Who cleans up at Goldman Sachs?
|Henry "Hank" Paulson responds to President George W. Bush Tuesday, May 30, 2006, after the President announced his nomination of the Chairman and Chief Executive Officer of the Goldman Sachs Group to succeed Treasury Secretary John Snow, who announced his resignation. White House photo by Shealah Craighead|
Who cleans up
- Lowest-paid City cleaners: £5.35 an hour, £11,128 a year
- Average ISS cleaner: £6 an hour, £12,530 a year
- London living wage £7.05 an hour- rate approved by unions/London Mayor, £14,664 a year
- Average Goldman Sachs pay in London £134,875; average bonus £205,332 - - Source T&G and Bloomberg
Earlier this week, 30 cleaners who are members of the U.K.'s Transport & General Workers Union (T&G) occupied the lobby area of Goldman Sachs Group's London headquarters on Fleet Street, seeking improved employment conditions at a company part-owned by the top US investment bank.
The cleaners were reported to have chanted “Goldman sucks” and waved placards as police sealed off the area and stopped anyone leaving for about two hours.
The cleaners who are employed by Copenhagen-based ISS and earn between £5.35 and £7.20 pounds an hour according to the T&G, don't get sick pay or pensions. Goldman itself, isn't among the companies in London serviced by ISS cleaners.
Bloomberg News reports that Goldman and the Swedish Wallenberg family's EQT Partners, bought ISS in April 2005 for about $3.8 billion. The purchase more than doubled ISS's debt load to $3.9 billion, dropping its credit ratings to junk status. The company said in August that first- half profit fell 9.7 percent to 430 million Danish kroner ($76 million) on higher interest expenses.
Goldman set aside $13.9 billion for salaries, bonuses and benefits for its own 25,647 employees through the first three quarters of the year, or about $542,000 per person on a global basis.
That already tops last year's full-year record.
The New York-based firm, which is scheduled to report fiscal full-year profit on Dec. 12, is expected to say it earned $8.8 billion on revenue exceeding $36 billion, according to the average estimate of 18 analysts surveyed by Thomson Financial.
Last month Finfacts reported that tensions are running high in London, amid the rainmakers and shooting stars of the City as bosses at some of the world's biggest investment banks decide who should pocket multi-million dollar bonuses. More than 4,000 workers are likely to receive bonuses of at least £1m, according to some predictions.
The most profitable investment bank in Wall Street history
One of the world's top moneymakers hasn't got such general media attention in London, since a fraud trial was told in 2004, how a personal assistant at the Fleet Street HQ was able to steal up to £4 million from the bank accounts of Goldman bankers Scott Mead, Jennifer Moses and her husband Ron Beller.
Mead had made about around £50m when Goldman Sachs floated in 1999 and masterminded the infamous £100 billion takeover of German company Mannesmann by Vodafone in 2000.
The bankers were so busy and rich that the PA was able to pilfer from their accounts for several years.
``We're saying to Goldman that they can't wash their hands of the way the company treats its cleaners,'' a T&G spokesperson said, adding that the group staged the sit-in after picketing and talks with ISS didn't resolve the workers' concerns.
``We take our responsibilities as a shareholder of any company very seriously, and we support responsible union representation and the right for people to earn a living wage,'' said Lucas van Praag, a Goldman spokesman. ``The management of companies that we're involved with know this, but it is of course their responsibility to negotiate issues such as pay.''
Power Relations and Modern Marie Antoinettes
The huge gulf in earnings between those termed Masters of the Universe in Tom Wolfe's Bonfire of the Vanities cannot be simply rationalised as a working of the market.
While the renowned advocate of markets Adam Smith, emphasised the motivating force of self-interest and gains from free trade, he also viewed freedom in a broader sense than economic freedom and championed the disadvantaged.
Smith was concerned about the encroachment of government on economic activity, but he was sometimes tolerant of government intervention, "especially when the object is to reduce poverty." Smith argued, "When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters." He saw a conspiracy on the part of employers "always and everywhere" to keep
wages as low as possible.
US economist Robert Gordon estimates that real median earnings per hour in the US have hardly increased since 1966.
He says that the top 10% have captured 50% of the income gains in the past forty years. The top 1% gained more than all the bottom 50%.
This week, the New York Times gave attention to the Living Wage Action Coalition, a collective of students and recent grads from campuses across the US that share experiences from their living wage and student-worker solidarity campaigns with new and existing campus campaigns.
The NYT wrote that when Mary Hampton landed a housekeeping job at Vanderbilt University in 2004, she looked forward to the boost that the steady, full-time work and benefits would give her and her two young daughters.
Instead, she says she now makes $7.92 an hour and brings home less than she did in factory and warehouse jobs. She moved to a shelter for the homeless about seven months ago when her daughters’ father stopped paying child support.
The fragile economic state of some of Vanderbilt’s union employees like
Hampton and the contrast with university spending elsewhere, like the $6 million renovation of the chancellor’s 20,000-square-foot house, has become a point of contention between the administration and a loose coalition of labor, students and community members.
A “living wage” campaign, which is picking up steam alongside contract negotiations between Hampton’s union and the university, is hardly unusual. There are more than 35 campus-based living-wage campaigns in progress nationwide, according to the Living Wage Action Coalition in Washington.
The newspaper says that what makes Vanderbilt’s situation unusual is that Vanderbilt’s chancellor, E. Gordon Gee, is one of the highest-paid university executives in the nation, giving the union and its supporters added leverage in their bid for higher pay, said Paul F. Clark, a professor of labor studies and employment relations at Penn State.
“It gives them a significant opportunity to generate community support, to get attention to embarrass the university,” Professor Clark said. “I would be surprised if they didn’t take advantage of that.”
The coalition calculates that a living wage for unskilled workers in the area would be $10.18 an hour.
A spokesman for Vanderbilt, Michael J. Schoenfeld, said it paid market wages, as well as generous benefits.
“Vanderbilt is committed to and does pay market-competitive wages for all of our job positions,” Schoenfeld said. “In addition, the university offers what we believe is the most comprehensive package of benefits to all employees, regardless of their job classification.”
In the past six years, Gee has labored to burnish Vanderbilt’s reputation and reshape the university into a prestigious research institution of national stature.
Chancellor Gee earns almost $1.2 million a year, according to recently
released figures on executive pay at universities, making him the third highest paid university president in the nation and like the fabled Queen of France Marie Antoinette, if the low ranks of his staff have no bread, they can find cake!
The NYT says that the campaign for Vanderbilt workers occurs at an awkward time for the university. Gee has had to respond to what some board members saw as runaway spending. He has said spending on the chancellor’s house, for example, was necessary, but he nonetheless agreed to tighter scrutiny of future spending.
Cliff Buntin, 44, who has worked as a Vanderbilt housekeeper for five years, said some of that money should be spent on employees.
“How can you be a leader if you let workers live in poverty?” Buntin said.
Schoenfeld said it was simplistic to argue that university spending could be shifted to pay higher wages.
“Any large, complex university, any large institution, any large company,” he said, “is going to have to make an almost infinite number of decisions about how to expend resources and what is consistent with the mission.”
The issue of the huge earnings gap is not solely of relevance to those at the bottom of what President Franklin D. Roosevelt termed the "economic pyramid."
Princeton university professor and New York Times columnist Paul Krugman, wrote in a column titled Graduates and Oligarchs in February 2006:
Ben Bernanke's maiden Congressional testimony as chairman of the Federal Reserve was, everyone agrees, superb. He didn't put a foot wrong on monetary or fiscal policy.
But Mr. Bernanke did stumble at one point. Responding to a question from Representative Barney Frank about income inequality, he declared that "the most important factor" in rising inequality "is the rising skill premium, the increased return to education."
That's a fundamental misreading of what's happening to American society. What we're seeing isn't the rise of a fairly broad class of knowledge workers. Instead, we're seeing the rise of a narrow oligarchy: income and wealth are becoming increasingly concentrated in the hands of a small, privileged elite.
I think of Mr. Bernanke's position, which one hears all the time, as the 80-20 fallacy. It's the notion that the winners in our increasingly unequal society are a fairly large group - that the 20 percent or so of American workers who have the skills to take advantage of new technology and globalization are pulling away from the 80 percent who don't have these skills.
The truth is quite different. Highly educated workers have done better than those with less education, but a college degree has hardly been a ticket to big income gains. The 2006 Economic Report of the President tells us that the real earnings of college graduates actually fell more than 5 percent between 2000 and 2004. Over the longer stretch from 1975 to 2004 the average earnings of college graduates rose, but by less than 1 percent per year.
Krugman asks why would someone as smart and well informed as Bernanke get the nature of growing inequality wrong?
Because the fallacy he fell into tends to dominate polite discussion about income trends, not because it's true, but because it's comforting. The notion that it's all about returns to education suggests that nobody is to blame for rising inequality, that it's just a case of supply and demand at work. And it also suggests that the way to mitigate inequality is to improve our educational system - and better education is a value to which just about every politician in America pays at least lip service.
The idea that we have a rising oligarchy is much more disturbing. It suggests that the growth of inequality may have as much to do with power relations as it does with market forces. Unfortunately, that's the real story.
Should we be worried about the increasingly oligarchic nature of American society? Yes, and not just because a rising economic tide has failed to lift most boats. Both history and modern experience tell us that highly unequal societies also tend to be highly corrupt. There's an arrow of causation that runs from diverging income trends to Jack Abramoff and the K Street project.
And I'm with Alan Greenspan, who - surprisingly, given his libertarian roots - has repeatedly warned that growing inequality poses a threat to "democratic society."
It may take some time before we muster the political will to counter that threat. But the first step toward doing something about inequality is to abandon the 80-20 fallacy. It's time to face up to the fact that rising inequality is driven by the giant income gains of a tiny elite, not the modest gains of college graduates.