Almost 40 years ago, Harvard economist John Kenneth Galbraith published a best-selling book, the Affluent Society, that compared the private affluence with public squalor in our country. While the curve of private consumption of automobiles, television sets and other products was going upwards, expenditures for public transit, clinics, schools and other public services were being neglected.
This disparity, he argued, increased the gap between the haves and the have nots and shortchanged the opportunities and well-being of many Americans and the society in general.
Today, Galbraith would have a field day bringing his book up to date. The gap between the rich and the rest of America has widened to make the U.S. the most unequal economy in the western world when we were once the least unequal.
If a business executive in the 1930s was given a crystal ball to see the decaying public works in our countries, from the streets to below the streets of our cities, and to read about the cutbacks in just about every public service, from libraries to schools and universities and parks, how would he or she have responded to the question: “Now, predict the overall state of the American economy in 1997?”
In all likelihood, the business executive would have said “Depression, business bankruptcies, corporate red ink and general stagnation.”
Just the opposite is the case. Corporate profits, stock market prices and excecutive compensation are way beyond setting more records. Private affluence of the upper rich gives new meaning to the term “conspicuous consumption.” Corporate welfare to wealthy companies, paid for by small taxpayers, is booming.
In the February 10th issue of Business Week, there is an article about U.S. companies piling up so much cash that they hardly know what to do with it. So they are buying back their own stock.
Remember how often corporations demand tax breaks so they presumably can invest the money into productive enterprises and create jobs. Remember how often corporations say they cannot afford to meet modest mandatory safety standards for their products and workplace.
Well, take a look at General Motors which disclosed a cash pile of $17 billion dollars by the end of 1996. “In company after company, we’re seeing huge buildups of cash,” Jeffrey D. Fotta of Ernst Institutional Research, is quoted as telling Business Week. The article reports that “all told, liquid assets held by U.S. nonfinancial companies hit a staggering $679 billion at the end of the third quarter, up 21.5% in a year. Even a troubled computer company, Novell, is sitting on one billion dollars in cash, fully 75% of its annual revenues. Of course Intel and Microsoft can scarcely keep up with counting their billions of accumulated profits.
Now, you may ask, why aren’t these companies sharing this cash with their shareholders (dividends are at a historic low of 2.02%) or with their workers (most wages are stagnating at best) or paying their fair share of taxes for community needs for a change?
Those are very good questions which the media and television pundits ought to raise with these CEOs. The thrust of the Business Week article is that these cash reserves are way in excess of investment plans or rainy day needs. They are, as Professor of Finance, Steven Kaplan, of the University of Chicago, declared “An enormous temptation to waste.”
In the meanwhile, politicians claim there is not enough Washington money for public television, legal services for the poor, the arts, food safety inspections and poor children’s preventive health programs. The budgets for all these five programs, before the cuts of recent years, were less than $1 billion a year, or 6% of General Motors’ present cash reserves.
In fact, GM’s one year tax refunds and tax escapes, through stock-exchange loopholes in the sale of one of their big companies, will total well over $4 billion alone that should have been sent to the U.S. Treasury.
There is an old corporation law that prohibits unjust accumulation of profits at the expense of shareholder dividends. Maybe it ought to be dusted off and enforced.