Citi Cuts 11,000 Jobs Rather Than Lower Pay, Illustrating Rentier Capitalism in Operation
Wednesday, December 5, 2012
Citi is a particularly blatant example of a way of operating that has become endemic in American business: when things get tough, throw as many employees as possible over the bus, and use that to maintain or even increase the pay of the top echelon. In investment banking, the number of folks who are spared from corporate austerity is larger than in other businesses, since those businesses have more profit centers (a single trader can have his own P&L) but the same general principle applies.
William Cohan of Bloomberg highlights this phenenomon:
This is the reverse of how business used to operate. When I was a kid on Wall Street, the line at Goldman was that partners lived poor and died rich. Even though everyone’s pay would suffer if the firm had a bad year (that was the poing of bonuses, you knew your pay depended on firm performance), the partners took more of the variability in pay themselves and did everything necessary to preserve employment levels. The first time Goldman had actual layoffs, as in fired people because the firm was having a bad year (as opposed to for individual performance reasons) was in the early 1990s, and it was highly traumatic. And this attitude was not unusual in Corporate America. A CEO would reduce his pay if his firm was suffering; broad headcount cuts were seen as a sign that a business was in very serious trouble, and the market often did not react well to them.
Now Citi may have some fat in selected areas, and it is a famously badly run firm. But given how aggressive banks have been in wringing efficiencies out of their operations, and how much pressure Citi has been under to rationalize its businesses, these cuts look to be reactive, to reassure the Investor Gods that Action is Being Taken.
But Citi and its ilk are perpetuating this race to the bottom. We’ve had a radical shift in business and cultural values in a mere 30 years. Neofeudalism seems to serve the elites just fine, and many of those who are not on at top of the food chain seem reluctant to believe that the system has been restructured to exploit them.
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