There's No Such Thing as "The Economy": Essays on Capitalist Value

Front matter

THERE S NO SUCH THING ASHE ECONOMY”

Essays on Capitalist Value Samuel A. Chambers_

THERE'S NO SUCH THING AS “THE ECONOMY”

Contents

The Wells Fargo Story: Economics, Value and the Logic of Capital 13 The Genealogy of Value in Classical Political Economy 39 Value and the Value-Form in a Capitalist Social Formation 103 Bibliography 145 Acknowledgments

CHAPTER ONE The Wells Fargo Story: Economics, Value and the Logic of Capital

A Tale of Capitalism

In September 2013, Scott Reckard, a veteran financial reporter for the Los Angeles Times, received a lead on a story from an editor, connecting him to an employee of the banking behemoth Wells Fargo. This employee, along with at least 30 others at the time, had been fired from local Los Angeles Wells Fargo branches for opening new accounts for existing customers — sometimes by manipulating the customers into agreeing to open the accounts and sometimes without even receiving customer permission to do so. On the surface, it did not look like much of a story, but the fired employee claimed that he and others were terminated simply for doing their job. He asserted that they were heavily pressured, and often coached, to do precisely what they had been doing — opening as many new accounts as possible for existing customers. And employees who failed to meet unreasonable goals for new accounts were directly punished: forced to stay late on evenings, reguired to work weekends, and denied routine perks. At the beginning of October 2013, Reckard published a short piece that reported the firings; it included statements from a Wells Fargo PR person, explaining that this

THERE'S NO SUCH THING AS “THE ECONOMY”

“small number of team members” had, on their own, violated rules and ethical standards and been appropriately fired for their actions (Reckard 2013a). Reckard also described the one fired employee's account of undue pressure, but he did not mention the unverified claim that managers were explicitly coaching employees. It was a short, to-the-point, business-section story of only 400 words, and Reckard himself expected little to come ofit.

Immediately upon its appearance, Reckard and the Los Angeles Times editorial offices were inundated by an unexpected response: “phones started ringing off the hook and the emails started landing from people all over the place. Mainly current and former Wells Fargo employees, but customers too. They wanted to tell stories about what had happened to them” (Vernon 2016). Thus began an intense, months-long period of investigative reporting, in which Reckard, along with other writers and numerous editors, interviewed dozens of Wells Fargo customers, employees, and former employees. They fact-checked and corroborated claims made by those interviewees with exhaustive research into the many legal suits brought against Wells Fargo in the recent past. The result, published on 21 December 2013, was a major piece of investigative journalism: an incisive indictment of a widespread culture of fraud and criminality at Wells Fargo, based upon powerful revelations of a systematic effort, running from customer service representatives all the way to the very top of the corporate structure, all designed to increase customer accounts at all costs. Cross-selling is the corporate name for this practice, and Wells Fargo was then, and remains at the time of my writing in late 2016, the “master” of cross-selling, averaging “6.15 financial products per household — nearly four times the industry average” (Reckard 2013b).

Reckard’s big story remained focused on the employees themselves, describing the varieties of urgency they felt to meet wildly unreasonable goals, and laying out in specific detail the punishments handed down for those who failed to reach them. But unlike the first short piece, this story canvassed a wide swath of employees: lower level workers, mid-level managers, and more senior management. It included some who were fired, some who kept their job, and even some who went so far as to guit or retire because they could no longer endure the pressure and abuse. And Reckard’s background research connected the accounts given by these employees, first to explicit sales targets set by Wells Fargo, and then to Wells Fargo’s own consistent bragging in its earnings reports about its world-leading success at cross-selling. Linking the employees’ experience with the earnings reports’ celebration of the results was the piece de résistance: concrete evidence of explicit training in methods of cross-selling, including coaching on how to inflate reported sales numbers.

For this larger story, Wells Fargo had their cro Timothy Sloan agree to be interviewed by Reckard. Sloan stated baldly that he was “not aware of any overbearing sales culture” (Reckard 2013b). To back up claims like this one, two Wells Fargo PR spokespeople explained that the bank makes ethical conduct a priority and had even recently created an “Ethics Program Office” As evidence of the bank’s rigorous commitment to these values, they pointed to the same recent firing of 30 employees (for cheating to reach sales goals) that had led Reckard to this story in the first place. To give one final, if indirect, refutation of the claim that these cheating workers were anything other than bad apples, Wells Fargo spelled out that bank tellers earn only about 3% in incentive pay anyway.

These claims proved hard to square with the bank’s own internal documents and reports, as obtained by the Los Angeles Times during their investigation. Those documents showed how doggedly Wells Fargo focused on cross-selling goals, how closely they tracked these sales numbers, and how forcefully they pushed the growth of these numbers. Top executives referred to the ultimate goal as “the Great 8,” meaning an average of eight financial products per household. The bank’s pr language also proves hard to reconcile not only with the dozens of reports Reckard received from employees but also with the string of lawsuits brought against Wells Fargo by both customers and former employees. Customers repeatedly sued for having ac-

THERE'S NO SUCH THING AS “THE ECONOMY”

counts opened in their names without their permission or even knowledge, actions that included the forging of customer signatures and the creation of fake businesses in customers’ names. Employees sued for a plethora of reasons: for wrongful termination, given that they were fired for directly following orders (for example, in opening accounts in family members’ names); for discrimination, given that many were unfairly punished for missing unreachable sales goals; and, in the case of managers, for unpaid overtime, given that they were forced to work extensive extra hours attempting to meet the sales goals missed by their staffers (Reckard 2013b).

The power of Reckard’s investigative reporting centers on his neutral reporting of “both sides” of this story, but this is not because the two sides “balance.” Rather, the force of the piece comes through by way of the deep tensions between them, and because in allowing Wells Fargo representatives the space to explain themselves, Reckard provides the time needed for their claims to ring hollow. The piece closes with a prescient flourish as Reckard returns to the story of one of the many customers in whose name new accounts had been opened without their knowledge or approval. This customer did not sue, but she did travel to her local branch to complain in person and request an apology. Instead of apologizing, the bank manager explained that the person who opened the account was one of the best employees at the branch. Reckard, maintaining his focus on the individuals involved, gives this customer the last line: “if that’s one of your best employees, Wells Fargo is in trouble” (Reckard 2013b).

At the time, and for quite a while afterwards, that closing line might have looked like nothing more than the bitter complaint of the customer, or perhaps the writerly touch of the reporter. Reckard’s “local” story did not become a major national issue, and over the next six months Wells Fargo stock maintained an uninterrupted upward march, rising from $44.96 on the day Reckard’s story ran to $52.89 on June 20, 2014. But while Reckard’s reporting made no dent in the 24-hour news cycle of the mainstream media, it turns out it was read closely by another party that matters.

Exactly three years to the month that Reckard first began researching the story, the us Federal Consumer Financial Protection Bureau (CFPB) fined Wells Fargo $100 million — the largest fine in the history of the cFPB. At the same time, they announced another $85 million more in fines to be paid to the Office of the Comptroller of the Currency, and to the City and County of Los Angeles. Pressured by lawsuits (and the discovery process attendant to them) and by the crpB, Wells Fargo admitted — based on their own internal investigation — to the fraudulent creation of more than 1.5 million deposit accounts and more than half a million credit accounts, totaling more than $2.5 million in fees charged to customers (CFPB 2016). During this time, the bank also fired more than 5,300 workers for the very behavior that the cEPB declared was systematic, encouraged and intentional (Corkery 2016b).

Unlike Reckard' initial reporting from 2013, this time the story “blew up.” The New York Times alone published 58 stories directly on or related to the Wells Fargo scandal in just over three weeks after the cFPB fine was announced. Wells Fargo CEO John Stumpf was immediately summoned to give testimony separately to both the Senate Banking Committee and the House Financial Services Committee. The effort to catalog the number of op-eds and blog entries calling for his resignation would reguire massive coordinated research, and “Wells Fargo” became a standard referent for corporate wrongdoing. But more important than the invective spewed toward the man at the top of the corporate structure is the broader reporting done on the scandal itself. Once the story broke at the national level, the incentive to report it more widely pushed journalists and bloggers to follow up on every angle. What they found was not pretty.

Even as Wells Fargo was firing thousands of workers for actions taken to meet patently unrealistic sales goals, the bank clung fiercely to exactly those same sales goals. Carrie Tolstedt, the Wells Fargo executive who maintained those goals and oversaw the group of “rogue” employees who had to be fired for their

THERE'S NO SUCH THING AS “THE ECONOMY”

illegal and unethical actions, was rewarded handsomely for her management and leadership. Over the period under investigation by the CEPB, 2010—2015, Tolstedt received more than $20 million just in bonuses; her 2015 total compensation was more than $9 million. Serendipitously, during the cFPB investigation Tolstedt decided to step down from her position as head of retail operations, with plans to retire by the end of 2016. She left the bank with nothing but the highest of praise from the CEO, who said in July of 2016 that she was “a standard-bearer of our culture” and “a champion of our customers” (Gandel 2016). At the time, her departure compensation package was worth just shy of $125 million.

Follow-up reporting goes well beyond the numbers, however. During the CFPB investigation and in public statements since the fines were handed down, Wells Fargo admitted to knowing about sham accounts only since 2013, the time of Reckard’s initial reporting. Yet there are now multiple class action lawsuits being pursued against the bank, by employees who claim they were fired not simply for failing to meet the sales goals, but specifically for reporting, both to managers and to Wells Fargo's own “ethics hotline” the opening of sham accounts by fellow employees. These lawsuits claim retaliatory action against the employees for their decision to follow exactly the ethical guidelines that Wells Fargo put in place. Moreover, many of these employees were fired long before 2013, and thus the suits themselves suggest that the bank had been informed of this behavior at least as early as 2010. Rather than investigate the behavior, the bank fired the employees who reported it (Cowley 2016).

What’s Going On?_

I recount this tale in some detail, certainly because it illuminates a great deal about the status and ethos of neoliberal capitalism in the middle of the second decade of the twenty-first century. Yet I work through the narrative primarily so that I can pose a deceptively simple yet crucially important question: what is this story about? When Reckard ran his initial LA Times article on fired employees in October 2013, the story appeared to be mainly about the minor crimes of low-level employees, and surely Wells Fargo pr spokespeople today would still like to frame the narrative in those terms. At this point, however, no one — not even Wells Fargo executives, who, after all, did agree to the terms of the largest fine in cFPB history — is really buying such a framing of events. Whatever else we might say, it seems clear that this is not a tale concerning the malfeasance of low-level employees; this is not a story of petty crime.

Now that there is a palpable, concrete scandal in the air — made real by fines, lawsuits, and a media frenzy — we see and feel an overwhelming temptation to view this as an ethical story. The ethics frame perfectly captures the circus politics of cEO John Stumpf’s appearance before various congressional committees, and it is surely various forms of morality that animate the self-righteous outrage — sometimes spewed, sometimes deftly articulated — by everyone from op-ed writers to average citizens, from TV pundits to us senators. No one can read the historical facts of this case without feeling viscerally that something is wrong here, and no doubt “wrong” resonates onan ethical level. The effect of this ethical frame is to insist that someone, somewhere, must have acted immorally or unethically, and this action must be the overriding cause and explanation of the complex series of events that unfolded. The ethical frame provides us a definitive “answer. If this is a story of ethics, then someone is to blame; our necessary response must therefore be to find that someone or multiple someones, determine their guilt, and above all else, punish them for their actions.

An apparent third way to view these events is to see them as a story about greed. Given that the narrative concerns a capitalist corporation, high finance, and huge sums of money, it fits nicely and neatly into this narrative structure, since there is a long history of interpreting the excesses of capitalism as the result of greed. However, I submit that greed and ethics are actually the same framing of the story; the difference is only a matter of scale or perspective. “Greed” provides what social scientists today call the “micro-foundations” for the ethical explanation of events.

THERE'S NO SUCH THING AS “THE ECONOMY”

In other words, “greed” is the answer to the question “why did they do it?” Once we see this as a story of ethics, we know that a wrong has been done and someone must be accountable. Greed enters the narrative at the point when our ethical frame has narrowed its focus to the responsibility of the guilty individual; at just this moment, greed provides us with the motive we seek to attach to the responsible party, for explaining the wrong that he or she has done. The 2016 Wells Fargo story therefore seems to be, fundamentally, an ethical story, a story of corruption, violation, and betrayal, motivated by narrow self-interest and greed.

It’s Not About Ethics

One of the primary aims of this book is to provide an alternative way of making sense of and responding to events such as those contained in the Wells Fargo story. I contend that this is not a story about cheating workers, unethical managers, or greedy boards of directors. The ethical frame proves utterly inadequate to capture what is going on here; worse still, the adoption of this frame blocks from our view much of what really is going on, and how and why it matters. I do not for a moment deny the existence of immoral or greedy actors as part of this tale, but I reject the idea of the overarching ethical frame as making sense of this story. The ethical frame seeks to trace the events back to individual causes. That is, the frame tells us that events transpired as they did because of individual actions, and that the cause of those actions was a failure by individuals to act ethically. This means that when we use the ethical frame to explain the story of Wells Fargo we necessarily presuppose a counterfactual story. In this hypothetical alternative no one cheats, no one is fired, no one is fined, and there is no scandal; all of the differences between this suppositional story and reality come down to the fact that in our counterfactual no one acts unethically, and no one is so blinded by greed as to break the law or violate the moral code.

Yet such a counterfactual proves to be utterly nonsensical — that is, not just unrealistic or impractical, but incoherent as a heuristic — because we can remove immorality from the narrative and still end up with the same exact results.’ To see how, let us ask what happens if we throw off the ethical frame entirely: instead of assuming that the cause of events must lie with immoral actors, what if we assume that everyone in the story acted utterly reasonably and perfectly rationally? We can start with the low-level employees, bank tellers, sales clerks, and customer service representatives — precisely the individuals that make up the vast majority of the fired 5,300 employees. Everyone agrees that those individuals were given extreme, unrealistic goals for cross-selling; it was expected and demanded of these employees that they sign up existing Wells Fargo customers to more and more accounts, even though Wells Fargo already had a dramatically higher average number of accounts per customer than the rest of the banking industry. Indeed, even a court that sided with Wells Fargo in the lawsuit of a fired employee accepted as fact that these goals were impractical and unreachable (Cowley 2016). In addition to the sales goals themselves, which were tied to their compensation, employees faced daily pressure from managers to attain such goals, and lying on the other side of the positive encouragement were a set of explicit punishments; as I have noted, employees who failed to meet daily sales quotas were required to work late and on weekends. Moreover, there is widespread evidence that in many branches both other employees and managers provided advice, training, and coaching in setting up either legally grey accounts (those opened in family members’ names) or outright illegal sham accounts. And finally, these very employees were able to observe what happened to other employees who either consistently failed to meet sales goals (they were fired) or who reported illegal practices to management (they were also fired).

1 Here I echo Mark Blyth, who takes a similar line in response to efforts to blame the 2008 financial crisis on immoral bankers. Blyth notes that the morality tale always tempts precisely because it comforts, yet it still fails to explain. Blyth puts it nicely, “you could have replaced all the actual bankers of 2007 with completely different individuals, and they would have behaved the same way during the meltdown: that’s what incentives do” (Blyth 2013: 21; cf. Heinrich 2012: 16).

THERE'S NO SUCH THING AS “THE ECONOMY”

In the face of all of this, one rational choice would be to quit working for Wells Fargo and get another job. Many employees did just that (Reckard 2013b). But anyone working an entrylevel job under post-2008 economic conditions faced a very soft labor market and therefore had no guarantees of alternative employment. Given all of this, wouldn't another viable, rational option possibly be to open (and then close) fake accounts in order to keep your job? Rather than describing the actions of these workers as immoral, we could see them as quite reasonable, if surely somewhat desperate. The fundamental logic is no different for mid-level managers. The only change is that this group often experienced even more intense harassment from their superiors, faced longer working hours (since many frequently had to compensate with extra work for the sales goals their employees missed), and confronted an even more hostile labor market (should they lose their job). Most importantly, the incentives for opening sham accounts were much greater for mid-level managers, who might see significant bonus salary for meeting sales targets.

One might respond to the above by saying that it misses the point: the ethical framing and explanation centers its focus not on the line-level employees but on the overall institutional structure, and particularly on the senior management. The buck stops at the top, and to understand what went wrong, to see where the immorality lies in the Wells Fargo story, we have to look up. And of course there is substantive merit to this response, since the congressional committees did not call in the fired Wells Fargo workers and accuse them of ethics violation; no, members of Congress directed their moral outrage and contempt in the direction of Wells Fargo's cEo, John Stumpf. During the weeks of September 2016, when the scandal unfolded along numerous axes, perhaps no single moment better captured the essence of the ethical framing of the story than the questioning of Stumpf by Senator Elizabeth Warren. Since the 2008 crisis, and even before being elected Senator, Warren has taken on the important role of Wall Street’s fiercest critic, identifying herself as the average consumers staunchest advocate. Warren's questions to Stumpf during his testimony before the Senate Banking Committee were perhaps the most “viral” elements of this scandal, replayed on network news, late-night comedy shows, and all across the internet:

WARREN: Have you returned one nickel of the money that you earned while this scandal was going on? Have you fired any senior management, the people who actually oversaw this fraud?

STUMPF: No.

WARREN: Your definition of accountability is to push this on your low-level employees. This is gutless leadership. (Corkery 2016a)

When pressed by other senators to explain what was being done to return to the company compensation already paid out to the very executives who oversaw this fraud, Stumpf repeatedly claimed that the Wells Fargo board was in charge of that process, that he was not involved, and that he did not want to taint the investigation in any way. This line of demurral provided Warren perfect context for another zinger: “You keep saying, ‘the board, the board’ You describe them like they are strangers you met in a dark alley. Mr. Stumpf, you are the chairman of the board” (Corkery 2016a, emphasis added).* These are satisfying lines to watch or to read. By focusing our outrage against the czo, they solidify the ethical frame — first by giving a face to evil, and then by staging a representative confrontation with that evil. The same dynamic was in play whenever late-night comedy shows would call out Stumpf for his hypocrisy, a task easily accomplished simply by first narrating some of the basic facts of the scandal, and then running clips of recent Stumpf interviews where he talks about Wells Fargo’s deep and abiding

2 Throughout this book, I will mark all added emphasis in quotations as such; unmarked emphasis in quotations is therefore present in the original.

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commitment to ethical values, fair and good business practices, and so-called “corporate social responsibility” It is doubtless true: Stumpf's answers make him appear weak, cowardly, and immoral. The contrast between his bold rhetoric about values and his oversight of the systematic defrauding of his own customers makes him look like a hypocrite. Or better yet, and to speak the truth honestly and plainly, the entire mise-en-scene makes the Wells Fargo CEO out to be an utter asshole.

Yet if we can disentangle ourselves for a moment from the jouissance of watching a corporate CEO get his comeuppance from Elizabeth Warren and John Oliver, we might want to pause for amoment to ask whether we have answered the simple question I posed earlier — namely, what's really going on in the case of Wells Fargo? This pause is prudent because the ethical framing of the story has pushed us toward an answer that looks like this: well, John Stumpf, the ceo, along with Carrie Tolstedt, the head of retail, and perhaps a few other executives yet to be named...are assholes. That logic might well undergird satisfying moments of theater on late-night television, but it proves woefully inadequate as an overall interpretation of either the systematic defrauding of thousands of customers for millions of dollars, or the abuse and destruction of the careers (and lives) of thousands of employees.

As one attempt to make sense of this story I have asked readers to place themselves in the shoes of Wells Fargo employees. Given the natural sympathy readers might already have for fired low-level employees, this was perhaps an easy request with which to comply. Here’s a harder one: what if we try to put ourselves in the shoes of John Stumpf? We should do so, I suggest, not because we want to sympathize with him, but because this exercise in constructed empathy could tell us a lot more about what's going on than the otherwise satisfying ritual of mockery and humiliation. Stumpf took over as CEO of Wells Fargo in June 2007 and hence began his tenure at the top of the corporate ladder by witnessing the crash of 2008, including the meltdown of Bear Stearns and the near collapse of numerous other financial leviathans. Between 2008 and 2012, 465 Us banks failed. All of the us and parts of the global economy were in free fall, with most everyone in agreement — from academic experts to TV pundits — that we were entering either the next Great Depression, or at least the worst recession since the Depression. And last but not least, all of this was set off by disaster and scandal in the heart of the banking and finance industries.

It is in this context that we should consider a very basic question: what is the job of a ceo? The Wikipedia entry puts it nicely, describing a cEo as “charged with...maximizing the value of the entity” (“Chief Executive Officer; Wikipedia.com, emphasis added). The cro must maximize value, and we know, in the modern publicly traded stock corporation, the “value of the entity” is almost always and everywhere understood with the phrase “shareholder value.” Finally, I must point out the obvious — that “shareholder value” is nothing more than a euphemism for stock price. The job of the cEo is to increase, maintain, and maximize the stock price. So what did Wells Fargo’s stock price (ticker symbol wec) look like after Stumpf became ceo? In the middle of September 2008, a bit more than a year after Stumpf took over, and just as Lehman Brothers was filing for bankruptcy, wec reached a high of $44.69, from which it would fall, over the course of the next six months, to a low of $8.01 on March 6, 2009. All of this background information helps to concentrate our question in terms of seeing things through Stumpf’s eyes. As the CEO of a major international bank not only at a time of intense international crisis, but also at the nadir of trust in financial institutions, what do you do?

It would be almost impossible to attract new customers in the crisis environment, and the passage of the Dodd-Frank Act (2010) further limited the options for creating and selling new financial products.? Thus it makes perfect sense to focus instead on your current customers. But aside from the effects on cus-

3 The Dodd-Frank Wall Street Reform and Consumer Protection Act is by far the most significant law passed by Congress in response to the 2008 financial crisis and the most important piece of us Federal financial regulation since the reforms that followed the Great Depression. Among a host of other provisions, the law created the Consumer Financial Protection Bu-

THERE'S NO SUCH THING AS “THE ECONOMY”

tomer retention, guality customer service does not raise overall profits, and it surely does not increase profit margins (a magic metric for stock valuation). If you cannot add new customers or create wholly new products, then you need to maximize revenue from existing customers with existing financial products and accounts. How do you sguare that circle? By cross-selling, of course. Cross-selling offers the perfect solution to the problem of how to raise profits and margins in the financial industry post-2008. But it needs to be paired with a second overall strategy: an aggressive PR campaign designed to burnish your image as responsible and trustworthy — in this case, by distinguishing the Wells Fargo brand from the tattered image of a cutthroat and out-of-touch Wall Street. Such a campaign would associate Wells Fargo with the independent and down-to-earth values of the western United States, as distant as can be from “New York City” All of this sounds like a reasonable, plausible, and potentially effective approach to increasing value.

Unsurprisingly, the strategy I have just outlined in hypothetical terms is precisely the one that Stumpf pursued, and I cannot fail to add, it was wildly successful. From that low of just over $8 per share, wFc climbed steadily and climbed high, all the way to $58.34 in July 2015. That price increase was driven by two major factors. First, Wells Fargo enjoyed unparalleled and unprecedented success in increasing accounts per customer to a number greater than six —a level, as Reckard initially reported in 2013, more than four times the industry average (Reckard 2013b). Second, Wells Fargo basked in its reputation as “Wall Street's most squeaky-clean bank” (Lopez 2016), maintaining and maximizing its distance from the supposed corruption of Wall Street. To aid this image, Stumpf himself maintained a rigorous PR schedule, vigorously defending this ideal image of the bank. Indeed, even in the depths of the scandal in autumn 2016, Wells Fargo made no noticeable changes to its “Vision and Valreau; therefore, were it not for Dodd-Frank the story of Wells Fargo might not have been told it all.