Shareholders vs. Stakeholders

January 24, 2012
Posted by Jay Livingston
(Cross-posted at Sociological Images)

Mitt Romney’s capitalism has come under attack – from fellow Republicans, of all people.  They’re pummeling him for his work at Bain Capital, his private equity firm.  “Private equity” became the term of choice when “leveraged buyout” acquired a connotation of nastiness, probably because many LBOs were in fact nasty affairs (“hostile” takeovers).

Romney is tall and good-looking with a full head of hair.  He speaks with no noticeable regional accent.  Danny DeVito is a photo negative of all that.  But as Lawrence Garfield,* a.k.a. Larry the Liquidator in “Other People’s Money” DeVito does a much better job in making the case for what Mitt did at Bain Capital.**  (The original title for this post was “Defending Private Equity – the Short Version.”) 



Bain sometimes made money by bankrupting the companies it took over.  That’s creative destruction for you – first the destruction, then creation.    As Larry the Liquidator puts it***:

 You invested in a business and this business is dead. Let's have the intelligence, let's have the decency to sign the death certificate, collect the insurance, and invest in something with a future. . .
Take the money. Invest it somewhere else. Maybe, maybe you'll get lucky and it'll be used productively. And if it is, you'll create new jobs and provide a service for the economy and, God forbid, even make a few bucks for yourselves.

Romney’s critics talk about the people put out of work, the towns and communities eviscerated.  That’s where Garfield/Romney are on shakier ground.

“Ah, but we can't,” goes the prayer. “We can't because we have responsibility, a responsibility to our employees, to our community. What will happen to them?” I got two words for that - “Who cares?”

Larry the Liquidator is raising the issue of shareholders vs. stakeholders.  Stakeholders are all those people who are affected by a corporation.  To attract corporations, local governments sometimes offer goodies like tax breaks, regulation breaks, and even bagfuls of cash.  The localities defend these deals by saying that they will be good for the whole town, particularly for those who become employees or who sell goods and services to the corporation.  These people and the town generally will be stakeholders.  They all have a stake in the success of the corporation.

Corporations too often talk the stakeholder talk.  But when times get tough, they talk the shareholder talk – the talk that Larry does so well. And they walk the shareholder walk.  They walk out of town with the money from the sale of the company’s assets.

All this has implications for issues of trust, implications much too broad and deep for a simple blog post.  See this 1988 article by Andrei Schleifer and Larry Summers, “Breach of Trust in Hostile Takeovers.”

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* Romney is a Mormon.  Larry Garfield is of no specified religion, though we can assume he is not a Mormon.  In the original play, he was Larry Garfinkle. For Hollywood purposes he became Garfield, just as did actor John Garfinkle.

** Conservapedia, as I’m sure Drek knows, rated “Other People’s Money” as one of the twenty greatest conservative movies.

*** For a transcript of Larry’s speech go here.  The original stage play is by Jerry Sterner, the screenplay by Alvin (Three Spidermans) Sargent.  I don’t know how much credit each gets for this speech.

 Big hat tip to Ezra Klein for the material here.
 

The Declining Significance of “Class”

January 23, 2012
Posted by Jay Livingston
(Cross-posted at Sociological Images)


What we don’t talk about when we don’t talk about class.  That was the title I wanted to use, but it was too long, and besides, there are already too many of these Raymond Carver variants. 

Class seems to have disappeared from public discourse, except for the Republicans’ insistence that to mention inequality at all is to engage in “class warfare.”* The only class we hear about, whether from politicians or the media, is the middle class.  Here, for example, are the results of  a Lexis-Nexis search of news transcripts in the previous month.

On TV news, the upper and lower class do not exist. 

So how do we talk about those at the top and bottom of society?  The discussion of inequality is now all about income.   While “lower class” and “upper class” had only three and four mentions, respectively, in this same period, income terms (high, upper, low, lower) numbered over 300. 

For some historical perspective, I looked at Google Ngrams for the frequency of class terms in books. 



The gap between middle and working is not so large here as in the graph of news transcripts.  But here too, the lower and upper class have been barely worthy of mention.  As for the historical pattern, class talk rises from the mid-1950s to about 1971.  If, as the Republicans claim, thinking about social class is an indicator of radicalism, maybe the 1960s were indeed a radical moment in US history. 

But after 1971, class discourses declines.  Class references in 2008 were only about half what they were at the start of the 1970s.

Ngrams also shows class talk being replaced by income talk, especially when we speak (or write) of those at the bottom.

The large gap between “lower class” and “lower income”in 1970 has dwindled to almost nothing.


The pattern for upper class is similar – a large decline in class talk, a much smaller decrease in income talk – though class references still outnumber income references.

From the media, you get the impression that except for a handful of people at the top and the bottom, there really is only one class in America – the middle class – and that the working class has faded into history.  Yet the GSS subjective social class item (“Which class would you say you belong in?”) gets the same results as it did in 1972: a roughly equal split between “middle” and “working” that accounts for 9 out of 10 Americans. 

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*This strategy seems to have worked recently for Newt Gingrich in another field of endeavor.  When asked about his “open marriage” idea (Newt prides himself on being a man of big ideas), he said that to ask the question was despicable.  His multiple adulteries, and his request that his wife bestow her blessings on same was, I guess, just one of those things.  But to point them out was appalling. 

He added that questions like that made it “harder to attract decent people to run for public office.” Apparently so .

Put a Ring on It?

January 19, 2012
Posted by Jay Livingston

Get married?  Or just live together?

Lisa Wade’s “Why I Am Not Married” post was one of the most popular Sociological Images entries of 2011.  It elicited over 100 comments – high even for SocImages. 

Lisa included a defense of her partner’s and her decision not to seek the state’s approval of their relationship.  The statement was personal (and courageous).  But the only systematic research cited was, I think, the Pew report on the decline in marriage in the US.

Clearly, fewer couples are putting a ring on it. Since 1960, the percent married has declined from 72% to just above half.  During this same period, the percentage of couples living together increased by a factor of ten.  Many of those couples eventually marry, and many break up.  Only about 10% remain living together unmarried for more than five years. (See the Annual Review article here.)

As you can imagine, there is much hand-wringing in certain quarters over the decline in marriage.  And indeed, some research supports the idea that marriage is the way to go – that married couples are healthier, wealthier, happier, less likely to break up, and just generally better.  (For an example of the pro-marriage view –  “Why Marriage Is Better than Cohabitation” – go here and probably lots of other places).  However, most of  these comparison studies are cross-sectional.  They compare the married and the cohabiting at a single point in time, so it’s hard to know what is causing what.  If we find that marrieds are happier, for example, we still don’t know whether it’s because marriage causes happiness or because happy people are more likely to marry.

Determining cause and effect requires longitudinal analysis – following couples over time.  A new study by Kelly Musick, to be published in the Journal of Marriage and the Family, did just that, looking at data from the National Survey of Families and Households (NSFH).  She tracked data on marrying and cohabiting couples over six years.  Here’s her conclusion as reported in a National Council on Family Relations press release (they publish the journal).

We found that differences between marriage and cohabitation tend to be small and dissipate after a honeymoon period. Also while married couples experienced health gains – likely linked to the formal benefits of marriage such as shared healthcare plans – cohabiting couples experienced greater gains in happiness and self-esteem. For some, cohabitation may come with fewer unwanted obligations than marriage and allow for more flexibility, autonomy, and personal growth.

Civil Rights and American Conservatism

January 17, 2012
Posted by Jay Livingston

With all the tributes to Martin Luther King, it might be difficult to remember that in his lifetime, Americans were not always so aligned with Dr. King and the goals he worked for.


In August, Gallup (here) published some of their polling from the 1960s. The contrast with opinions today, when only 4% are unfavorable, is remarkable.

(Click on the chart for a larger view.)

(Note: these results include all races.  The data for whites only would surely show a higher percent unfavorable and a lower percent favorable.)

Except for 1966, the total favorable and unfavorable are fairly close.  (The change in 1966 is a result of King’s opposition to the Vietnam war.  He was right about that too.)  But of those with strong opinions, the “highly unfavorables” always outnumber the “highly favorables.” 

The unfavorables weren’t just those rabid Southern whites so familiar from the historical news footage. The same ideas could be found among seemingly temperate, sophisticated, and intellectual conservatives. Affable Ronald Reagan opposed the Civil Rights Act of 1964 and the Voting Rights Act of 1965. 

In 1957, William F. Buckley, Jr. supported the suppression of black votes in the South

The central question that emerges . . . is whether the White community in the South is entitled to take such measures as are necessary to prevail, politically and culturally, in areas in which it does not predominate numerically? The sobering answer is Yes – the White community is so entitled because, for the time being, it is the advanced race.  (The full article is excerpted by Brad DeLong here.)

That was before the rise of the Civil Rights movement.  Six years later, when Dr. King had come to prominence, a black church in Birmingham was firebombed.  Four young girls died.  Here is how Buckley’s National Review responded.

The fiend who set off the bomb does not have the sympathy of the white population in the South; in fact, he set back the cause of the white people there so dramatically as to raise the question whether in fact the explosion was the act of a provocateur – of a Communist, or of a crazed Negro. Some circumstantial evidence lends a hint of plausibility to that notion, especially the ten-minute fuse (surely a white man walking away from the church basement ten minutes earlier would have been noticed?). And let it be said that the convulsions that go on, and are bound to continue, have resulted from revolutionary assaults on the status quo, and a contempt for the law, which are traceable to the Supreme Court’s manifest contempt for the settled traditions of Constitutional practice. [emphasis added]

The suggestion that the firebombing was committed by “a communist or a crazed Negro” is a fantasy of pure desperation and wish-fulfillment.  Note also NR’s concern for “the cause of white people.”  As for the church bombing, the beatings, the tortures, the murders, and other acts of terrorism (“convulsions” as the NR calls them), committed against blacks and civil rights workers, just blame it all on the Supreme Court. 

All this would be laughable if the events were not of such grave importance and if the commentary were from some obscure, racist corner.  But National Review, then as now, was the main voice of intellectual conservatism. 

Eugene Volokh, in an appreciation of Buckley (here), notes that it wasn’t until the late 1960s, after the passage of the major civil rights laws and probably after the King and RFK assassinations, that Buckley and NR finally gave up defending segregation.  Volokh also says, approvingly,

Buckley tried very hard to create a genial and friendly image for conservatism as opposed to one that projected anger, intolerance, and rage.

Michael Harrington made the same observation but phrased it somewhat differently:

William Buckley is an urbane front man for some of the most vicious emotions in this country.