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US Capitalism: the Sky is the Limit, But Law Rules

Most people around the world saw the collapse of the Soviet Union, the world’s foremost communist power, as the triumph of American-style capitalism based on free enterprise, democratic freedom, private ownership and individual incentive. But in the 15 years since the fall of the Berlin Wall, some Americans have seen their economic power erode – while others have done exceedingly well.

In 1995, the Walt Disney Company hired Hollywood agent Michael Ovitz as president and possible successor to then-Chairman and Chief Executive Officer Michael Eisner. By the end of 1996, a little more than a year later, the company’s board decided Mr. Ovitz would not do. During his short stint with the global media conglomerate, he allegedly wasted the company’s money, failed to get along with his peers and contributed nothing to the business. An ordinary employee would have likely been fired for such unsatisfactory performance, but Mr. Ovitz, a close friend of the company’s chairman, was not. He agreed to resign in exchange for a severance package worth $140 million, amounting to the full value of his contract.

Nomi Prins, former investment banker and the author of the book "Other People’s Money: the Corporate Mugging of America," gives one reason why corporate executives receive such outrageously high compensations. "About 80 percent of the top 500 companies have a situation where the CEO, the president and the head of the board are all the same person," says Ms Prins. "So that if an executive is leaving the firm, they have basically hired most of the board members, who are in most cases their friends. They swerve around all these different boards together and they vote each other these compensation packages."

Thus a high-ranking executive may earn four hundred times more than an average employee. However, if the company gets in trouble and has to close down or merge with another company, it’s the average worker who pays the price, says Nomi Prins. "What happens ever single time a company is exposed to have committed fraud, or every single time large companies merge with each other, the fallout is job loss and benefit loss and retirement plan loss. And every time any type of malfeasance occurs at the senior level, the people that are protected are the people at the top of the firm, for the most part."

Nomi Prins says some of these powerful corporate executives also gain influence by supporting politicians, who in turn may pass laws that benefit corporations more than workers.

James Galbraith, professor of government-business relations at the University of Texas agrees that a huge gap in capital distribution gives a small number of people much power. But, he contends, the United States has laws and institutions to prevent the abuse of power. Professor Galbraith says the abuse of economic power in the past two decades happened because of a lack of transparency. "Much of what is being done on behalf of, let’s, say corporate interests is not clearly accessible to the American public. What is done in the regulatory arena and the environmental arena tends to be on the inside pages of our newspapers, if it makes them at all. And so we don’t tend to see a kind of public discussion that we ought to have of the kinds of policies which have increasingly come to dominate the scene," says Professor Galbraith.

But American workers are not helpless, and they do fight against injustice. Shareholders of the Walt Disney Company have pushed Michael Eisner out as Chairman and are suing the board directors to recover the $140-million severance package given to Michael Ovitz.

Gar Alperovitz, professor of political economy at the University of Maryland and the author of "America Beyond Capitalism" points out that although the corporate power has grown in the past few decades, so has the power of the American worker.

"There are now eleven thousand firms which are owned by the workers themselves in significant part. This is a development over three decades from just about zero. There are about four thousand neighborhood-owned corporations benefiting neighborhoods. Cities are beginning to own enterprises so that wealth becomes of benefit to workers, to neighborhoods, to cities."

Professor Alperovitz says some of these worker-owned enterprises are more profitable than large corporations. "All the airlines in the United States are in financial difficulty except one: South-West Airline. And that’s the only one that has substantial worker ownership," he says.

Some analysts say these and other alternative forms of wealth ownership may one day counteract corporate power in the United States. But most agree that the guiding principle of the American Dream is the unlimited pursuit of happiness, not economic equality. Democratic entrepreneurial capitalism has made America the most prosperous nation in the world. But for American capitalism to continue to benefit all Americans, analysts say, current corporate governance needs to renew its democratic roots by enhancing shareholders rights and separating ownership from management.