The President's Real Wall Street Scheme

Roger Martin The Daily Beast January 22, 2010

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AP Photo The president’s shot across the banks’ bow is about much more than reining in excess. Roger Martin on the latest phase in a century-long war over who gets the goodies.

The simplest way to look at President Obama’s counterstrike at the banks—and the risky behaviors driven solely by the desire to line the pockets of their own executives—is as a response to the crushing senatorial defeat in Massachusetts. Indeed that may have catalyzed action this week vs. next month, or next year. But Thursday’s presidential action can be better understood as the latest salvo in an economic battle that has been going back and forth for over a century.

I believe we are witnessing the last gasp of the fourth phase of a great economic battle. Obama’s announcement on banking may have ended the most recent 30-year phase and started a new one, which make it a bigger deal than people may imagine. This was not really about banking; it was about the battle between capital and talent.

Talent has been on the ascendency for so long—30 years—it takes winning for granted. Was Thursday the start of the end of talent’s free ride? I think it could well have been.

The great economic battle is about and has always been about who gets to enjoy the spoils of economic activity. In the first phase, capital (i.e. the owners of companies) battled unskilled labor in the cities of America in the first several decades of the 20th Century. It was the era of the growth of large-scale manufacturing enterprises, and rural America was flocking to the cities for work in the factories. Capital held the upper hand because it owned the means of production and it drove down wages to subsistence levels in order to make the highest possible profits. Attempts to unionize to fight back were violently squashed. In that era, capital won and labor lost.

But it didn’t last forever. In 1935, Congress intervened and the Democrats passed the National Labor Relations Act and created the National Labor Relations Board. Unionization was made easy and the percentage of unionized American workers mushroomed and their pay grew dramatically. In that era, labor struck back and capital was in retreat.

• Simon Johnson: Bernanke on the Hot SeatBut that didn’t last forever, either. Around 1960, the tide turned and capital fought back successfully by moving jobs to “right-to-work” states in the South, using more technology and beginning to globalize production activities. By 1980, unionization rates were back down to exactly the same level as they were in 1935. With Reagan’s crushing of PATCO (the air traffic controllers union) in 1981, it was clear that capital was back on top and labor was in full-scale retreat.

So we had three eras: 1900-1935—capital beats labor; 1935-1960—labor beats capital; 1960-1980—capital beats labor.

But in 1980, just as capital thought it was on top for good, a different economic battle erupted. Up until that point, capital fought largely unskilled labor—assembly-line workers, truckers, etc. But in the late 1970s, talent reared its head. It happened across a number of fields all between 1975 and 1980. In baseball, the Curt Flood decision created free agency. In investment management Ted Forstmann created the “2 & 20” formula for compensation (2% of assets under management plus 20% of any upside created). George Lucas got the first big percentage deal (50% of pre-overhead, pre-marketing profits for Raiders of the Lost Ark) in the movie business, etc. And American CEOs, whose compensation per dollar of profit produced fell continuously from 1960-1980, started playing a different game, led by newly appointed Robert Goizueta at Coca-Cola and Jack Welch at GE. Like the athletes, directors, and investment managers, they demanded a share of the upside. And their compensation per dollar of profits produced doubled between 1980 and 1990 and then quadrupled over that in the following decade.

View as Single Page 12 Back to Top January 22, 2010 | 10:12am Facebook | Twitter | Digg | | Emails | print Bank Reform, President Obama, Wall Street, Patco, National Labor Relations Board, National Labor Relations Act, Robert Goizueta, Large-scale Manufacturing, Coca-cola, Talent, Labor, Ge, Jack Welch, Ronald Reagan, Capital (–) Show Replies Collapse Replies Sort Up Sort Down sort by date: DANIELISTICAL

Corporate America has had it's way with this country long enough............We have created a society in which materialism overwhelms moral commitment,(greed is good) in which the rapid growth that we have achieved is not sustainable environmentally or socially, in which we do not act together to address our common needs. Market fundamentalism has eroded any sense of community (let them eat cake) and has led to rampant exploitation of unwary and unprotected individuals.(buyer beware) There has been an erosion of trust-and not just in our financial institutions.

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The President's Real Wall Street Scheme

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