The Least Productive People in the World

Scott Baker



[Reprinted from GroundSwell, January-February 2010]


Productivity, as determined by labor output, has been measured for decades, or longer. But, while it's important to look at who, or what, is the most productive person or enterprise, shouldn't we also look at the least productive people, that is, the least effective laborers? Perhaps by understanding who the least productive people are, we can learn how to make them more productive. This would help them, and help society.

So, who are the least productive people?

Well, on the first take it might be tempting to look at those who don't labor at all, or those whose labor doesn't produce anything that satisfies human desires - the ultimate goal of production. Let's exclude children and the very old or infirm from this tally. While it is true they are not productive, in the case of children, we expect great things from them in the future, and in the case of the very old, they may have produced a lot in the past. Finally, in the case of the infirm, there is only so much one can do when nature limits your abilities.

This would seem, at first, to leave the poor, or even the homeless. After all, the modern-day cold and calculating economists tell us, if those people were productive, than society would reward them for their labor.

So, is that it? Do we get to the zero line and say, "That's the bottom. That's the least productive people are capable of being"?

No. There is another class of human beings we've neglected, a group that exists below the zero line, sometimes reaching up to drag us down below with them - or, at least, to take our money down with them. This, of course, is the criminal class - not just the robbers, burglars and muggers who directly take our money, but the ones whose labors injure us or our loved ones and make us incapable of producing ourselves, thereby adding a second minus to their own.

So, maybe that's it then. We just need to find the most heinous criminal; the one who's taken the most lives, or swindled the greatest amount of money out of productive people, and we have our candidate for the Most Unproductive Person, the winner of the Golden Unpro.

Let's see if we can think of a few individuals to nominate then.

How about Bernie Madoff? According to Wikipedia, the amount missing from client accounts, including fabricated gains, was almost $65 billion. However, the court appointed trustee estimated actual losses to investors of $18 billion. But, wait a minute. Henry George tells us that investor money is really "speculative money" and doesn't actually produce very much, if anything. That is, I may buy a stock from you, and you might make a profit while I eventually sell it at a loss, but nothing of value has been created between us. Your pile of money has simply grown while mine has shrunk. True, companies that are invested in are able to borrow money, using their investor's money as collateral - as highly volatile and unreliable as that is, as we recently discovered during the Great Crash of 2008. But nothing is actually produced from investors' money. There is not much labor involved either - which, of course, is what makes investing in the markets so attractive, at least until the bubble bursts. Yes, of course, the investor-speculators will all say they polish their green eyeshades daily and scrutinize their investments mercilessly. But, when 95% of the money managers can't beat the dumb S&P index over 10 years, perhaps this is labor we can redirect to more productive uses. Or, as Michael Hudson stated in a recent article "Tax to improve plans":

The wealthiest 10% lend out their surplus to become debts owed by the bottom 90%. By charging rent and interest and by shifting taxes off themselves onto workers, the wealthiest enjoy a rising share of gains.

This is not what Adam Smith described in The Wealth of Nations. This extraction is a form of overhead, not a technologically or economically necessary cost. It is a zero-sum game -- one party's gain (that of Wall Street usually) is another's loss.

Well, there is no doubt the legal system found the labor of Madoff to be counter-productive, or at least, wealth-destroying, since it sentenced him to 150 years in prison - or more than 10 times the average sentence length for First Degree Murder in states without the death penalty. At least the courts have their priorities straight! Paper wealth, even if unlabored for, is legally worth far more than a human life.

But, we can do better in searching for the least productive people. Now that we know what pool to look into, let's go after some big fish. For example, according to Answers.com:

When the U.S. economy fell into recession in 1990, Trump's highly leveraged business empire threatened to collapse. Entities of the Trump Organization, or Donald Trump personally, had incurred more than $5 billion in debt--$8.8 billion, according to one source--of which almost $1 billion had been drawn solely on Trump's personal guarantee. Big New York banks had financed $3.75 billion worth of debt. They reduced their risk and collected fees by syndicating the loans to some 70 other banks...Most of this money was recovered after subsequent restructurings, but some $600 million to $800 million may have been lost. Forbes magazine had estimated Trump's worth at $1.7 billion in 1989, making him the nation's 19th richest man. But two years later it assessed his worth at minus $900 million, making him a heavy contender in the world's poorest man category [emphasis added].

The 'Donald,' as he is affectionately called, is an interesting case, wildly productive at times, and a negative producer at others (at least if one takes into balance the sucking out of capital to "resuscitate" his business enterprises, at the expense of other potential borrowers), much like the Real Estate market he speculates in. No surprise there, since we Georgists know that the true cause of economic busts is when Rent has been pushed beyond what labor and capital can pay, leading to a collapse and a stoppage of production…eventually. Of course, unlike the average foreclosed-upon homeowner, the Donald has rich creditors all over the world to fall back upon. Or, perhaps it is like that old saying: when you owe a bank a hundred thousand dollars, it is your creditor, when you owe them a billion, it is your partner. I won't go further than that because Trump also engages in another zero-sum game - suing people he disagrees with. Make no mistake, however, I do want him to continue the productive business of erecting buildings! Moving on…

We need something more, someone who subtracted even more substantially from the commonwealth pot, even beyond being an active but unwitting pawn in what the fickle market removed. We need someone who labored hard, apparently, but who ultimately destroyed both capital and jobs (other people's ability to labor).

Well, we can start by looking at some of the top candidates for Portfolio's Worst American CEOs of All Time:

Vikram Pandit - Citigroup


Pandit didn't create the mess Citi is in, but…when Pandit took over, Citi was already on track to report write-downs and increased credit costs of $20 billion. Today, the banking supermarket is propped up by $45 billion in bailouts and is, in effect, owned by the U.S. government.

THE STAT: Although Pandit's currently earning $1 a year, his pay package was valued at $38.2 million for 2008, a year when taxpayers kept the firm in business.

Carly Fiorina - Hewlett-Packard


A consummate self-promoter, Fiorina was busy pontificating on the lecture circuit and posing for magazine covers while her company floundered. She paid herself handsome bonuses and perks while laying off thousands of employees to cut costs. The merger Fiorina orchestrated with Compaq in 2002 was widely seen as a failure. She was ousted in 2005.

THE STAT: HP stock lost half its value during Fiorina's tenure.

Stanley O'Neal - Merrill Lynch


Stanley O'Neal's abrasive personality and ruthless cost cutting earned him many enemies, but his push toward riskier bets and subprime exposure led to his ouster. After Merrill posted the biggest quarterly loss in its 93-year history-and O'Neal was caught approaching Wachovia about a merger without the board's approval-he was finally fired.

THE STAT: O'Neal walked out the door with $161.5 million in severance.

Gerald Levin - Time-Warner


Levin's failure comes down to one colossal mistake: In his desperate eagerness to become a new-media CEO, he orchestrated a megamerger between Time Warner and a overvalued AOL-one of the worst acquisition deals ever. "He had the largest midlife crisis in the history of American capitalism," one of our panelists quipped.

THE STAT: The AOL deal destroyed over $200 billion in Time Warner shareholder value.__

___

Martin Sullivan - American International Group


This is the guy who approved those "retention" bonuses that AIG tried to pay after sucking up nearly $200 billion from U.S. taxpayers. Sullivan was ousted before the bailout, but his inaction as CEO helped create AIG's mess. He brushed off the firm's subprime exposure as "manageable" while writedowns mounted and the firm recorded its two largest-ever quarterly losses.

THE STAT: Sullivan's severance package was $25.4 million, including $322,000 for private use of corporate aircraft._____

_____________________ ___________________________________________

John Sculley - Apple Corp.


Sculley forced Steve Jobs out of Apple. Enough said. But let's continue: Though he was a brilliant marketer at Pepsi, he proved to be disastrous as the top manager of a tech company and unsophisticated about the technology field. His tenure was marred by infighting among top managers and expensive projects that flopped in the marketplace. (Remember the Apple Newton?) Sculley boosted the price of the Macintosh when personal computer prices were falling. The board ousted him in 1993, when Apple was slipping toward bankruptcy.

THE STAT: In 1987, Sculley was reported to be the highest-paid executive in Silicon Valley, earning a then-unheard-of $2.2 million.__

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Roger Smith - General Motors


The CEO's job is often thankless, and no one was ever thanked less than Roger Smith, General Motors chairman from 1981 to 1990 and the unwitting stooge of Michael Moore's mockumentary Roger and Me.

He started his career at the company in 1949 as a green-eyeshade guy, a lowly accounting clerk. His 1984 reorganization attempted to streamline GM's back-of-the-house operations but was, in a word, a disaster. It sowed confusion and disorder that practically idled the automaker for months. Current CEO Rick Wagoner has said, "We've been 12 to 14 years digging out from that."

Al Dunlap - Scott Paper/Sunbeam Corporation


Picked by the board of Scott Paper Co. as the man to turn the struggling company around, Dunlap earned his nickname "Chainsaw Al" by slicing 11,000 employees. When Scott merged with Kimberly-Clark, Dunlap's payoff was estimated at more than $100 million. Dunlap's memoir/manifesto, Mean Business, roughly coincided vastly with his next CEO star turn which was also to be his last. Sunbeam's stock surged on the news that the Chainsaw was coming; massive workforce reductions and factory closures followed within months.

Unable to flip Sunbeam to a new buyer, as he'd done with Scott, Dunlap was stuck actually running the company. He failed spectacularly. Within two miserable years, the board fired him. The tactics he'd used to stave off losses-the company overstated its net income by $60 million, which was real money back (in 1998)-earned him a civil suit from the SEC and a class-action suit by shareholders. Dunlap eventually settled both and was barred from serving as an officer or director of any public company.

Bernie Ebbers - Worldcom


The ultimate corporate shopaholic, Ebbers bought an obscure telephone carrier in the 1980s and went on a 17-year acquisition binge that turned it into the world's largest telecom company. Alas, his passion for dealmaking didn't translate into the savvy necessary for running the complex business. When telecom stocks went south in 2000, the company's massive debt was exposed. Ebbers tried to disguise it through fraudulent accounting. In 2005, three years after WorldCom filed for bankruptcy, he was convicted of overseeing $11 billion worth of accounting fraud. He's now serving a 25-year prison term.

THE STAT: When Ebbers resigned, in 2002, WorldCom stock had fallen to $1.79 from a peak of $64.50 in 1999.

Ken Lay - Enron


When it comes to bad CEOs, Lay was the complete package: He was not only dishonest but disastrously inept as a manager as well. Lay, who founded Enron and turned it into a $70 billion energy company, was uninterested in the day-to-day tasks of running the business.

Consequently, he gave free rein to untrustworthy subordinates like Jeff Skilling and Andy Fastow. He also signed off on a maze of convoluted transactions that formed the basis of a massive accounting fraud that would wipe out investors and bring down the corporation. Lay was convicted of securities fraud in 2006. If he hadn't died soon afterward, he would have faced as many as 30 years in prison.

THE STAT: Enron stock lost 99.7 percent of its value in 2001.

Angelo Mozilo - Countrywide


Meet the man who made subprime a household word. Once a symbol of self-made accomplishment-a butcher's son who built the largest mortgage lender in the country-Mozilo became blinded by success and began going after the riskiest and most unsavory of borrowers to boost his company's market share. In doing so, he legitimized a sector that would ultimately bring down the economy.

THE STAT: Mozilo's once-secret, now-infamous "Friends of Angelo" program provided loans on favorable terms to politically influential borrowers, including Senators Kent Conrad and Chris Dodd.

Dick Fuld - Lehman Brothers


When your hubris triggers a national financial panic, you're a shoo-in for top prize. Fuld's reckless risk-taking may have been typical of Wall Street, but his refusal to acknowledge that his firm was in trouble-and take the steps necessary to save it-was beyond the pale. Since filing the largest bankruptcy in U.S. history ($613 billion in debts outstanding), Fuld has been belligerent and unrepentant. Even Bernie Madoff said he was sorry.___

_________________________________________________

Jay Gould - (Railroad Magnate)


When it comes to unscrupulous behavior, Gould makes (Michael) Milken look like a sweetheart. A railroad developer and speculator, Gould sold out his associates, bribed legislators to get deals done, and even kidnapped a potential investor. He duped the U.S. Treasury, pushing up the price of gold and prompting a scare on Wall Street that depressed all stocks. After hiring strikebreakers during a railroad strike in 1886, he was reported to have said, "I can hire one half of the working class to kill the other half."

THE STAT: When Gould died, his fortune was worth an estimated $67 billion in inflation-adjusted dollars.__

__________________________________________________________________ It's difficult to pick the most unproductive corporate leader from the list above, but perhaps that is not the point. From this list of the unlucky 13 (out of 20 on CNBC's rogues gallery), only one - Bernie Ebbers - was ever punished with jail time (though Ken Lay was headed there before he died in 2006).

Jay Gould, perhaps the winner of the most Vicious CEO of all time award, and a contemporary of Henry George, was never punished at all, and was estimated to have had personally 1/185th of the nation's GDP at that time he died. Things have not gotten any better; in 2006, Bill Gates' personal fortune was estimated at 1/152nd of GDP that year. Quite apart from whether these men have contributed so much to society as to be personally worth a significant portion of the nation's wealth, compared to hundreds of millions of other workers, is the question of what might have been done with some of that money, if returned to the community. Of course some of them may say they gave enormously to charity, and that is true, but perhaps Americans would like to be under a system that is not so paternal, as well as one that is not so economically skewed. Can we not provide for ourselves, if given the chance? Also, these men have suppressed competition in their own far-reaching industries, thereby depriving us of who-knows-how-many new inventions or ways of doing things, so that is a negative to be subtracted from their production.

Finally, many of the corrupt business leaders, even when they were finally booted out, made off with tens, or even hundreds, of millions of dollars, while thousands of workers lost productive livelihoods and quite often, their life savings. In the most recent meltdown, finally triggered, according to many economists, by the $613 Billion (in debts) collapse of Lehman Brothers, CNBC's #1 worst CEO of all time, Dick Fuld, went both unrepentant and unpunished - and with nearly $72 million in total compensation. When Bob Nardelli was fired from Home Depot by an angry board of Directors, he received $210 million in severance. Full Disclosure: when I was laid off (not fired) from my job as Manager of Information Systems when my department was phased out after 22 years, I received a severance package as well. It was somewhat less than $210 million.

Lesson Learned: If you're going to fail, fail spectacularly, and fail quickly.

If one looks over the list, one can't help but be struck by the number of wealth destroyers who made their fortunes in large part through speculation in the 'Land' markets (by Land, I, of course, mean George's definition to include all of Earth's Natural Resources). Only John Sculley and Roger Smith could properly be said to have failed without the help of stock or resource market implosions. It's a bit understating things to merely say the other 11 candidates for the Golden Unpro would have done things differently if we had a true, Georgist, Land Value Tax and something equivalent for the Stock market (I am willing to admit the possibility that just a LVT may still be enough, even in this post-George, shadow-banking era) - most likely there would have been different CEOs altogether for those companies, pursuing different ways of doing business. Workers at Hewlett-Packard and General Motors might not have been laid off by the thousands; Worldcom and Enron would have remained boring, but stable, utility companies providing a real service. Is it impossible to imagine a railroad company being made without the ruthlessness and gargantuan self-enrichment of Jay Gould, and instead paying the community for the land it used? Henry George, of course, did imagine just that.

CNN founder and billionaire Ted Turner once said that billionaires competed against each other to see who would be the top billionaire. Well, is it so hard to imagine such titans could not be just as happy competing against one another to be merely the top millionaire, if millionaires were all that existed? Would society be lessened? Would output per CEO be reduced? Is it credible to say that Bill Gates, currently estimated to be the world's richest person, actually sat in his college dorm room in his younger days, contemplating dropping out of college to found Microsoft and asked himself, "Gee, I'd like to start a software company, but I really can't see the point unless I make at least $20 billion at it?" Or, did he just see an opportunity to do something game-changing and challenging, with, perhaps, some lucrative, but unspecified, reward down the road?

In fact, we now have ample empirical studies and social proof that excessive pay does NOT lead to superior performance, and may even lead to the opposite, by focusing executives labor on short-term, unproductive, activities. A summary of these findings "CEOs Are Overpaid" tells us:

According to Business Week, the average CEO of a major corporation made 42 times the average hourly worker's pay in 1980. By 1990 that had almost doubled to 85 times. In 2000, the average CEO salary reached an unbelievable 531 times that of the average hourly worker.

"Pay for performance", tying executive compensation to the financial success of their company, has become very popular in the past decade. In the face of the largest bull market ever, that isn't surprising. It also isn't realistic. What CEO honestly believes that all or most of the appreciation in value of their company is due to their own talent?

ZD Net's Total Compensation Vs. Total Return To Shareholders chart (no longer online), shows that total return to shareholders was higher for many companies whose CEO compensation was under $500,000 than for companies who paid their CEOs multi-million dollar compensation (emphasis added).

Virtually all of the organizations and pundits who talk about the egregious wealth-destroying actions of top executives and other controllers of money-mountains act as if the only things wrong were moral character and a few regulations. None of them get to the core of the problem, as George did.

Money goes to where it can get the greatest return, and right now, and especially in the last 30 years, that has been in the FIRE sector. While there have been innovations in computing, materials, manufacturing etc. that have created real wealth, it is harder to make that case for financial innovation, where piles of money (really, credit) are merely shifted around, without producing anything of lasting value, while siphoning both money and opportunity from the shrinking middle class. Indeed, ex-Federal Reserve Chairman and current Economic Council Head to the President, Paul Volker, has said that the most important financial innovation of the last couple of decades has been the automated teller machine. And, Danny Latham, head of infrastructure, First State Investments, said, "We [infrastructure investment teams] need more real engineers and fewer financial engineers." Ah yes, how true, but where will get the money to pay them? We will get it from the Land, George answered, in the age of Jay Gould, 130 years ago. But this cannot happen unless we rip the plant out by the root; merely trimming off a few bad branches will not do. Ordinary workers have no chance to produce positive wealth when the top 1% is producing negative wealth. Like matter and anti-matter, wealth created by labor acting upon the resources of the earth gets annihilated when confronted by credit-wealth (which is not wealth at all). Worse, since the size of credit implosions are only limited by the imagination of those who created the initial bubbles in the first place, unlike goods and services, which are created from true labor and finite land, there is no limit on the anti-wealth side of the equation, hence no limit to their destructive capacity. If this kind of reaction could be placed in a bomb, it would destroy the world - which, in a different way, it threatens to do.

Looking for the winner of the Golden Unpro, or the "Lex Overpaid CEO" and "thief" award presented to Dick Fuld by the Financial Times, misses the point. The blame for the creation of the Speculator Class belongs to the same place as the blame for the creation of the Poor Class: to the absence of a tax on the finite resources of the Earth and on the actions of speculation itself. As George said in Social Problems, what good does it do society for someone to become the world's richest pirate, if all he is doing is merely stealing from the average seagoer?

Oh, and the homeless person we passed by earlier on our race to below the bottom for the most unproductive citizen? He's more likely than not to have had a job producing something at some time in the past, quite likely he served in the military, and, contrary to popular belief, there's only a 25% chance or so he has a mental illness. In any case, he is unlikely to ever be as counter-productive as most of the richly rewarded failures listed above. To achieve that level of unproductivity, you really have to be a Star.




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