Book: Lab Rats

Warning: this is a long post.

Okay, this next post will be on the second book that I’m reading: Lab Rats by Dan Lyons. I actually started reading this book one or two months ago but have been progressing in a fit and start fashion because the message of the book is so distressing that I have to put the book down. The message dovetails with what I’ve been thinking over the past few years so all it does is just make me angry and distressed. I have to put the book down to chill out.

The book is very good and has really fascinating research data, if you can pull back and look at them dispassionately without getting all riled up.

Since I haven’t finished reading the book and there is too much good materials, I’m going to focus on only a tiny sliver of the book to keep this post’s length within reason. The author is a great writer with well put together sentences – he was once a newspaper reporter – so I will probably be quoting him far more liberally than usual. This whole post may become one big quote.

First off, this book is a diatribe against the tech industry’s new way of doing business. On the surface, the new way looks very efficient and productive but, in the end, turns out to be very destructive to regular workers’ ability to make a living. This new way is the prime instigator of our income inequality that we’re facing now. The author posits that there are four ways in which workers are made miserable: money (or low wages), insecurity, constant change, and dehumanization. The part I’m hitting on here is money as it is pretty much where I stopped for the time being.

But the tech industry is only the latest of a long line of bad corporate citizens during the last couple of decades. According to the author, and probably others who have been studying the world of work (based upon my readings), the genesis to our modern-day world of capitalism began when Milton Friedman wrote aNew York Times article in 1970 titled “The Social Responsibility of Business is to Increase Profits”. His main thesis was:

“Friedman argued that people who managed companies should have only one goal, which is to make as much money as possible for their investors. CEOs should not worry about “providing employment, eliminating discrimination, [or] avoiding pollution,” Friedman wrote. The top executives of a corporation were not free to do whatever they wanted. Those executives were employees of the shareholders. If they wanted to do charity work in their spare time, with their own money, that was fine. But at work they were duty-bound to do nothing but generate the biggest possible return for investors.”

Lab Rats, Dan Lyons, 2018, pp. 95-96 (softcover).

Here is the genesis of the corporate greed and cruelty that we see today. During the 1980s, there was a oft repeated phrase coined by Ivan Boesky – “greed is good” – that pretty much epitomized the era. Here are more choice phrases from the book.

“… corporations should not feel bound to do anything good for society.”

Ibid., p. 96.

“CEOs need no longer worry about employees or the community. Those who did were “preaching pure and unadulterated socialism,” he wrote. Socialism! Gasp! The horror! Friedman’s doctrine quickly became accepted as the correct way to run a business. Indoctrinated with this ideology, a new generation of MBA students roared into the corporate world and became foot soldiers in the junk bond, leveraged buyout, hostile takeover craze of the 1980s.
“Naturally, Wall Street loved the Friedman doctrine, since according to Friedman they were the only ones who mattered.”

Ibid., p. 96.

From that point on, history shows that workers’ wages flattened out: “Since 1970, the year Friedman published his essay, hourly wages for the average worker have grown only .2 percent per year, according to the Harvard Business Review.” Ibid., p. 97.

Following from the 1980s’ junk bond, leveraged buyout, and hostile takeovers, we segued into outsourcing in the 1990s and offshoring to India and China in 2000s and the pressure has never let up.

Milton Friedman provided an “academic” cover for corporate chieftains and Wall Street to eviscerate regular workers’ wages and security, all in the name of increased profits for shareholders, or to use a dirty word for it, all in the name of greed.

On the other side of the coin, Milton was an Ayn Rand fan and an avid supporter of the power of the market and “he argued that governments should stay out of the way and let free market work things out for itself.” Ibid., p. 96. Here’s the birth of the Republican’s faith in the market and their desire for small government.

Combine the small government with hands off pathos with the primacy of the shareholders to the exclusion of all other stakeholders and you get today’s inequality problem, as well as a crazed Republican party, and intransigent Wall Streeters.

I had suspected Milton Friedman was the match that lit the destructive fire that ensued over the next 40 to 50 years, but Dan Lyons confirms my suspicion with his clear layout of the history. I didn’t know about the Milton-Ayn Rand angle but now I think Milton Friedman also gave “academic” cover to the idea of small government and little to no regulations. He won a Nobel Prize in 1976, so the prize gave him and his ideas a lot of credence but now in hindsight, those ideas are harmful. We actually need government to handle crises such as the one we’re undergoing now and we need government to apply reasonable regulations to constrain unbridled capitalism. Can we posthumously retract that prize since those ideas are harmful to our democracy and to our capitalism?

Nick Hanauer appears in the book but as a thoughtful gentleman who understood the dangers of our current style of capitalism. He’s the guy who tried to warn his wealthy peers that if they don’t change, the pitchforks will be coming for them. I have mentioned him a couple of times over the years. It was after the Great Recession, when he looked over some IRS data, that he realized that the current state of affairs was unsustainable:

His epiphany came in 2008 when he was looking over “Internal Revenue Service data …showing how the share of gross income had been shifting over time. In 1980, the top 1 percent of earners raked in 8.5 percent of all income. By 2008 that figure had climbed to 21 percent. Over the same period the share going to the bottom half of earners dropped from 17 percent to 12 percent.”

Ibid., p. 93.

I’m going to quote a whole section of a chapter in the book on how he came up with a figure of $2 trillion dollars that have been shifted from the regular workers to the 1 percenters. His thinking highlights the magnitude of the theft.

He urged his fellow 1 percenters to fix the issue of inequality. “That was only fair, since they had created it.

“What’s more, Hanauer believes the people uprising would be completely justified, for they have been the victim of one of the greatest swindles of all time. They have been robbed of 2 trillion a year that should have been flowing to working people, and instead have been siphoned off by the rich, he says.

“Here’s how he does the math. First, companies managed to slash wages paid to workers and keep that money for themselves. Forty years ago, wages represented 52 percent of the gross domestic product. Today, wages represent only 46 percent, according to the U.S. Bureau of Economic Analysis. With the U.S. GDP now at $17 trillion, that 6 percent swing represents $1 trillion a year that has been stolen from workers.

“Over that same time period, corporate profits rose by 6 percent to 12 of the GDP today from 6 of the GDP in 1980. Basically, companies vacuumed up 6 percent of the economy that used to go to the workers and moved it to their bottom lines.

“That’s only the first trillion. Another trillion vanished because not only did the portion of the pie that goes to wages decrease but regular workers also now get less of that smaller portion. Four decades ago, regular workers (meaning the bottom 99 percent of wage earners) collected 92 percent of all wages. Today, regular workers get only 78 percent. That 14 percent drop represents another trillion dollars per year.

“Where did the money go? The top 1 percent of wage earners now reap 22 percent of all wages, up from 8 percent four decades ago.

“This amounts to robbery in broad daylight… Some chalk it up to individual luck and career decisions. But it turns out their misfortune is systemic. And that is making people angry.”

Ibid., pp. 93-95.

That’s the thinking from one of the few good guys in the business world who understood the implications of the shareholder mantra and tried to do something about it. Now, here’s the story of two business leaders who evidences the gross capitalistic behavior.

One of them is Jeffrey Immelt and he has appeared in some of my posts due to a book review Imagine It Forward. In that book, he was portrayed as a forward thinker, pulling his company toward the future of creativity, entrepreneurism, digital. Dan Lyons offers another side of Jeffrey Immelt thus shining a light on how the capitalistic mantra perverts the views on social responsibility. Here, the story is about outsourcing.

“As it happens, I got an early glimpse of the outsourcing trend as it was taking off. In 2001, Jeffrey Immelt had just been named the CEO of GE, and Forbes magazine sent me to interview him. In those days, the Web was still in its toddlerhood. Websites were ridiculously primitive, and most people relied on sluggish dial-up modems. Yet Immelt could look a few years into the future and see how the Internet would improve and how that would let him move jobs overseas. He told me with great enthusiasm about his plans to boost GE’s bottom line by shifting most of GE’s IT and back office operations to India. “The Web is going to let us do a big redeployment of resources,” he told me. “It’s a big deal.” We did not talk about where all of GE’s laid off workers would go. But over the next fifteen years GE shed sixty-five thousand U.S. workers.”

Ibid., p. 98.

Here’s another godawful thinking from another CEO (before I go to the second villain):

“WorkMarket CEO Stephen DeWitt says his service helps companies operate more efficiently. “There will be a huge purging of old-model inefficiencies,” he said in a 2016 interview. Who will suffer? “A lot of people. It’s carnage,” DeWitt conceded. But that’s just how things are going to be. “If philosophically this scares you, I’m sorry,” he said.”

Ibid., p. 100.

Not a whiff of remorse. That’s the mindset of the current CEOs today – eager to slash jobs in the name of shareholder value and profits. They don’t even care about the impact to regular workers.

The second, well, third, villain is an even bigger villain and that’s because he’s the world’s richest man: Jeff Bezos. Over the years I have read some horrendous stories about how some of his employees are treated such as warehouses lacking air conditioners so employees would faint from the heat. He would rather pay for ambulances to wait outside the warehouse. There were stories of people peeing into their glass jars because they did not have time to run to the restroom, do their business and then run back to their station. Corporate workers being yelled at or given so much work to do that they cry at their desk from the stress (if they don’t just quit). Pregnant ladies being forced to continue physically demanding jobs without the usual accommodations for their pregnancy.

Those are the stories I’ve read before but I have encountered new ones in this book.

“Amazon employs various stratagems to drive down labor costs, like hiring through subcontractors and forcing workers to be “permatemps,” rather than actual employees. The company also has squeezed down the cost of deliveries. It did this by adopting the gig-economy model, signing up part-time drivers who use their own cars and pay their own costs.”

Ibid., p. 103.

“Amazon skins its white-collar workers at headquarters, too. Most tech companies grant workers options… and dole them out over a four-year period, so workers get 25 percent each year…Amazon back-loads the grant so that workers get 5 percent after year 1, 15 percent at end of year 2, and then 20 percent every six months for the next two years. You might say Amazon back-loads the stock grants to create an incentive for employees to stay at the company. The other explanation is that Amazon knows most people can’t survive for long in its brutal culture, and back-loading means the company will pay out less. In 2013, Amazon had the second-highest turnover rate of any company in the Fortune 500, with average employee lasting only one year.”

Ibid., p. 103.

The latest travesty was the headquarter hunting spectacle, where the world’s richest man basically asked cities, what they will do for him:

“When Amazon announced plans in 2017 to build a second headquarters, Bezos did not ask where he could do the most good or how he could help the most people. Instead, he invited American cities to compete for his business, asking who would do the most for him.

“And so we were treated to a hideous spectacle: here were some of the poorest people in the United States offering to pay the world’s richest man so that he might bless them with an office complex.”

Ibid., pp. 105-106.

Nick Hanauer knew Jeff Bezos because he was one of the first investors in Amazon. He has tried talking to Jeff Bezos to reconsider his ultra-capitalistic ways but apparently to no avail. Today, they have lost touch with each other.

To close this post, I will include Nick Hanauer’s thoughts on what the future portends if the 1 percenters don’t change their ways.

“The reason to give back money, he says, would be so that the one percent can save their own skins. As Hanauer sees it, the election of Donald Trump might be only the first step toward something much worse.

“If you don’t give it back, things are not going to get better. Oh, dude, we are in for a bumpy ride. This is going to get way worse before it gets better. I think the country is in trouble. The West is in trouble. We have institutionalized a set of dynamics which benefit the few and immiserate the many.

“People are not going to get less pissed. People’s lives are going to get worse. People are going to be even more angry and more polarized. The talk will get even crazier. Plan on violence. Plan on it. People do stupid shit when they’re angry. It’s not going to be good. I think we’re going to have a lot of civil unrest.”

Ibid., pp. 106-107.

Maybe that’s why Trump is so eager to open up the economy and get it “roaring” again. In his gut, he fears the people throughout the U.S. will be so angry that they vote him out. But maybe at the same time, he’s trying to channel that eventual anger towards the governors which is why he is saying that they will be the ones to open up the economy.