Hermanomics: Let them eat pizza

Steven Pearlstein
Columnist October 15, 2011

“Don’t blame Wall Street. Don’t blame the big banks. If you don’t have a job and you’re not rich, blame yourself.”

— Herman Cain, from an Oct. 5 video interview with the Wall Street Journal’s Alan Murray

Steven Pearlstein is a business and economics columnist who writes about local, national and international topics. View Archive

What you have in this statement from the leading Republican candidate to be president of the United States is the purest distillation of the attitude of the New Republican Party toward rising poverty and inequality in the United States.

Normally, Republican politicians are politic enough to dance around questions about poverty and inequality, accusing anyone who brings them up as engaging in “class warfare” or blaming President Obama, conveniently forgetting that these were big problems when Republicans controlled the White House and Congress.

But not the Hermanator. Indeed, one of the things we love about Cain is that there is no filter between the brain and the mouth. He just tells you what he thinks, even if he doesn’t know what he’s talking about.

We were first introduced to Cain’s economic world view in 1993, when as chief executive of Godfather’s Pizza he stood up at a nationally televised town meeting and told then-President Bill Clinton that requiring employers to offer health insurance to their workers would force businesses like his to eliminate large numbers of jobs.

Cain apparently enjoyed his moment in the national spotlight so much that he’s been trying to get back in it ever since — as head of the National Restaurant Association, radio talk show host, motivational speaker, director of the Federal Reserve Bank of Kansas City, U.S. Senate candidate in Georgia and now, according to the latest poll, the leading Republican presidential contender.

Through it all, his views on economic justice have been perfectly consistent: The only thing anyone deserves from society is the opportunity to work hard and succeed, just as he did, the African American son of a chauffeur growing up in the segregated South.

If Cain is the perfect Republican candidate for 2012, then Godfather’s Pizza is the perfect metaphor for the winner-take-all economy envisioned by today’s uncompassionate conservatives: a highly-leveraged management buyout that made fortunes for top executives and big franchise owners by closing stores, hiring mostly minimum-wage employees with no health or retirement benefits, and relying on slick TV ads to peddle an unhealthy and mediocre product.

Much has been made the past week of Cain’s “9-9-9” tax plan, which is nothing more than an 18 percent national sales tax and a flat 9 percent tax on household income. What Cain proposes is nothing less than a massive shift of the current tax from the job-creating rich to the indolent and whiney poor.

Economics, alas, has never been Cain’s best subject, going back to the health-care debate of the 1990s. According to Hermanomics, if he and all his pizza parlor competitors were forced to offer and help pay for health insurance for all their employees, then the only way they could stay in business would be to lay people off.

Really? Are those employees just sitting around playing video games? Because if they are busy taking orders and making and delivering pizza, then laying them off isn’t really a particularly effective business strategy.

In fact, the logical response to an increase in labor cost — such as an increase in cheese or gasoline prices — is to raise the price of the pizza. Cain, like all business leaders, will reflexively argue that raising prices is impossible in the highly competitive pizza market. That is not correct. If all the other pizza companies — in fact, all the other fast-food stores — are hit with the same new requirement, then they can all raise prices without losing market share.

It’s certainly possible that higher prices for pizza might cause some customers to shift business to other restaurants, or eat at home. That might lower sales, profits and employment at Godfather’s, but not for the whole economy. It would just shift those sales, profits and jobs to other businesses.

Cain’s argument against health insurance mandates is the same misleading argument he made against increases in the minimum wage when he assumed the position as the restaurant industry’s top lobbyist in the mid-1990s. That effort brought Cain into almost weekly contact with a rising star in the Republican House leadership, John Boehner of Ohio. When public pressure finally forced Republicans to agree to raise the minimum wage in the spring of 1996, Cain got the House to link the increase to a clever new tax loophole giving restaurant owners a tax credit for the tips received by their delivery drivers.

It requires a peculiarly Republican sense of justice to frame the pizza credit as a “fairness” issue, as Cain apparently did. You might also keep the pizza credit in mind the next time you hear the Hermanator ranting about the loophole-ridden tax code as the justification for his 9-9-9 plan.

When he wasn’t fighting to deny pay raises and health insurance to the working poor, Cain was also busy serving on corporate boards, including Aquilar. Aquilar was once a sleepy electric-power company that, while Cain was on the board, followed Enron into the wholesale energy-trading business. Like Enron, it got nailed for trying to manipulate trading in natural gas and paid a fine of $26.5 million. Curiously, Cain never mentions his experience at Aquilar when demanding repeal of those onerous post-Enron regulations that require directors to adopt better systems for internal control.

I’m certainly open to the idea that a successful business executive might make a good president. But at a time when so many Americans are unemployed and so much of the nation’s income growth is going to so few people at the top, we ought to be able to find an executive who has a better sense of economic justice than the Hermanator.

That thought popped into my mind last week while reading the obituary of Robert Galvin, the former chief executive of Motorola, who took a family-run business making car radios and walkie-talkies and turned it into a global electronics giant. Galvin was one of those genuine business leaders who kept his ego in check and knew how to balance the long-term interests of his shareholders with those of his workers, his customers and the country at large. I doubt Galvin would have had much use for Herman Cain.

One thing I learned from the obituary was that Galvin had introduced a company-wide profit-sharing plan to Motorola. Profit sharing was one of those progressive management ideas back in the 1950s. Companies liked it because it reinforced employee loyalty and commitment and because it transformed something that was a fixed cost — wages and salaries — into a variable cost that would decline along with sales. Labor unions, however, tended to oppose the idea, uncomfortable with any blurring of the line between labor and capital or any reductions in guaranteed pay.

In recent years, however, company-wide profit sharing seems to have fallen out of favor, either replaced by individual incentive plans or stock options or subsumed into 401(k) retirement plans. Even Motorola has dropped its profit-sharing plan.

Two industries in which profit sharing remains alive and well, however, are autos and steel. As part of painful restructurings in recent years, unions have agreed to accept profit sharing instead of higher base wages. And now that those industries have returned to sustained profitability, annual profit-sharing distributions for front-line employees have reached $5,000, $7,000, even $10,000 at some companies.

So here’s a thought: Instead of presidential candidates telling Americans that it is their fault if they don’t have a job, or if their income and economic opportunities are declining, wouldn’t it be refreshing if we had more candidates whose vision for reviving the American economy revolved around positive ideas for ensuring that the benefits of economic growth will be widely shared? We could even call it the 1-1-1 plan: one for you and one for me and one for that struggling soul behind the tree.

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