Facing America's vast income gap

September 06, 2001|By Neal Peirce

WASHINGTON -- Labor Day and a nine-year peak in worker layoffs helped focus attention on a report that compensation for America's top corporate brass is running out of control -- now 531 times the pay of the average worker.

Not only did CEO pay rise a stratospheric 571 percent from 1990 to 2000, the liberally oriented Institute for Policy Studies and United for a Fair Economy said in its report, "Executive Excess 2001," chief executive compensation continued to soar last year even while many of the same executives were firing workers by the thousands and corporate stocks lost 10 percent of their value.

Business Week's recent survey of the top 365 firms show average CEO pay is now $13.1 million.

Are the execs worth it? Apologists say the huge CEO salaries are justified by the big run-up in U.S. corporate profits during the 1990s, combined with a global market for top executives. But who seriously believes equally smart executive talent couldn't be recruited for many less millions a year?

And there is a profound fairness issue. If the pay of production workers had risen proportionately to that of CEOs in the '90s, their average income would now be $120,491 instead of $24,688. The minimum wage would have risen to $25.20 an hour, not its current $5.15 (well below the poverty level).

There's an available antidote to stratospheric corporate pay. It's incorporated in the Income Equity Act proposed by Rep. Martin Sabo. The Minnesota Democrat would let corporations pay executives any amount they like. But CEO compensation that exceeds 25 times the pay of the firm's lowest-paid worker would no longer be deductible from the company's federal income taxes.

To avoid sharply increased tax liability, firms would have two choices -- reduce the CEO's pay, or raise the lowest worker's pay. How delicious!

Mr. Sabo has been introducing his bill for several years, to no avail. But polls suggest the public would love it.

In the long run, excessive CEO pay is just a symbol of a thornier problem -- the deep income divisions, the alarming split between educated or skilled workers and those less prepared and mired close to or in poverty.

The point is made eloquently in a new book -- Place Matters: Metropolitics for the 21st Century (University Press of Kansas). The authors are three skilled academic urbanists -- Peter Dreier of Occidental College, John Mollenkopf of the City University of New York, and Todd Swanstrom of St. Louis University.

The deep polarization of American society gets played out most vividly, they assert, in our metro regions, where government policies have promoted economic and racial segregation, encouraged businesses and the affluent to move to outer suburbs, and effectively limited the poor and minorities to central cities or troubled inner-ring suburbs.

Despite some improving city conditions, write Mr. Dreier & Co., "We accept as `normal' levels of poverty, crime and homelessness that would cause national alarm in Canada, Western Europe or Australia."

Meanwhile, more affluent families, seeking escape, end up in increasingly congested outer suburban rings. The federal government has aided and abetted this split for 70 years -- from extraordinarily generous aid for sprawl highways to housing subsidies pushing development ever outward (and for years excluding virtually all racial minorities).

As for state governments, they've allowed a beggar-thy-neighbor scramble of sister municipalities fighting each other for tax-producing properties. They've rarely insisted on regional tax-base sharing or metrowide land-use policy to give less wealthy cities and towns a break.

It's imperative, argue the Place Matters authors, to level the metropolitan playing field so that older cities and inner-ring suburbs -- and their disadvantaged populations -- can share in the American dream.

Washington could start, they suggest, with such steps as limiting bidding wars among localities, insisting all federal programs from housing to job training to transportation be implemented regionally, and diverting a big chunk of the home mortgage deduction to low-income families who now benefit barely at all (while many of the wealthiest house owners make out like bandits).

A central goal: to deconcentrate the urban poor by helping many move to suburbs, even while more middle-class people are enticed back into cities, bringing investment and political clout with them.

Why bother? Because metropolitan polarization splits us up, removes critical rungs from the opportunity ladder. Like grossly out-of-scale executive pay, it violates fundamental American values. Environmental leader Henry Richmond calls it "the most important community building challenge to face America since the adoption of the Constitution."

Forget these causes, conventional politics says. The vested interests, from self-satisfied suburban towns to America's most powerful corporate chieftains, will kill them all.

The authors of Place Matters, like most liberals, want strong federal action for equity. But they have a new message for progressives: organize locally -- minorities, working mothers, church groups, blue-collar suburbanites, unions, regionally minded corporations. Without a new metropolitics, they contend, the game can't be engaged at all.

Neal Peirce is a syndicated columnist. His e-mail address is nrp@citistates.com.

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