The Future of Success (27 page)

Meanwhile, the “managed care” revolution is reducing medical care for the uninsured poor. City hospitals used to provide a kind of last-ditch health insurance for the neediest and riskiest—free care for those who couldn’t pay; emergency trauma centers and burn units; treatments for drug-resistant tuberculosis; units devoted to AIDS, drug addiction, family violence; and health care for recently arrived immigrants. The hospitals could afford these services because health insurers indirectly subsidized them, paying the hospitals a bit more than insured patients actually cost. But increasingly, HMOs are competing furiously against one another to rein in costs, thus leaving city hospitals without the extra funds. In fact, the new competition is also encouraging hospitals to compete for low-risk patients with ample coverage—middle-class women delivering babies, for example—while shunning the uninsured drug addicts and the traumatized. And it’s causing doctors to spend less time on charity care. One recent study showed that in communities with the most competition among managed-care plans, doctors provided about 25 percent less charity care than did their counterparts in communities where managed care had not yet taken hold.
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As originally conceived, Medicare offered every retiree a certain minimum guaranteed health insurance, financed by the contributions of all workers. Because no individual worker knew for sure how much medical attention he or she would require when reaching retirement age, the system seemed reasonably fair. But now that the wealthier and healthier have a much better idea, many would prefer individual “medical savings accounts,” enabling them to get a better deal on their own rather than subsidize the chronically ill. Their preference is perfectly rational. Yet this sorting mechanism, adopted by all, would leave the sickest and poorest elderly behind in their own expensive publicly supported insurance pool, highly vulnerable to budget cuts.

Similarly, the original idea behind Social Security was that some of the payroll taxes paid by higher-wage workers would be tapped to raise the benefits of lower-income retirees. Since workers couldn’t be certain at the start of their careers how much they’d earn over the course of them, this seemed a fair arrangement. But now, well-educated and well-connected young people rightly figure they’ll amass considerably more wealth during their careers than will workers with poor educations and connections, most of whom will accumulate no wealth at all. It’s understandable that they’d prefer to merge their savings with those of other similarly promising young people within a mutual fund, and collect the full returns on that pool of private investment, rather than subsidize poorer retirees. Yet “privatizing” Social Security by this sorting mechanism will leave lower-income retirees with less.

LEADERSHIP AS COURTSHIP

The old job of leadership was to make decisions. The new job of leadership is to attract (and keep) money and talent. This is because money and talent are more mobile than ever. Leaders of companies, universities, museums, hospitals, and other institutions want to create virtuous circles in which money and talent join together with a lot of other money and talent and, as they link up, capture the mutual benefits of the group’s prestige, its capacity to innovate, the teaching and learning that occurs within it, the quality of services available to its members, or the low costs and risks of being a member of such a group. The problem is that at some point a virtuous circle may reverse itself and turn vicious. The most talented may leave for an even better deal elsewhere, prompting others to leave as well. There may even be a rush for the exits, resulting in stampedes like “brain drains” and “capital flight.” Wider access to information and easier exit are likely to set off more stampedes in the future. The job of the leader is also to stop vicious circles before they gather momentum.

Private-sector executives no longer make big strategic decisions. Their time is spent reassuring stock analysts, venture capitalists, and institutional investors about the enterprise’s rosy future, and persuading valued individuals to come or to stay by enticing them with stock options and interesting projects. Many of these solicitations must be done in person for maximum effect. After IBM made its $3 billion hostile takeover bid for Lotus in 1994, Louis Gerstner, Jr., IBM’s chairman and chief executive officer, made a personal pilgrimage by helicopter from the company’s world headquarters in Armonk, New York, to Cambridge, Massachusetts, to convince Ray Ozzie, one of Lotus’s most creative minds, to remain with the company. Ozzie had devised the original idea for Lotus’s premier software product, called Notes, which enabled employees anywhere in a company’s far-flung operations to share documents. Gerstner’s personal intervention bought a three-year commitment from Ozzie, who quit in late 1997 to form a new company.
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Nonprofit leaders, likewise, are immersed in continuous efforts to lure talent and money. “To direct an institution nowadays you have to be an opportunist,” says Marcia Tucker, former director of the New Museum of Contemporary Art in New York. “You have to use every social situation to think about fund-raising and social contacts.”
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While university deans busily court faculty stars (increasingly, as has been observed, in Barro-type bidding wars), most college presidents are consumed by the task of raising funds. “One has to be a beggar, a flatterer, a sycophant, a court jester,” notes Leon Botstein, president of Bard College.
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The great visionary university presidents who once changed America’s thinking on weighty matters—such as James Conant, who, as Harvard’s president from 1933 to 1953, instructed the nation on the importance of civilian control of atomic energy; and Robert Maynard Hutchins, who led the University of Chicago from 1929 to 1951 and bombarded the nation with provocative ideas about education and justice—have been replaced, for the most part, by a generation of leaders whose vision is focused on raising large donations. Harvard’s president at the turn of the millennium, an unassuming man named Neil Rudenstein, was almost unknown to the world outside, but proved himself adept at extracting big sums from people eager to have their names chiseled into a Harvard pediment. In order to do his job well, Rudenstein pointedly eschewed controversial stands on large issues of the day. “I have to think very, very hard not about where I should be positioned, but about where Harvard should be positioned,” he explained.
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GOVERNANCE AS SALESMANSHIP

Government officials must court on a grander scale. Governors and mayors hustle to attract or to keep within their borders residents with high skills and high incomes, on whom virtuous circles of growth depend—who will attract others like themselves, and with them, global capital. The mobility of such individuals corresponds with their educations. While only 1.6 percent of high-school dropouts move to another state each year, almost 4 percent of college graduates do so.
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Not only do the better educated have a greater choice of jobs in different locations than the less educated, and many more connections, but, as noted, they can sell their services in cyberspace from almost any locale.

How to attract and keep better-educated, creative workers? By lowering their taxes, furnishing them safe and attractive surroundings in which to live and work, and granting them easy access to airports and vacation spots, museums, and sports arenas with fancy skyboxes. Otherwise, they’ll leave for better deals elsewhere, as evidenced by the legions of Massachusetts high-tech workers who in recent years have decamped to New Hampshire in pursuit of lower taxes.

This courtship partly explains why the burden of state and local taxes is quietly shifting from higher earners who are more mobile to lower earners who have fewer choices about where to live. Income taxes—which take a larger proportion of the incomes of higher earners—are being replaced by sales taxes, taxes on gas, cigarettes, and alcohol, and lotteries, all of which take a larger proportion of the incomes of lower earners. Since 1993, as state treasuries have grown flush, governors have cut taxes, but notably, more than two-thirds of the tax cuts have been income taxes rather than sales taxes.
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It also partly explains the decline in state support for higher education. After all, given the relationship between education and geographic mobility, if a state helps one of its young people obtain a college degree rather than drop out of high school, it doubles the probability of losing that worker to another state. “We’ve been experiencing a brain drain,” complains Nebraska governor Ben Nelson, noting that the higher Nebraskan students score on standardized tests, the more likely they are to abandon the state.
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Nebraska now pays state tuition costs only for those students who agree to work in Nebraska for at least three years after graduating.

Governors and mayors must also persuade businesses to come and to stay. With products becoming lighter, and transportation and communications steadily cheaper, one place on the map increasingly substitutes for any other. Thus, bidding wars for businesses are escalating, with states and cities competing more fiercely to lure or keep them by means of generous subsidies and tax breaks. All over the world, corporate taxes are plummeting.

A few years ago, I helped officiate at the solemn signing of a “treaty” among officials of New York City, New Jersey, and Connecticut in which they agreed to refrain from poaching companies from one another. The deal lasted ten days before one of the three succumbed to the blandishments of a company that quietly suggested it would move if properly motivated. Now the three jurisdictions are spending more than $2.5 billion annually bidding against one another for essentially the same jobs. New York’s governor and mayor have proudly announced a record $720 million package of tax breaks and subsidies for the New York Stock Exchange to build a sixty-story office tower right across from its current home, at Broad and Wall Streets, where it has been since 1902. New Jersey had tried to lure the Big Board with a generous package of its own, although the lure seemed less than compelling. No insult to the Garden State intended, but it’s hard to imagine much luster from a listing on a “New Jersey Stock Exchange.” Besides, within a few years, electronic trading systems are likely to replace bricks and mortar, wherever the bricks are piled up. Nonetheless, “[t]he reality,” explained a
New York Times
editorial, “is that if New York City refuses to play this game, other, hungrier cities and states will take advantage of that passivity. Then Manhattan, in particular, will see its prestige and residents lured away like so many free agents.”
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Worse, the tax breaks and subsidies offered to business come at the expense of public services needed by many of these areas’ less fortunate people, like good schools. State and local governments gave businesses more than $17 billion in tax rebates and subsidies in 1999; this is an amount that, were it spent on schools, would have been enough to educate one and a half million elementary school students at
double
1999’s average rate per pupil.
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Public officials are even trading schools for sports stadiums. The stadium bidding wars are heating up, to the detriment of schools in poorer areas. In 1999, Pennsylvania approved $160 million for new stadiums for the Eagles and Phillies in Philadelphia and the Pirates and Steelers in Pittsburgh, replete with parking garages and skyboxes. Meanwhile, Philadelphia’s public schools were overcrowded, their roofs leaked, and they were out of supplies; Pittsburgh’s schools faced a $30 million budget shortfall.
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In 1995, Cleveland made a $175 million bid to keep the Browns from moving to Baltimore, even as the city closed eleven public schools for lack of funding.
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As I write this, the vociferous owner of the Yankees is demanding that New York City build the team a new multimillion-dollar stadium, and the mayor seems eager to oblige. Yet New York’s schools, starved for funds, are overcrowded and dangerous. Why are political leaders making this tradeoff? Because the sports teams will leave town if they don’t get new stadiums, but inner-city kids have nowhere else to go.

It’s happening on a global scale. More than a century ago, the United States asked the world to send it their “tired .         .         . poor .         .         . huddled masses yearning to breathe free,”
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but now we’re more intent on attracting the smart, well-educated software engineers yearning to be rich. Although there’s growing unease about the influx of poor immigrants to these shores, American high-tech firms have lobbied furiously, and successfully, to lift quotas on U.S. visas for foreign high-tech workers. Other nations are also trying to lure talent their way. Ireland attracts best-selling authors with generous tax cuts. In 1998, the leaders of Iran were offering former Soviet scientists who once worked in labs linked to germ warfare up to $5,000 a month—more than these scientists earn in a year in Russia. Iran explained that other nations in that volatile region would attract the talent if it didn’t do so first.
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On the other hand, Canada is losing managers, doctors, nurses, scientists, and other professionals, partly because taxes claim half their incomes.
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Sweden’s scientists and engineers, facing a maximum tax rate of 59 percent, plus a 1.5 percent wealth tax on property valued at more than $120,000, are leaving home, too; global companies headquartered elsewhere are happy to have them. It’s only a matter of time before Canada and Sweden feel compelled to reduce taxes on their most prized citizens.

Heads of state are also courting global investors. Diplomacy used to be about treaties, alliances, and delicate balances of power, and the most important meetings took place among heads of state. Now it’s about attracting investment and avoiding capital flight, and the most important meetings take place between heads of state and world bankers and fund managers. Like carnival barkers trying to herd the throng into their assorted tents, presidents and prime ministers are trying to lure (and keep) global investors by promising whatever they can in return for global capital. They are fawning over and ingratiating themselves with those who direct the money flows. Almost all are busily cutting taxes on companies. Where necessary, they’re slashing budget deficits—including public spending on social insurance, health care, and schools—in order to gain investors’ confidence.