Law  - Fall 2009
Racism, Health Disparities, and the Law
Professor Vernellia R. Randall
The University of Dayton School of Law

 Social Policy is Health Policy is Law

 


How Law Constructs Wealth Patterns
 

Rising Wealth Inequality: Why We Should Care

Please notify me of any typo, misspelling, etc.

"There is an Axis of Evil,  An Axis of Evil of inequality, of racism, of poverty, of economic deprivation
 that is adversely affecting the health of the American people." David Williams

 

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Health Equity Search

 

 
Stephen P. Berzon, Ana Avenda o, Jonathan B. Forman, Kent Greenfield, Patricia A. McCoy, Ann M. O'Leary, Michael Selmi, Marion Crain, How Law Constructs Wealth Patterns , 15 Georgetown Journal on Poverty Law and Policy 509 (Summer, 2008)

 

Stephen Berzon: Good morning. It struck me yesterday listening to Bob Kuttner's opening talk and then listening to the previous panel how, to some degree, history has a way of repeating itself. Back when I was first starting to practice law in the late 1960s and working in legal services, I can recall participating in many programs that addressed the various legal issues surrounding wealth inequality.

There was a huge effort at that time, made as part of the War on Poverty, to deal with wealth inequality from a legal perspective. There were thousands of outstanding poverty lawyers around the country who were litigating these issues. It may seem hard to believe now but every year, for about a ten-year period, the Supreme Court had one, two or three major poverty law cases on its docket, and they were major issues of the term: cases like Rosado v. Wyman, King v. Smith, Goldberg v. Kelly, one that I was fortunate enough to argue, California Department of Human Resources v. Java, Mathews v. Eldridge, Dandridge v. Williams--I could go on and on. When was the last time the United States Supreme Court heard a significant poverty law issue?

So it is very welcome that in this panel we are beginning to revisit and reopen these issues, and what is particularly exciting is we are not doing it strictly from a legalistic framework but from a legal policy framework, which I think is very important.

Our panelists bring to the table a myriad of experience in a variety of different areas. I'm going to introduce them briefly. Their biographies are set forth in your material; I will introduce them in the order they are going to speak.

Jonathan Forman is the Alfred P. Murrah Professor of Law at the University of Oklahoma where he specializes in tax, pension and elder law. Professor Forman has written extensively, not only scholarly articles but in the public press, and he previously served as tax counsel to Senator Daniel Patrick Moynihan, whom as all of you know, was a major player on the Senate Finance Committee for many years. Professor Forman earned his law degree from the University of Michigan.

Ana Avenda o is associate general counsel of the AFL-CIO. She is also the director of the Immigrant Worker Program at the AFL-CIO, and she was a major player in the immigration policy debate occurring in Washington and throughout the country these past few years. Ana has previously worked in private practice, worked at the National Labor Relations Board and worked for the United Food *510 and Commercial Workers. She has been a U.S. Worker Representative to the International Labor Organization, and she is a graduate of Georgetown Law School.

Our next panelist is Professor Kent Greenfield. He is Professor of Law at Boston College Law School. He specializes in business law and economic analysis of law. He is an expert in the American corporation and how corporate law impacts upon wealth inequality, and he has written extensively in the field. He is a graduate of the University of Chicago Law School and, among other clerkships, he clerked for Justice David Souter on the United States Supreme Court.

Patricia McCoy is the George J. and Helen M. England Professor of Law at the University of Connecticut in Hartford, where she teaches banking and securities regulation, corporate governance, retirement security law and consumer finance law. She has written extensively about predatory lending and particularly about subprime mortgage issues. She is a graduate of Boalt Hall, the University of California law school in Berkeley, and she clerked after her graduation for an outstanding federal judge, Robert Vance, who, as we will all remember, was tragically assassinated by a letter bomb because of his civil rights decisions.

Ann O'Leary is our final panelist. Ann is presently Deputy City Attorney for the City of San Francisco. She works on impact litigation in the City Attorney's affirmative litigation unit. She also specializes in campaign and election law for the City. She was a law clerk for Judge John Noonan in the Ninth Circuit, and she is also a graduate of Boalt Hall. Prior to coming to California, she worked in the White House during the Clinton administration, and she was legislative director for Senator Hillary Clinton for several years. Ann has recently written an article on family medical leave and how it does not serve the needs of poor women, and she is going to talk about that today.

So why don't we start with Professor Forman who is going to talk to us about tax policy and its effects on wealth inequality.

Jonathan Forman: [FNa2] Thank you for this opportunity to share my thoughts with you on how to reduce wealth inequality. In my remarks today, I will talk about how government policies influence the distribution of income and wealth, and I will offer some recommendations about how our tax and transfer systems can be reformed to promote greater economic justice.

In a complex society such as ours, the distribution of economic resources is determined by a combination of market forces and government policies. Markets arise automatically from the interactions among people and institutions and, here and there, government policies intervene to influence the operations of markets and their ultimate outcomes. Needless to say, policymakers cannot do much about market forces. Adam Smith's laws of supply and demand are as immutable as Newton's laws of thermodynamics. But policymakers can influence how governments intervene in the economy.

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*511 In that regard, governments influence market outcomes in three ways: through regulation, through taxation and through spending. Government regulation defines and limits the range of markets and so influences the shape of the initial distribution of income and wealth. Government taxes and spending also influence the distribution of income and wealth. Most clearly, taxes and welfare programs are the primary tools for redistribution.

As many panelists have explained, there is substantial inequality in the distribution of earnings, income, consumption and wealth in the United States. The distribution of consumption is the least unequal, while the distribution of wealth is the most unequal. Earnings and income fall in between. Pertinent here, household income inequality has increased dramatically over the past few decades. For example, in 2005, the average household in the richest 20 percent of American households had almost fifteen times as much income as the average household in the bottom 20 percent of households, but that is up from ten times as much in 1975. [FN1] Worse still, the richest 5 percent of American households, had more than twenty-six times as much income as the typical household in the poorest 20 percent, and that is up from fifteen times as much in 1975. [FN2]

Wealth inequality is even more unequally distributed. In 2004, for example, as *512 we heard yesterday, the top 1 percent of American families had 34 percent of the wealth of the country and the top 20 percent had 85 percent of all household wealth. [FN3] Meanwhile, the bottom 80 percent had just 15 percent of household wealth and the bottom 40 percent of American households had way under 1 percent of the wealth in the country. [FN4] Worse still, wealth inequality is perpetuated through countless generations as a substantial portion of wealth is passed on through inheritance.

* * * *

It is probably impossible to measure the full impact of the government on the distribution of economic resources. In particular, it is difficult to estimate the impact of government regulation on the distribution of economic resources. We simply do not start from a Hobbesian state of nature only to have government impose a regulatory framework on it. Rather governments define and limit the realms of market competition. These activities both enhance the ability of markets to create wealth but they also influence how that wealth is distributed.

For example, government grants of patents not only encourage the creation of tradable properties, they also make sure that patent holders can get quite wealthy; the same goes for copyrights and trademarks. My example for this week is that Elvis Presley last year earned $49 million, and he has been dead for forty years. *513 But he had copyrights and other rights in his products that go on to his next generation of family.

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Regulations also grant monopolies to utilities, to broadcasters and to liquor stores and it is difficult to estimate the impact of that on the distribution of income and wealth.

On the other hand, we get a very good idea about how taxes and transfers influence the distribution of income and wealth. According to the Census Bureau, the current mix of government tax and transfer policies reduces household income inequality by about 20 percent. [FN5]

Is that enough? I don't think so. We have a very unequal society and we need to do more. Now, it is unlikely that we can all agree as to a particular distribution of income and wealth that is fair or morally justified, but given how unequal things are today, there is a lot that government can and should do to achieve greater economic justice.

In particular, as many of the speakers have said, we should focus our efforts on increasing the economic rewards for low-income workers. This will increase *514 their participation in the workforce, their productivity, their incomes, and, ultimately, their wealth. In the regulatory arena, for example, we recently helped low-income workers by raising the minimum wage. I hope that we will eventually index the minimum wage for inflation so that we never again see a year, or in this case, an entire decade, without any increase in the minimum wage.

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Several of the other panelists earlier today and on my panel are going to talk about regulation so I will confine the rest of my remarks to how we can improve economic justice by using the tax system and the transfer system.

First, let us consider taxes. Over the years, the federal government has increased its reliance on individual income taxes and payroll taxes, and it has decreased its reliance on corporate income taxes, estate and gift taxes, and other sources of revenue.

In effect, there are now two taxes on earned income: income taxes at rates up to 35 percent and Social Security payroll taxes at rates of 15.3 percent. The cumulative effect of those two taxes is to discourage work and subject many workers to essentially confiscatory tax rates. Meanwhile, the taxes on wealth and on investments have fallen dramatically. The maximum tax on dividends and capital gains is just 15 percent and the estate tax is scheduled to disappear. In short, as Warren Buffet, one of the richest men in the world, said this week, he faces a lower tax rate than his secretary. [FN6]

*515 If it were up to me, I would combine the income tax and the payroll tax into a single comprehensive income tax system with a broad base and low tax rates on earned income. In particular, I would repeal most of the special tax breaks for investment income. I would repeal the special rate for capital gains and dividends. That would raise $130 billion a year, and we could lower the rates on earned income. [FN7] I would also keep the current estate tax or, alternatively, replace it with an annual wealth tax. A number of European countries already have wealth taxes. Those systems have high exemptions to make sure that those of us without much wealth pay essentially no wealth tax but the very wealthy do pay a lot of wealth tax, perhaps even 2 or 3 percent of their wealth each year. Even a modest wealth tax, according to New York University economist Edward Wolfe, could raise about $40 billion a year. [FN8]

We should also redesign our welfare system. Right now we have eighty-five separate federal programs that provide income-tested benefits to low-income families. [FN9] To keep costs down, virtually every single one of these programs has a phase out mechanism, and what that means is that the beneficiaries are ultimately subject to extraordinarily high confiscatory tax rates. Those families earning between $10,000 and $40,000 a year can face taxes on their income, payroll taxes, the loss of food stamps, the loss of Medicaid and the loss of housing allowances. They can face marginal tax rates that hit 88 percent, and in some cases their marginal tax rate can even exceed a 100 percent. [FN10]

I believe that we should replace most of the current welfare system with a system of refundable tax credits. The general idea is to "cash out" as many welfare programs as possible--from food stamps to housing subsidies. And we should use that money to pay for a system of refundable earned income tax credits, personal tax credits, child care tax credits and health care credits.

First, to encourage work we should have a $2,000 per worker earned income tax credit computed as 20 percent of the first $10,000 of earned income. Along the same lines, Congressman Charles Rangel, Chairman of the House Ways and Means Committee, recently proposed doubling the earned income tax credit for workers without children. A $2,000 per worker earned income tax credit would act as an earning subsidy, and earning subsidies tend to increase work ethics. They also tend to increase employment opportunities. By increasing the compensation paid to low-wage workers at no cost to their employers, *516 earning subsidies actually increase the demand for low-skilled workers and provide better incomes to those low-skilled workers when they enter the workforce.

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We should also replace personal exemptions, standard deductions, child tax credits and much of the current welfare system with a system of universal $2,000 per person refundable tax credits. If that sounds like McGovern "demogrants," it was a good idea then and it is still a good idea. Giving every family $2,000 per person would really help out single mothers. A single mother with two kids would get three $2,000 credits, that's $6,000. Assuming she is working a full-time minimum wage job, she would get another $2,000 earned income tax credit--that's $8,000, and she would be well over the poverty level when you put all that together.

We also need to think about child care, as has been mentioned. It is another way of subsidizing low-income workers. We should make the child care tax credit refundable and perhaps even have it replace 50 or 80 percent of the child care costs for low-income workers.

Finally, we need universal health care. Here we should cap the exclusion for health care benefits that most upper middle income people get from employer-provided health insurance and convert the tax benefit into a refundable tax credit that would help the people who do not have health care, cannot afford health care and would not get it unless we do something about it. Obviously there is more to do to have a universal health care system. Here again, a universal health care system is also a wage subsidy that could have a great impact on the inequality of income in America.

In conclusion, I believe that the government can and should intervene in the free market to reduce economic inequality. We simply do not have to settle for a *517 society in which the top 5 percent of Americans earn dozens of times as much income as the bottom 20 percent and have hundreds of times as much wealth. In the words of James K. Galbraith, "The economy is a managed beast. It was managed in such a way that this was the result. It could have been done differently." [FN11] Let us work together to find different and better ways to manage our economy and to reduce economic inequality. Thank you.

Ana Avenda o: I am going to focus my remarks today on work and workers and, more specifically, on the growing low-wage labor market and the various ways that law functions not only to entrench inequality but, unfortunately, to promote and feed it.

What jobs are we talking about when we talk about the low-wage labor market? It is an interesting question because the answer is different today than it was fifteen years ago, than it was thirty years ago. Today the jobs in the ever growing low-wage labor market are in agriculture, construction, child care, home health care, building services, hospitality, and meatpacking and poultry. The demographics of this labor market are also changing. Right now about 25 percent of all low-wage workers are foreign-born workers. [FN12]

I want to focus first on the jobs that are part of this labor market because one of the things that I notice in my work all the time is that the transformation of the market as far as the kinds of jobs that are now low-wage jobs is often ignored. Here is what I mean by that. In the 1970s, meatpacking workers in the United States earned the highest average manufacturing wages-- higher than auto workers on the average--and meatpacking workers in the 1970s were part of the middle class. [FN13]

Today, meatpacking workers are not part of the middle class but a part of what Katherine Newman and Victor Tan Chen call the missing class, workers who are just a paycheck away, a divorce away, one health care crisis from poverty. [FN14] We don't need to discuss why that is on this panel today. I raise this issue only to remind us that there is nothing inherent, natural or pre-determined about the skills or the job itself that determines whether it is a low-wage job.

Jobs in the low-wage labor sector have long been defined by systematic violations of wage and hour and other employment laws. The last time the Department of Labor conducted an industry-wide compliance investigation in 2000, it determined that the poultry industry, for example, was 100 percent out of *518 compliance with the Fair Labor Standards Act. [FN15] Department of Labor investigations in the garment sector and in agriculture and construction also revealed massive and systematic violations of wage and hour laws. [FN16]

Instead of implementing any viable mechanisms to remedy these systematic violations, the Department of Labor under the Bush administration has simply ignored them. Over the last three decades, and mostly over the last six years, the Labor Department has significantly reduced the resources that would go to enforcement. From 1975 to 2004, the budget for the Wage and Hour Division has decreased by 14 percent and enforcement actions decreased by 36 percent. [FN17] By 2007, the Department's overall budget wage and hour law enforcement was 6.1 percent less than before President Bush took office. [FN18] Today, there is one labor inspector for every 110,000 workers covered by the Fair Labor Standards Act. [FN19]

What this means, and the reality for low-wage workers, is that there is no viable system of labor inspection in the United States today. The Bush administration has essentially neglected its enforcement role and that is no accident. In fact, Secretary of Labor Chao has abandoned audits and compliance investigations in favor of what she calls "compliance assistance programs," which instruct employers about their obligations under the law.

Without a viable system of labor inspections, workers are left with two established mechanisms of being able to enforce labor standards. One is complaint-based enforcement actions and the other is collective bargaining. Under current conditions, neither is within the reach of low-wage workers. Worker complaint-driven systems--in other words, private enforcement--have proven particularly ineffective for low-wage and foreign-born workers who face serious barriers to pursuing complaints with the Department of Labor or the courts, including language barriers and lack of knowledge of U.S. labor and *519 employment laws. Additionally, private lawsuits are simply not available to low-wage workers because they cannot afford access to the courts.

The other option available to workers right now is the traditional collective bargaining model and, again, you have heard about the state of the American labor movement and labor law this morning, and you are going to hear about it again this afternoon, but the reality is that today, workers in the United States do not have the ability to form unions because the law in both theory and in practice does not allow freedom of association.

So what is the answer for low-wage workers? What do they have to look forward to? What can they do? There are three basic responses. First, we have to reform the labor law. The Employee Free Choice Act is fundamental. It has to happen and it needs to happen, not today but yesterday. Second, we need to elect a president with an administration that is going to restore one of the fundamental functions of government: enforcement of the law. Third, we have to think around the law. Not rely on the law to support and enforce the work that we are doing but figure out new ways to circumvent it.

One of the ways that we have been doing that at the AFL-CIO is working in collaboration with worker centers around the country. These are groups of unorganized, mostly immigrant workers, who work in the industries that Judy described earlier where there is no right to collective bargaining: domestic workers and independent contractors, for example. Last summer, our executive counsel passed a resolution allowing these worker centers to affiliate with our central labor counsels and state federations. [FN20]

The goal here is to work together; to bring these parallel labor movements together to enforce labor rights in a way that we may not be able to do right now. Our belief is that by working with workers who are not organized in the traditional sense of bargaining and who are also, in many instances, disenfranchised, by bringing them into the larger labor movement we are lifting standards for all workers--a very fitting project. I am happy to answer any more questions about this or anything else later. Thanks.

Kent Greenfield: [FNa3] I am here as an evangelist for the idea that corporate law matters. It ought to matter to those of us in the room who count ourselves as progressives, who count ourselves as people who care about income and wealth inequality. I am particularly aiming my comments at law students here because I want to talk about corporate law in ways that you are probably not hearing in school.

I believe that corporate law is part of the problem and can be part of the solution to economic inequality in the United States and indeed the world. Of the hundred most powerful economic actors in the world, more than half are *520 corporations. [FN21] If we can figure out a way to make corporate law, the rules of corporate governance, more progressive and more attuned to these needs, then we have a tiger by the tail and we might be able to use this tool in a very impressive and important way.

I will echo most of the scholars who have spoken before me to say that corporate law is not part of the natural order. It did not come from heaven or from nature that shareholders are supreme and that shareholders ought to be the stakeholder of the firm to whom managerial duties are owed. That is a choice of the law that we have made as a polity, or actually that Delaware has made for us as a polity, over the last century. It has not always been that way in the United States. It is not that way now in other countries and we could choose differently. Such changes would have an effect because corporate law is part of the problem.

Why do I say that? If you have been to law school or know enough about law to know what the black letter of corporate law is, it is that shareholders win. When we think about shareholders and managerial duties, we think of them as owners. In fact, we have been using that language here today. I think it is language that is misleading and that we should banish. Shareholders are not owners. They are one of a number of investors of the firm. But the law says that when managers have to make a decision between benefiting communities or benefiting shareholders, the shareholders must win. When the managers have to make a decision between benefiting employees or shareholders, the shareholders must win. When the managers must make a decision between doing something that benefits the environment or the shareholders, the shareholders must win.

One of the problems with this rule is that a rule that shareholders win is a rule that says rich people win. Almost 60 percent of all the capital wealth in the United States is owned by the richest 1 percent of Americans. [FN22]

Shareholders win in part because management, to the extent that it can, transfers wealth from labor. The Economic Policy Institute has suggested that if capital income, or the percentage of returns to capital, were the same now as they were in 1979, wages would be 5 percent higher. [FN23] From the standpoint of a concern about poverty in America, part of the problem is that shareholders win, and part of how they win is that they squeeze wealth from labor.

This is made worse these days with the increasing concentration of share ownership by institutional investors. Sixty percent of the stock market is now *521 owned by institutional investors: hedge funds, insurance funds, mutual funds and the like. [FN24] Those shareholders have special incentives to maximize the profit returned in the short term. Thus, not only do we have a trend toward more shareholder primacy, we have a trend toward more short-termism. Management is squeezed to say, "We need to focus more and more on share price as the proxy for our success." They are also squeezed temporally to say, "We cannot look at the long term, we must look at the short term because if we look at the long term, we're going to be punished now."

A couple of data points to underline my argument here: the typical share turnover for Fortune 500 companies is now over a 100 percent, meaning that the typical share for a big company in the United States is held for less than a year. [FN25] If you have a plan to fight global warming, to build human capital among your employees by offering technology training or--for that matter--to obey the law, and the returns on these projects are going to be seen more than a year out, then you are likely to be punished in the market today for making that decision. In fact, in a recent study of corporate executives, 80 percent admitted that they would make a decision that would hurt the company in the long term in order to meet short-term expectations from Wall Street. [FN26] So short-termism and shareholder primacy are both symptoms of a problem that finds its roots in corporate law.

We can add to that a story about CEO pay. The average CEO for a Fortune 500 company makes about $10 million a year, equaling about 10 percent of corporate profits. [FN27] In 1965, the CEOs of major U.S. companies earned twenty-four times that of an average worker. By 2007, this ratio had ballooned to 360 times the average worker. [FN28] In other words, a CEO earns more in one day than what the average worker earns in 52 weeks. The median CEO saw his total compensation increase 186 percent between 1992 and 2005, while the median worker saw wages rise by only 7 percent. [FN29]

While it is certainly true that there are examples of situations where this excessive compensation is inconsistent with shareholder benefit, I believe that by and large it is a product of the focus on shareholders and short-term profits. Executive compensation has become the carrot that shareholders use to entice management to focus primarily on shareholder value (and consequently to disregard other stakeholders). In this view, high executive compensation is evidence of shareholder primacy. When executives are called on to justify their high salaries, they point not to the value of the company in creating jobs or *522 providing useful goods and services, but to shareholder gain.

While the increase in CEO and executive salaries by itself adds to economic inequality, the collusion between executives and Wall Street creates a snowball effect. Neither has an incentive to slow the push for more and more income for themselves--shareholders keep getting theirs, managers keep getting theirs and those who gain their livelihood from wage work are left further and further behind. Managers are not compensated for how they benefit their employees or the communities where they do business. Money spent for those things is regarded as costs, not profits, and those mere accounting conventions reveal the underlying assumption within corporate law that shareholders are the only owners and it is their fortunes that count.

I believe that corporate law is part of the problem.

But I am a dreamer as well as a critic. I think corporate law can be part of the solution. Now why is that? As I said before, it can be an incredibly powerful tool. We have been talking about income and wealth inequality; the largest source of wealth creation in the United States and perhaps throughout the world is corporations. Wouldn't it be neat if we thought of the wealth that is created by corporations as belonging not just to shareholders but also to employees and communities? We need to change the way we think and talk about corporations and the variety of different investors in the firm, including employees. [FN30]

What would it mean if we changed our mindset about corporations--from being owned by shareholders, to instead being entities that have a lot of different contributors?

One thing we could do is change the nature of fiduciary duty. I believe management ought to owe a fiduciary duty to the firm as a whole and define that as all the stakeholders, all the investors in the firm. We can enforce that in the same way that we enforce fiduciary duties now: people can sue. Now usually what that means in real life is that management has to do due diligence and make sure that the concerns of the various--now shareholders, in the future stakeholders--are taken into account.

I believe process will matter. More importantly, process will matter even more if we change the nature of who makes the decisions. I believe boards of directors of major publicly-traded companies should have employee representatives on them. The majority of countries in the European community have some kind of co-determined boards. [FN31] In Germany, on the analogue to our boards of directors in major corporations, half of the directors are elected by employees, *523 half the directors are elected by shareholders. Not surprisingly, German workers work fewer hours and make more money than American workers do. [FN32] This is straightforward. When we include employees in the processes of management, employees will benefit.

Of course politically what this means is that we are going to have to change the governing jurisdiction. The governing jurisdiction for most corporate law in the United States is Delaware. It is crazy that we let a state that has a third of 1 percent of the American population govern 60 percent of the Fortune 500 and over half of all the publicly traded companies in this country. [FN33] The reason they can do that is because we allow corporations to choose whatever state they want in which to incorporate, whether they have any significant contacts there or not.

Imagine if I were to stand here and say that we should allow companies to choose which state provides their environmental law, or worker or labor standards law, or tort law. You would think, rightly, that I am nuts. But that is exactly what we have in corporate law. Corporations can choose the law that governs them, and--not surprisingly--they go to Delaware, which has law that is very protective of managers and shareholders. If Delaware were to change the law to force corporations to take into account the interests of other stakeholders, corporations would simply change their incorporation to another state.

We should have a federal corporate law statute in order to make sure that we all have a say in corporate law. Delaware has no incentive to change their corporate laws because they get a quarter of their state budget from corporate franchise fees and incorporation fees. [FN34] Delaware is not going to change the nature of corporate law in this country; we will have to. We ought to change it because, unfortunately, corporate norms are increasingly driving our democracy. I would rather democratic norms govern our corporations. Thank you.

Patricia McCoy: Retracted by request of the author.

Ann O'Leary: [FNa4] Today I want to talk about how politics constructs laws in order to think about how law constructs wealth patterns. I am going to focus on an historical example.

In my work at the federal level when I worked in the Clinton administration and for Hillary Clinton in the Senate, I focused on work and family policy issues. As an example of the politics of a particular social policy, I want to focus your attention on an area that has had quite a bit of significant improvement in the last forty years: job-protected pregnancy and parental leave. [FN35] Our country made great progress in this area when we passed Title VII of the Civil Rights Act of 1964, the Pregnancy Discrimination Act of 1978, and 1993's Family and Medical *524 Leave Act (FMLA), the first bill President Clinton signed in office.

Some may think that these laws are enough to claim complete victory in the area of job-protected pregnancy and family leave. Unfortunately, many of these laws are more protective of professional women than they are of low-wage working women. I will talk a little bit about that and about the context of how that happened politically and what that means for how we go forward. What can we learn from the lessons of the past politics that can help us in trying to correct this problem in the future?

Let me lay out the problem because it is a bit counterintuitive due to the fact that there has been a lot of attention paid to the victory of passing these wonderful laws. The fact of the matter is, if you looked at where were we in 1964, the eve of the passage of Title VII, women in the United States who had a high school education or less--so generally the lowest earning wage workers, certainly the least educated--about 19 percent of those women had access to paid maternity leave. [FN36] How did that happen? As you can imagine, it happened thanks to the labor union movement and to collective bargaining. What was happening to professional women in 1964? In 1964, only about 14 percent of professional women had access to paid maternity leave. [FN37]

Fast forward to the early 1990s, around the time that the Family Medical Leave Act was passed. Women with less then a high school education were receiving paid maternity leave at about a rate of 18 to 19 percent. [FN38] There was really no change from the early 1960s through the early 1990s; you had the passage of Title VII in 1964, you had the passage of the Pregnancy Discrimination Act in 1978, but these laws did not improve the ability of low-wage working women to access paid maternity leave.

Professional women, on the other hand, went from 14 percent receiving maternity leave in 1964 to 63 percent. [FN39] Professional women disproportionately benefited from Title VII and the Pregnancy Discrimination Act's mandate that women get equal access to the benefits offered to men. In professional settings, men had access to paid leave for temporary disabilities, something that most low-wage workers did not have.

Now you might ask, "If paid maternity or family leave is, unfortunately, not a federal requirement, how did Title VII or the Pregnancy Discrimination Act have this effect?"

In response, let's first look at Title VII in 1964. As many people in this room know, sex as a protected class was added to the bill at the last minute. Some people think that it was added to try to destroy the Civil Rights Act. Other people *525 will tell you that it was added because a group of women had been fighting for quite some time to ensure that women would be protected on the basis of sex.

Leading up to Title VII's passage, there was a group of women in the labor movement who had been working quite hard to educate the public that there was some protection afforded to women by state labor protective laws (laws that were often passed as a result of advocacy by labor union women). These same laws were oftentimes vilified--they certainly were overbearing and overgeneralized--but they did provide women with maximum hours and minimum wages. Some women in the labor movement said, "Wait a second, before you get rid of those laws, why don't we think about extending those laws to all workers?"

When Title VII was passed, there was a concern that those state laws were discriminatory on the basis of sex, so those laws were overturned shortly after the passage of Title VII. Many women who had some protection against unwanted overtime hours and too little pay no longer had this protection. In terms of politics, this created a split in the women's movement between professional women and low-wage working women.

Then, with the Pregnancy Discrimination Act, we already had Title VII's equality-based model of "You can have equal rights, if they are in fact afforded." If you look at the legislative history of the Pregnancy Discrimination Act, there is really clear analysis by the members of Congress who were about to pass this law, saying, "We are not going to provide any affirmative rights to women. We are only going to provide women with the same rights as those men who have the ability to take leave if they have a temporary disability."

Where does that leave low-wage workers? For low-wage workers who work in a place where there is no sick leave, where there is certainly no short-term disability leave, it means that they get no protection against pregnancy discrimination. There has been some split in the courts on this very question, where some courts have said that where an employer offers absolutely no leave for a temporary disability there is a disparate impact on women and there should be some protection, but the trend in the last ten to twenty years has been that courts have interpreted Title VII to hold that there is no disparate impact on women with regard to no-leave policies. This means that women who are low-wage workers and who work in a workplace where there is no leave allowed for temporary disabilities are not protected by the Pregnancy Discrimination Act.

Turn to the Family Medical Leave Act where great strides were made. The FMLA really tried to bring the women's movement back together to say we really need to be ensuring that we have an equal basis for leave but we also have some accommodation, there should be some proactive right to leave. It was a tremendous, first basis in which there was an agreement that providing everybody with some unpaid leave was the right way to go. What happened, unfortunately, is the politics of compromise, which at the end of the day left out low-wage workers. Only about half of the workforce is covered by the FMLA and those who are not covered are disproportionately low-income women.

*526 In order to be eligible you have to work for an employer for a year. Who doesn't work for an employer for a year? Oftentimes, women leaving welfare. The average time for a person leaving welfare to stay on their first job is nine months; therefore they get a job but they never quite get to that year to qualify. So they are starting over and starting over but they are never able to access the Family Medical Leave Act. This is also true if you look at the small business exemption. Employers who have fifty employees or less do not have to offer their employees the benefits of the FMLA. About half the low-wage workforce works for small employers so, again, you have this disproportionate impact on low-wage workers.

My time is running short, so I just want to say a couple of things about the lessons we can learn here and what we need to be cognizant of as we move forward. One of the things that has happened if you look at Title VII, the Pregnancy Discrimination Act and the FMLA is at different times, Congress did not consider the impact on low-wage women. They may have looked at women broadly and certainly there was so much work to be done for women that there is some understanding of why they may have not parsed out the impact on low-wage working women. But the lack of consideration of the impact these bills would have on low-wage workers remains a problem.

Then there is also what has become the habit of explicitly ignoring political reality. During the time of the consideration and passage of the Family Medical Leave Act, women still had access to welfare as an entitlement. It is very interesting that during the debate over the FMLA, members of Congress kept referring to the fact that if it was passed, it would mean that more women would have access to it and therefore would not have to rely on welfare. Women would not need welfare because they would have the ability to work and take job-protected leave through the FMLA. Yet, during the debate over welfare reform, just three years later in 1996, there was no analysis of the fact that half of the workforce, disproportionately low-wage workers, would have no access to the FMLA even as they were being kicked off of welfare.

Sometimes there is a political need to move forward with a bill--for example, the political pressure to reform welfare--without any understanding or analysis of what impact the reform may have as it interacts with prior laws. What I urge us to think about, as we do work in all of these areas, is how to not exacerbate the problem by relying on the current state of the law. For example, there is a proposal that has been put forth in Congress by Senators Dodd and Stevens for paid leave, which I applaud; it is fabulous to think about having a national paid leave. Unfortunately, they model it on the FMLA, so in order to be eligible for paid leave, you have to be eligible for the FMLA. Who does that leave out? It leaves out our low-wage workers. One of the things we need to be really thoughtful about, as we move forward, is to not make mistakes from the past in building on our current law and to think creatively.

The other thing that I want to say in terms of an example of the politics of the *527 possible is that oftentimes we are so focused on the national level, which we have to do, that we forget how much progress we can make at the state and local level. Certainly, California and San Francisco have really led the nation in this area. Thanks to the labor movement, California passed the first paid family and medical leave law in the country. San Francisco just became the first place in the country to pass a law guaranteeing paid sick leave. So do not forget the state and local level as we begin to think about what is possible. Thank you.

Stephen Berzon: There is a great deal of food for thought here, and what I am going to do, much as Catherine Fisk did in the earlier session, is to try and stimulate an internal debate on the panel, if I can, or at least draw out the panelists on some of the points they have made. Then I will open it up to the floor.

One of the things that Ann's talk made me think about as we approach the new year and the presidential election, is the need to formulate ideas quickly and move on them. That was done in California a few years back with regard to programs like paid family medical leave and others. We did not have a Democratic governor for sixteen years. When Gray Davis was elected, the labor movement and others put together a whole series of progressive legislative measures, and they were moved through the legislature very quickly. Some, unfortunately, were vetoed. But even in those cases, we came back the following year with slightly modified bills, and several were enacted into law. There was a whole slew of changes that happened because the labor movement and its allies were ready to act at the very beginning of the new administration.

Federal family medical leave is an example of something not done very well in that regard. Many of you will remember what actually happened with the Family Medical Leave Act. As Ann mentioned, the bill that was enacted in the Clinton administration has many failings. The reason is that the bill was initially passed by Congress during the George H. W. Bush administration. It was proposed as an easy sell: employers simply had to give employees time off to care for sick children, and they did not have to pay anything. There were even those who thought President Bush would sign it, but if not, at the very least, it would create a campaign issue.

Bush, of course, vetoed it, and there weren't the votes to override the veto. But then Bill Clinton won. He had fifty-eight Democratic senators in 1993 and an overwhelming Democratic majority in the House of Representatives. Why not, in 1993, try instead for a modest paid family leave bill? But that was not put forward. Rather, the same unpaid leave bill that Bush had vetoed was passed overwhelmingly and signed by President Clinton. As a result, there is still no federal paid family leave in this country.

So what we have to do when we are putting together ideas in 2008 is to look ahead to what we really want to do in 2009, if we are fortunate enough to change the politics, because the best time to do this is right at the beginning of a new administration and Congress.

Let me just raise some questions for the panelists. Professor Forman, you had a *528 number of interesting proposals for changing the tax system. But it seems to me that there are countervailing reasons why we may not want to eliminate the separate tax for Social Security, because there is a concern that if we do that and Social Security becomes just like any other government program, we may lose support for it. So at the very least, isn't it a no-brainer to change the payroll tax system so that those who are the wealthiest keep paying the Social Security payroll tax on all their income? We have this unbelievably regressive tax right now where someone who makes $60,000 or $50,000 or $40,000 is paying close to 7 or 8 percent on their earnings, and somebody who is making millions is probably paying one-tenth of 1 percent on theirs.

Jonathan Forman: I have mixed feelings about this particular issue, mostly because I think that payroll taxes and earned income bear too much of a burden already. The payroll tax base is actually only 39 percent of gross domestic product. [FN40] What is left out? Earnings over the $97,500 cap in 2007 is one of the big items, but really the biggest item in my mind is investment income, which escapes completely. Trust fund kids do not pay any Social Security taxes. I once wrote an article where I basically asked what was fair about the fact that Bill Gates and I pay the same amount of Social Security tax. [FN41]

I would also add here that my mentor, the late Senator Daniel Patrick Moynihan, used to say, "Remember, these are social insurance programs." He was concerned when we took the cap off of the Medicare payroll tax that it would become more like a tax on all earned income, rather than a social insurance program. As a tax lawyer I will tell you that one of the dangers of taxing earned income more is that people can relatively easily convert it into investment income by being involved in partnerships and corporations and taking stock options instead of salary. I am very sympathetic, yes, anybody who makes more than $97,500 should pay more tax. But Bill Gates should pay in a lot more to support elderly retirees than I do.

Stephen Berzon: Ana, I have a question for you about the enforcement of labor laws. My question is really directed to enforcement of overseas labor laws. I just came back from China last Thursday, and I met with a number of people in the environmental area in China. One of the things I learned is that China EPA has only a few hundred people doing enforcement throughout China, while the United States EPA, if we take both in-house people and contract enforcement people, has over 100,000 doing enforcement.

I have no reason to think, although I did not get the numbers, that it is any different with respect to China's wage and hour laws. China's wage and hour laws are not what ours are, but if enforced, they would make a meaningful *529 difference in Chinese society. There are a number of articles in the Chinese press on a regular basis about employers in the provinces, which is where the factories are, who are cheating and not paying workers what they are required to pay.

So what about changing American law and allowing Chinese workers to bring lawsuits in the United States against American companies--not Chinese companies, although they can name them too--who have goods manufactured for them overseas and who then choose to sell those goods in the United States. Those goods are made by workers who are not being paid the lawful wage that they are supposed to be paid in their own country. What about laws that would allow class action suits here for such workers?

Ana Avenda o: That is a very creative idea and I am sure the trial lawyers would love it. I think that Chinese workers would face the same challenges that American workers now face in being able to access the courts, but it is certainly an interesting suggestion. I don't know if it is feasible.

Stephen Berzon: It is a level-the-playing-field kind of idea. Employers that make goods in the United States are subject to lawsuits--and there are many such cases. This legislation would simply provide that if you are going to sell goods here that are made overseas, there ought to be the same enforcement mechanisms. Logically it ought to sell.

Ana Avenda o: Logically it does. One of the challenges that workers face through private enforcement of wage and hour laws right now is that federal class action law requires that plaintiffs opt in, which makes it very difficult to reach workers. In crafting legislation and public policy, and also in my work in the immigration field, we are very conscious of the fact that it is not feasible to give foreign workers any more benefits, for example, than workers get within the U.S. Your idea is very interesting, but under the current system, I am not sure that Chinese workers would be getting all that much.

Stephen Berzon: Why not push hard now for an opt-out in federal wage and hour cases, instead of an opt-in? The opt-in system is something that has been in the law for a long time and it has not worked very well. Shouldn't this be something that is front and center in terms of change?

Ana Avenda o: It should be. The whole issue of labor standards is something that has been largely ignored and not just this past Congress but for several Congresses now. I mean we saw this in the immigration reform debate. That debate was not framed around workers' rights at all. It was not concerned with labor standards and looking at changes in the laws--the Fair Labor Standards Act, opt-out classes instead of opt-in, reforming the independent contractor system--all that absolutely should be front and center because I think you are right, it is going to have to go into whatever agenda we are able to push with the new administration and it is going to have to be done quickly.

Kent Greenfield: There is actually an area in corporate law that could help answer your question. There is a doctrine, thought to be dead, called the ultra vires doctrine. It says that if a corporation acts beyond its powers, *530 shareholders can bring an injunctive action. Every corporation chartered in the United States has one obligation according to its incorporation documents and according to state law: to obey the law. Historically, corporations were chartered for specific purposes. Now what the statutes say is they are chartered for any and all lawful purposes. My argument is that a shareholder activist could bring an injunctive action in the state court of the state that chartered the corporation to enjoin the corporation to obey the law wherever it is disobeying the law, including China or Vietnam or Texas or Mexico or wherever. [FN42]

Jonathan Forman: If I could have a brief comment: this employee/independent contractor issue is a very important issue in tax policy, in pension policy, in who gets Social Security benefits and to what level they have to pay them, and in health care coverage; and it is something that I hope we can jump on at the beginning of the next administration.

Stephen Berzon: It is critically important in labor organizing because you can have a labor union for employees, but for people who are independent contractors, it is an anti-trust violation for them to act in concert. That is why Judy Scott was talking earlier about various changes that have been made in state laws to take so-called independent contractors and, for certain purposes, convert them into employees.

Kent, I think you raised a terrific idea with respect to looking at corporations and corporate reform in an entirely new way. Obviously, this is going to be very difficult to get passed at the federal level. So my question to you, Kent, is how politically can we do this? And how would it work as a practical matter if you had a board of directors that, say, had worker representatives on it, would these be majority vote situations? How would it play out, and can you see examples where this would make a real world difference?

Kent Greenfield: As I said in my talk, the majority of countries in the European Union have some mechanism for co-determination of their boards of directors. There is a range of different mechanisms. In some countries, the employees elect essentially a board of delegates and the board of delegates elects the board members. In some countries, it is done through the trade unions. In some countries, it is done directly. The specifics do not matter as much as the need to do it. A friend of mine said to me recently that the best answer to "How?" is "Yes." I want to say yes to the idea and we will work out the specifics.

Note that we spend millions of dollars each year on this incredibly byzantine mechanism of shareholder voting. I guarantee you that employee voting is going to be much more efficient and much less costly than shareholder voting and probably will make much more of an impact.

As to whether it will have an impact generally, it is admittedly difficult to do cross-country comparisons. But within Europe, the most recent study I saw comparing countries with co-determination--some kind of worker representatives*531 on boards--and those countries without: those with it had lower income inequality, fewer days lost to strike, higher labor productivity and lower unemployment. [FN43] As I said in my talk, it is not so surprising that if we can include the concerns of employees and their communities into the fabric of decision making, corporations are going to spin off fewer externalities and they are going to take into account the interests of workers more. I hasten to say that in this new structure there will still be no one on the board who has any incentive to stick a knife in the belly of the company. Everybody will be laboring together to make the company more profitable and more productive.

Stephen Berzon: There is some history of this in the United States. Chrysler was about to go out of business, and there was a massive bail-out by the federal government. The government was not going to let Chrysler fail, and one of the trade-off provisions was that there had to be representation for the United Auto Workers on Chrysler's board of directors. Doug Fraser, president of the UAW, sat on the board of directors. Similarly, United Airlines, when they had their employee stock ownership plan, had worker representatives on their board.

It would seem intuitive that if you are going to have worker representatives in the room participating in board discussions about important issues affecting workers, that it is at least more likely that the impact on workers will actually be discussed, and that board members acting collegially might be more likely to try to ameliorate those concerns.

There have been a number of great ideas expressed here, and it seems to me that if we are going to have any chance of doing any of them, educating the candidates and asking for their support ought to be done now, not after they get elected. They are going to be out campaigning and in primaries. I would think that to the extent that people have ideas and political ties, the time to ask candidates to get on board with various proposals regarding wealth inequality is now.

For example, when I heard Bob Kuttner yesterday, I started to think about why the unemployment insurance system is as inadequate as it is. When unemployment insurance was passed in the 1930s, the employer paid a very small tax for each employee up to the first $8,000 of income. In the 1930s, that was a large sum. There really were very few Americans who were making $8,000.

But in most states right now, employers are still just paying a very small tax on the first $8,000 of income, and that has never been changed. That is one reason the system is so starved. Obviously with this sort of social insurance program, we not only help workers who are one or two paychecks away from falling into poverty, but equally important, we stabilize purchasing power. We provide the means for workers to keep spending money, which has a snowball economic *532 effect on local businesses and on the entire community.

So my question to Ann is: what specific kind of reforms would you like to see Congress tackle in the first several months of 2009, just as they did in 1993? If we were to have a progressive Congress and a progressive president, what would you like to see done, and what should be done in January, February, March or April of 2009?

Ann O'Leary: If I can speak first to your first point--what we should all be doing now. It is important for all of us to be sharing our ideas and not only thinking about ideas for a campaign but really ideas of what needs to happen if a different administration comes in, what type of policies need to be on the table. That is why these conferences are so important, to begin thinking about these areas of policy.

In terms of family leave, certainly one of the most important things to do is to really think about paid leave and doing it in a way that helps low-wage workers, not just those who are eligible for the FMLA. There are really a couple of different ways you could think about doing it. One is to incentivize states to continue the action that they are already beginning. If you look at what has happened so far, we passed a law in California; Washington just became the second state in the country to pass a paid family leave law. New Jersey is about to do the same thing. So one of the first things the federal government could do immediately is begin to assist states by providing some real financial incentives, whether it is through paying for the administration of these programs or matching the funds that are provided to employees as part of paid leave.

One of the political difficulties happening in the states, and this happened in California, is that these paid leave proposals are paid through a payroll tax. In California we have something called a temporary disability insurance system. There are five states in the United States that have temporary disability insurance systems and they are funded through a payroll tax that is split between employees and employers. For the paid family leave, there was a lot of resistance from the business community to pay for it, so what ended up happening is that the individuals who were pushing for this said, "If employers won't pay for it, the employees will," so the family leave bill in California is paid 100 percent by an employee payroll tax with the employer not contributing to it.

So it is really important for the federal government to begin playing a role in encouraging more states to do what is already happening. There are about twenty-four states that have some type of legislation pending right now on this issue. The next step will be, are we ready for a national program and if so what does it look like? The political will may not be there immediately, but the education and the experience of what is happening in these states will lead, hopefully, toward a national paid leave program.

Stephen Berzon: If states are moving towards payroll tax financing, the way the unemployment insurance system was set up in the 1930s is an interesting model. To get the states to participate, the federal government passes a tax on all *533 employers and then provides the employer with a 90 percent tax credit if the state the employer is in has an unemployment insurance program with an equivalent payroll tax to fund the insurance benefits. The remaining 10 percent is then refunded back by the federal government to the states to pay for the administration of the program.

Ann O'Leary: Exactly. It is really important to think creatively about those types of structures and what has worked and not worked in the past. Everything is on the table right now and it is a matter of both being able to figure out substantively how to do it and then really it is political will. I think there is political will in some states but not in all, and that is what the federal government can work on.

Stephen Berzon: If I can just throw one more idea on the table. Back in the late 1960s, early 1970s, there was a legal services program with literally thousands of lawyers who were thinking through these issues, strategizing and developing ideas, advising clients and the like. Unfortunately that program has been starved and changed and emasculated over the past twenty-five years or so, but just hearing the ideas at this table, it would be a major accomplishment if we could get far more lawyers working on these issues.

One development that is relatively new is that some city attorneys' offices like Ann's in San Francisco, and the Office of the City Attorney in Los Angeles, have set up units to work on these kinds of issues. Creative ideas about how to expand representation and to look at wealth inequality in a systematic fashion would be very welcome.

So why don't we open it up for questions? The floor is yours.

Q: Thank you all. This has been really wonderful. I'm not a lawyer but you have successfully motivated me to be one--really provocative and insightful comments. But what I was thinking about during this panel was that there could have easily been a panel here today on how law has constructed race and then connecting that to the racial disparities in wealth that we have talked about today. That is my excessively broad question, if anyone wants to comment on it--if there are specific topic areas that show how race and wealth inequality flow together or just talk more broadly on the construction of race, racism and racial disparities and how it connects to wealth.

Kent Greenfield: I will say something from the corporate law perspective. If we were to measure institutions based on the risks that lack of diversity creates for groupthink and the repetition of mistakes and bad decisions, corporate boards have got to be number one on the list. Because most corporate boards of most large, publicly traded companies are staffed with white men of a certain age and of a very elite social status. [FN44] Diversity matters; not just about race and gender but *534 class and perspective as well. If we wanted to start with a list of indictments in terms of lack of diversity, I think corporate boards ought to be high on the list.

Ann O'Leary: It is interesting that if you look at the women's movement and also civil rights related to race, some of the things that have happened are similar; that in the women's movement oftentimes there is a real focus on professional white women. When I was talking about what happened prior to 1964, there was a broad labor coalition of both African Americans and white women who were fighting together to get the type of labor protections they thought they needed. I don't think that carried forward necessarily. One of the things that needs to happen when you are looking at these issues is to ensure that you are considering the impacts of both race and class and that does not happen enough.

The other thing that is parallel is that looking at what issues are focused on--so for example in the women's movement right now there is a really big focus on workplace flexibility--they are usually discussed in terms of professional women, lawyers, doctors. Those are real issues, I know--speaking as a new mother--but they do not often talk about workplace flexibility for low-wage working women.

Similarly, sometimes there is so much emphasis on affirmative action related to higher education, which again is a really critical issue but it impacts more the elites in our country, rather than individuals of all classes and backgrounds. One of the really important things to think about is where our political dialogue ends up happening, and it often happens at a class level that does not impact everybody equally. It is really important as we begin to look at these issues to ask both the race-based questions and the class-based questions.

Stephen Berzon: Ana, have you seen a racial connection with regard to the immigration work that you've done?

Ana Avenda o: I was just going to say that. The issue of race has been, unfortunately, largely glossed over in the immigration reform debate and that is really to the detriment of workers and ultimately to the detriment of having a fair, just and equitable immigration reform law. What has happened is that--I do not want to label any particular group of people, but the pro-immigrant groups do not like the phrase that immigrants are "taking the jobs," of African Americans especially, and so there has been a big effort to deny that or say that it is not true.

The reality is that on the ground, as we have seen in these industries that are increasingly staffed by immigrant workers, workers are seeing the jobs that their parents did--for example in poultry in the south, meatpacking, jobs that were stable jobs, that provided a reliable source of income for the African American community--are now actually filled by immigrant workers. So the reality of what the community is living everyday is not reflected in the policy or the discussions that we are having.

In our view, the answer is not to blame the immigrants, obviously, but to focus on what is causing this transformation and how race is playing a part in the transformation and how it is continually being used to divide workers and to divide communities. The folks in the anti-immigrant crowd--the Federation for *535 American Immigrant Reform, the VDAREs, the closed borders crowd-- they are a group of nativist, xenophobic, racist pigs, but they have a spokesperson. They have Lou Dobbs, who has painted all these images of Latinos, shown on TV like rats crawling over the fence and invading our country. Essentially, race is behind everything that we do in both labor and particularly immigration reform debates.

Michael Selmi: [FNa5] My question is geared towards Kent and Ana. My sense is that the stories are more complicated than are being portrayed here and I know part of it is lack of time in a major conference but I also think it is one of the things that contributes to the policy stagnation that we have in Washington.

In terms of Kent's story with the shareholders, you mentioned institutional investors but what you left out in the story is that the largest institutional investors are pension funds and some of those are union pension funds who are investing in these companies and seeking to increase their gains, often at the expense of employees. It seems that there is something wrong with that, but that does not seem to be part of the story that we focus on.

On immigration reform, what has happened in Congress is a classic example of why they cannot do anything when an issue becomes complicated, because it seems the reason it stalled is because Republican business and agricultural interests are not supportive of any reform. They want the system as it is and that means we will get no immigration reform. Because these stories are so complicated it makes for very difficult politics and when we treat them more simplistically, we overlook the political aspects. This is more like a comment followed by a question mark.

Kent Greenfield: Mike, I agree with you completely that one of the problems I see is that pension funds, once they buy up a lot of shares to protect themselves for the long term, they start acting like shareholders and the pension fund managers are evaluated based on whether the value of the fund grows in the short term. One of the legal amendments I would like to see is some relaxation under ERISA law--now I am putting people to sleep--so a change in ERISA law to allow pension fund managers to be more robust in their view of fiduciary responsibility.

Ana Avenda o: There is no other issue that is as emotional, polarizing and complicated as immigration reform is right now. The bill failed for a whole host of reasons. Of course I do not know if, at that particular moment, they wanted reform or not, but it was a terrible bill to begin with and it is not a bad thing that it failed.

What we are dealing with at the present moment with immigration reform is that you are right: the business community, with the help of the Bush administration, is getting done through regulations, through the administrative process, what it could not do in the law. Very soon, we are going to see a change in the regulations that govern H-2A workers, agricultural workers. Their wage rates are going to go down. Their conditions at work are going to decrease *536 significantly, and this is not done through legislation, but through the issuance of new regulations.

They did the same thing very recently with the Social Security No-Match Letter in which they tried to use, through this regulatory process, a new phony enforcement mechanism. All of this is really being done to address the employers' concerns and also to address the right wing of the party, the anti-immigrant wing that continually wants to see more and more immigration enforcement.

Q: I'm not an attorney, so perhaps this isn't an appropriate question but let me ask it anyway. We live in a world in which women, for example, are a protected class in law and African Americans and other minorities are also considered a protected class. That wasn't always the case, of course, and that status for each of those constituencies or groups emerged in the course of a long-term legal strategy in connection with a long-term social movement. My question is: what should we be thinking about to ultimately make working people a protected class?

Stephen Berzon: That is a great question. There was actually a Supreme Court case in the 1970s--it was the Dandridge case if memory serves me right-- where the Court came very close to making distinctions based on wealth a suspect classification. [FN45] That could be revisited.

Peter Edelman wrote a wonderful law review article in the Hastings Law Journal about fifteen years ago about why wealth should be a suspect classification. The American Constitution Society, which is a co-sponsor of this program, has been attempting to promote progressive constitutional change over the longer run as both politics and, subsequently, the Supreme Court begins to change. Yes, Jonathan?

Jonathan Forman: This goes back to the question you raised, which is what is it that the new administration should do to hit the ground running. I think what we should do and could easily be passed--it would not look like it cost a lot of money--would be an employee bill of rights. It would protect employees, independent contractors and part-time workers. Think about what rights they should have. That would be the first thing that I would do in 2009. The most important thing we should hopefully do in 2009 is some kind of universal health care benefit, but that is going to take at least all year.

Marion Crain: [FNa6] We need to wrap up but I want to piggyback onto Michael's question. This is one of the panels that Praveen, Heather and I struggled to put together--not because there were not plenty of wonderful people out there, and *537 you are the best of the best and we got you—-but because we could not find a coherent theme. Praveen was really good about holding my feet to the fire and saying that the coherent structure was "law and how it structures wealth," and he was absolutely right.

One of the most exciting things for me amidst all the depressing statistics from this morning and yesterday has been hearing what is essentially a consciousness-raising session from these different silos of law that do not normally talk to one another and realizing how much in common we have, how much great work there is going on out there, how much passion for the work there is. I am thinking along the same lines as Michael, and obviously you, Stephen, about how we mobilize that energy.

It is not enough in my view to say we need a good politician; or that we need some political party to take this up. I think we need to take the reins-- whether that means reinvigorating the legal services movement in some new form, whether it is academic centers like this one, whether it is labor unions or all of the above--to make class a mobilizing force for all of us. And not just the lawyers but everyone. So if anyone has any great ideas about vehicles for mobilizing, now would be a good time to throw them out on the floor.

Kent Greenfield: One of the things that we need to do a better job of is framing. Here is a frame that I have been toying with and let me throw it out, as you suggested. What about the motto, "Abundance for all"? We want abundance in America. We are an incredibly rich country. There is plenty of wealth to go around; it just doesn't.

Stephen Berzon: I would like to see it start in law schools. What I would like to see are clinics where students are not just handling divorces or consumer problems or the like--as important as such representation is--but where students are also dealing with systemic problems involving wealth- and poverty-related issues. If we could get law professors mobilized to start writing articles and teaching classes that are germane to these issues, that would be a sea change. I believe many law students come to law schools very motivated, very idealistic. They really do want to help people. If they are progressive, they want to have a law practice that is consistent with their values. Somewhere in their three law school years, they lose that, and, even if not, in recent years their attention has been directed primarily toward what is going on overseas. Certainly, international human rights issues are very serious problems, but we also have to figure out a way to direct law students' attention to our severe wealth inequality problems here at home.

Ann O'Leary: I want to put a plug in for what we did in the San Francisco City Attorney's office and how we did it because I think it is an important lesson. One of our attorneys from our office went to an American Constitution Society national convention and heard a speaker much like you have heard today--a professor from Yale University, Heather Gerken, who was talking about what you could do at the local level. She began talking to Heather about what more we *538 could be doing. At the time, our office had a nice history of doing affirmative work but we did not have a particular focus on it nor were we thinking about how we might make that happen. As a result of that conversation--something much like this where two people got together with an idea--our office has now established a partnership with Yale Law School and Boalt Hall School of Law at Berkeley where students are working with our office on ideas generation and working with professors, connecting academics with practitioners.

Also in our office we are very consciously looking outwards to the community and we are connecting with community-based organizations in San Francisco that work on predatory lending issues particularly. The Yale students are doing the research with us and we are really able to make some progress.

I encourage and challenge all of you to think about the institutions that you are involved in and how you might be able to partner with somebody in this room or otherwise, or in your local community or your local law schools. There is a lot we can do and it just takes an idea and some willpower and the institutional ability to do it.

Stephen Berzon: I want to thank the panel. This has been a very stimulating panel. I know there are more questions. If anyone wants to come up and talk with the panelists for a couple of minutes before lunch or at lunch, I know they will be delighted to do so. Thank you very much.

[FNa1]. Partner, Altshuler Berzon LLP.

[FNa2]. Alfred P. Murrah Professor of Law, University of Oklahoma.

[FN1]. Author's computations from U.S. CENSUS BUREAU, HISTORICAL INCOME TABLES--HOUSEHOLDS, tbl.H-2: Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households, All Races: 1967 to 2007, http:// www.census.gov/hhes/www/income/histinc/h02AR.html (last visited Aug. 28, 2008).

[FN2]. Id.

[FN3]. EDWARD N. WOLFF, RECENT TRENDS IN HOUSEHOLD WEALTH IN THE UNITED STATES: RISING DEBT AND THE MIDDLE-CLASS SQUEEZE 11, tbl.2 (Levy Econ. Inst. of Bard College, Working Paper No. 502, 2007).

[FN4]. Id.

[FN5]. U.S. CENSUS BUREAU, CURRENT POPULATION REPORTS P60-232, THE EFFECTS OF TAXES AND TRANSFERS ON INCOME AND POVERTY IN THE UNITED STATE: 2005 6 tbl.3: Share of Aggregate Household Income by Quintile and the Gini Index: 2005 (2007), available at http://www.census.gov/prod/2007pubs/p60-232.pdf. Before government taxes and transfers, the richest 20 percent American households received 53.83 percent of household income, while the poorest 20 percent received just 1.5 percent and the Gini index was a sizeable 0.493. Taxes and transfers increased the relative share of income held by the bottom three quintiles at the expense of the share of income held by the top quintile and the Gini index fell to 0.418. Figure 4 provides a graphic interpretation of this data.

[FN6]. David Ellis, Buffet Talks Tax Reform with Sen. Clinton, CNNMONEY.COM, June 27, 2007, http://money.cnn.com/2007/06/26/news/newsmakers/clinton_ buffett/index.htm?postversion=2007062700.

[FN7]. JOINT COMM. ON TAXATION, ESTIMATES OF FEDERAL TAX EXPENDITURES FOR FISCAL YEARS 2007-2011 26, tbl.1 (2007), available at http:// www.house.gov/jct/Rethinking_Tax_Expenditures.pdf.

[FN8]. EDWARD N. WOLFF, TOP HEAVY: THE INCREASING INEQUALITY OF WEALTH IN AMERICA AND WHAT CAN BE DONE ABOUT IT 3, 42-43 (2002). Wolff based his estimate on the Swiss wealth tax system, with marginal tax rates from 0.05 to 0.30 percent and an exclusion of about $50,000.

[FN9]. COMM. ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES, 108TH CONG., 2004 GREEN BOOK: BACKGROUND MATERIAL AND DATA ON PROGRAMS WITHIN THE JURISDICTION OF THE COMMITTEE ON WAYS AND MEANS K-10-K-12 (2004).

[FN10]. Daniel N. Shaviro, The Minimum Wage, the Earned Income Tax Credit, and Optimal Subsidy Policy, 64 U. CHI. L. REV. 405 (1997).

[FN11]. JAMES K. GALBRAITH, CREATED UNEQUAL: THE CRISIS IN AMERICAN PAY 167 (University of Chicago Press, 2000) (1998).

[FN12]. See RANDY CAPPS ET AL., THE URBAN INSTITUTE, TRENDS IN THE LOW-WAGE IMMIGRANT LABOR FORCE, 2000-2005 2 (2007), available at http:// www.urban.org/url.cfm?ID=411426. See also Marta Tienda, Don't Blame Immigrants for Poverty Wages, AM. PROSPECT, May 2007, at A10, available at http:// www.prospect.org/cs/articles?article=dont_blame_immigrants_for_poverty_wages.

[FN13]. John Brueggemann & Cliff Brown, The Decline of Industrial Unionism in the Meatpacking Industry, 30 WORK AND OCCUPATIONS 327, 328 (2003).

[FN14]. KATHERINE S. NEWMAN & VICTOR TAN CHEN, THE MISSING CLASS: PORTRAITS OF THE NEAR POOR IN AMERICA (2007).

[FN15]. U.S. DEP'T OF LABOR, POULTRY PROCESSING COMPLIANCE SURVEY FACT SHEET 2 (2001), available at http://www.ufcw.org/document.cfm?documentID=291.

[FN16]. For an overview of wage and hour violations in these and other sectors, see IMMIGRANT & NONSTANDARD WORKER PROJECT, NAT'L EMPLOYMENT LAW PROJECT, HOLDING THE WAGE FLOOR: ENFORCEMENT OF WAGE AND HOUR STANDARDS FOR LOW-WAGE WORKERS IN AN ERA OF GOVERNMENT INACTION AND EMPLOYER UNACCOUNTABILITY (2006), available at http://www.nelp.org/document.cfm? documentID=762; HUMAN RIGHTS NETWORK LABOR CAUCUS, LABOR AND EMPLOYMENT RIGHTS: RESPONSE TO THE PERIODIC REPORT OF THE UNITED STATES TO THE UNITED NATIONS COMMITTEE ON THE ELIMINATION OF RACIAL DISCRIMINATION (2008), available at http://www2.ohchr.org/english/bodies/cerd/docs/ngos/usa/USHRN33.doc; Catherine K. Ruckelshaus, Labor's Wage War, 35 Fordham Urb. L.J. 373 (2008), available at http://law.fordham.edu/publications/articles/400flspub12222.pdf.

[FN17]. ANNETTE BERNHARDT & SIOBHAN MCGRATH, BRENNAN CTR. FOR JUSTICE, TRENDS IN WAGE AND HOUR ENFORCEMENT BY THE U.S. DEP'T OF LABOR, 1975-2004 1-2 (2005), available at http://www.brennancenter.org/dynamic/subpages/download_ file_8423.pdf.

[FN18]. Judd Legum et al., Labor--Bush Priorities Hurt Workers, Help Employers, THE PROGRESS REP., June 14, 2006.

[FN19]. Rebecca Smith & Catherine Ruckelshaus, Solutions, not Scapegoats: Abating Sweatshop Conditions for All Low-Wage Workers as a Centerpiece of Immigration Reform, 10 N.Y.U. J. LEGIS. & PUB. POL'Y 555, 560 (2006-2007).

[FN20]. Press Release, AFL-CIO, AFL-CIO and NDLON, Largest Organization of Worker Centers, Enter Watershed Agreement to Improve Conditions for Working Families (Aug. 9, 2006), http://www.commondreams.org/news2006/0809-14.htm.

[FNa3]. Professor of Law and Law Fund Research Scholar, Boston College.

[FN21]. In a comparison of major corporations (listed by sales) and countries (listed by gross domestic product), fifty-two of the largest 100 entities were corporations and forty-eight were countries. By this measure, Wal-Mart is larger than Sweden or Norway; General Motors was slightly larger than Saudi Arabia; Exxon Mobil was larger than Turkey; Home Depot was larger than New Zealand. See SARAH ANDERSON ET AL., FIELD GUIDE TO THE GLOBAL ECONOMY 69 (rev. and updated, 2005).

[FN22]. LAWRENCE MISHEL ET AL., THE STATE OF WORKING AMERICA 2006/2007 78-79 (2007). For a more extensive survey of the data, including several charts, see Kent Greenfield, Reclaiming Corporate Law in a New Gilded Age, 2 HARV. L. & POL'Y REV. 1, 8-16 (2008).

[FN23]. MISHEL ET AL., supra note 170, at 88.

[FN24]. Greenfield, supra note 170, at 9.

[FN25]. LAWRENCE E. MITCHELL, THE SPECULATION ECONOMY: HOW FINANCE TRIUMPHED OVER INDUSTRY 277-78 (2007).

[FN26]. Id., at 1, 278.

[FN27]. MISHEL ET AL., supra note 170, at 204.

[FN28]. SARAH ANDERSON ET AL., INST. FOR POLICY STUDIES AND UNITED FOR A FAIR ECONOMY, EXECUTIVE EXCESS 2007: THE STAGGERING SOCIAL COST OF U.S. BUSINESS LEADERSHIP 5 (2007), available at http:// www.faireconomy.org/reports/2007/ExecutiveExcess2007.pdf.

[FN29]. MISHEL ET AL., supra note 170, at 204.

[FN30]. For a comprehensive treatment of these ideas, see KENT GREENFIELD, THE FAILURE OF CORPORATE LAW: FUNDAMENTAL FLAWS AND PROGRESSIVE POSSIBILITIES (2007).

[FN31]. Co-determination, the practice of having employee representatives on company boards, is widespread in Europe. "Employees in 18 of the 25 European member states have the right to have their interests represented in their company's top administrative and management bodies." REBECCA PAGE, CO-DETERMINATION IN GERMANY--A BEGINNER'S GUIDEE 31 (2006). For an excellent overview, see THE EUROPEAN COMPANY--PROSPECTS FOR WORKER BOARD-LEVEL PARTICIPATION IN THE ENLARGED EU 64-65 (Norbert Kluge & Michael Stollt eds., 2006) (chart of co-determination forms around Europe).

[FN32]. GREENFIELD, FAILURE OF CORPORATE LAW, supra note 178, at 24.

[FN33]. Id. at 107.

[FN34]. Id. at 108.

[FNa4]. Deputy City Attorney, San Francisco, California.

[FN35]. Many of the points in this talk are discussed at greater length in Ann M. O'Leary, How Family Leave Laws Left Out Low-Income Workers, 28 BERKELEY J. EMP. & LAB. L. 1 (2007).

[FN36]. Id. at 6 (citing KRISTIN SMITH ET AL., U.S. CENSUS BUREAU, CURRENT POPULATION REPORTS P70-79: MATERNITY LEAVE AND EMPLOYMENT PATTERNS: 1961-1995, 14 fig.4 (2001), available at http:// www.census.gov/prod/2001pubs/p70-79.pdf).

[FN37]. Id.

[FN38]. Id.

[FN39]. Id.

[FN40]. VIRGINIA P. RENO, NAT'L ACADEMY OF SOCIAL INSURANCE, FINANCING SOCIAL SECURITY (PowerPoint presentation, slide no. 30, 2008), http:// www.nasi.org/publications2763/publications_show.htm?doc_id=254675.

[FN41]. Jonathan Forman, Bill Gates and I Pay Equally--and This Is Supposed to Be a Fair System?, LOS ANGELES TIMES, Dec. 25, 1998, at B-9.

[FN42]. See GREENFIELD, THE FAILURE OF CORPORATE LAW, supra note 178, at 73-105.

[FN43]. See SIGURT VITOLS, PROSPECTS FOR TRADE UNIONS IN THE EVOLVING EUROPEAN SYSTEM OF CORPORATE GOVERNANCE (European Trade Union Institute for Research, Education and Health and Safety Report No. 92, 2005) available at http://www.etui-rehs.org/research/Media/Files/Reports/Report92.

[FN44]. A 2002 survey found that 82% of the director positions on Fortune 1000 companies were held by white men while 14% were held by women, 3% by African-Americans, 2% by Asian-Americans, and 2% by Hispanics. See Gary Strauss, Good Old Boys' Network Still Rules Corporate Boards, USA TODAY, Nov. 1, 2002, at 1B.

[FNa5]. Professor of Law, George Washington University.

[FN45]. Dandridge v. Williams, 397 U.S. 471, 485 (1970) (holding that "In the area of economics and social welfare, a State does not violate the Equal Protection Clause merely because the classifications made by its laws are imperfect. If the classification has some ‘reasonable basis,’ it does not offend the Constitution simply because the classification ‘is not made with mathematical nicety or because in practice it results in some inequality."’ (quoting Lindsley v. Natural Carbonic Gas Co., 220 U. S. 61, 61, 78 (1911))).

[FNa6]. Director, Center on Poverty, Work and Opportunity and Paul Eaton Professor of Law, University of North Carolina.

15 Geo. J. on Poverty L. & Pol'y 509

 

 

 

Hastings Race and Poverty Law Journal

Spring 2006

Transcript

Hastings Race and Poverty Law Journal Third Annual Symposium: Economic Justice; Growing Inequality in America

*159 WEALTH INEQUALITY PANEL

Andy Barlow, James Head

 

PROFESSOR ANDY BARLOW: What makes wealth so significant is that the accumulation of wealth or the disaccumulation of wealth is a measure of advantages or disadvantages over many generations. Unlike income, which is a measure of the momentary situation in a market, when we are looking at wealth and equality, we are looking at long-term advantages and privileges as well as long-term disadvantages of people. It is a very important social measure of inequality for that reason.

The other thing that makes it important is that private ownership of wealth is becoming increasingly important for people's life chances today.

We can see this in many different areas. In education the decreasing subsidies for public education require people to use private assets to receive an education. Many of you students know that full well. In healthcare we are seeing the destruction of employer benefits coverage for healthcare and the replacement with people having to use their private assets to receive quality healthcare. In housing, we are now seeing people having to rely almost entirely on parents being able to help their children receive mortgages for homes. The use of private wealth becomes essential for gaining access to more private wealth. That is, to be able to purchase a house. With retirement funds, we are seeing the replacement of government subsidy. Even social security is up on the chopping block of course, and the importance of the accumulation of private wealth for retirements.

And so when we start looking at the enormous and staggering historical reality of America, which is this gigantic and almost mind numbing racial gap in wealth ownership, we have to take into account that we are living in a period where we are seeing the rapid destruction of social subsidies, of public entitlements, and the replacement with policies in which private wealth ownership becomes increasingly important for life chances. And these have very dramatic racial consequences given the inequality in the *160 ownership of wealth. And these have very dramatic effects given the racial inequalities in the ownership of wealth.

Bluntly, I think we can say this: a society that privatizes what was once publicly subsidized social entitlements is a society that is giving new life to White privilege. It is a society in which the ownership of wealth is not a neutral fact, but it is a racial fact. What we are then seeing with the destruction of public entitlement programs is the unleashing of politics in which the haves will do whatever they can to maximize their positions at the expense of the have-nots. We see more and more the use of local politics to split apart suburbs and urban areas. We see many, many different forms which this takes.

But I think the other side of the coin needs to be mentioned at the same time, which is that the increasing focus on private assets is precisely because the notion of the welfare state is under attack. That is, the increasing focus on private assets as a way to ensure one's life chances. Whether it be through retirement, or healthcare, or education or housing, it is part of the process of the destruction of the philosophy that the government must play some role in regulating corporations, and in subsidizing in some ways the distribution of wealth downwards from the rich at least to the middle, though never very much to the poor.

But what we are seeing at this moment is a very dramatic shift that is not happening only in the United States and is not happening only in the Bush administrations or even the Reagan administration. It is actually a very large secular change in the role of government that we are seeing in all of the most developed countries and actually in many of the less developed countries as well.

The destruction of the notion of the government's regulatory apparatus, the destruction of government as playing a role in subsidizing and redistributing wealth downward, and the Keynesian philosophies of the welfare states are under attack everywhere. The first thing we have to do is account for the general trend toward this attack. This is where we need an analysis of globalization to fully understand what is taking place today.

What I mean by globalization is of course a very complicated matter because the world has been global in its interactions for many centuries. But we are in a new era of globalization in which new technologies have enabled a much more rapid movement of people, capital, and things around the world. We are living in a period where time and space have become increasingly irrelevant in social life. This is the new phenomena with which many people are grappling. But it seems to me that we also have to immediately see that these new technologies, as with all technological revolutions, are mainly appropriated by powerful entities, like corporations and *161 states, because they are the ones who can appropriate these technologies.

Transnational corporations have taken advantage of the new technologies to create new divisions of labor all over the world and are very extensively moving capital at an amazing rate all over the place looking for the best market chances. It is this flavor of the new mobility of capital that is the most significant thing we need to pay attention to. Corporations, because they can move so quickly to take advantage of new market conditions, have gained great leverage over both workers and states-over workers in the sense that corporations can credibly say to many workers, "Either accept lower wages or cuts and benefits or we are out of here, and we are going to go find some workers who will take lower wages and benefits." This is really happening, even though the fantasy for many Americans out of here is offshore investments when in fact, out of here usually means away from unionized cities, to de-unionized, un-unionized suburbs in the south.

But the ability of corporations to move has had a major effect on the social wages. The other ability that corporations have to move is to threaten governments, and to say to governments, "Either deregulate us, cut taxes, do away with expensive subsidies that we have to bear a part of the cost of, or we are out of here." And you can even hear in the type of political rhetoric that Arnold Schwarzenegger is using in California right now this precise language, where he says, "Look Nevada and Arizona are now competing with California, for these businesses and unless we create a pro-business, anti-labor environment in California, we will lose these businesses to Arizona and to Nevada." This is the new dynamic of globalization.

The result has been virtually the abandonment of the conception of the welfare state, the end of the era in which the government is supposed to regulate business in order to prevent the market from destroying itself. It is the end of the era in which government subsidizes the middle class, to some extent even the poor, in order to maintain social stability. We have already reached the end of this. I actually think the point where that was reached was the moment when Bill Clinton signed the Personal Responsibility Act of 1996. It took that bipartisan agreement to attack the welfare system, and Bill Clinton proudly announced it at that moment when he said, "This is the end of the era of big government."

So I do not see this as something where we are looking at different parties and seeing different philosophies. What we are seeing is actually a very major and secular and long-term change in the role of the state in society.

*162 I think what we are seeing replace the welfare state is something that a sociologist named Jill Quadagno once dubbed, "The private accumulation state." The role of government is increasingly focused on enabling individuals and corporations to accumulate wealth--and so the focus of tax shelters.

If you want to get a good education the government will provide you with some tax shelter. But whether you get a good education depends on your ability to accumulate wealth. If you want healthcare the government will provide you with a tax shelter. But your access to healthcare will depend on your ability to accumulate wealth. The job of government now is increasingly focusing on the idea that welfare is a personal matter in which individuals must take care of their own well-being by accumulating their own wealth.

The job of government also of course is to deploy an army and a police force to assure that the private accumulation of wealth can go on. And those people who cannot accumulate wealth of course are then invited into the one remaining large social program available to them: the prisons of America.

I think this type of analysis has some important implications for strategies for trying to equalize the opportunities of people of color and whites.

First, while I absolutely support programs that seek to increase African-American and Latino access to wealth, and I think that many of the things that we are going to discuss in this panel will focus on that and I think they are very important proposals, we have to take up those discussions in the context that the new focus on private wealth is part of the attack on civil rights. It is not a separate discussion. People are now focusing on private wealth. The focus on private wealth is coming about precisely because of the attacks on equal employment opportunities and the attacks on everything under Title VII, as well as the ending of affirmative action as a credible force in many workplaces. We are left with the hope that maybe we can figure out some strategies for self help, being that the state is no longer available to play a role in breaking, or at least in some ways challenging, white privileges as it did in the 1960s and 1970s to some extent.

And so we need to have a nuanced sense of the strategies for trying to equalize wealth ownership for people of color and whites in the context of taking up the renewed call for dealing with all of the forms of racial inequality that people are facing and the demand for the state to take action against them, and not leave this as a private matter.

The second thought I have about this is that I believe history has demonstrated fairly conclusively the very simple principle that *163 it takes wealth to make wealth. Those people who start out with wealth accumulate wealth much more readily than those people who start out without wealth. While I think we can make some gains and should struggle to make some gains in remedying the inequalities of wealth ownership, I believe that what we will probably see in the regime that I call the private accumulation state unfortunately is a continued widening of the racial gap in wealth ownership. We have already started to see this; we have preliminary data that suggests that between 1996 and 2003 African Americans lost ground to whites. The data that I have suggests that between 1996 and 2002, African Americans lost 16.1 percent of their proportional assets to whites during that very short period.

It remains to be seen, of course, how these strategies work out. But I am quite pessimistic that strategies that focus on wealth accumulation alone will be able to overcome the enormous inertia that happens when people who have wealth are capable of expanding so many times more rapidly their market chances compared to people who have limited or no wealth. This is especially true being that the issue is not just wealth ownership, but of course the political and institutional arrangements that enable those with wealth to operate in a much more privileged environment than those who do not have wealth. So, while people of color are going to be fighting just to get to the point where their bank loan practices are equal to those of whites, whites with their greatly larger amounts of wealth are going to be able to use the existing loan practices to make even more rapid gains.

I focus my comments mostly on the very large picture and use a simple analysis of black and white in this, and it is very important that we understand that when we start dealing with Latinos and Asian Americans, the picture gets much more complex. I want to mention briefly some of the complexities of the picture I see when we add in Latinos and Asian Americans.

One is that the categories Latino and Asian are extremely broad categories that actually are racial categories. That is, they are categories created for the purpose of categorizing people or making them unequal. And when we look inside those categories at the people who are coming to the United States and what they experience, we find many nationalities and even among similar nationalities, we find different waves of immigration who have had different class experiences. And so, if you compare Chinese immigrants of the 1940s and fifties with Chinese immigrants in the 1980s, you are dealing with the same nationality but completely different levels of assets, educational backgrounds, etc.

One of the things that we have to be able to do, and this is a very complex discussion to be able to have, is to be able to *164 acknowledge what is racial and what is not racial about the different strategies for different groups. What might work very well for the Cuban Americans' immigrant community in Miami during the 1950s and 1960s will not work for the Marielistas of the 1980s and 1990s, for example.

And so that is what I wanted to just tip into this discussion right away. When we get past the aggregate discussions of race, we are going to have to get much deeper into the questions of how class, nationality, and ethnicity play out in different wealth strategies.

One last thing--I think one of the more interesting and important statistics about accumulation of wealth--is that the top fifth of whites own 72 percent of all the net assets of whites. This is because wealth inequality is so gigantic. My recollection is that 45 percent of whites have no assets. I am sorry, I am just doing that off the top here. For African Americans, the top twenty percent of African Americans own 94 percent of all the personal wealth.

And so what we see is a much greater gap in wealth ownership among African Americans of different classes than among whites. This goes back to the kind of data that was presented in the first presentation as well. One of the positive implications of that then is that wealth ownership and the struggle for wealth assets is less of an issue on the agenda of many African Americans because of the lack of those assets. Struggling for those assets, while it is a very interesting and important strategy in the present period, needs to be put in the context that the new emphasis on wealth ownership is part of an effort to replace the idea of the government as responsible for protecting people from discrimination. It is part of the welfare state, with the notion that individuals have to fend for themselves in the new laissez faire world. Thank you.

PROFESSOR JAMES HEAD: I like to look at wealth inequality in terms of a reality point. I am sure many of you know Chris Rock the comedian. In his latest television concert special he makes a number of comments on the issue of wealth. I think this is demonstrative of how this issue has risen to the top in terms of people's priorities. One of the things that Chris Rock says is when you look at who's wealthy and who's rich, "Bill Gates is wealthy, and Rick James is rich. Or at least he was." For those of you who are probably much younger than I am and are wondering who Rick James is, that is probably a separate conversation. But Chris' point is that rich in fame and short-term income (musician) and wealth in long-term income and assets (Microsoft) are very different. Chris ends by saying "I'd rather be Bill Gates than Rick James."

*165 I want to talk a bit about some of the strategies that are beginning to bubble up around the issue of economic development and wealth accumulation. I very much agree with Professor Barlow regarding the notion of trying to really wrestle with and understand what we mean by wealth inequality. The questions that his comments raised for me, or questions that I would pose to you regarding this subject, are: Is this a class issue? Or is this a race issue? Is this a private issue? Or is this a governmental issue? In reality it is all of those things. And until we are willing to admit that it is all of those things, we will have difficulty and will be sidetracked by how to approach this issue and, therefore, how to address it.

We should be moving towards a wealth equality, asset development strategy that has both private and governmental components to it. I do not think that we can get there without it. In fact, we currently support substantial wealth and asset accumulation for wealthy Americans through our federal budget and tax structure. If you look at what is happening for those who are wealthy in this country, a report by the Corporation for Enterprise Development (CFED) that was released last year took a look at the kinds of tax breaks and subsidies that are offered to Americans by the government. It found that there were over $350 billion in tax breaks and subsidies that are awarded to Americans in this country each year. However, 5 percent of the wealthiest Americans get 90 percent of these benefits. The biggest of these tax breaks is the home mortgage deduction interest tax that we who own homes get. This is a dollar for dollar deduction from your taxable income for interest on your home mortgage. I would ask any of you, myself included, are you willing to give that up? My answer is "No." I would love to have other people be able to take advantage of this asset benefit, and it is a substantial economic driver in this country--it drives the mortgage industry, the home building industry, and the home furnishing industry, to name a few. The bigger house you can buy, the bigger mortgage you have, the bigger that deduction and so on.

When you compare this tax break, I think that the home mortgage deduction was about $150 billion or $160 billion of this $350 billion. The earned income tax credit, however, which is available to poor families, is about $8 billion a year. And that is a program in which less than twenty percent of those who are eligible for it take advantage of it. What becomes evident is that we have a tax code that is not designed to help poor Americans benefit from and accumulate wealth.

If you notice what happens in the shell game of how we look at this, there are recent proposals now on the table in the Senate *166 around the Federal Budget and some of the social programs. One of the discussions was around trying to increase the amount of money in the budget for childcare, which we need. There has been some agreement to do that in the Senate but at the expense of the earned income tax credit. The thought is that they are willing to increase the childcare subsidies in the budget, but they want to actually remove the ability of immigrants to take advantage of the earned income tax credit, all under the goal of keeping budget spending in check. So much of the movement is not towards expanding government-sponsored asset opportunities towards the poor, but rather to take existing ones away.

When I think about this issue I think about it in terms of some of the advances that have been made around economic development and its strategies and approaches to moving towards wealth accumulation and asset development. Again, I agree very much with Professor Barlow about the way this gets phrased because in many instances this idea of asset development has created a real tension within the civil rights community and public interest community, as to whether by moving in this direction we are basically raising the white flag as it relates to issues such as earned income, guaranteed benefits, and the kinds of programs that have been in place for those at the very bottom, like the welfare benefits, food stamps, subsidized housing, and health coverage. I would submit that many characterize it that way. I think that we have to see these as complementary because there will be families and individuals who can move through the maze of governmental programs and identify opportunities that will allow for asset development. There are others who will not be in a position to do so and we should provide the safety net that will help to keep them in a place where they can find decent housing, put food on the table, and find decent employment.

So in the Community Economic Development Movement we tried a number of things in the 30 plus years of this movement. We started with traditional ideas that if you could improve neighborhoods and communities through housing development and through commercial development, you could provide a road map for viable neighborhoods and viable communities and increase the economic stability of families and move families out of poverty. But what we found was that as we built these new houses, as we renovated the communities and built new commercial space, within a span of five to ten years they were deteriorating at a very fast rate. That was because we did not pay any attention to the income needs of individuals and families that were necessary for people to be able to maintain what we were developing.

*167 So we then decided to focus on income. And we began to do work around increasing income levels, increasing employment skills levels, and providing more education for individuals and families in low income communities and communities of color. But we also found, especially in down economic times, that there were limitations to this strategy. People who were hired last were laid off first when the economy went bad. Also, the work that economists and sociologists like Thomas Shapiro and Melvin Oliver did told us that income was only one component, and likely not the right one to focus on in order to help people move up the economic ladder. In their book, "Black Wealth/White Wealth," Shapiro and Oliver make a compelling case that while income disparities between Blacks and Whites have decreased, wealth disparities have widened and continue to contribute to the economic inequality between the races. They argue that the focus should be on wealth and assets as the primary way to address issues of economic inequality and poverty. So we in community development then began to move toward wealth building and asset development strategies. I want to give you a couple of examples of what this looks like.

One strategy is if you can accelerate the ability of people to achieve savings, you can also help them through financial education and other approaches to teach them to use those savings to build wealth and accumulate assets (buy homes, invest in business, become entrepreneurial, and upgrade skills and education). And the way to accelerate savings is to match every dollar that a person puts in savings with a one, two, three, or four dollar contribution to allow the person to quickly achieve savings scale.

These are called Individual Development Accounts, or IDAs. These have been experimented with for about ten or fifteen years now and have proven a couple of things. One is that poor people, low income people, and people of color, given an opportunity, will save in greater numbers and with greater success than general Americans. The second is, given an opportunity to invest in some of these asset-oriented approaches like home ownership, business opportunities, and education, it does provide an opportunity, a step forward, in terms of beginning to develop and accumulate resources. The third is through financial education, in terms of how to handle savings and how to plan for asset opportunities, a number of individuals and families had been able to develop current and future financial plans to integrate with their employment opportunities. This significantly increased the ability of these families to maintain and retain these assets, with many being able to achieve more stable economic and social conditions. And the fourth is that given an opportunity to have these assets, these families were much more likely to pass them on to their children for their children *168 to use them as a stepping stone to develop their own assets. So there is now an effort to increase the level of these IDA accounts by seeking federal legislation to fund them and encouraging private financial institutions and banks to offer them.

IDAs and other savings models have also caused us to explore making these opportunities available at earlier ages. One place we have looked is England, where they have been experimenting with children savings accounts at birth. So there is a project going on right now through the Corporation for Enterprise Development that focuses on a number of American cities where for every child that is born whose parent is participating, that child gets a certain amount of money placed in an IDA savings account at birth. Thereafter, for each dollar the parent puts into the account a match of two or three dollars is added. At some age, whether it be 16, 17, 18 or 21, that particular child gets access to that account and is able to use the savings for specific purposes. And having a 13-year-old who is a consumer, I would opt for the 21 rather than the 16. Children can use the savings for educational purposes, or other purposes that will advance their skill levels, like employment training.

A new concept that has also emerged out of the community development field is around the idea that if we are building assets in communities through housing and commercial development, we should also develop ways for residents in those communities to have ownership in those assets. There is a project in San Diego that was actually created by the Jacobs Family Fund, a local family foundation, in which they were the impetus for a $100 million housing and commercial development project in a low-income racially mixed community in San Diego. The housing is a mix of market and affordable housing, and the commercial space includes a major grocery store as well as a number of smaller commercial spaces for local and chain businesses. They are now trying to develop a way to sell shares in the development to the local residents who have been a part of putting the project together over the seven or eight years that they have been working on this.

These are called resident ownership strategies to development. And the idea here is that if you can give families and individuals ownership in the development, and if the property actually appreciates in value, then those families will have an asset that they can potentially use to leverage other assets and build greater economic stability.

Now there are major hurdles to doing this, some of which are very much legal. The Jacobs Fund is a non-profit entity, and there are limitations on the ability of members or directors of a non-profit corporation to directly benefit financially from the activities of a non-profit. Thus, they are looking at creating a for-profit limited *169 liability corporation that would be able to manage this property and would sell shares to residents through a public offering. They are currently seeking permission from the State of California to do this.

These are all approaches to asset development and wealth building that we should explore. We should not explore them to the exclusion of the efforts to ensure that the government does not abandon its responsibility to provide a safety net for those most in need, or assume that the private market will generate opportunities for working and middle class citizens to participate in the asset development and wealth building supported by our tax and other policies. It will take the government's participation on both ends to make comprehensive wealth building available to a broader number of Americans.

In closing there are just a couple of thoughts that come to mind. One is something that my grandfather used to tell me. He says that he would often hear the phrase, "It maybe isn't such a great idea to be rich, because the richer you are the more miserable you seem to be or can tend to be." My grandfather would then say that while that may be true, "it's a whole lot better to be rich and miserable than it is to be poor and miserable." I think he was right about that.

We all aspire to give people an opportunity to move up the economic ladder if they so desire. Those who feel that they cannot, will not, or have impediments, we aspire to ensure that they have basic safety net needs in terms of housing, food, education, and healthcare. Economic and social thinkers and practitioners have indicated that those who want more in terms of economic and social benefits need to have more than employment advancement to anchor their climb up. Asset development and wealth building strategies are an important part and necessary to make them successful.

Thank you.

 
 
Lessons
01 Defining Health                             x
02 Health Disparities                                   x
03 Health Policy & the Law
04 Wealth Inequalities                                  x
05 Racial Inequality                            x
05 Racial Inequality                            x
06 Physical Environment
07 Health Care Disparities                                  x
08 Pulling it together                                              x
 

 

 
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Vernellia Randall.  All Rights Reserved

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