of administrators?
_______________
For the recent blog entries you may be looking for, go to "There Is No War in Afghanistan," December 4, 2009, and look through the links at the bottom of that blog entry.
_______________
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson
# # #
February 17, 2009, 7:20 a.m.
Financial Crises for Dummies:
An Open Letter to Secretary Geithner and Congress
(brought to you by FromDC2Iowa.blogspot.com*)
[This parable showed up in my email this morning. The author is unknown. (Given the Berlin setting it may have originated in Germany.) In any event, it's as good an explanation of how we got into this mess as I've seen.
It's also a warning to Washington that "we know what you're up to."
My solution?
1. Kill the zombie banks before they strike again; shareholders take a bath, FDIC protects depositors.
2. Let investors, not taxpayers, evaluate the value of, and buy, "toxic assets" (what an oxymoron that is!) with no government guarantees.
3. Temporarily nationalize any banks that believe they need taxpayer funds, buying their stock at current market value.
4. Break up those "too big to fail" (any bank "too big to fail" is simply too big, and too inclined to take risks likely to fail).
5. Fire the top executives (after getting back from them as much of their ill-gotten gains as possible), and then prosecute and imprison those guilty of violating any laws.
6. Distribute the assets to community banks.
7. Re-enact Glass-Steagall. (This is the 1933 Act of Congress that, among other things, prohibited bank holding companies from owning other financial companies. Its repeal, by the Gramm-Leach-Bliley Act of 1999 was a major cause of the current economic collapse.)
Why do these things? This parable explains why:]
__________
Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around and as a result increasing numbers of customers flood into Heidi's bar.
Taking advantage of her customers' freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.
A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi's borrowing limit.
He sees no reason for undue concern since he has the debts of the alcoholics as collateral.
At the bank's corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items.
One day, although the prices are still climbing, a risk manager (subsequently of course fired due his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi's bar.
However they cannot pay back the debts.
Heidi cannot fulfil her loan obligations and claims bankruptcy.
DRINKBOND and ALKBOND drop in price by 95%. PUKEBOND performs better, stabilizing in price after dropping by 80%.
The suppliers of Heidi's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.
The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.
The funds required for this purpose are obtained by a tax levied on the non-drinkers.
Source: David Horsey, Seattle Post-Intelligencer, March 27, 2008, DavidHorsey.com.
__________
Related Blog Entries on Global Economy and Bailouts
Nicholas Johnson, "Who's The Reason?" September 5, 2008
Nicholas Johnson, "How Much Do You Owe the Chinese?" September 6, 2008
Nicholas Johnson, "Taxpayer Rescue," September 15, 2008
Nicholas Johnson, "Global Finance: The Great Fountain Pen Robbery," September 21, 2008
Nicholas Johnson, "Alternatives to 'The Plan,'" September 28, 2008
Nicholas Johnson, "Better Alternatives to Congress' Bailout Plan," October 2, 2008
Nicholas Johnson, "Can We Trust Our Bankers?" October 29, 2008
Nicholas Johnson, "It's the Economy," November 7, 2008
Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery," November 8, 2008
Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008
Nicholas Johnson, "Auto Bailout: An Open Letter to Congress," November 19, 2008
Nicholas Johnson, "A Trillion Here, a Trillion There," November 20, 2008
Nicholas Johnson, "FromDC2Iowa's Weekend Edition," November 21, 2008 ("The Answer to Global Economic Collapse" and "Auto Bailout: 'Show Me the . . . Plan'")
Nicholas Johnson, "Citigroup Deal Stinks," November 25, 2008
Nicholas Johnson, "Only Select Few Are Thankful for Trillions," November 27, 2008
Nicholas Johnson, "Auto Loan Makes Too Few Dollars Even Less Sense," December 4, 2008
Nicholas Johnson,"Quick Fix for the Economy," December 12, 2008
Nicholas Johnson, "You Know It's Serious When We Start Laughing," December 15, 2008
Nicholas Johnson, "A Car in Every Garage," December 16, 2008
Nicholas Johnson, "Forget Madoff, Focus on Bernanke," December 17, 2008
Nicholas Johnson, "Of Theaters and Automobiles," December 20, 2008
Nicholas Johnson, "There's Bad News and . . . and . . .," December 21, 2008
Nicholas Johnson, "Et Tu, Toyota?" December 22, 2008
Nicholas Johnson, "Revolting Developments," December 23, 2008
Nicholas Johnson, "First Things First," January 8, 2009
Nicholas Johnson, "Why We Should 'Point Fingers' and 'Look Backwards,'" January 13, 2009
Nicholas Johnson, "Fool Me Twice," January 14, 2009
Nicholas Johnson, "Economic Sorrows and Solutions," January 27, 2009
Nicholas Johnson, "No More for Wall Street!" February 1, 2009
Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009
Nicholas Johnson, "Quick Fix: Support Jobless, Not Bankers," February 7, 2009
Nicholas Johnson, "Geithner's Same Old, Same Old," February 10, 2009
Nicholas Johnson, "Terrorist Bankers," February 13, 2009
Nicholas Johnson, "Financial Crises for Dummies," February 17, 2009
_______________
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
# # #
February 13, 2009, 8:50 a.m.
Understandable -- and Productive -- "Public Anger"
(brought to you by FromDC2Iowa.blogspot.com*)
After eight years of hunting, America's top intelligence and law enforcement agencies have finally found the most deadly terrorists threatening our nation's national security.
Who are they?
Bankers.
I'm not kidding. Read on.
There's been an almost "boys will be boys" reaction in Washington to the destruction of the American economy by those very generous campaign contributors who call themselves "masters of the universe." Few have been removed from power or had their pay cut, none (to my knowledge) has been required to pay back any of their past obscenely large and ill-gotten gains, and a statistically insignificant number have even apologized for the harm they've caused -- let alone been prosecuted and sent to prison.
There are undoubtedly "a few good apples" somewhere in that rotten barrel, but they are few and far between.
For the most part, those whose incompetence, irresponsibility, immorality, criminality and greed have created widespread hardship on the American people (and much of the rest of the world) have been very slow to "get it." "Why do they hate us?" they seem to be asking from the comforts of their $1 million redecorated offices, $50 million private jets, and posh resort retreats.
Well, now that "public anger" has become a political force of some consequence at least some of our elected officials (to whom these guys must come for more trillions of our taxpayer dollars) are trying to explain it to some of their most generous contributors.
"'Alleviating that public anger, not with mumbo jumbo but with reality, is essential if we’re going to have the support of the country,' House Financial Services Committee Chairman Barney Frank said today at a hearing in Washington," speaking to eight CEOs of some of the nation's largest banks. Alison Vekshin, "Congress Tells Bank Chiefs to Lend, Ease Public Anger," Bloomberg, February 11, 2009.
At long last we may now have even more basis for our "public anger" and a sense of accomplishment for expressing it.
No more "boys will be boys."
Dennis C. Blair, our new intelligence czar (Director of National Intelligence), speaking for the federal government's "intelligence community" has just told the Senate Intelligence Committee that the wreckage caused by our nation's irresponsible, selfish CEOs has now "outpaced terrorism as the most urgent threat facing the United States" (excerpts from the Times' February 13 story below).
Apparently the FBI agrees. "With thousands of [corporate and "an even bigger mountain of" mortgage] fraud investigations under way [including "some of the biggest names in corporate finance"], the FBI is considering shifting agents away from counterterrorism work to help sort through the wreckage of the financial meltdown. . . ." (more excerpts from the Bloomberg report below).
Perhaps our elected officials -- who quickly spring to action with trillions for the nation's bankers, but tell us it will be "a few weeks" before they will be able to focus on the human carnage those bankers have caused among the officials' constituents -- will be willing to give a little more attention to prosecuting these terrorists and criminals among us, normally very handy and popular targets for politicians, now that they have been identified as such by the intelligence and crime fighting agencies of our government.
Watch this space. Let's see.
Here are excerpts from the referenced stories:
Mark Mazzetti, "Global Economy Top Threat to U.S., Spy Chief Says," New York Times, February 13, 2009
The new director of national intelligence told Congress on Thursday that global economic turmoil and the instability it could ignite had outpaced terrorism as the most urgent threat facing the United States.
The assessment underscored concern inside America’s intelligence agencies not only about the fallout from the economic crisis around the globe, but also about long-term harm to America’s reputation. The crisis that began in American markets has already “increased questioning of U.S. stewardship of the global economy,” the intelligence chief, Dennis C. Blair, said in prepared testimony.
Mr. Blair’s comments were particularly striking because they were delivered as part of a threat assessment to Congress that has customarily focused on issues like terrorism and nuclear proliferation. Mr. Blair singled out the economic downturn as “the primary near-term security concern” for the country, and he warned that if it continued to spread and deepen, it would contribute to unrest and imperil some governments.
“The longer it takes for the recovery to begin, the greater the likelihood of serious damage to U.S. strategic interests,” he said. . . .
Mr. Blair delivered his assessment to the Senate Intelligence Committee, in what was the new administration’s first public recitation of the national security challenges facing the United States. . . .
Mr. Blair’s focus on the world economy was a surprise to some senators. . . ."
Devlin Barrett, "FBI may shift counterterror agents to anti-fraud," Associated Press/Yahoo! News, February 11, 2009:
With thousands of fraud investigations under way, the FBI is considering shifting agents away from counterterrorism work to help sort through the wreckage of the financial meltdown. . . .
[FBI Deputy Director John] Pistole told Congress his investigators have 530 active corporate fraud investigations, and 38 of them involve some of the biggest names in corporate finance — cases directly related to the current crisis.
In addition, FBI investigators are tackling an even bigger mountain of mortgage fraud cases in which hundreds of millions of dollars may have been swindled . . . more than double the number of such cases just two years ago . . . industry professionals generating fraud schemes that could total as much as hundreds of millions of dollars . . . 'lawyers, brokers or real estate professionals . . . systematically trying to defraud the system,' Pistole said . . . [including] some instances of organized crime getting involved in mortgage fraud . . ..
"If You Can't Trust Your Banker . . ."
[Credit: "Shady Deal at Sunny Acres," Maverick, 2nd Season, 1958. The popular early television series, Maverick, "starring James Garner and Jack Kelly, remains the most famous and widely discussed episode of the Western comedy television series Maverick. Written by Roy Huggins and Douglas Heyes and directed by Leslie H. Martinson, this 1958 second season episode depicts gambler Bret Maverick (James Garner) being swindled by a crooked banker (John Dehner) after depositing the proceeds from a late-night poker game, then recruiting his brother Bart Maverick (Jack Kelly) to mount an elaborate sting operation to recover the money." It's also the source of two oft-quoted lines: "If you can't trust your banker, whom can you trust?" and "I'm working on it." See, "Shady Deal at Sunny Acres," wikipedia.org.]
__________
Related Blog Entries on Global Economy and Bailouts
Nicholas Johnson, "Who's The Reason?" September 5, 2008
Nicholas Johnson, "How Much Do You Owe the Chinese?" September 6, 2008
Nicholas Johnson, "Taxpayer Rescue," September 15, 2008
Nicholas Johnson, "Global Finance: The Great Fountain Pen Robbery," September 21, 2008
Nicholas Johnson, "Alternatives to 'The Plan,'" September 28, 2008
Nicholas Johnson, "Better Alternatives to Congress' Bailout Plan," October 2, 2008
Nicholas Johnson, "Can We Trust Our Bankers?" October 29, 2008
Nicholas Johnson, "It's the Economy," November 7, 2008
Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery," November 8, 2008
Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008
Nicholas Johnson, "Auto Bailout: An Open Letter to Congress," November 19, 2008
Nicholas Johnson, "A Trillion Here, a Trillion There," November 20, 2008
Nicholas Johnson, "FromDC2Iowa's Weekend Edition," November 21, 2008 ("The Answer to Global Economic Collapse" and "Auto Bailout: 'Show Me the . . . Plan'")
Nicholas Johnson, "Citigroup Deal Stinks," November 25, 2008
Nicholas Johnson, "Only Select Few Are Thankful for Trillions," November 27, 2008
Nicholas Johnson, "Auto Loan Makes Too Few Dollars Even Less Sense," December 4, 2008
Nicholas Johnson,"Quick Fix for the Economy," December 12, 2008
Nicholas Johnson, "You Know It's Serious When We Start Laughing," December 15, 2008
Nicholas Johnson, "A Car in Every Garage," December 16, 2008
Nicholas Johnson, "Forget Madoff, Focus on Bernanke," December 17, 2008
Nicholas Johnson, "Of Theaters and Automobiles," December 20, 2008
Nicholas Johnson, "There's Bad News and . . . and . . .," December 21, 2008
Nicholas Johnson, "Et Tu, Toyota?" December 22, 2008
Nicholas Johnson, "Revolting Developments," December 23, 2008
Nicholas Johnson, "First Things First," January 8, 2009
Nicholas Johnson, "Why We Should 'Point Fingers' and 'Look Backwards,'" January 13, 2009
Nicholas Johnson, "Fool Me Twice," January 14, 2009
Nicholas Johnson, "Economic Sorrows and Solutions," January 27, 2009
Nicholas Johnson, "No More for Wall Street!" February 1, 2009
Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009
Nicholas Johnson, "Quick Fix: Support Jobless, Not Bankers," February 7, 2009
Nicholas Johnson, "Geithner's Same Old, Same Old," February 10, 2009
Nicholas Johnson, "Terrorist Bankers," February 13, 2009
_______________
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
# # #
