People Before Profits

By Fred Gaboury

Although few are going to shed tears over the fact that some 60 people were bumped off the billionaires list last year because of a declining stock market, many will be concerned that this same decline has resulted in substantial losses for millions of workers who have seen the value of their 401(k) retirement plans head south.

According to The New York Times of July 9, the average 401(k) account shrank from $46,740 in 1999 to $41,919 in 2000 and has since shrunk to about $41,300. Sure knocks the ground out from under those who talk about privatizing Social Security!

According to "Left Business Observer," (LBO) a monthly newsletter, the combined debt of all U.S. households is 106 percent of their total after-tax income - and is continuing to grow at an alarming rate. Pointing to the fact that consumer debt - most of it owed to credit card companies - has been rising rapidly and now accounts for about 22 percent of after-tax income, LBO says that rise "is dwarfed" by the increase in mortgage debt - mostly debt owed for owner-occupied housing.

LBO attributes the increase in mortgage debt to two factors: "more aggressive" borrowing with little or no down payment or borrowing against equity to finance other purchases.

The result, he says, is that homeowners' equity equaled 83 percent of the value of their real estate in 1950, nearly 70 percent in 1980 and 54 percent at the end of last year. LBO says families spend more that 14 percent of their after-tax income on debt service - one out of every seven dollars. This is more than the average household spends on food.

One last statistic: Roughly a million individual households file for bankruptcy every year, a process made even more difficult earlier this year when an overwhelming majority in both Houses of Congress voted to tighten the bankruptcy laws.

Who pays the freight for retiree health has become a major issue as companies attempt to shift the cost of benefits or, in a growing number of cases, eliminate the benefits altogether. This has become a make-or-break issue for unions, such as the Steelworkers ,that have a disproportionate number of retirees.

In 1990, nearly half, 46 percent, of all large employers had a company-paid health benefit plan for retirees over age 65. By the end of last year, only 31 percent had such plans.

The situation was even worse for those who retired earlier - younger workers eligible to retire after 30 years or under "rule 85" or who accepted a "buyout." In 1990 only 40 percent of large employers paid for their coverage and that number declined to barely one-quarter by 2000.

You could sock away a million bucks every day for a year and a half and still not make the Forbes list of 400 richest Americans. In order to do that, you'd need to be worth $725 million and, in a few years, a cool billion dollars.

A billion is a thousand million. If a Forbes 400 member worth $1 billion gives away $1 million, that's like a family with a net worth of $72,000, giving away $72.

The Forbes 400 has a total net worth of $1.2 trillion. That's about one-eighth the total U.S. Gross Domestic Product (GDP).

Bill Gates is at the top of the list with $63 billion. His Microsoft stock is down, but he's still worth more than the combined GDPs of Costa Rica, Guatemala and the other five countries of Central America plus Haiti.

Larry Ellison, CEO of Microsoft rival, Oracle, is second with $58 billion, an increase of $45 billion from last year. Indeed, Ellison did better than General Electric, the most profitable Fortune 500 company, which had $10.7 billion in profits last year.

Ellison's net worth is bigger than the GDP of New Zealand, the America's Cup sailing champion that Ellison plans to dethrone. Peter Blake, manager of the winning Team New Zealand, said, "The whole America's Cup game has changed because some teams are backed by the wealthiest people in the world. If you're worth 90 billion U.S. dollars, what's 60 or 100 million? It's like you or me buying an ice cream."