“At least three recent academic studies have demonstrated that the number of people who move for tax reasons is negligible, even among the wealthy.”

As a person who knows many wealthy people who have moved to states with no income or inheritance taxes, and many who have chosen not to do so, I am often asked by many people why we do not leave Connecticut and establish a primary residence in a state like Florida, where I could save millions of dollars in taxes over the rest of my life.  My view is that Stewart is only partially correct and partially wrong in his assertion that higher taxes do not drive people to change where they live.

The first key determinant of whether high taxes causes wealthy people to flee a jurisdiction is the distance between the high tax and low tax areas.  People have moved from New York to Connecticut, or from Massachusetts to New Hampshire, or Maryland to Virginia for a long time because these states are in close proximity to each other, and Connecticut, Massachusetts, and Virginia are lower-tax states than the states next to them. Moves to a nearby state that do not require an individual or family to find new service providers can, and will, be made to improve someone’s tax position.

Where Stewart is partially correct

Moving from Connecticut to Florida or completely outside the United States is a far bigger and more complex decision, because someone would have to recreate all of the high quality services he or she receives in the high tax area.  As an older adult, one consideration that factors into every decision for me is the quality of healthcare.  My parents lived in the Daytona Beach, Florida area after retirement, and the quality of healthcare there was much more uneven, not because of the quality of the doctors, but because of the imbalance between supply and demand.  I would only move to another locality if the quality and availability of healthcare were equal to, or better than, what I can get here. Closely related to healthcare quality is the availability of nursing home and long term care facilities, and other services for the very old population.  My parents found out that the part of Florida in which they lived was great for people who were 60 and 70 years old, but was not as easy to navigate for the 80 and 90 year olds.

Beyond healthcare, there are many other considerations.  We have superb housekeeping and executive assistant help here, which took us a long time to find and nurture.  That kind of talent is not easily found when first moving to a new community.  Similarly, finding construction, maintenance, yard, weaving and tailoring, and other trades people is not a simple task.

The location of family and friends is also a critical decision point.  People want to have a critical mass of others they know in a community before locating there.  Tax savings are a great inducement for people, but the value of connections and relationships are of even more value financially.

For all these reasons, Stewart is partially correct.

Where Stewart is wrong

Many very wealthy people already maintain many residences, and have full support systems and groups of friends in each community.  It is not difficult for them to reorganize their time and activity to change residences from one of their jurisdictions to another.  People who are already “snowbirds” and split their time between New York and Florida can easily become Florida residents.

However, the bigger issue for wealthy people is that they will pay close attention to what high taxes are doing to their property value and their quality of life. High taxes do not correspond with high quality government services.  In many cases, they derive from an American form of what is called “crony capitalism.”  This is a form of capitalism seen in many underdeveloped countries, in which governments over-regulate the lives of people and provide uneven services.  Those who get better services are individuals who make campaign contributions or in some other way provide favors to elected officials and regulators.

Many states, and, to an increasing extent, the federal government, practice “crony capitalism” today.  When President Obama talks about redistributing money from the rich to the middle class or the poor, my view is that what usually happens with high taxes is that they take money from many productive rich people and redistribute it to a smaller class of rich or upper middle class people who support the party in power.  Moreover, there are unionized government employees, as well as the elected officials, who take a “toll charge” on that redistribution process.

When “crony capitalism” becomes sufficiently pervasive, wealthy people leave a community because it affects their quality of life.  Connecticut’s traffic congestion is a direct result of the pervasive and pernicious effect of the “crony capitalism” practiced by Governor John Rowland and the labor unions whose loyalty he secured with an outrageous 20-year collective bargaining agreement that has four more years to run.  Every time I see a malfunctioning rail car, an overcrowded parking garage at the Stamford Transportation Center, an excessively congested highway, I am reminded of the way Governor Rowland used the state as a private preserve for his cronies.  Although he did not get wealthy in doing so, and his crimes were relatively petty, the damage he did was enormous and far outlasted his tenure in office.

The quality of life in a community depends on the combination of state and local services.  In Connecticut, most governmental services are delivered locally, which keeps many wealthy people from leaving.  The schools, public safety, building and zoning decisions, and the acquisition of many licenses is done locally.  That means that well-run cities like Greenwich, New Canaan, and Darien give their residents a very different experience with government services than poorer cities like Bridgeport and Hartford.  Although Bridgeport now has a very good mayor, Bill Finch, it was one of the corrupt cities in America for decades, and saw three straight mayors go to jail.

Beyond the hostile environment for business and wealth creation, Connecticut has found a way to disenfranchise wealthy people by banning political contributions from anyone who individually or, as an executive officer, does business with the state.  This prevents a sizable number of business executives from helping candidates more favorable to their views get elected.  It gives a huge advantage to labor unions, which are exempted from this law.

The factor that is most likely to drive people from a high tax area to a lower tax area is the feeling of being disenfranchised in affecting a governmental system that is getting progressively more corrupt.  This is not an economic issue, as much as it is an empowerment and quality of life issue.

Stewart simply does not understand the psychological effect of a “millionaire’s tax” or a wealth tax or a high marginal tax rate that is used to redistribute wealth and power to cronies of elected officials, especially if it is experienced at all levels of government.  That is the real story, not whether somebody can save a few million dollars on taxes.

I have always taken the position that government taxes and fees can be higher or lower, but that the key issue for citizens is whether they feel they are getting value for what they are paying.  Arrogant and poor quality government service, poorly functioning infrastructure, like badly maintained highways or railcars, will drive out citizens, even in a lower tax jurisdiction. Articles like Stewart’s ultimately miss the point.

The Republican Party platform and its U.S. Senatorial candidates frightened many people who would otherwise consider voting Republican because of harsh, insensitive positions on issues like immigration, abortion, and contraception.  Governor Romney’s path to winning the nomination forced him to support positions he probably would not have supported in a general election campaign.

However, the more interesting question is whether, as President Obama has said since the election, the American people bought into his idea that wealthy people should pay higher taxes.  I do not think the answer is a simple one, since voters make decisions for multiple reasons, not all of which are prioritized the same way for every voter.  Some people who think that wealthy people should be taxed more voted for Governor Romney because they preferred his position on healthcare, and some people who do not think that wealthy people should be taxed more voted for President Obama because they believe he had a more sensible position on other issues.

American attitudes toward wealthy people

My view, based on what I have read over the years, on polling data, and on talks with many people at all income levels, is that Americans have highly sophisticated views about wealth accumulation and taxes. They are willing to let wealthy people keep their wealth if:

• they feel it was earned by improving the lives of others, not by gaming a particular system or taking advantage of others;
• the wealthy people share their wealth through philanthropy, do not flaunt it, or invest it in job-creating businesses; pr
• Americans feel that being wealthy is a status to which they can reasonably aspire during their lifetime.

Most Americans do not share President Obama’s visceral dislike of wealth accumulation, but President Obama was able to characterize Governor Romney as someone who obtained his wealth through misery inflicted on others, who flaunted his wealth, and whose policies were going to deny Americans a chance to realize the American dream.  These characterizations may have been wrong, but because of Governor Romney’s tone deafness as to the degree to which they were sticking, the perception the Obama campaign created became the reality for enough Americans that it probably swung the election.

Americans pay a lot of attention to how people get wealthy.

I have seen a highly sophisticated understanding of the difference between their attitudes toward people who get wealthy by creating and delivering products and services that produce real societal value and those who manipulate rules and deliver no value, or worse, destroy jobs and communities.

Years ago, I read a survey in which a broad cross-section of the public, were quite willing to let people like Steve Jobs, Bill Gates, Sam Walton, and others who founded or grew great companies keep their wealth because they had changed society for the better.

Americans have problems with at least four kinds of wealth accumulation:

• Many people get wealthy by activity that either adds no value to society, or by being able to profit even when they are not performing in their jobs, or by taking actions that destroy other peoples’ lives.

Contrast wealthy business leaders Americans admire with the hedge fund trader who accumulates wealth by devising a high-speed computer program and acquiring high powered computer servers that trade options, puts and calls milliseconds faster than others, thereby getting an advantage on other market traders. Americans resent the wealth accumulated by these individuals, since, in many cases, these the income produced by these high speed computer programmed trades does not appear to benefit anyone other than the traders and their companies.

Americans do not like it when wealthy people exploit unintended tax loopholes to avoid paying taxes.

Think also about Wall Street firms that devise a tax avoidance scheme to save clients billions of dollars, because lawmakers inadvertently left a loophole in a tax code.  That scheme is simply a wealth redistribution tool, until the tax savings are redeployed for societal benefit.

Many CEOs get wealthy, even when they fail.

Also, think about an all-too-common scenario relative to large company CEOs: the CEO is terminated for nonperformance, but gets a severance package equal to two years of base and incentive pay, and the ability to exercise options for another seven years. Americans resent individuals who get richer while failing.

Many CEOs get wealthy by producing profits through eliminating jobs and loading up a company with debt.

In the 1990’s, one of the most celebrated CEOs was Al Dunlap, nicknamed “Chainsaw Al” because he quickly and severely cut costs in the companies he led.  He terminated the employment of thousands of people and did so without determining whether a less destructive option was available.  Americans do not like those who get wealthy by creating massive misery and disruption in the lives of others.

What I found as CEO is that employees and their families could accept certain kinds of job reductions, but had difficulty accepting others.  When Pitney Bowes closed its Stamford factory because we did not have the patented technology to produce digital ink jet postage meters, factory workers accepted the need for us to do that.

However, when we outsourced IT work to India, employees strongly opposed that action, since workers mistakenly believed that our sole reason for doing so was to cut costs.  When they realized that there was a difference in the kind of work we needed done, and that the Indian firm was better able to do it, the opposition diminished.  Job outsourcing solely to cut costs is very difficult for Americans to accept, since they believe that executives are tempted to do them to excess.  Job reductions and replacements to improve organizational capability or productivity are less difficult to accept.

Many private equity firms of the 1980’s and 1990’s increased the net income of the companies they acquired by loading them with debt and cutting costs by laying off thousands of workers.  The effects were positive in the short term, but highly destructive in the long term.  In most cases, the private equity firms had long since sold the companies by the time the debt loading and the asset stripping’s negative consequences became obvious.

Could we develop income tax rates which distinguish among the various ways in which wealth is accumulated, and taxes some ways higher than others?  We already do that in many ways.  Americans are telling elected officials that they need to do it better.

Where did Governor Romney fit?

Governor Romney had a difficult time explaining how he fit into the wealth-creating category represented by Steve Jobs and others like him.  He had great examples, like the capital his firm provided to Staples, which transformed small business by reducing their purchasing costs, the way Walmart had made life more affordable for consumers.

However, private equity in the era in which Governor Romney ran Bain Capital stood all too often for financial engineering tactics, in which wealth was created by acquiring companies, taking advantage of tax code provisions that made debt capital interest deductible and creating profit by stripping assets and laying off people.

Private equity firms are far different today, and they add great value by enabling large firms to avoid the pressures of short term earnings creation to invest for long term shareholder and societal benefit.  Governor Romney did not take the fight to President Obama on this issue, and he was painted with a very negative brush as someone who made money by creating misery for everyday workers who lost their jobs.

Governor Romney also made his tax planning a bigger issue than it needed to be by using tax shelters available only to those with the financial wherewithal to park certain assets outside the United States.

He did not appear to be getting wealthy through failure, but having been tagged as someone who got wealthy through creating misery for others, his manner of wealth accumulation was resented by many people.

• Americans do not like people who accumulate and flaunt wealth, rather than redeploying it for public benefit.

Bill Gates made an incredible amount of money during his business lifetime, but has redeployed much of it through the Gates Foundation in a visible effort to make a difference in reducing world poverty and in improving educational opportunities and the poor health conditions that arise from poverty and illiteracy.  Michael Bloomberg has been a generous benefactor to libraries and business schools, as well as the Johns Hopkins School of Public Health.  Going back a few generations, Robert Wood Johnson, one of the founders of Johnson & Johnson, became a major benefactor in improving both individual and community health.

Although Governor Romney is a personally generous individual who gives more to charity in both absolute and percentage terms than President Obama (who is actually very wealthy himself) and gives huge sums of money to his church, he is identified with no major signature public benefit initiative the way Bill Gates has been identified with reducing world poverty. If there had a well-funded “Romney” Foundation initiative that was focused on curing world hunger or homelessness, the perception of Americans about his wealth accumulation might have been different.  When we see what Romney’s Tyler Charitable Foundation supported, there were legitimate charitable causes, such as research on multiple sclerosis and other health-related causes, as well as other humanitarian causes.  However, he never established a brand around championing a broadly accepted charitable cause.

Americans could not understand how Romney’s economic plan would help them participate in the American dream.

Governor Romney often talked about how tax reductions would create small businesses and enable them to hire more people, which would be the future job creation for America.  I have fallen into the same trap he did on many occasions, which is that American audiences are persuaded by stories, not statistics and not conceptual arguments.

President Obama was able to be very concrete, even if wrong, in describing how he preserved automotive jobs with the bailouts and how he preserved local government police, fire fighter and teaching jobs with the stimulus legislation.  Although his way of doing the bailout was inefficient and deeply flawed, because it gave unions higher priority than bondholders, it had the virtue of being concrete and simple.

Where will the middle class jobs of the future come from?  Governor Romney needed to tell stories that would register with voters about how the private sector would create those jobs, although, in my judgment, the private sector needs a partnership with the K-12 educational systems and our community colleges to be able to do that.  He articulated no powerful game plan about he would put the machinery in place to create opportunities for that.

Did the public make the right decision?  Given the information available to them, I believe they did.  However, Governor Romney and other proposing lower tax rates for everyone, including wealthy Americans, did a poor job making what could have been a more compelling case, whereas President Obama brilliantly presented a flawed case and won the election.  Unfortunately, those who lose a Presidential election do not get an immediate “do-over.”

In our wonderful democracy, we accept the results, try to work together for the greater good, and move one.  It is time to do that.

The Mississippi River flooded in 1927 and had short and long term impacts.  In those floods, 700,000 people lost their homes and Herbert Hoover became a hero for his leadership in flood relief efforts, which propelled him into the Presidency in 1928. The flooding disaster triggered acceleration in the migration by African Americans from the Southern delta farm areas to Northern cities, which was part of a major migration by African Americans from South to North between 1915 and 1970.  It also resulted in a significant increase in federal control of waterways and flood control systems across the country.

The 1930’s also brought extreme weather patterns, this time in the form of extreme droughts.  The Wessel Living History description of these droughts characterized them as the worst droughts in America in the last 300 years.

http://www.livinghistoryfarm.org/farminginthe30s/water_01.html

The droughts covered about 80% of the United States in 1934 and were repeated in 1936, 1938 and 1940.  They precipitated major population migrations from the Great Plains states to California, as farmers simply abandoned their now-barren farms and made their way west.  California’s attempt to stop people from migrating into the State by policing its borders was declared unconstitutional by the U.S. Supreme Court in 1941.  This decision, Edwards v. California, helped pave the way for the future Civil Rights Act of 1964 by articulating a constitutional right to interstate travel for a citizen of the United States.  That constitutional right enabled Congress to eliminate racial barriers to interstate travel 23 years later.

The 1938 Category 3 Hurricane that hit Long Island (the strongest storm to hit the Northeast in the past century) permanently altered the geography of that area by breaking through the single barrier island and creating four separate barrier islands along the Island’s south shore, including Fire Island, the longest of the barrier islands.

Hurricanes Connie and Diane hit New England five days apart in 1955, and brought over 12 inches of rain to the region.  Over 200 people died in these storms.

We are now dealing with the short term consequences of another natural disaster, Hurricane Sandy, and, just as these prior disasters created long term impacts, I believe that Sandy will be a catalyst for long term change.  What I hope we think about how to rebuild and re-plan our infrastructure and our lifestyles to mitigate the impact of the natural disasters that will inevitably recur.

None of us can know whether we are moving into a prolonged period of extreme weather, but we should not let this terrible tragedy pass without being humbled by the forces of nature and without taking time to draw the maximum possible learning from the storm.  What are some of these possible big lessons?

• Although most of our natural disasters since World War II have happened in predictably risky areas, such as hurricanes in the Southeast and earthquakes on the West Coast, weather events can happen almost anywhere.  What makes a weather event a disaster is not an absolute level of natural forces, but a gap between those forces and the preparedness of a community for them. The northeast is unlikely to become a hurricane-plagued region like Florida or the Gulf Coast, but storms hitting our area are exposing weaknesses in our infrastructure, in our land use planning, and in our insurance policy coverage for floods.

The worst natural disaster to hit my immediate neighborhood was the March, 2010, storm which had no name, because the winds never reached tropical storm levels.  However, the combination of 35-40 mile per hour winds which lasted for 16 hours, plus four inches of rain in an already ground-soaked area, led to more fallen trees and downed power lines than what happened in much more powerful storms.  Our neighborhood did not lose all that many trees this time, because we lost so many of our vulnerable trees in 2010 and in Hurricane Irene in 2011.  That no-name storm exposed more vulnerabilities among our natural vegetation systems, because it combined water and sustained winds.

We have a great deal of difficulty responding to natural disasters with five characteristics:

• Those that hit a wide geographic area, since the recovery effort cannot be concentrated in a single cluster of communities;
• Those that create power outages due to thousands of local problems, as opposed to a single power line break.  This recovery effort is much slower because each power line restoration benefits a relatively small number of people; and
• Those which create irreparable damage to old, hard-to-replace infrastructure.  The combination of the force of this storm and the damage done by salt water accumulations is making it more likely that some of the damage will be far more difficult to repair.
• Those which hit communities in which access to water is controlled by electricity, such as more remote areas of Stamford and other towns in which people depend on well water.
• Those which hit communities that have many geographically isolated residences.  Even in our built-up part of Connecticut, we have many residents in isolated wooded areas and, obviously, because of our proximity to Long Island Sound, residents who live in isolated beach communities.  They value privacy, but, with privacy, comes a need to prepare better for natural weather events.

• We need to re-examine whether states and the federal government should support building major residential structures and commercial and retail spaces so close to major tidal water bodies.  Wind damage can arise anywhere, but flooding is clearly more likely to occur in certain locations more than others.  A great deal of lower Manhattan is located too close to ground level, often on landfill.  As we recover from this storm, we need to ask whether that continues to make sense.

The best strategy may be to allow rebuilding, but to eliminate all floor insurance subsidies in these zones and let the market price insurance at the appropriate level of risk, and to issue much stricter building codes.

• We have become more dependent on continuous access to electricity for so many daily tasks, including the powering of our telecommunications systems, our data centers, the ability to get cash from bank ATM machines, the pumping of gas at service stations, our financial services transactions (the local coffee shop, which had a small generator, only had enough power for a relatively limited menu, and could not process credit transactions when it lost power from the local utility.)   Our power grid is more important than ever, and, yet, we have less understanding of how vulnerable it is than we have ever had.  I particularly get angry at local residents who defend the right to protect large trees close to vital overhead electric power lines when utilities attempt to trim back those trees.

We need to think more about some of our long term transitions from physical media communications to electronic communications.  We are more dependent than ever on electronic transactions, which is inevitable, but the robustness of our electronic transaction infrastructure and its ability to withstand events like this has not yet kept pace.  The New York Stock Exchange should not have needed to close for two days, but its all-electronic capability, while possibly the best in the world, should be able to operate somewhere else for the duration of the storm and its recovery effort, as Arthur Levitt, former Chairman of the SEC pointed out in an op-ed piece in the November 7, 2012, issue of The Wall Street Journal.  http://online.wsj.com/article/SB10001424052970204349404578099352057659538.html?mod=googlenews_wsj

• Tidal flooding of salt water carries many additional risks, including the contamination of fresh water supplies, the corrosion of metal and electrical components, the creation of conditions for mold to grow inside buildings, and the potential for severe environmental pollution as the receding tidal waters carry many contaminants well beyond their points of origin.  Siting vital infrastructure near the ocean or tidal estuaries like Long Island Sound is very risky.
• As my wife and I have learned, the attempt to address electric power outages by installing a generator is only one step in an emergency preparedness process.  The generator needs a source of fuel, which, for many people, including close friends of ours, is gasoline.  The shortage of gasoline because of power outages at service stations is affecting their ability to keep generators going.

Right now, the worst traffic snarls are in many spots are at the gas stations that had both electric power and gasoline.  When there is catastrophic damage to an area, the supply lines for items that enable people to withstand the loss of power or other necessities get damaged as well.

• The differences between wealthier, more socially cohesive communities, and less wealthy and less socially cohesive communities become even more pronounced in the event of a natural disaster.  I heard horror stories from people living in other communities who were without power, and, as a result, had no telephone or Internet service, no hot water for bathing, no access to hot meals at home, and no ability to watch TV or listen to their radios at home.

Meanwhile, in Darien, the library stayed open until 11 pm each night to give people access to the Internet and to lighted, heated places for children to study and parents to relax.  It was very crowded, but it was made available to everyone who could get to it.

Friends with electric power, either because they did not lose it, or because they had a generator, made their homes available to others who needed a place to bathe or cook.

Socially conscious people made packaged food available to the local food bank for people less fortunate. The food bank has created a network of drivers to collect donated foods, which it has requested be dropped off at polling places in town tomorrow, and to distribute them to poorer members of the community.

Local government officials are very civic-minded, but much of the sense of sharing comes from the voluntary acts of people who routinely care for one another in a way that I do not see in other communities.  As we think about how to create more just and equal societies, we need to appreciate how much of the wealth and quality of life in a community derives from the activation of collective support systems.

• However, there is more to be done. Real-time traffic, gasoline, power availability, and food information systems are not very good in these situations.  For traffic, there is a wonderful online traffic information application called Waze, which works differently from Google or Traffic.com, because it depends largely on information supplied by members who are in motor vehicles, or who spot problems as pedestrians.  It has been quite useful for advising local residents which streets to avoid because of power line or tree removal efforts. It is like a Wikipedia for traffic management, and it is far better in contributing real-time information than the centralized traffic management systems available on the radio, TV, or on bigger online systems.  We need systems like this to give residents who have smart phones the ability to know where and where to go.

I am contributing to the broad effort to create a 4^th Regional Plan for the Tri-State Region, an effort spearheaded by the Regional Plan Association.  I feel strongly that setting standards about how to prepare for, and respond to, major weather and other cataclysmic events will be a much bigger part of our long-term planning than it has been in the past century of long-term planning events.

As we just observed the Labor Day weekend, there is a tendency for the media and for elected officials to reinforce obsolete views of labor and of vocational and technical skills required to compete in the global economy. There is also a tendency to celebrate the wrong qualities of people they would generally characterize as being part of the “working class.” As a result many of us have image of “blue collar jobs,” the skills required to do them well, and vocational and technical education required to prepare people for them that is wildly out of date.

Why What We Celebrate is Obsolete

Blogger David Burr concisely described why the Labor Day holiday was created:

“The holiday originated in 1882 as a result of the labor movement and was intended to be a day of rest to recognize the efforts of the average working man.”

We need to reinvent what we honor for this holiday.  Labor Day was designed to recognize the value of the “average worker,” collective activity, labor union membership rights, and “hard work.”  The typical image of the “blue collar” worker is someone using muscular power to do a physically demanding, backbreaking task.  When I think of Labor Day as it has been celebrated historically, I am more likely to think of either the folklore of John Henry as a “steel driver” or the cleaning woman celebrated in Donna Summer’s great song “She Works Hard for the Money.”

The terms that these images convey are “average,” “collective,” “physically demanding,” and differentiated by wearing different clothing from one’s everyday wear, hence the reference to “blue collar.”

What I would like to see is best exemplified by the aspirations for Labor Day described in the blog of Steve McCallion, the Creative Director of Ziba, a design and innovation consultancy firm based in Portland, Oregon, in his blog entitled “Labor Day” Is Almost Meaningless Now. We Can  http://www.fastcodesign.com/1662237/labor-day-is-almost-meaningless-now-we-can-change-that

McCallion makes a number of points:

• “There’s an opportunity on Labor Day to raise awareness that American workers still make things — really cool things — and to inspire a new generation of makers.”

We need to reinforce the importance of manufacturing and of other trades and professions that involve the handling of physical objects.  America is wildly imbalanced in the degree to which its best and brightest people are gravitating to financial services (which is too large a part of our economy), health care services, law, accounting, and strategic consulting.  We need to put our economy back into balance.

• What if national awards for excellence in engineering, science and mathematics were part of Labor Day celebrations, on the order of the Oscars or (God forbid) American Idol? The attributes that make the American worker great — collaboration, entrepreneurship and hard work — deserve at least as much attention as a strong voice or a “leading man quality.”

We need to focus on excellence, as opposed to “average” work, and to focus on the efficiency of work, as opposed to “hard work.”  McCallion also combines the virtues of “collaboration” and “entrepreneurship,” which imply that people work together to be creative and to produce a result that is better and different than they could have produced individually.  Too many collective bargaining agreements are designed to produce predictable, standardized work tasks and results, as opposed to tapping the creative energies of workers coming together to produce unexpectedly good results.  At Pitney Bowes, we focused on rewarding ingenuity at all levels, even to the point of rewarding inventors who were not traditional engineers or scientists.

The word “labor” also implies celebrating physically demanding work.  We need to reward individuals and organizations that figure out how to use technology and innovation to reduce or eliminate the physical energy required to do tasks.  At Pitney Bowes Mail Services, we had innovative software engineers that found ways to reduce the number of times mail had to be loaded and unloaded on to a sorter feeder tray.  Over time, we moved more and more toward automated material handling systems to save on the wear and tear on our workers.

This is a trend across all industries and markets.  Eaton Corporation, on whose board I sit, has been an integral player in moving toward automatic transmissions for large trucks, to reduce the physical force required to drive a truck long distances.  Eaton also has excelled in fluid power applications for industrial and mobile vehicle applications, especially in physically demanding industries like construction, to reduce the quantity of human energy required to operate heavy equipment.

These innovations will reduce the number of jobs available for strong men with limited educational and technical attainment.  Our wonderful era between 1946 and the 1990’s, in which individuals could graduate from high school, secure a middle class job with a company and stay employed until retirement is gone forever, not just because of global competition, but because the number of people required to perform physically demanding tasks has declined rapidly because of innovation that enables a single individual to do more work with technology than with human energy.

• “Taking products apart and understanding how they’re made may be an invaluable lesson for today’s youth.”

We need to revitalize and rebuild vocational and technical education, not just as an alternative career path for those who are not interested in a traditional academic educational path, but for everyone with the brainpower and passion to start new businesses.

There are three things wrong with our perception of many traditional trades and professions:

• As McCallion indicates, we do not understand how products are made.  We particularly do not understand how technologically sophisticated and complex ordinary products have become.  The best example of this is the automotive industry.  Historically, when we have thought of automobile service technicians, we imagine a person sliding on a palette under a car and adjusting a mechanical part, or replacing battery or alternator belt under the front hood, or replacing a tire, a muffler, a bumper, or a side panel.  We also envision a skilled mechanic observing and diagnosing a problem with a transmission, engine block, or a braking system, and replacing a defective part or system. At service stations, technicians used to change oil and other fluids, such as windshield washer fluid, and check tires.

All of these repair and maintenance activities still occur, although, as automobiles are built with higher quality designs, parts and materials, and manufacturing processes, traditional repairs are needed less frequently.  More importantly, diagnostic issues are flagged by built-in sensors and computers, and they are often prevented by scheduled maintenance visits, as opposed to traditional repairs.  Cars today are complex, multi-system assemblies of mechanical, chemical, electrical, fluid conveyance, communications, and sensing technologies, all of which must work together to make a car function as intended.  If anything, there is less material, more electrical power management, more computing technology, and more communications required than ever before. An electrician will be more familiar with the inner workings of a car than a traditional auto mechanic as time goes on.

• We also do not understand that many service professions require more manipulation and handling of physical items than ever before.

For example, when we think of the production of a feature film, we instantly focus on the actors, the director, the editor, the music producer, and the back office administrative functions that seem far removed from traditional “blue collar” trades.  However, as I learned in producing From the Rough, the critical trades involved in movie making include the tailors, hair dressers, and make-up artists who support costume designers, electricians who support the cinematographer to manage the lighting required to shoot a scene, the carpenters who help build rooms and sets for the production designer, and the drivers who move the trailers, sets, equipment, and people from location to location.

Each of these trades requires specialized knowledge of the film industry.  I was particularly struck by the degree to which the advances in high definition, digital cinematography have made performer acne issues more problematic.  Just as the advent of sound in films penalized actors with thick foreign accents or the wrong kinds of voices for film audiences, actor and actress skin conditions now need to be addressed by more skilled make-up artists than was the case previously.

• Traditional “blue collar” jobs require more high level conceptual thinking, as opposed to repetitive performance of standardized tasks.  Those who do them best have to solve many situation-dependent problems in the ordinary course of doing their jobs.

There is a shortage of individuals who are doing better-than-average jobs in these traditional trades, particularly in their ability to think holistically and systemically about problems and solutions.  For example, a film production designer now has to think about how a set will look through the lens of a high definition digital camera, and how it will look when edited on sophisticated software-based editing and workflow systems months after the film production process stops.  The designer also has to envision how the set will look on posters and other artwork, on trailers played in theaters, and on the film’s web site.

With respect to automobiles, I learned from my town’s police chief that the demands of the public for more sophisticated technology in police cars have had two unintended consequences: far more strain on the police car batteries and electrical systems, and more wear and tear on the various pieces of the passenger compartment. 

Over the years, I have been struck between the difference between the handful of great auto mechanics I have found, who are great problem solvers, and the majority of mechanics, who are competent to do basic tasks, but are poor problem solvers. In 1973, I hit a small deer on a road just outside Rochester, New York.  After the front bumper was replaced, I started hearing a knocking sound coming from the back of the car when I drove back to Cambridge, Massachusetts, to begin my last year of law school.

The local car dealership told me that “there was nothing wrong with my car,” since they could find nothing wrong with any part of the rear parts and subsystems, like the brakes, the exhaust and the muffler. A friend recommended a mechanic whom he described as “the one guy who could find and solve the problem.”  He was right.  This mechanic, thinking more conceptually, realized that the problem was originating in the front of the car and the sound was traveling along the frame to the back.  I had a loose, easily replaced radiator support bolt, which had become bent because of the collision with the deer.

This pattern has emerged with many service providers.  Most people get enamored of complex technology, of replacing parts, and, to use an analogy from medicine, of providing symptomatic relief.  We fail to train people to think systemically and holistically about how to solve problems.

We must celebrate smart, innovative, thoughtful labor, not just people who do physically demanding work and try to remain “average.”  We should celebrate everyone who does thankless and hard work on Labor Day, but we should particularly celebrate those who do their jobs at a higher level.

Most importantly, we should step back and think about we match the 23 million unemployed and under-employed Americans with the many jobs which go begging, because we do a poor job in our educational systems, and our job retraining systems producing the people with the skills needed to fill those jobs.

Based on the experiences of being involved with both government and private sector marketplaces in which individuals have gotten very rich or successful, I would make four broad observations about economic inequality:

• More complex customer procurement rules or political systems increase inequality;
• More intensive government regulation to redistribute opportunity increases inequality;
• “Stimulative” government programs to increase opportunity increase inequality; and
• Many well-intended, but flawed, rating, ranking and measurement increase inequality.

Complexity, over-reaching government regulation, stimulus programs and badly designed rating, ranking, and measurement systems benefit people with pre-existing advantages and widen their advantages, and, in some cases, they become obscenely rich.

Increasing system complexity increases inequality.

When I was at Pitney Bowes, we were investigated several times for having achieved leadership positions in mail-related markets.  The Justice Department assumed that we must have done something wrong to have a leadership position that spanned several decades.  They were wrong, and, eventually, after five investigations in 22 years, they implicitly admitted that something other than bad conduct was behind our leadership position.

The technical and process complexity of how we evidenced and collected postal revenues, both through postage meters and mail service operations, gave us a huge advantage.  The postal rate structure for work-sharing discounts was extremely complex.  Success depended on successfully making arguments that caused the Postal Service and the Postal Regulatory Commission to approve increases in particular discounts of as little as .1 cents.  Every .1 cent discount increase we received gave us over $10 million of operating income.  To make these arguments required us to hire and educate postal economic specialists, who understood the unique economics of postal mail processing.  Without the complexity of postal economics, which few economists could master, we would not have the significant competitive advantage that enabled us to grow and be profitable.

There was nothing sinister about this complexity.  It was no different from the economics of other public utility pricing systems, but, because postal mail economics was a smaller perceived business opportunity, few economists attempted to master it, which gave us a big opportunity.

The more complex the discount structures became, the more difficult it became for our smaller competitors, many of whom were anxious to have us acquire them. Our experience is replicated every day as large private sector companies create very complex procurement processes that benefit incumbents or large, resource-rich vendors, at the expense of start-up businesses.

More intrusive government regulation and attempts to redistribute wealth, income, and opportunity have exactly the opposite effect.

This is the point at which I most completely diverge from Stiglitz and others sharing his point of view.  When governments try to “level the playing field” between those they believe to be advantaged and disadvantaged, they are more likely to increase inequality.

Complex and comprehensive laws and regulations that attempt to micromanage the economy to redistribute wealth increase inequality in two ways:

• They give advantages to those with more know how and resources to figure out how to play more effectively within the new rules.

New York City rent control laws have been in place since 1947. They have benefited wealthy people who can maintain a New York apartment and spend their own money for capital improvements, since no honest landlord can afford to invest in upgrading rent-controlled apartments for lower-income tenants. They also benefit unscrupulous landlords, because they are designed to protect absurdly low rents only while the existing tenant is in place.  Instead of improving the housing stock to increase the value of the property, landlords finding creative ways to force out or buy out rent-controlled tenants, either by renting adjacent apartments to rock musicians or motorcycle gangs, refusing to make basic repairs, or engaging in noisy construction. The rent control laws induce this dysfunctional behavior because they create a wide gap between the market rate and the rent control rate.  Wealthy tenants can fight these abuses, but the lower-income tenants rent control laws are designed to protect cannot fight back easily.

• They create a new class of people who thrive on being intermediaries, consultants, or other service providers in the marketplace created by these redistribution schemes.  Addressing the needs of these various intermediaries adds cost, complexity, and inequality to any marketplace these intermediaries touch.

Public sector labor unions clearly thrive when the government creates more jobs to “redistribute” wealth, since more government employees are needed in such an environment.  Civil service professionals do well by “monitoring” the disbursement of funds from government to “disadvantaged” people. Major agricultural corporations benefit from highly profitable food stamp programs.  Firms that provide specialized software for managing government social service programs make a lot of money licensing that software to non-profits that have to comply with complex government requirements.  Ross Perot became a billionaire because he mastered the intricacies of serving government programs, first at EDS and later at Perot Systems.  Not surprisingly, an individual, a small business, or an under-resourced large business will have an even greater disadvantage the more of these intermediaries with which they have to deal.

• Title IX has created a whole new cottage industry of parents, coaches, guidance counselors, college counselors, and providers of athletic equipment that benefit from building girl’s sports teams at the K-12 level. Wealthy, resourceful people “game” the college applications process at top-rated schools by getting their daughters into Title IX-induced sports like lacrosse, equestrian sports, squash, and rowing. Greater governmental intervention to redistribute wealth, income, and opportunity simply creates new opportunity for those who are already rich.  Title IX has created new opportunity for women, but has significantly skewed all sports toward wealthier women and men.  The sports programs that get cut to support a new women’s sports program in lacrosse, squash or equestrian sports are inevitably sports that are more accessible to lower income students, like baseball, track and field, or swimming.

Government “stimulus” programs get burdened by the inevitably costly, onerous and time-consuming audit and compliance programs that accompany them.  Wealthy, resourceful people are far smarter in navigating through these expensive requirements.

Elected officials so completely distrust those to whom they give money for stimulus purposes, and are so concerned about failing to catch fraud, waste, and abuse that they insert requirements that slow up the flow of money and siphon off money that should go toward stimulus.  This was amply documented in Michael Grabell’s comprehensive analysis of what went right and wrong with the stimulus legislation in Money Well Spent?  Many well-intended programs were delayed and costlier because of an excessive preoccupation with government rules and processes.

One example was the weather-stripping program that was going to reduce energy costs for homeowners, reduce environmental pollution, and provide middle-class jobs for people of moderate skills. Despite the program’s obvious merits, it was delayed for several months in communities that did not apply the resources to get the government to define “prevailing wages” for determining compensation.  Wealthier communities were far better able to drive the government to act than their economically challenged counterparts.

Major infrastructure programs end up in wealthier states and localities and major government spending programs often are disproportionately spent in wealthier communities, because these communities can marshal the resources to do what it takes to get the money, especially when the program requires matching funds.

My favorite example of this last point (although it did not arise from any stimulus legislation) was the case of Westhampton Dunes, a community formed in the early 1990’s at the western end of a barrier island in a super-wealthy resort area on Long Island.  A group of very wealthy real estate speculators bought up beachfront homes that had been severely damaged by ocean wave surges during storms in the late 1980’s, at prices ranging from $50,000 to $100,000 per property.  The damage to beaches and homes was caused by a shortsighted county supervisor decision not to fund the construction of protective barriers along several miles of beach (because he thought it only helped wealthy homeowners.)  The speculators petitioned the Army Corps of Engineers and the state of New York for 91% of the funds required for beach replenishment and the construction of protective barriers, and then assessed the wealthy owners of the beachfront properties for the remaining 9%.

After the Army Corps of Engineer project was completed, each property was worth millions of dollars.  The homeowners got very rich from this well-intentioned government program, because they had the capital and the network to assemble the property, the money and the lobbying strength.  The real estate speculators who benefited were far wealthier than those who sold their homes at $50,000 to these speculators.

Many well-intended rating, ranking, and measurement systems have the unintended consequences of increasing inequality.

Given the apparent importance of a college degree from a “good school,” the competition to get into “good schools” is more ferocious than ever.  Schools appear to be more exclusive than ever is that schools actually have the incentive to increase the number of applicants they reject.  The U.S. News & World Reports college ranking and rating system ranks schools higher, based on their “exclusivity.” As a result, many schools encourage applications from many students who, realistically, have no chance to be admitted.

The flood of applications creates additional complexity and risk for those who actually are qualified, but might be rejected, simply because admissions officers have too many applications to review and have to use shortcuts to screen out applicants.  Wealthier people spend a considerable amount of money and time working with college counselors, who help their children “game” the applications process.  The ranking system helps create the conditions that make this “gaming” necessary and more effective.

To bring greater “rationality” into the reimbursement system for physicians, Medicare and Medicaid adopted a system developed by a Harvard Medical School professor called the “Relative Value Resource Based System” in the late 1980’s.  Payments for clinical encounters were determined by a complex points system, which over-rewards complex procedures undertaken by highly-trained specialists, as opposed to simple cures through consultations by primary care physicians.  The end result: American has so lopsided a reimbursement in favor of subspecialists versus primary care physicians that we only see 4% of medical school graduates go into primary care.  This is one reason why our healthcare costs are so high relative to other developed countries.  We excessively reward skill and inadequately reward cost-effective performance.

Final comments

Stiglitz and others are correct that persistent and widening inequality is dangerous and destructive of the American dream.  However, the notion that government intervention is the “cure” for this inequality is misguided.  Government has done a great deal, in the interests of eliminating inequality in the past, to create the conditions that have led to the inequality we face now.  I do not believe that the future would be any different.

When I think of his remark, I remember the scene at the end of Superman II, in which Lex Luther, the master criminal  played by Gene Hackman, attempts to curry favor with the evil General Zod, played by Terence Stamp, by directing him to put Superman in an enclosed chamber in which Superman will lose all his powers.  Superman tricks Luther and Zod and ends up retaining his powers, whereas Zod and the two evil creatures with him lose theirs.  After this happens, Luther approaches Superman and says: “Wasn’t it great how we fooled them?  I was with you all the time, Superman.”

External resources can support, hinder, or be neutral in someone’s quest to achieve a goal.  In most cases involving transformational change, the individual has to work smartly and hard to steer those resources toward helping him or her, rather than being hindrances.  Essentially, there are five flaws with the implications of the President’s statement:

• Great leaders and innovators “connect the dots” in ways that others do not. Malcolm Gladwell’s book Outliers uses the example of Bill Gates having access to a computer lab at his school when he was growing up to illustrate that Gates’ success was clearly attributable to that unique set of circumstances, and to the support the school provided.  That’s true, but Gates was not the only student in that school.  His family was not the wealthiest in the school, and he had no unique privileges that gave only him the ability to take advantage of the free resource that triggered his success.  Gates was unique in taking the initiative and having the vision to understand and use the available asset.  Great leaders find or create assets and support that others cannot imagine, much less use.
• Most successful people have the passion and the tenacity to pursue their goals under circumstances and against obstacles that discourage other people.   This is especially true of entrepreneurs who transform a marketplace.  Years ago, I read the story of Intuit, a great company that brought innovative consumer-controlled financial management software to the marketplace.  On many occasions, founder Scott Cook encountered obstacles that put him very close to going out of business, but he kept going.  Most people would not attempt to start a new business, much less endure the multiple setbacks it takes to succeed.  Great leaders and innovators have more tenacity and patience to realize the benefits of whatever support systems they can use.
• Unfortunately, most leaders who make a difference have the moral courage to take unpopular positions, even to the extent of being ridiculed by others.  Working hard is a virtue, but being willing to work hard often leads to a militant conformity with the status quo, not breakthrough successes.  Great leaders and innovators are unusually good at being immune from the discouragement that comes from external resistance from the so-called “support resources.”
• Great leaders and innovators find a way to win over neutral or even change-resistant people.  They are unusually gifted at finding common ground to move people toward their point of view.  Great leaders and innovators are accomplished at turning adversaries into supporters.
• Transformational change is never a linear, standardized process.  It requires a great deal of adaptation.  Great leaders and innovators are comfortable with being adaptable, not adhering to rigid rules and processes.

As a result, many individual leaders, while they draw upon organizational resources to succeed, draw upon those resources differently from their predecessors to turn around failing organizations.  My friend Ann Mulcahy inherited a Xerox organization that was near insolvency when she became CEO, but she applied unique leadership skills to turn that organization around.  Lou Gerstner took an IBM that was in dire straits and turned it around.

Both would acknowledge that they had a lot of help from hard working people in their organizations, but both were the only people who could have done what they did.  The hard working people in their respective organizations could not have succeeded without leadership that channeled their hard work in the right direction. Mulcahy and Gerstner deserved outsized rewards.

Steve Jobs had a lot of help along the way, as Walter Isaacson compellingly documents in his biography of the late great leader, but Jobs made a number of decisions that went against conventional wisdom at the time he made them, and he succeeded because of his unique talents.  Every entrepreneurial success, in some way, reflects an individual who looked at the same set of conditions as many other people and saw opportunities when others did not, and, in many instances, that individual had to overcome resistance to change from those same “hard working people.”  Great individuals make a difference and should be rewarded.

Government is not a good judge of how to make this redistribution work. It indiscriminately punishes both successful people who innovate and transform, and those who are successful through more luck.  In doing this redistribution, government also creates a new class of people who suck up the wealth and income of society and divert that wealth and income to intermediaries who add little value.

Public sector labor unions that negotiate reward and compensation systems based on seniority and civil service rules and processes introduce another pathology to government decision making: they excessively reward conformity to standard, collectively bargained or administratively determined rules and processes, as opposed to rules that deliver the value which should come from a particular public service job.

It is easy to blame labor unions or civil services professionals for conformity, but this same process of suppressing individual initiative exists in the management ranks of many large organizations. In my Dossia business, I solicit many large self-insured employers for business.  I get frustrated, sometimes to the point of being depressed, when I experience well-educated, intelligent executives applying their education and intelligence to figuring out creative ways to delay decisions.  They work hard throwing up roadblocks, and focus their God-given talents on trying to survive from quarter to quarter by avoiding any decision that smacks of even the smallest element of risk.  I admire the individuals in these large companies who champion initiatives that overcome the relentless pressure for conformity they encounter from their colleagues.

In closing, I would summarize my reaction to President Obama’s statement as follows:  collective action may be necessary for every successful outcome, but, in the most important ways, individuals mobilize those collective resources in the right direction.  Absent individual leadership, collective resources can just as easily block necessary actions or, worse yet, be directed the wrong way.

The major changes that are horribly disruptive to people’s lives are these:

• Because every marketplace is changing more rapidly and radically than ever before, the value of decades of experience in a job, a company, or an industry is less than it has ever been.
• Because experience is less valuable, everyone is less secure in his or her current employment than ever before.
• When someone loses his or her job, the path to future employment requires more substantial adjustment than ever before.  Moving to the same job in a different company or industry is less and less likely.
• For many people, the right kind of paying employment may be in an independent contractor position, as opposed to a job with an employer.  In fact, many employers are going to sites like www.freelancer.com  to hire workers to perform tasks, without having to create a “job” without fixed responsibilities, pay levels, benefits, and taxes.  For someone to make a living, it is more important that he or she seek “paying work” than to seek a “job.”
• Adaptability and innovation are more important than conformity, a skill most people are not taught in the educational system, which rewards conformity to what the teacher believes is the “right answer.”
• Categories and definitions of what we think about the world are subject to challenge and are less permanent than they have ever been.  The ways we describe what is going on in the world are more likely to be challenged than ever before.  For example, when we use the analogy of a blueprint to describe our genetic code, a common metaphor for describing genetics, we are reflecting an obsolete understanding of genetics, since we now know that we are shaped by the way our genes are “expressed” or “switched on.”  Even something as seemingly fixed as our genetic make-up not only changes during our lifetime, but the altered genetic “expression” can also be passed on to our children.
• Education is increasingly about “learning,” from wherever source we can learn best, as opposed to “teaching.”  Teaching implies that there is a fixed body of knowledge that is imparted from teachers to students.  Learning changes that paradigm by inducing students to seek insight and knowledge from whatever sources they might be available, and to recognize that there are no fixed bodies of knowledge, but continually changing assumptions and paradigms within every body of knowledge.

To prepare our country to adapt to this transformed world, elected officials have to make several very important changes in the way they govern:

• Elected officials react to dramatic stories of people who are victimized by some event or condition and create broad-based legislation, especially if the story gets significant media traction.  This is a poor way to decide what legislation or regulations to enact and an equally poor way to decide when to act.  We need to recognize that there will always be “victims” of whatever systems are in place.  This particularly manifests itself in healthcare mandates, in which someone appears to have died because of the lack of affordability of a particular therapeutic option.  Since many therapies, particularly cancer therapies, work selectively and well in some cases and are totally ineffective in many others, the notion that everyone should have the right to get these therapies is one that should never be baked into the law.  Evidence and logic should dictate policy, legislation, and regulations, not anecdotes.
• Governments need to recognize that job preservation is a poor reason to keep dysfunctional institutions in place.  Post offices that lose money and are no longer the optimal place from which to deliver postal services, military bases that house soldiers to prepare for very low probability war scenarios, and hospitals that deliver substandard, unnecessary and redundant care should not stay open simply because they provide jobs.  Government’s role is to facilitate the creation of new jobs, not to preserve obsolete ones.  The more effort that is made to preserve what we have, the greater the obstacles to creating what we need.
• Governments need to eliminate unnecessary barriers to entry to new jobs and professions for people losing their jobs in dying industries or companies.  Approximately 1/3 of all jobs today require some form of licensing or certification, mostly at the state level, up from 5% of all jobs 40 years ago. The best evidence that many of these regulatory and statutory requirements provide no public benefit, and are in place largely to protect incumbents is that the states that do not have licensing and certification requirements for particular job categories do not suffer more public safety or detriment than those who do.
• The highly rules-driven collective bargaining agreements that drive processes like education and healthcare need to go.  Protecting the rights of workers is a laudable goal, but the best way to help workers realize their maximum potential income and career potential is to empower them to use their brainpower to serve their customers or students.  For example, every student learns differently, and learns different subject areas at a different pace.  Learning and teaching systems need to adapt to what works for teachers, parents, and students, not what makes a collective bargaining agreement or a civil service system easy to administer.
• Seniority-based systems of all kinds need to disappear.  We should value loyalty and long service, but not at the expense of rewarding performance.  We also need to communicate to every person employed at every organization that the most secure path to long-term employment security is to keep learning and growing, not to rely on time in the job.  I am more energized by having to prove myself every day and to learn and grow from the experience than from knowing that I am totally secure.
• We need to reward critical and holistic thinking in schools, not simply the ability to master today’s bodies of knowledge.
• Governments at all levels need to take a zero-based look at every law and regulation, and to make a judgment as to whether they make sense.  The presumption should be that a particular regulation is unnecessary, unless established otherwise.

The biggest challenge for our representative democracy is to build a body of thought around new ways for elected officials to gather public support.  We have evolved to a highly sophisticated system in which politicians have learned to “buy” votes by extracting money from many people, usually the most productive members of society who cannot shelter their income from taxes, and giving it to other people.  The politicians benefit from this money transfer because they can get both the transferor that wants to reduce his or her future financial burden and the transferee that wants a bigger payout to contribute to their re-election campaign.  This kind of system encourages bigger and, ultimately, wasteful government.  Moreover, it leads to the gradual erosion of the productive sectors of our society.  It also leads to cynicism on the part of the electorate, since those who gets more of the wealth transferred to them usually are those who kick back more of their money to the elected official.

While the Democratic Party is more explicitly built on this form of what is sometimes called “crony capitalism,” many parts of the Republican Party share the same pathology.  When it is very expensive to campaign for office at all levels, it is too tempting to use power to control private sector activities to extract campaign contributions from people.

At times, I feel like we need to convene a constitutional convention and start all over to adhere to the principles our Founding Fathers set out over 225 years ago.  We became independent to get away from oppressive government, but, little by little, we have created new and modern forms of oppression, usually in the guise of trying to “protect” us from the normal frictions of day-to-day living around other people.

It’s time to think about how to transform our country into a more workable system, but, unlike what our forefathers had to do 237 years ago, we cannot embark on a war of independence because, as we look in our individual mirrors, we are staring at the enemies to our freedom and liberty.

The stories reminded me that, for the last 21 years of my Pitney Bowes career, I dealt continuously with the encroachment of state capitalism in the postal sector.  In the late 1980’s and throughout the 1990’s, we successfully fought a series of battles with the U.S. Postal Service to keep it from becoming another entity with all the powers and privileges of the federal government, but with none of the regulatory constraints associated with federal government agencies.  Several senior postal officials aspired to create a power base similar to many government-owned entities, such as the Tennessee Valley Authority (which Marvin Runyon, the Postmaster General from 1992 to 1998, had led) or the New York-New Jersey Port Authority.

Fortunately, we defeated efforts by the Postal Service to regulate the mailing industry and compete unfairly with it at the same time.  The Postal Service leadership teams succeeding Runyon and members of his senior team generally tried to operate within the boundaries set by Congress. We had a very collaborative, and mutually respectful, relationship with the Postal Service during most of my tenure as CEO.

The story was very different outside the United States.  While we had similarly respectful and collaborative relationships with the postal officials in the UK, Canada, Spain, Denmark, and Norway, we had a variety of challenges with postal authorities in many other countries.

We saw three distinct challenges:

• Some postal operators, which had appeared to become privatized, acted in very anti-competitive ways in their own nations, and also secured rights and privileges from their national governments that stacked the deck against partners and competitors.  The most extreme example was Germany, during the leadership of Deutsche Post by Klaus Zumwinkel, who resigned in early 2008 for reasons unrelated to his work-related performance.  Throughout Zumwinkel’s 18-year tenure as CEO, Deutsche Post acquired companies all over the world, including a disastrous acquisition of Airborne, a major package shipper, and the worldwide operations of DHL.

In Germany, where Deutsche Post realized most of its profits, postal rates were exceptionally high (well above $.60 per piece), service was not exceptional, but competition was ruthlessly suppressed.  At the end of 2007, a few weeks before Germany had committed to open its market to full competition from within the EU, Zumwinkel successfully prevailed on German legislators to pass a law that created a minimum wage for postal sector employees only, a wage pegged at Deutsche Post’s minimum pay grade.  The immediate result was to destroy its two largest mailing competitors, since neither could secure labor cost advantages over Deutsche Post.

In Italy, Poste Italiane took advantage of complex and onerous labor laws to fend off competition, since these laws made part-time and temporary workers prohibitively expensive.

• In many countries, postal operators expanded into businesses in which the marketplace was amply served by the private sector, but in which the postal operators would immediately have a competitive advantage, because of the implicit protection from national governments.  Australia, Belgium, Ireland, China and New Zealand all started retail banks.  Japan had always had a sizable postal banking system which paid almost no interest to depositors, but which became a huge source of loans to projects favored by politicians.  Prime Minister Koizumi staked his political career on an initiative to privatize the Japan Post, not because there was ferocious opposition to privatizing the mail or package business, but because the heavy governmental control of the flow of bank loans would be jeopardized. He barely avoided receiving a vote of no confidence because his initiative upset the way government favors had been delivered for generations.

Postal operators have played heavily in the money transfer business (competing with Western Union), in retail government services, in the sale of greeting cards and stationery, and in the sale of gift items often transmitted through the mail.  Postal operators like Australia, China, Finland, and Sweden moved seamlessly into mail services businesses. In countries with a strong tradition of state capitalism, these postal operators were able to operate freely in more businesses in which they competed unfairly with the private sector.

• The postal operators often carried mandates and missions inconsistent with a business focused on cost-effective customer service.  France and Canada were prime examples of this problem, as were Japan, Spain, and Portugal. In these countries, postal operators were saddled with explicit and implicit requirements that they keep a minimum number of people employed, even if the demands of the business would not justify such employment.  For Pitney Bowes, the government employment mandates made many of our productivity enhancement tools unusable by these postal operators.  They could not improve their productivity, even if they wanted to, because they were fulfilling social mandates.  Postal ratepayers paid more, in the form of a disguised tax, to create a welfare system for workers who probably could not have secured employment at comparable wage and salary rates.

I was able to experience the ugly underside of state capitalism for over two decades.  It made me realize that the United States should think long and hard about migrating down the path these other countries have followed.  It also is a cautionary tale for large multinational corporations that aspire to compete fairly in major markets in which one or more of the competitors are state-owned or state-controlled enterprises, or in which the state considers a particular industry strategically important.

There were several noteworthy insights from the program:

• The German and Central European film-makers were incredibly innovative, and they sparked the development of many features of American cinema that changed the films Americans saw, especially after World War II, when the industry was free to resume its normal kind of film-making.  Most noteworthy was the development of the “film noir” style of movie.  “Film noir” was a genre of film that usually was done in black-and-white, as opposed to color, presentation.  It was set in harsh urban settings, was a type of drama and action film, and often involved criminals or gangsters.  Films like The Asphalt Jungle, Dark Passage (which starred Humphrey Bogart and Lauren Bacall), and even On the Waterfront could be considered “film noir” movies.
• The filmmakers who emigrated from Germany and Central Europe created funds to help others trapped back in Europe come to the United States.  They not only sent money back to people trying to escape from Nazi-occupied countries, but helped them with contacts and created the equivalent of an “underground railroad” to enable people to get help crossing borders, hiding inside Nazi-occupied countries, and eventually finding their way to friendly countries.  Germany and the countries it occupied saw a huge drain on their artistic talent, but it would not have been as big of a drain as it turned out to be, had not American-based exiles provided a considerable amount of financial support.

As an aside, we underestimate the importance of support from abroad in almost every attempt to rebel against totalitarian governments.  I saw this in the early 1980’s when I walked by the Holy Name Church in the South End of Stamford, Connecticut, a Polish church that was clearly soliciting money from both parishioners and members of the public to support the Solidarity movement in Poland.

• The exiles from Germany and Central Europe brought a particular passion to their roles in certain kinds of films.  Perhaps the most insightful part of the documentary was the presentation of different scenes in Casablanca, and the description of the actor or actress in that scene who had emigrated from Germany or another Nazi-occupied country and their passion for portraying the European experience.  The saddest ironies in films like Casablanca  were that the Nazi characters were often portrayed by Jewish actors, such as Richard Ryen, a German who played Major Strasser’s Nazi aide Captain Heintz, in Casablanca.

The Casablanca stories were inspiring and tragic.  Madeleine LeBeau, who played Yvonne, the lover spurned by Rick, fled France, along with her Jewish actor husband Marcel Dalio, who played the croupier.  They had a very circuitous route to America, having to get to Portugal, to Mexico, and to Canada, before having the opportunity to enter the United States.  S.K. Sakall, who played Carl, the waiter, fled Hungary and lost three of his sisters in concentration camps.

However difficult our lives are in America or in other parts of the world, we should remember that there are individuals today who are living far away from where they started or would like to be living.  Moreover, most of us are not living in a war zone, and we have far more creature comforts than people living middle or even upper middle class lives had 1-2 generations ago.  As I write this, I am sitting in a very comfortable Starbucks restaurant in Darien, Connecticut, and enjoying a great morning cup of coffee (I usually go to another coffee shop, but it is New Year’s Day and nothing much is open here.)

The other lesson I took from this documentary is that we should reconsider our ridiculously restrictive immigration policies.  We should be able to distinguish between criminals and terrorists, whom we do not want to admit to America, and those with great skills and capabilities, who will enrich our country and create opportunities for many Americans lacking those opportunities today.  That is the argument persuasively made in the book Borderless Economics: Chinese Sea Turtles, Indian Fridges and the New Fruits of Global Capitalism by Robert Guest.

Finally, we should recognize that an untapped source of support for people in developing economies is the direct transfer of money from individual to individual.  The major, centralized government programs, or even the programs developed by not-for-profit organizations often have too much waste, too many centrally-imposed conditions, and too many intermediaries to be as effective as direct money transfers.  Let’s encourage more efficient money transfer from rich to poor than we do today.

Most of all, as we look ahead to what is often an uncertain and somewhat frightening future, we should take stock of how blessed we are, and how grateful we should be, for those who fought for our freedom generation after generation.

In this case, the employer is the Port Authority of New York and New Jersey, an entity created by a contract between New York and New Jersey and jointly owned by the two states.  This entity is not accountable to elected officers or voters, except for the indirect influence that elected officials from the two states sitting on its board of directors have on the entity’s operations.  Oddly enough, entities like the Port Authority were created over several decades in the 20^th century because elected officials believed that they would operate in a more business-like fashion and not be subject to the corrupting influences of elected officials trying to “buy” votes by bestowing favors on constituents. However, the lack of public accountability means that the customers of the Port Authority, namely those who travel in the New York Metropolitan area, will bear the brunt of the abuses of the pension system.

In one sense, it should be easy to solve this problem: abolish this “pension spiking” scheme in the next collective bargaining session.  However, we get a hint of why these kinds of schemes are so hard to uproot. A toll collector named Princesella Smith is quoted as saying: “I’m blessed. I have a great job, and, in this economy, it’s great that I can cover everything with my eight hours a day and overs.”

Executives and union leaders who both know that paying a toll collector like Ms. Smith $89,599 per year is absurdly excessive also have to confront the fact that, but for her oversized compensation package, she probably would be living in a much more difficult economic situation.  She is a human face to the problem of reducing the government budget deficit.  I found that, at Pitney Bowes and at other large organizations, no matter how well these organizations were managed and how tightly costs were controlled, it was difficult to bring pay into line with what made sense for customers.

The overpaid employee is a real person, often well liked and appreciated for his or her organizational commitment.  While I do not know how good an employee Ms. Smith might be, she is clearly doing a job, collecting tolls on the George Washington Bridge, that few people would choose to do if they had other choices.

Not only are overpaid employees often liked and appreciated, but senior executives often know the families of these employees and the tragedies and challenges the employees face.  At Pitney Bowes’ Connecticut operations, there really are no executives living in enclaves that totally separate them from coming into contact with ordinary employees.  I was highly likely to interact with company employees outside the office. When my second son was younger, the president of the Little League baseball program was a product manager at the company. Our housekeeper’s husband worked at the company. When we went to school events, we would meet parents who were company employees and whose children were friends of our children.

It is easy to blame militant labor unions for fighting to preserve the jobs of overpaid and under-skilled employees.  However, my experience is that these problems would exist in any organization in which executives, voluntarily or otherwise, build close personal relationships with people up and down the organization.

Over time, I developed the skill of confronting people I knew and liked, but who had to leave the company.  I had to convince them that it was not only in our best interest, but in theirs, that we were taking them out of a job, reducing their pay, or in some other way taking an adverse employment action.  I operated on the simple principle that if I could not look them in the eye across a table and justify what we were doing, the action was indefensible.  Thankfully, I never had to make the judgment that an adverse employment action was indefensible when I used that test.

When we teach senior executives to care about employees as individuals, then we create a different problem.  It becomes challenging to look those overpaid and under-skilled employees in the eye, meet them in the coffee shop and deli, see their families in the school events, or run into them on the street, and tell them that you either have to eliminate their job or reduce their pay to bring it into line with what the market pay should be for their job.

Think about the job of a postal worker who manages mail sorting machines.  At Pitney Bowes, we were able to employ and retain people who would do this work at about 1/3 the rate that the Postal Service was paying for the same work.  We were consistent in our pay practices with the real market for this job.  The Postal Service’s pay rates were artificially high, both because of a collective bargaining agreement, and because of the political pressure that postal union workers could bring to bear on elected officials.

The concept of a “living wage” is that people must earn enough in any job to be able to afford a standard of living above the federal poverty line.  However, what “living wage” advocates forget is that the “living wage” movement would result in fewer jobs and more expensive products.  As I look across our economy, I see many candidates for job eliminations if wages for that job get too high, not the least of which is the toll collector job.

When I go to large retail grocery stores and pharmacies, I am increasing seeing self-service stations, including some at the checkout counter.  When I go into bathrooms, I see electrical hand driers, which clearly replace the job of transporting and stocking paper hand towels. Postal sorting machines have replaced most postal clerks who sort mail.  Automated banking kiosks replace tellers, as other vending machines provide 24×7 service in place of retail clerks.

The largest job elimination trend, which particularly comes into play at this time of year, is the substitution of online shopping for retail purchases.  In past years, my wife frantically traveled from store to store to buy Christmas gifts.  Today, she sits with her computer and orders everything online.  While the merchants that deliver in response to online orders certainly employ people, fewer people are needed for online transactions, compared with their retail counterparts.

In essence, the labor union and “living wage” movements, whether they want to admit this or not, are hastening the elimination of the jobs they are trying to protect and enhance. They will win for a few years, but eventually the desire for consumers to get the highest level of convenience and value at the lowest cost will override the desire to protect someone else’s overpaid job.