Should Martha Stewart go to jail? Perhaps, but not before many more deserving candidates serve longer sentences. Stewart’s malfeasance pales in comparison with investment scandals that have cost many employees their pensions and pumped up a disastrous tech bubble. Her high-profile crime distracts us from the contribution of corrupt corporate governance and lax regulations to our economic distress.
In a Nation editorial provocatively titled “Free Martha,” Doug Henwood suggests that Stewart is unpopular because she brings business acumen into the household, a threat to many men who see the home as a fountain of warmth. One could also add that to some men there is nothing as galling as a woman who can be as aggressive and successful as her most egregious male counterparts.
Putting Stewart in her place is a strategy designed to appeal to insecure working class males whose votes Bush needs but whose interests he serves only though symbolic politics. This administration demeans gays, minorities, and Stewart even as its economic assault on the minimum wage, Social Security, overtime, and unions renders working-class life ever more insecure.
My own speculation is that Stewart is also a convenient target for another reason. Many middle-class women have a love-hate relationship with her. A friend of mine likes to say that whereas the late Julia Child used to make her feel that in the kitchen “you can do it, Martha makes me feel that whatever I do I will always fall short.”
Though the products she markets may be impeccable, Stewart has managed to turn the entire household into an arena of conspicuous consumption. Jailing the maven of the modern household represents psychic release from pressures emanating from our competitive consumerist culture.
The local scuttlebutt is that those who work for her in Northeast Harbor like their jobs. Nonetheless, the larger issue this case suggests is the relationship between corporate CEOs, their employees, and the investment houses that increasingly call the tune in corporate America. Over the last twenty five years, CEO earnings have gone from 40 or 50 times the ordinary worker’s income – hardly socialism – to 400 or 500 times.
In his most recent book, “After the New Economy,” Henwood points out that in the immediate post-World War II period, corporate CEOs had considerable independence from the stock market. Though hardly paragons of virtue, many were able to manage with a longer-term focus and reached at least a modus vivendi with their unions. But with the rise of OPEC, increasing turmoil over race and gender in the workplace, growing discontent about work life on the part of many young workers, and the stagflation of the late 1970s and early ’80s, corporate profits were squeezed.
The Federal Reserve under Paul Volcker responded by inducing a deep recession, the Reagan administration began a long-term attack on unions, and institutional investors demanded that CEOs do anything to restore profits. They even pushed new modes of CEO compensation, including stock option packages that connect CEO compensation to stock prices.
Yet elevating CEOs and squeezing the rest has been at best a temporary fix. Holly Sklar recently reminds us of academic studies showing that “corporations with significantly higher than average shares of employee stock options going to the CEO and the next four top executives had lower average total shareholder returns for the decade.
She cites “a growing body of evidence that regular employees can really make a difference” especially if they receive broad-based stock option plans, employee ownership plans, and profit sharing plans… associated with future improvements in total shareholder return.” When stock options are concentrated in CEOs these executives have a strong incentive to hide problems, inflate paper profits and stock prices, cash in their options, and run.
Isn’t the job of trust departments and brokerage houses to scrutinize corporate performance for their clients? Unfortunately, changes in banking regulations, originating under Clinton but also endorsed by Republicans, severed the New Deal era firewall between commercial and investment banking. Retail stockbrokers also profited even more from investment deals with their corporate clients. Then throw into this mix mid nineties deregulation of telecommunication giants.
Not surprisingly a massive over expansion in tech spending with little scrutiny from many corporate heads, investors, or brokers ensued. When the bubble burst, more than ninety percent of the capacity in telecom lay dormant and this huge overhang continues to impede the technology sector.
Stewart lied about receiving a tip from her broker about a corporate CEO’s action. Nonetheless, her act is trivial in comparison with an economic and political climate that encourages paper profits, short time horizons, and exploitation of customers and workers.
The current regulatory structure gives average workers all too little knowledge of or stake in the corporations for which they work. Putting Stewart in jail may assuage some anger but won’t address the causes of their insecurity.
John Buell is a political economist who lives in Southwest Harbor. Readers wishing to contact him may e-mail messages to firstname.lastname@example.org