Corporate theft?

The theory of stock options is one proof that the science of economics has fallen prey to  the very social mechanism it attempts to describe....

Stock options - the right to buy company shares (stock) at below market prices - came into vogue when economists at the University of Chicago constructed a theory that directors and senior managers should act as the "agents" of the owners and be given a direct personal interest in the company. Options, it was argued, made the interests of directors and interests of shareholders the same.

Before the "shareholder movement" of the 1980s the interests of corporate managers were held, in theory at least, to be very different from those of shareholders. Since managers back then were a professional group in their own right, there were concerns that, "out of professional pride", they might pay workers too much or produce goods of too high a quality. As such they had little incentive to perform the sort of stunts that would bring about the short term appreciations in share prices. The answer devised in the 80s was to compensate directors in shares as well as salaries. By making directors owners of the company it was believed that they would become particularly motivated to help the company achieve good long-terms results. It was, as Joseph Stiglitz wrote in The Roaring Nineties, a seductive argument but as events have since proved, ill-founded.

Granting options to top executives dramatically changed the class dynamics of the corporation. During the 90s, compensation of American executives was completely out of line relative to the salaries of both middle management and of workers. Stiglitz noted that while senior executive compensation rose 36% in 1998 over 1997, the wages of the average blue-collar, in the same period, rose just 2.7%.

All the talk about "incentive pay" was in practice simply a euphemism for "big pay". For instance, in 2001 fiscal year, Cisco's John Chambers, is said to have cut his annual pay to $1 and yet received 6 million stock options as his company lost $1 billion and its stock price fell 70%.

Stock options essentially encourage executives to be preoccupied with stock prices in the short run and in the short run it is easier to use "creative" accounting to give the appearance of profits than to increase true profits. The objective being to create the appearance of alluring success and/or promise and cash out before the world discovers the the truth. Enron, anybody?

Small wonder, some people refer to stock options as corporate theft.

On Education

"Education is that which remains, if one has forgotten everything one has learned in school."

Generation Y must ask 'Why?'

Zengeziwe Msimang                                                                                                                                        

I am a middle-class child of the Y Generation -- the Why Generation. I came of age in the post-apartheid 1990s. We were taught to be brash, question authority, talk back and think smart. Our parents flooded us with learning tools. My life has been as much framed by the fight for freedom in this country as it has by the technological boom that catapulted the world on to the ­information highway.

I was not old enough to cast my vote on April 27 1994, but I was old enough to understand what was happening, to stand at the feet of Nelson Mandela that glorious day at the Union Buildings, my chest swelling with pride, elation and relief. Freedom had come. Halala!

For a special few of us, freedom was real. The children of exiled struggle comrades-turned-icons, the children of men and women who had gone from the trenches to the boardroom. I get the sense that this baffled my parents’ generation as much as it did mine. It was the first hint of the question that would define my generation: so what then will they fight for?

Sadly, our response has been less than satisfactory. We are the spoilt children of Mother Freedom. We interpreted freedom as the right to have. We could go to whichever beach we wanted, dine in the finest restaurants, shoulder to shoulder with our former madams and masters. White schools welcomed us with (semi-)open arms, allowing us to gain their knowledge, wear their uniforms, acquire their accents. We could speak to people on other continents, growing up in chat rooms and watching youth culture beamed across flat-screen TVs.

And then, after decades of South Africa’s loud calls for freedom booming around the globe, a silence grew. A loud silence that said: what next? We had negotiated a revolution and written a Constitution that was the envy of human-rights activists throughout the world. But these victories left a gaping vacuum in the psyche of the country’s youth. The rainbow nation, so bright and diverse in its colours, seemed to be dimming with each passing year and the generation entrusted with moving the country to the next level -- the developmental state -- seemed not to know how to stop partying.

And still Generation Why continued the post-apartheid festivities. Our parents had created the freedom; it was up to us to enjoy it. We went to university and studied actuarial science, engineering and investment banking, many of us priding ourselves on being able to put “first black …” before our job title. Black economic empowerment ensured that a private school accent and a penchant for fine whisky would propel us to the top of the corporate game. And the silence grew.

Yes, there were years of active debate. There were youth development initiatives, HIV/Aids initiatives, agricultural initiatives. But those were for the less fortunate. We, who attended the best schools and hung out in the best nightclubs, became content to leave the politics to the politicians.

My generation has all the tools necessary to drown out that silence threatening to overtake our hard-won freedoms. We are constantly in touch. Not necessarily with the world around us -- we use the internet to search for the latest fashion trends and to create blogs about nothing. We use our cellphones to get directions to parties and to send more sweet nothings to one another. The more we have learned to communicate, the less we know what to say.

But the blame is not entirely our own. We have taken our cue from leaders who, with every crisis, grow more hushed. They believe that if they say as little as possible, better yet nothing at all, then all our problems will go away. When people began to die of Aids, when millions of rands were misappropriated in the arms deal, when Zimbabweans began to cross our borders in search initially of jobs and stability and now food and water …

And we, Generation Why, never asked why our leaders stood silent. We have not spoken. We simply basked in the silence that is the birthright of freedom.

We owe it to ourselves and to those who have gone before us (those who are now perhaps too tired or too comfortable to continue to speak) to use media and communication tools to foster the growth of South Africa through her turbulent teens and into her potential-filled youth.

I want my generation to snuff out the silence that has enveloped the political spaces in our country. I want us to make a noise that will be heard past our borders and across our continent: why are we here, what are we fighting for, why should we bother, what difference will it make? The first question is “Why?” For what it is worth, my answer is: “Because we can, because we should, because we must.”

Zengeziwe Msimang works in the ICT sector. She writes in her personal capacity

The root causes of today’s energy crisis

Although the statement that follows was written as a message to President Bush and other US elected leaders, about the need for sensible solutions to the energy crisis, I thought it made for some insightful commentary on the root causes of today's high fuel prices. Read on....

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Bush, Congress Must Hold Oil Industry, Speculators Accountable for High Gas Prices  Statement of Joan Claybrook, President, Public Citizen

With gas prices and oil industry profits reaching new, obscene highs, Americans deserve real solutions to our energy crisis, and not the partisan finger-pointing that is hallmark of this administration.

Beginning with the vice president’s discredited energy task force, the Bush administration has failed to address the root causes of today’s energy crisis: The lack of viable alternatives to car-dependent American families and inadequate regulation of Big Oil and speculators. Bush’s neglect is having a huge impact on our economy and global warming.

Oil executives and speculators are getting rich on the backs of American consumers. Indeed, on average, it costs a company such as ExxonMobil about $20 to extract a barrel of oil, which in turn is sold for more than $115 a barrel. Refiner profit margins have also been soaring at vertically integrated oil companies, which helps explain how the largest five oil companies in America have posted more than $550 billion in profits since 2001. Some of these profits are going into the pockets of the oil company CEOs, with many making more than $30 million a year and some making much more than that when stock packages are taken into consideration, according to published reports.

And speculators on Wall Street such as hedge funds and investment banks are exploiting unregulated trading markets to push prices far above what can be explained by supply and demand fundamentals.

With the current average price for a gallon of gas over $3.60 per gallon, about 70 cents per gallon is attributable to pure speculation unrelated to supply and demand, according to our estimates. A recent U.S. Senate investigation concluded that both Goldman Sachs and Morgan Stanley each earned about $1.5 billion in net revenue from energy trading in 2005. Some oil companies have been recently caught with their hands in the cookie jar, with BP paying $303 million to the federal government in October 2007 to settle allegations it manipulated propane prices. With the irresistible temptation to benefit from this huge cash flow, other manipulations most certainly are occurring in the unregulated oil and gasoline futures market.

Add to this the numerous concessions made over the years to automakers that allowed Detroit to ignore fuel efficiency while flooding the market with gas-guzzling SUVs, and it becomes crystal clear that our energy policy has been built around giving a free ride to the oil and auto industries.

There’s no greater example of this than the fact that in the past 30 years, the only increase of fuel economy standards for cars before 2008 was established when I was head of the National Highway Traffic Safety Administration during the Carter administration in 1977. That increase doubled the fuel economy in cars between 1977 and 1985. Bush’s fuel economy law, by contrast, would increase fuel economy in vehicles from 25 mpg to 35 mpg by 2020. But because under the recent legislation no single company has to achieve that goal, it is almost impossible to enforce.

If Bill Clinton had established strong new fuel economy standards in 1994 when there was momentum to do so, today we would already be saving 1 million barrels of oil per day and would have reduced our oil imports from the Middle East by 45 percent. Likewise, if Bush had passed new standards in 2002, we would already be saving 874,000 barrels of oil per day and by this year would have reduced our oil imports from the Middle East by 20 percent.

Today, the proposals offered by some politicians to enact a gas tax holiday or to withhold new oil from the country’s strategic oil reserves are shortsighted and don’t address the real issues causing higher gas prices.

We urge the president and Congress to develop a sensible, multi-pronged solution that ends the $8 billion a year in annual subsidies to Big Oil and directs that money into renewable energy, energy efficiency and mass transit; fully regulates the futures market; enacts an excess profits tax on oil companies to discourage profiteering; discontinues subsidies for ethanol, which is not a solution for global warming; and establishes a tougher fuel economy standard for vehicles than the one Congress passed last year. We also support House Speaker Nancy Pelosi’s call for the Federal Trade Commission to investigate possible manipulation of the oil market.

The one thing that won’t solve our problem is to continue the system of corporate welfare that Bush and his allies in Congress have carried out. The American people – who are finding it harder by the day to make ends meet because of soaring fuel and food prices – are the ultimate losers in this high-stakes blame game.

Source: http://www.citizen.org/pressroom/release.cfm?ID=2650

Politicians