What we’ve done is have you know, what I call in the book, a pathological mutation of capitalism from that old traditional owners’ capitalism to a new form of capitalism, which is manager’s capitalism. The evidence is quite compelling that today corporations are run in a very important way to maximize the returns of its managers at the expense of its stockholders.BILL MOYERS: Its CEOs.
JOHN BOGLE:Its CEOs, well, the upper level of five or six top officers. And they get enormous amounts of pay for actually doing very little. I’m a businessman. Listen, we all– we chief executives get an awful lot of credit that we don’t deserve. Real work in companies is done by the people who are getting themselves together and doing the hard work of making companies grow–
BILL MOYERS: And, yet, these–
JOHN BOGLE: every day.
BILL MOYERS: These are the people who most often get laid off, right?
JOHN BOGLE:They get laid off. And, of course, the ironic part of that is they often get laid off — used to be called downsizing. But, of course, in today’s America, it’s called right sizing. They get laid off. That reduces expenses. That increases earnings and that means the CEO gets more.
Just think about the country for a minute. For an agricultural economy, 95 percent, 98 percent agricultural when this country came into existence. And even by 1850, half agricultural. Now it’s about, they moved from agricultural economy, to a manufacturing economy, to a service economy. And now to a financial service economy. And the financial service economy is what troubles me. Because it’s diverting resources from the investors [. . . ] (t)o Wall Street. To the investment bankers. The hedge fund managers. To mutual fund managers. And that is a negative to our societal values.
Bogle also frames the pathology of finance as "Investment vs. Speculation":
Now 82, Bogle is finishing his 10th book, “The Clash of the Cultures: Investment vs. Speculation.”
What do you think of the critiques made by the Occupy Wall Street movement?
We have one hell of a problem in this country, and it is not badly articulated by talking about the 99 percent and the 1 percent, although if you wanted to split hairs, we’d be talking about the 99.9 percent and the 0.1 percent. That’s really where the big problems are. At least 25 to 30 percent of that 0.1 percent comes out of Wall Street.
The classic function of Wall Street is to direct capital to its highest and best uses. Well, let’s look at that. Last year, Wall Street directed about $200 billion in capital to IPOs and other long- term investments. But Wall Street was also an intermediary for $40 trillion worth of trading volume. So only one-half of 1 percent of what Wall Street does is capital formation. Most of the rest is short-term speculation.
Can government fix our problems?
The government can’t create jobs, although it can make it easier for corporations to create them. There is no regulation that will make people more ethical or moral. But it is the government’s role to establish a free, unbiased playing field where the economy can work its problems out.
However, I do think we should reinstate the Glass-Steagall Act. A bank should be in either the deposit-banking business or the investment-banking business. When banks become too big to fail, everybody knows they won’t be allowed to fail, so they get bigger. The banking system worked pretty well when investment banks were private firms with unlimited liability. Believe me, Lehman Brothers never would have had the problems it had if Lehman’s partners had been on the hook.
