The American model of high productivity and low pay has friends in high places; the U.S. government is in collusion with corporations to lower the standard of living of the workforce -- first the private sector and then everyone else.
By Mark Provost, Truthout
December 14, 2010
According to a recent CNN poll, three out of four Americans believe the recession is not over. Unemployment has not been this high for this long in most Americans’ lifetime. By every measure, the U.S. economy is failing to recover from the Great Recession.
Every measure except one.
In the last 18-20 months, corporate profits climbed at the fastest pace on record. Non-financial companies are reporting the highest free cash flow (profits after dividends and capital expenditures) in a half-century. Profit margins at S&P 500 companies are now above 9%, approaching uncharted territory. Joseph Lavorgna, chief U.S. economist of Deutsche Bank, stresses,
“Not only are we seeing a tremendous V-shaped recovery in corporate profits, but we are in fact seeing the biggest corporate profit recovery ever.”The Obama recovery is turning the traditional formula on its head; corporate profits have not been a leading indicator of economic recovery, but a lagging indicator of Main St. impoverishment. The Greatest Recovery in corporate profits and the Great Recession are two sides of the same coin.
Worker-advocacy group Change to Win released the results of a recent survey which found that wage stagnation ranks as the most common impact of the Great Recession. Workers will believe in the recovery narrative when they see a raise in their paychecks. For now, productivity gains are going straight to their employers’ bottom line.
Andrew Sum, professor of economics at Northeastern University, concludes that the current expansion “has seen the most lopsided gains in corporate profits relative to real wages in our history.”The Greatest Recovery marks corporate executives’ latest triumph in their decades-long campaign against labor. Since the Reagan expansion, U.S. corporate profits exhibited a permanent tendency to soar at the expense of wages. The top one percent of income earners accrued nearly two-thirds of all economic growth. Profit margins expanded in an unprecedented super-cycle while workers struggled through increasingly lopsided, jobless recoveries. The last three expansions presaged the Greatest Recovery and defined its precise shape.
The unequal distribution of income between profits and wages is ultimately reflective of an unequal distribution of power between business and labor — at the workplace and in Washington.
President Obama signaled his commitment to continuity early on. Despite underestimating the rise of unemployment in late 2008 and early 2009, Obama’s advisors rejected the public employment option swifter than its counterpart in healthcare reform. President Obama initially defended the stimulus on the specific grounds that the private sector would create 95% of the jobs.
Some critics of the plan correctly argued that, given the decline in demand, the stimulus should have been larger. Size was not the only problem. Larry Summers, Obama’s former chair of economic advisors, designed the stimulus to maximize GDP rather than employment — job creation, private sector included, was at best an incidental goal.
Twenty-six million Americans are presently unemployed or underemployed. According to Economic Policy Institute’s Heidi Schierholz,
“If the rate of job growth were to continue at October’s rate, the economy would achieve prerecession unemployment rates (5% in 2007) in roughly 20 years.”The Obama administration’s laissez-faire attitude towards the reeling labor market contrasts sharply with the direct assistance it provided to the financial industry. The two-dozen Treasury and Federal Reserve policies implemented during the financial crisis shared one overriding goal: prevent prices from falling in the real estate, bond, and equity markets. Yet, the Obama administration ignored the Employee Free Choice Act even as the price of labor (wages and salaries) suffered the sharpest decline in 50 years. The administration’s economic policy regime compels workers to the free market while protecting banks from its ruinous fallout.
President Obama’s refusal to resolve the unemployment crisis provides the corporate sector with a crucial, often overlooked, subsidy. High unemployment permits management to extort wage concessions and productivity gains from their anxious employees. An article in the December issue of The Economist explains,
“Since the end of 2008 business-sector productivity has grown at an impressive annualized rate of 4.2% while hourly compensation has crept ahead by just 2.1%. Unit labor costs have fallen at an annualized 2% rate, the steepest cumulative decline since the 1950s. Profits owe their V-shape in great part to employment’s L-shape.”The unemployment crisis qualifies as a national emergency; it’s also the foundation of the Greatest Recovery.
Profits are rising sharply in the United States, but wages are not. The unemployment rate remains high, and a rapid increase in jobs is not forecast. Clearly, American business has shed jobs in short order. The resulting rise in productivity is not being shared by workers. How much longer can this go on? The authors analyze the disturbing numbers. - Andrew Sum and Joseph McLaughlin, The Massive Shedding of Jobs in America, Challenge, December 2010
By Mark Provost, Truthout
January 8, 2011
In a January 2009 ABC interview with George Stephanopoulos, then President-elect Barack Obama said fixing the economy required shared sacrifice:
"Everybody's going to have to give. Everybody's going to have to have some skin in the game."For the past two years, American workers submitted to the president's appeal — taking steep paycuts despite hectic productivity growth. By contrast, corporate executives have extracted record profits by sabotaging the recovery on every front — eliminating employees, repressing wages, withholding investment and shirking federal taxes.
The global recession increased unemployment in every country, but the American experience is unparalleled. According to a July Organization for Economic Cooperation and Development (OECD) report, the US accounted for half of all job losses among the 31 richest countries from 2007 to mid-2010. The rise of US unemployment greatly exceeded the fall in economic output. Aside from Canada, US Gross Domestic Product (GDP) actually declined less than any other rich country from mid-2008 to mid-2010.
Washington's embrace of labor market flexibility ensured companies encountered little resistance when they launched their brutal recovery plans. Leading into the recession, the US had the weakest worker protections against individual and collective dismissals in the world, according to a 2008 OECD study. Blackrock's Robert Doll explains,
"When the markets faltered in 2008 and revenue growth stalled, US companies moved decisively to cut costs — unlike their European and Japanese counterparts."The US now has the highest unemployment rate among the ten major developed countries.
The private sector has not only been the chief source of massive dislocation in the labor market, but has also been a beneficiary. Over the past two years, productivity has soared while unit labor costs have plummeted. By imposing layoffs and wage concessions, US companies are supplying their own demand for a tractable labor market. Private sector union membership is the lowest on record. Deutsche Bank Chief Economist Joseph LaVorgna notes that profits-per-employee are the highest on record, adding,
"I think what investors are missing — and even the Federal Reserve — is the phenomenal health of the corporate sector."Due to falling tax revenues, state and local government layoffs are accelerating. In contrast, US companies increased their headcounts in November at the fastest pace in three years, marking the tenth consecutive month of private sector job creation. The headline numbers conceal a dismal reality; after a lost decade of employment growth, the private sector cannot keep pace with new entrants into the workforce.
The few new jobs are unlikely to satisfy Americans who lost careers. In November, temporary labor represented an astonishing 80 percent of private sector job growth. Companies are transforming temporary labor into a permanent feature of the American workforce. United Press International (UPI) reports that,
"This year, 26.2 percent of new private sector jobs are temporary, compared to 10.9 percent in the recovery after the 1990s recession and 7.1 percent in previous recoveries."The remainder of 2010 private sector job growth has consisted mainly of low-wage, scant-benefit service sector jobs, especially bars and restaurants, which added 143,000 jobs, growing at four times the rate of the rest of the economy.
Aside from job fairs, large corporations have been conspicuously absent from the tepid jobs recovery — but they are leading the profit recovery. Part of the reason is the expansion of overseas sales, but the profit recovery is primarily coming off the backs of American workers. After decades of globalization, US multinationals still employ two-thirds of their global workforce from the US (21.1 million workers out of a total 31.2 million). Corporate executives are hammering American workers precisely because they are so dependent on them.
An annual study by USA Today found that private sector paychecks as a share of Americans' total income fell to 41.9 percent earlier this year, a record low. Conservative analysts seized on the report as proof of President Obama's agenda to redistribute wealth from, in their words, those "pulling the cart" to those "simply riding in it." Their accusation withstands the evidence — only it's corporate executives and wealthy investors enjoying the free ride. Corporate executives have found a simple formula: the less they contribute to the economy, the more they keep for themselves and shareholders. A Federal Reserve flow of funds report reveals corporate profits represented a near-record 11.2 percent of national income in the second quarter.
Nonfinancial companies have amassed nearly $2 trillion in cash, representing 11 percent of total assets, a sixty-year high. Companies have not deployed the cash on hiring as weak demand and excess capacity plague most industries. Companies have found better use for the cash. As Robert Doll explains,
"High cash levels are already generating dividend increases, share buybacks, capital investments and M&A [mergers and acquisitions] activity — all extremely shareholder-friendly."Companies invested $262 billion in equipment and software investment in the third quarter;that compares with nearly $80 billion in share buybacks. The paradox of substantial liquid assets accompanying a shortfall in investment validates Keynes's idea that slumps are caused by excess savings. Three decades of lopsided expansions have hampered demand by clotting the circulation of national income in corporate balance sheets. An article in the July issue of The Economist observes that, "business investment is as low as it has ever been as a share of GDP."
The decades-long shift in the tax burden from corporations to working Americans has accelerated under President Obama. For the past two years, executives have reported record profits to their shareholders, partially because they are paying a pittance in federal taxes. Corporate taxes as a percentage of GDP in 2009 and 2010 are the lowest on record at just over 1 percent.
Corporate executives complain that the US has the highest corporate tax rate in the world, but there's a considerable difference between the statutory 35 percent rate and what companies actually pay (the effective rate). Here again, large corporations lead the charge in tax arbitrage. US tax law allows multinationals to indefinitely defer their tax obligations on foreign earned profits until they "repatriate" (send back) the profits to the US. US corporations have increased their overseas stash by 70 percent in four years, now over $1 trillion — largely by dodging US taxes through a practice known as "transfer pricing."
Transfer pricing allows companies to allocate costs in countries with high tax rates and book profits in low-tax jurisdictions and tax havens — regardless of the origin of sale. US companies are using transfer pricing to avoid US tax obligations to the tune of $60 billion dollars annually, according to a study by Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon.The corporate cash glut has become a point of recurrent contention between the Obama administration and corporate executives. In mid-December, a group of 20 corporate executives met with the Obama administration and pleaded for a tax holiday on the $1 trillion stashed overseas, claiming the money will spur jobs and investment. In 2004, corporate executives convinced President Bush and Congress to include a similar amnesty provision in the American Jobs Creation Act; 842 companies participated in the program, repatriating $312 billion back to the US at 5.25 percent rather than at 35 percent. In 2009, the Congressional Research Service concluded that most of the money went to stock buybacks and dividends — in direct violation of the Act.
The Obama administration and corporate executives saved American capitalism. The US economy may never recover.
May 24, 2011
Christina Romer, former member of President Obama's Council of Economic Advisors, accuses the administration of "shamefully ignoring" the unemployed. Paul Krugman echoes her concerns, observing that Washington has lost interest in "the forgotten millions."
America's unemployed have been ignored and forgotten, but they are far from superfluous. Over the last two years, out-of-work Americans have played a critical role in helping the richest one percent recover trillions in financial wealth.Obama's advisers often congratulate themselves for avoiding another Great Depression — an assertion not amenable to serious analysis or debate. A better way to evaluate their claims is to compare the US economy to other rich countries over the last few years.
On the basis of sustaining economic growth, the United States is doing better than nearly all advanced economies. From the first quarter of 2008 to the end of 2010, US gross domestic product (GDP) growth outperformed every G-7 country except Canada.But when it comes to jobs, US policymakers fall short of their rosy self-evaluations. Despite the second-highest economic growth, Paul Wiseman of the Associated Press (AP) reports:
"The U.S. job market remains the group's weakest. U.S. employment bottomed and started growing again a year ago, but there are still 5.4 percent fewer American jobs than in December 2007. That's a much sharper drop than in any other G-7 country."According to an important study by Andrew Sum and Joseph McLaughlin, the US boasted one of the lowest unemployment rates in the rich world before the housing crash — now, it's the highest.
The gap between economic growth and job creation reflects three separate but mutually reinforcing factors: US corporate governance, Obama's economic policies and the deregulation of US labor markets.
Old economic models assume that companies merely react to external changes in demand — lacking independent agency or power. While executives must adapt to falling demand, they retain a fair amount of discretion in how they will respond and who will bear the brunt of the pain. Corporate culture and organization vary from country to country.
In the boardrooms of corporate America, profits aren't everything — they are the only thing. A JPMorgan research report concludes that the current corporate profit recovery is more dependent on falling unit-labor costs than during any previous expansion. At some level, corporate executives are aware that they are lowering workers' living standards, but their decisions are neither coordinated nor intentionally harmful. Call it the "paradox of profitability." Executives are acting in their own and their shareholders' best interest: maximizing profit margins in the face of weak demand by extensive layoffs and pay cuts. But what has been good for every company's income statement has been a disaster for working families and their communities.
Obama's lopsided recovery also reflects lopsided government intervention. Apart from all the talk about jobs, the Obama administration never supported a concrete employment plan. The stimulus provided relief, but it was too small and did not focus on job creation.
The administration's problem is not a question of economics, but a matter of values and priorities. In the first Great Depression, President Roosevelt created an alphabet soup of institutions — the Works Progress Administration (WPA), the Tennessee Valley Authority (TVA) and the Civilian Conservation Corps (CCC) — to directly relieve the unemployment problem, a crisis the private sector was unable and unwilling to solve. In the current crisis, banks were handed bottomless bowls of alphabet soup — the Troubled Asset Relief Program (TARP), the Public-Private Investment Program (PPIP) and the Term Asset-Backed Securities Loan Facility (TALF) — while politicians dithered over extending inadequate unemployment benefits.
Labor-market deregulation boils down to three things: weak unions, weak worker protection laws and weak overall employment. In addition to protecting wages and benefits, unions also protect jobs. Union contracts prevent management from indiscriminately firing workers and shifting the burden onto remaining employees. After decades of imposed decline, the United States currently has the fourth-lowest private sector union membership in the Organization for Economic Cooperation and Development (OECD).
America's low rate of union membership partly explains why unemployment rose so fast and — thanks to hectic productivity growth — hiring has been so slow.
Proponents of labor-market flexibility argue that it's easier for the private sector to create jobs when the transactional costs associated with hiring and firing are reduced. Perhaps fortunately, legal protections for American workers cannot get any lower: US labor laws make it the easiest place in the word to fire or replace employees, according to the OECD.
Another consequence of labor-market flexibility has been the shift from full-time jobs to temporary positions. In 2010, 26 percent of all news jobs were temporary — compared with less than 11 percent in the early 1990's recovery and just 7.1 percent in the early 2000's.The American model of high productivity and low pay has friends in high places. Former Obama adviser and General Motors (GM) car czar Steven Rattner argues that America's unemployment crisis is a sign of strength:
Perversely, the nagging high jobless rate reflects two of the most promising attributes of the American economy: its flexibility and its productivity. Eliminating jobs — with all the wrenching human costs — raises productivity and, thereby, competitiveness.
Unusually, US productivity grew right through the recession; normally, companies can't reduce costs fast enough to keep productivity from falling.
That kind of efficiency is perhaps our most precious economic asset. However tempting it may be, we need to resist tinkering with the labor market. Policy proposals aimed too directly at raising employment may well collaterally end up dragging on productivity.
Rattner comes dangerously close to articulating a full-unemployment policy. He suggests unemployed workers don't merit the same massive government intervention that served GM and the banks so well. When Wall Street was on the ropes, both administrations sensibly argued, "doing nothing is not an option." For the long-term unemployed, doing nothing appears to be Washington's preferred policy.
The unemployment crisis has been a godsend for America's superrich, who own the vast majority of financial assets — stocks, bonds, currency and commodities.
Persistent unemployment and weak unions have changed the American workforce into a buyers' market — job seekers and workers are now "price takers" rather than "price makers." Obama's recovery shares with Reagan's early years the distinction of being the only two post-war expansions where wage concessions have been the rule rather than the exception. The year 2009 marked the slowest wage growth on record, followed by the second slowest in 2010.
America's labor market depression propels asset price appreciation. In the last two years, US corporate profits and share prices rose at the fastest pace in history — and the fastest in the G-7. Considering the source of profits, the soaring stock market appears less a beacon of prosperity than a reliable proxy for America's new misery index. Mark Whitehouse of The Wall Street Journal describes Obama's hamster wheel recovery:
From mid-2009 through the end of 2010, output per hour at U.S. nonfarm businesses rose 5.2% as companies found ways to squeeze more from their existing workers. But the lion's share of that gain went to shareholders in the form of record profits, rather than to workers in the form of raises. Hourly wages, adjusted for inflation, rose only 0.3%, according to the Labor Department. In other words, companies shared only 6% of productivity gains with their workers. That compares to 58% since records began in 1947.
Workers' wages and salaries represent roughly two-thirds of production costs and drive inflation. High inflation is a bondholders' worst enemy because bonds are fixed-income securities. For example, if a bond yields a fixed five percent and inflation is running at four percent, the bond's real return is reduced to one percent. High unemployment constrains labor costs and, thus, also functions as an anchor on inflation and inflation expectations — protecting bondholders' real return and principal. Thanks to the absence of real wage growth and inflation over the last two years, bond funds have attracted record inflows and investors have profited immensely.
The Federal Reserve has played the leading role in sustaining the recovery, but monetary policies work indirectly and disproportionately favor the wealthy. Low interest rates have helped banks recapitalize, allowed businesses and households to refinance debt and provided Wall Street with a tsunami of liquidity — but its impact on employment and wage growth has been negligible.
CNBC's Jim Cramer provides insight into the counterintuitive link between a rotten economy and soaring asset prices:
"We are and have been in the longest 'bad news is good news' moment that I have ever come across in my 31 years of trading. That means the bad news keeps producing the low interest rates that make stocks, particularly stocks with decent dividend protection, more attractive than their fixed income alternatives."In other words, the longer Ben Bernanke's policies fail to lower unemployment, the longer Wall Street enjoys a free ride.
Out-of-work Americans deserve more than unemployment checks — they deserve dividends. The rich would never have recovered without them.
"Between the second quarter of 2009 and the fourth quarter of 2010, real national income in the U.S. increased by $528 billion. Pre-tax corporate profits by themselves had increased by $464 billion while aggregate real wages and salaries rose by only $7 billion or only .1%. Over this six quarter period, corporate profits captured 88% of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1% of the growth in real national income. ...The absence of any positive share of national income growth due to wages and salaries received by American workers during the current economic recovery is historically unprecedented."The New York Times adds,
"According to the Bureau of Labor Statistics, average real hourly earnings for all employees actually declined by 1.1 percent from June 2009, when the recovery began, to May 2011, the month for which the most recent earnings numbers are available."So as average wages fall, and nearly 14 million people remain unemployed, America's economic recovery has almost entirely benefited corporations. This development adds another chapter to the decline of the middle class, whose incomes are shrinking and wages are stagnating. Last year, top executives' salaries increased 27 percent, while workers' salaries increased only 2 percent.
At the moment, income inequality in America is the worst it's been since the 1920s, as the richest 1 percent make nearly 25 percent of the country's income.
April 1, 2011
Just a week after the report that bonuses for CEOs jumped 30 percent last year comes another startling statistic that illustrates the ever-increasing gap between rich and poor in America: overall CEO compensation increased by 27 percent in 2010, while the pay of the average worker grew only 2 percent, according to a USA Today analysis of data from GovernanceMetrics International.
Perhaps it's fitting that, as the Columbia Journalism Review points out, the Business section of today's New York Times reads like a "snapshot of the gilded age economy." Stories in the April 1 section include one on the $17 million paid to the CEOs of Fannie Mae and Freddie Mac in 2009 and 2010--fresh off the taxpayers bailing out the two lenders to the tune of $150 billion--and another on the multi-billion dollar lending program the Fed used to save the likes of Fannie and Freddie.
March 1, 2011
While millions of Americans confront the daily miseries of unemployment, home foreclosure and poverty as a result of the economic crisis, corporate profits are soaring.
Walmart, the world’s largest retail chain, announced last week that its profits grew by 27 percent in the fourth quarter of 2010, while sales at US stores have declined for the second year in a row. The company made $6 billion in profits in the fourth quarter, up from $4.8 billion a year before and $3.5 billion in the third quarter of 2010.
Home Depot posted a 72 percent increase in profits, after sales increased by 3.8 percent in the fourth quarter. Profits reached $587 million, up from $342 million a year earlier.
Hundreds of companies have posted similar figures. The story is the same: sales and revenues have fallen or ticked up slightly, while profits have grown by double digits.
The discrepancy between revenues and profits is due to the fact that the “recovery” in corporate balance sheets is built on layoffs and speedup.
“A lot of the recent profits are based on the revenue from cost-cutting,” said James L. Butkeiwiz, professor of economics at the University of Delaware, in a telephone interview.
Walmart, for instance, cut over 11,000 jobs at its Sam’s Club warehouse stores in January 2010, about 10 percent of the subsidiary’s workforce. Home Depot cut 7,000 jobs in 2009 and shuttered 34 of its Expo home design stores in 2009.
Corporate profits reached an annual rate of $1.659 trillion in the third quarter of 2010, and it is possible that fourth quarter profits, which have not yet been aggregated, were even higher.
As a result of these record profits, companies have found themselves with huge stockpiles of cash. US corporations had a record $1.93 trillion in cash and similar assets in December, the last time figures were released.
Instead of investing, companies have used this cash to buy back their own stocks, enriching executives and shareholders without creating jobs. In January 2011, stock buybacks reached their highest level since the start of the economic downturn. That month, companies bought back $57 billion in shares, compared to $357 billion for all of last year, according to Trimtabs, the finance data company.
Intel, the maker of computer chips, announced the largest buyback thus far, amounting to $10 billion, on January 24. Within two weeks, Pfizer, the pharmaceutical company, and media conglomerate Time Warner each followed with $5 billion.
Trimtabs said that buyback activity was up by 25 percent in the fourth quarter over the third, reaching an average of $1.7 billion daily.
“Companies have a lot of cash and they don’t feel very confident in investing it,” said Vincent Deluard, the company’s executive vice president, in a telephone interview.
Compared to boosting dividends, the more traditional method of disbursing excess cash, stock buybacks are preferred by executives because they increase the values of their own existing shares.
“Stock buybacks benefit executives,” said Charles Elson, a professor of corporate governance at the University of Delaware. “If they have options, then a buyback is significantly more favorable than just paying dividends.”
Aggressive wage cuts, together with layoffs and speedup, have resulted in drastic increases in labor productivity, which grew by 6 percent in 2010 following similar gains the previous year.
“Firms have maintained productivity by laying off workers, and they’re not willing to hire,” said Dr. Butkeiwicz. “Often, productivity falls in recessions, but it hasn’t this time around.”
As a result, corporations have managed to increase productivity while cutting output.
“Companies have to be happy, there’s no question about that,” Butkeiwicz said. “They’ve got to do something with their money, so they’re just buying back stock.”
In the face of an economic crisis that has led to at least 8 million layoffs and over 6 million home foreclosures, by its own estimates the Obama administration’s programs have created 586,340 jobs, only about one 16th of those lost since the beginning of the recession. High unemployment is in fact a deliberate policy, aimed at providing a rapid recovery in corporate profits at the expense of workers.
This policy is manifest most clearly at General Motors, which posted its first annual profit since 2004 last week. The company made $4.7 billion for the year, the most since 1999, in a dramatic return to profitability.
This was the direct outcome of the Obama administration’s restructuring program, in which the government insisted that workers take major concessions. The contract forced onto auto workers in 2009 drastically increased the proportion of workers making $14 per hour, half the previous wage, combined with thousands of layoffs.
This White House-managed corporate restructuring, initiated in early 2009, opened the floodgates for other companies to take similar measures on their own initiative, using the economic crisis to lay off thousands and impose speedup and wage cuts on those who remained.
Two years after the process started, the end result is clear: millions unemployed, millions in foreclosure, and record corporate profits.
June 14, 2011
Over the last decade, the share of U.S. national income taken home by workers has plummeted to a record low.
Check out the chart below, compiled by the Labor Department, and posted this week by conservative writer David Frum. It shows that the decline began with the brief recession that followed 9/11 in 2001. But it continued even as the economy picked up again, and got even worse once the Great Recession hit. In the weak recovery since then, workers' share of income just kept on falling.
Why are workers taking home such a reduced share of the pie? Opinions differ, but many experts think that the trend has to do with a number of factors, including a decline in the bargaining power of labor, and increased competition from foreign workers. Similarly, over the last year or so, U.S. companies have made record profits, while unemployment has stayed high and wages have barely risen.
The chart jibes with other data, which show that since the 1980s, income for the richest 1 percent of Americans has exploded, while hardly budging at all for everyone else.
Still, there's little sense that either Obama administration or Congress plan to do much about this growing inequality. Indeed, any serious action to boost the economy and cut unemployment now seems to be off the table
July 6, 2011
It is, you might say, the best of times, and the worst of times.Call it a tale of two economies. Across a range of measures, the current "recovery" is among the weakest since the government began keeping records. Meanwhile, American corporations, which already have been raking in massive profits, are poised to report strong second quarter profits. And despite that imbalance, one economic commentator notes that those same corporations are still lobbying for more tax breaks--concerns over the deficit be damned.
The Great Recession officially ended in June 2009, but the recovery has been lackluster in the extreme. It's not just the 9.1 percent unemployment rate, the nearly 14 million jobless, or the anemic 1.8 percent GDP growth in the first quarter--numbers we're all familiar with at this point.
As the Wall Street Journal reports, banks are lending less money now--both through credit card lines and home loans--than when the recovery began, according to numbers from the New York Fed.
And although household debt is lower than it was at the height of the boom, it's still high enough to exert a severe drag on the economy. In 2007, the average household had borrowed 127 percent of its annual income to fund purchases. That's now down to 112 percent--in part because banks have written off some debt as uncollectable. But it could take years before it descends the average level for the 1990s, 84 percent, which experts say is a healthier mark.
So, things are bleak--but not for American companies and shareholders. The Journal reports separately that according to an analysis by Brown Brothers Harriman, second-quarter earnings for companies in the Standard & Poor's 500-stock index are expected to rise by 13.6 percent compared to a year ago, when they're announced later this month.
That news comes after U.S. companies reported record profits last year. And rather than using that cash to hire workers, they sat on more of it than ever before.
Given all this, you might expect that corporations would at least be doing what they can to help solve the deficit problem that many experts say imperils the long-term stability of the economy. But as David Leonhardt of the New York Times observes today, the opposite is the case.
Leonhardt uses as an example the Business Roundtable, a trade group that's generally seen as moderate, and talks about the deficit problem in sober, restrained tones. But lately, he writes, its actions are telling a different story:
Rhetoric aside, it consistently lobbies for a higher deficit. The roundtable defends corporate tax loopholes and even argues for new ones. It pushes for a lower corporate tax rate. It favors the permanent extension of the Bush tax cuts. It opposes a reduction in the tax subsidy for health insurance, a reduction that was part of the 2009 health reform bill. Oh, and the roundtable also favors new spending on roads, bridges and other infrastructure.It's not just the Roundtable. Leonhardt continues:
Today's business groups struggle to come up with any specific deficit plan. Last year, the Business Council—a group of top corporate executives headed by Jamie Dimon of JPMorgan Chase—and the roundtable released a 49-page plan that simultaneously warned that projected deficits would "retard future growth" and called for policies that would add hundreds of billions of dollars a year to the deficit.
So to recap: This recovery is among the weakest since World War Two. But three years after the financial industry caused the economy to tank, corporations are doing better than ever, without using their profits to hire people. Meanwhile, they're lobbying for more tax breaks, which would make the deficit problem worse.
August 31, 2011
At least 25 top United States companies paid more to their chief executives in 2010 than they did to the federal government in taxes, according to a study released on Wednesday.
The chief executives of those companies were paid an average of more than $16 million a year, the study found, a figure substantially higher than the $10.8 million average for all companies in the Standard & Poor’s 500-stock index.
The financial data in the report was taken from the companies’ regulatory filings, which can differ from what is actually filed on a corporate tax return. Even in a year when a company claims an overall tax benefit, it may pay some cash taxes while accumulating credits that can be redeemed in future years. For instance, General Electric reported a federal tax benefit of more than $3 billion in 2010, but company officials said they still expected to pay a small amount of cash taxes.
The authors of the study, which examined the regulatory filings of the 100 companies with the best-paid chief executives, said that their findings suggested that current United States policy was rewarding tax avoidance rather than innovation.
“We have no evidence that C.E.O.’s are fashioning, with their executive leadership, more effective and efficient enterprises,” the study concluded. “On the other hand, ample evidence suggests that C.E.O.’s and their corporations are expending considerably more energy on avoiding taxes than perhaps ever before — at a time when the federal government desperately needs more revenue to maintain basic services for the American people.”
The study comes at a time when business leaders have been lobbying for a cut in corporate taxes and Congress and the Obama administration are considering an overhaul of the tax code to reduce the federal budget deficit.
Many business leaders say that the top corporate statutory rate of 35 percent, which is higher than any country except Japan, is hobbling the economy and making it difficult for domestic companies to compete with overseas rivals. A coalition led by high-technology companies and pharmaceutical manufacturers have been pushing for a “repatriation holiday,” which would let them bring as much as $1 trillion in foreign profits back to the United States at substantially reduced rates.
But the Obama administration has said it will consider lowering the corporate rate only if Congress agrees to eliminate enough loopholes and tax subsidies to pay for any drop in revenue. Many policy experts estimate that the United States could lower its corporate rate to the high 20s if it eliminated the maze of tax breaks that favor specific industries and investors.
The report found, however, that many of the nation’s largest and highly profitable companies paid far less than the statutory rate.
Verizon, which earned $11.9 billion in pretax United States profits, received a federal tax refund of $705 million. The company’s chairman, Ivan Seidenberg, meanwhile, received $18.1 million in compensation. The online retailer eBay reported pretax profits of $848 million and received a $113 million federal refund. John Donahoe, eBay’s chief executive, collected a compensation package worth $12.4 million, the study said.
Verizon and eBay officials disputed the report. Robert Varretoni, a company spokesman, said that the $18 million in compensation for Mr. Seidenberg was a target, which will only be paid in full if the company stock rises when his bonus is fully vested in three years. Mr. Varretoni also said it was misleading of the report to cite Verizon’s tax benefit without noting that the company also incurred billions of dollars in deferred taxes which “will be paid over time.”
“The fact is, Verizon fully complies with all tax laws and pays its fair share of taxes,” Mr. Varretoni said.
John Pluhowski, eBay's vice president for corporate communications, said on Wednesday that the study did not accurately portray the taxes paid by the company in 2010. Mr. Pluhowski said that eBay had paid $646 million in taxes to federal and local governments worldwide in 2010, much of it in the United States. The $131 million tax benefit eBay reported on its U.S. federal taxes was due, in large part, to accounting adjustments made after the company settled several audits with the I.R.S. for previous years' taxes. (EBay was asked to comment on Tuesday before this article was published, but did not respond.)
Chaz Bickers, a Boeing spokesman, said that the company’s taxes have declined in recent years because it has made huge investments in United States manufacturing. Mr. Bickers said that the company also paid hundreds of millions in cash taxes and incurred an additional $1 billion in deferred taxes that it will pay at some date in the future.
“We pay our taxes and we have added 5,000 more U.S. manufacturing jobs that were incentivized by tax benefits,” he said.While the accounting strategies used to lower taxes varied from company to company, the report found that 18 of the 25 corporations had offshore subsidiaries, which can be used to shelter income.
To discourage companies from gaming the tax system, the report called for tighter rules on offshore tax havens and new restrictions on write-offs for executive compensation.
“Instead of sharing responsibility for addressing our nation’s fiscal challenges,” said Chuck Collins, a senior scholar at the institute who co-wrote the study, “corporations are rewarding C.E.O.’s for aggressive tax avoidance.”This story originally appeared at Truthdig. Robert Scheer is the author of The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street (Nation Books).
August 24, 2011
They will get away with it, at least in this life. “They” are the Wall Street usurers, people of a sort condemned in Scripture, who have brought more misery to this nation than we have known since the Great Depression. “They” will not suffer for their crimes because they have a majority ownership position in our political system. That is the meaning of the banking plea bargain that the Obama administration is pressuring state attorneys general to negotiate with the titans of the financial world.
It is a sellout deal that, in return for a pittance of compensation by banks to ripped-off mortgage holders, would grant the banks blanket immunity from any prosecution. That is intended to short-circuit investigations by a score of aggressive state officials, inquiries that offer the public a last best hope to get to the bottom of the housing scandal that has cost U.S. homeowners $6.6 trillion in home equity in the past five years and left 14.6 million Americans owing more than their homes are worth.
The $20 billion or so that the banks would pony up is chump change to them compared with the trillions that the Fed and other public agencies spent to bail them out. The banks were given direct cash subsidies, virtually zero-interest loans, and the Fed took $2 trillion in bad paper off their hands while the banks exacerbated the banking crisis they had created through additional shady practices, including fraudulent mortgage foreclosures.
Yet the administration has rushed to the aid of the banks once again and is attempting to intimidate the few state attorneys general who have the gumption to protect the public interest they are sworn to serve. As Gretchen Morgenson of The New York Times reported:
“Eric T. Schneiderman, the attorney general of New York, has come under increasing pressure from the Obama administration to drop his opposition to a wide-ranging state settlement with banks over dubious foreclosure practices. …
“In recent weeks, Shaun Donovan, the secretary of Housing and Urban Development, and high-level Justice Department officials have been waging an intensifying campaign to try to persuade the attorney general to support the settlement. …”
Donovan has good reason not to want an exploration of the origins of the housing meltdown: He has been a big-time player in the housing racket for decades. Back in the Clinton administration, when government-supported housing became a fig leaf for bundling suspect mortgages into what turned out to be toxic securities, Donovan was a deputy assistant secretary at HUD and acting Federal Housing Administration commissioner. He was up to his eyeballs in this business when the Clinton administration pushed through legislation banning any regulation of the market in derivatives based on home mortgages.
Armed with his insider connections, Donovan then went to work for the Prudential conglomerate (no surprise there), working deals with the same government housing agencies that he had helped run.
As The New York Times reported in 2008 after President Barack Obama picked him to be secretary of HUD,
“Mr. Donovan was a managing director at Prudential Mortgage Capital Co., in charge of its portfolio of investments in affordable housing loans, including Fannie Mae and the Federal Housing Administration debt.”
The HUD website boasts in its bio of Donovan that “under Secretary Donovan’s leadership, HUD has helped stabilize the housing market and worked to keep responsible families in their homes.” If that is so, we have to assume that the tens of millions savaged by an out-of-control banking industry were not “responsible.” And if the housing market has in any way been “stabilized,” why did the Commerce Department report Tuesday that new home sales have dropped for the third month in a row?
Shifting the blame from the swindlers to the victims is the cynical rot at the core of the response of both the Bush and Obama administrations to the housing collapse. It is a response that aims to forgive and forget the crimes of Wall Street while allowing ordinary folks to sink deeper into the pit of debt and despair. It infects Donovan and many others who claim to be concerned for the very homeowners they are betraying by undermining the few officials such as Schneiderman who seek to hold the bankers accountable.
In her article about the pressure being brought to bear on Schneiderman to go along with the sellout, Morgenson reported that according to an attendee at a memorial service this month for former New York Gov. Hugh Carey, as Schneiderman was leaving he “became embroiled in a contentious conversation with Kathryn S. Wylde, a member of the board of the Federal Reserve Bank of New York who represents the public.”
When interviewed by Morgenson, Wylde claimed that her conversation with Schneiderman was “not unpleasant” but that she told him:
“It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street—love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”
When haven’t they done that?
GOP Wants to Raise Our Taxes By Ending the Bush-era Tax Breaks and Giving Corporations Rather Than Individuals a Reduction in Payroll TaxesThe Associated Press
August 19, 2011
News flash: Congressional Republicans want to raise your taxes.
Impossible, right? GOP lawmakers are so virulently anti-tax, surely they will fight to prevent a payroll tax increase on virtually every wage-earner starting Jan. 1, right?
Many of the same Republicans who fought hammer-and-tong to keep the George W. Bush-era income tax cuts from expiring on schedule are now saying a different "temporary" tax cut should end as planned. By their own definition, that amounts to a tax increase.
The tax break extension they oppose is sought by President Barack Obama. Unlike proposed changes in the income tax, this policy helps the 46 percent of all Americans who owe no federal income taxes but who pay a "payroll tax" on practically every dime they earn.
There are other differences as well, and Republicans say their stand is consistent with their goal of long-term tax policies that will spur employment and lend greater certainty to the economy.
"It's always a net positive to let taxpayers keep more of what they earn," says Rep. Jeb Hensarling, "but not all tax relief is created equal for the purposes of helping to get the economy moving again." The Texas lawmaker is on the House GOP leadership team.
The debate is likely to boil up in coming weeks as a special bipartisan committee seeks big deficit reductions and weighs which tax cuts are sacrosanct.
At issue is a tax that the vast majority of workers pay, but many don't recognize because they don't read, or don't understand their pay stubs. Workers normally pay 6.2 percent of their wages toward a tax designated for Social Security. Their employer pays an equal amount, for a total of 12.4 percent per worker.
As part of a bipartisan spending deal last December, Congress approved Obama's request to reduce the workers' share to 4.2 percent for one year; employers' rate did not change. Obama wants Congress to extend the reduction for an additional year. If not, the rate will return to 6.2 percent on Jan. 1.
Obama cited the payroll tax in his weekend radio and Internet address Saturday, when he urged Congress to work together on measures that help the economy and create jobs.
"There are things we can do right now that will mean more customers for businesses and more jobs across the country. We can cut payroll taxes again, so families have an extra $1,000 to spend," he said.
Social Security payroll taxes apply only to the first $106,800 of a worker's wages. Therefore, $2,136 is the biggest benefit anyone can gain from the one-year reduction.
The great majority of Americans make less than $106,800 a year. Millions of workers pay more in payroll taxes than in federal income taxes.
The 12-month tax reduction will cost the government about $120 billion this year, and a similar amount next year if it's renewed.
That worries Rep. David Camp, R-Mich., chairman of the tax-writing Ways and Means Committee, and a member of the House-Senate supercommittee tasked with finding new deficit cuts.
Tax reductions, "no matter how well-intended," will push the deficit higher, making the panel's task that much harder, Camp's office said.
But Republican lawmakers haven't always worried about tax cuts increasing the deficit. They led the fight to extend the life of a much bigger tax break: the major 2001 income tax reduction enacted under Bush. It was scheduled to expire at the start of this year. Obama campaigned on a pledge to end the tax break only for the richest Americans, but solid GOP opposition forced him to back down.
Many Republicans are adamant about not raising taxes but largely silent on what it would mean to let the payroll tax break expire.
Republicans cite key differences between the two "temporary" taxes, starting with the fact that the Bush measure had a 10-year life from the start. To stimulate job growth, these lawmakers say, it's better to reduce income tax rates for people and for companies than to extend the payroll tax break.
"We don't need short-term gestures. We need long-term fundamental changes in our tax structure and our regulatory structure that people who create jobs can rely on," said Sen. Lamar Alexander, R-Tenn., when asked about the payroll tax matter.
House Majority Leader Eric Cantor, R-Va., "has never believed that this type of temporary tax relief is the best way to grow the economy," said spokesman Brad Dayspring.
The nonpartisan Congressional Budget Office says payroll tax reductions give the economy a short-term boost. But it says the benefit is bigger if employers get the tax break instead of, or along with, workers.
Some top Republicans have taken a wait-and-see approach, expecting the payroll tax issue to be a bargaining chip in the upcoming debt reduction talks.
Neither House Speaker John Boehner, R-Ohio, nor Senate Minority Leader Mitch McConnell, R-Ky., has taken a firm stand on whether to extend the one-year tax cut.
Most GOP presidential candidates also are treading lightly.
Former Massachusetts Gov. Mitt Romney did not flatly rule out an extra year for the payroll tax cut, but he "would prefer to see the payroll tax cut on the employer side" to spur job growth, his campaign said.
Former House speaker Newt Gingrich said Republicans will fall under increasing pressure to extend the payroll tax cut. If they refuse, he said in a recent speech, "we're going to end up in a position where we're going to raise taxes on the lowest-income Americans the day they go to work."
Many Democrats also are ambivalent about Obama's proposed tax cut extension. They are more focused on protecting social programs from deep spending cuts. Some worry that a multiyear reduction in the tax designated for Social Security could undermine that program's health and stature.
For decades the payroll tax generated more revenue than the Social Security paid out in benefits. The excess was used to fund other government operations. Last year, however, Social Security benefits began outstripping revenue from its designated sources, forcing the program to start tapping its "trust fund" of government obligations.
June 15, 2011
What lies in store for Greece, Portugal, Spain, Ireland, Italy, and, in short order, the United States, is the wholesale sell-off of public property to private corporations at bargain basement prices.
What the despots who gather in their secretive lairs at Davos, Cernobbio, Bilderberg, and G8/G20 are bringing about is a world where no property is owned by the state, which by default means the people. Total corporate control over every facet of life equals extreme fascism.
What is occurring in Greece is a bellwether for what will befall other nations in Europe, as well as the United States, if the bankers get their way. And in Greece, the people know how generations of investments by the taxpayers are being turned over to vampire capitalists who have the full backing of the International Monetary Fund, European Commission, and the European Central Bank.
The European and global bankers have demanded that the Greek government sell off entirely or assume a minority stake in a number of state enterprises and utilities.
For example, this year global capitalists are slated to acquire 84 percent of OTE, the Greek telecommunications provider. In addition, private bankers will assume 66 percent ownership of the Greek Postal Savings Bank; 51 percent of the National Lottery; 60 percent of the Salonika Water Authority; 68 percent of DEPA, the natural gas utility; and 25 percent ownership of the ports of Piraeus and Salonika.
Next year, the capitalist grab for public property increases in intensity with Athens International Airport coming under 79 percent private ownership. The global capitalists will also obtain 100 percent ownership of the Egniata toll motorway; 60 percent of Hellenic Post; 66 percent of OPAP, the state-run video-lotto and online sports betting firm; 73 percent of the Athens Water Authority; 83 percent of DEI, the Greek Electric Authority; and 51 percent of the Greek Regional Airports Authority.
The Greek Communist Party has vowed to fight against the acquisition of public property by the private sector. In fact, it is the Communist parties of Europe that have been the most vocal against the power grab by the bankers but their opposition to the privatization moves receives very little attention by the corporate-controlled media.
Massive sell-off lists of public property are now being drawn up by the governments of Portugal, Spain, Italy, and Ireland. In the United States, there are calls for the privatization of the US Postal Service, Social Security, and Medicare.
One Libyan government official this reporter spoke to in Tripoli, during an intensive NATO bombing assault, opined that the same fate is in store for the Libyan Socialist Jamahiriyah. With the highest standard of living in Africa, Libyans could witness the U.S.- and NATO-backed rebel government begin to sell off Libyan government assets to global capitalists.
Bipartisan Tax Plan Trims Mortgage Deduction; Top Tax Rate for Individuals and Corporate Income Tax Rate Rate Lowered from 35% to 23-29%
July 20, 2011
A new bipartisan plan to reduce government borrowing would target some of the most cherished tax breaks enjoyed by millions of families — those promoting health insurance, home ownership, charitable giving and retirement savings — in exchange for lowering overall tax rates for everyone.
Many taxpayers would face higher taxes — a total of at least $1.2 trillion over the next decade, and perhaps more.
The details and impact of the plan, released this week by the bipartisan "Gang of Six" senators, emerged as President Barack Obama called congressional leaders to the White House on Wednesday to determine, in separate meetings, their bottom line for extending the nation's debt limit while also cutting spending at the greatest amount possible. The role of additional tax revenue remained a sticking point.
With the default deadline of Aug. 2 approaching, the White House signaled for the first time that Obama would be willing to sign off on a short-term extension of the debt limit if a grander deal were in the works and needed only a few days' worth of extra time to wind its way through the legislative process.
For its part, the Gang of Six plan punts on many of the most difficult issues, leaving it to congressional committees to fill in the details later. But supporters say it provides a framework to simplify the tax code, making it easier for businesses and individuals to comply while eliminating incentives to game the system.
"I think this is an attempt to find a middle ground on taxes that emphasizes keeping rates low and broadening the base as much as possible, and I think that's a very positive aspect of it," said Eugene Steuerle, a former Treasury official who worked on the last tax reform package that passed Congress, in 1986.
Coupled with spending cuts, the plan would reduce deficits by nearly $4 trillion over the next decade. While Obama and senators from both parties lauded the plan as a possible breakthrough in their negotiations, some congressional leaders said the plan lacks details and could produce much bigger tax increases than advertised.
The Republican staff of the House Budget Committee issued a critique saying the revenue increase could exceed $2 trillion over the next decade, when compared with current tax policy.
"A tax increase is the wrong policy to pursue with so many Americans out of work," said House Majority Leader Eric Cantor, R-Va.
The plan would simplify the tax code by reducing the number of tax brackets from six to three, lowering the top rate from 35 percent to somewhere between 23 percent and 29 percent. That could provide a windfall for wealthy taxpayers because the 35 percent tax bracket currently applies to taxable income above $379,150.
To help pay for lower rates, the plan would reduce popular tax breaks for mortgage interest, health insurance, charitable giving and retirement savings. Other tax breaks would be spared, including the $1,000-per-child tax credit and the earned income tax credit, which helps the working poor stay out of poverty.
The alternative minimum tax, which was enacted in 1969 to make sure that high-income families pay at least some income tax, would be repealed. The tax was never indexed for inflation, so Congress routinely patches it each year — at an annual cost of about $70 billion — to prevent it from hitting more than 20 million middle-income families.
About 35 million households claimed the mortgage interest deduction in 2009, and about 36 million households claimed deductions for charitable contributions, according to the Joint Committee on Taxation, the congressional scorekeeper on taxes.
The Gang of Six plan does not specify how the tax breaks would be trimmed. Democrats have several proposals that would restrict wealthy families' use of the breaks, while preserving them for most low- and middle-income taxpayers. Such a plan would offset rate cuts for high-income families by limiting their ability to take advantage of various tax breaks.
For example, current law allows homeowners to deduct the interest they pay on home mortgages of up to $1 million. One proposal would lower the limit to $500,000 and exclude mortgage interest on second homes.
Starting in 2018, the new health care law would tax high-priced health insurance plans. There are several proposals to adjust the tax to include more health plans while sparing lower-income families with more modest coverage.
The Gang of Six plan is silent about taxes on capital gains and dividends, but tax experts said it would be difficult to generate more than $1 trillion in additional revenue without increasing taxes on investments. The current top rate on capital gains and dividends is 15 percent — well below the top rate for ordinary income.
"No matter what they do on the revenue side, by some measure they are going to be taking something away from somebody," Steuerle said. "The whole budget package is about asking a lot of people to give up something they think they have."
On the business side, the plan would lower the corporate income tax rate from 35 percent to somewhere between 23 percent and 29 percent, all of which would be funded by eliminating unspecified tax breaks for businesses.
Under current law, the U.S. taxes overseas profits of American corporations but only after they return those profits to the U.S. The proposal calls for a territorial tax system, which would tax only profits made in the U.S. The proposal could be a huge windfall for U.S.-based multinational corporations, though it would supposedly be financed by eliminating many of the tax breaks those same companies enjoy.
Business groups have already been lobbying Congress to keep their tax breaks and to create new ones, an effort that will only intensify if lawmakers dive into the details of overhauling the tax code.
"The bookshelves of policy analysts in Washington are loaded with statements of principle on tax reform that all sound good," said William Gale, an adviser to President George H. W. Bush's Council of Economic Advisers and now co-director of the Tax Policy Center. "And then they all die when you try to specify the details."
The Gang of Six senators is made up of Republicans Tom Coburn of Oklahoma, Mike Crapo of Idaho and Saxby Chambliss of Georgia and Democrats Kent Conrad of North Dakota, Mark Warner of Virginia and Dick Durbin of Illinois.
June 26, 2011
In his weekly address released Saturday, President Barack Obama called for a campaign of "nation building here at home," citing as an example of what is needed to rebuild the American economy an initiative he announced Friday to "invest" tax dollars in what he called a "partnership" between the federal government and an initial group of 11 major corporations.
The administration's corporate partners in this venture include Caterpiller, Corning, Dow Chemical, Ford, Honeywell, Intel, Johnson and Johnson, Allegheny Technologies, Stryker and Proctor and Gamble.
Editor's Note:Obama is not seeking new legislation from Congress to authorize his government-corporate partnership program--which he is calling the "Advanced Manufacturing Partnership"--and he did not say how the corporations in the partnership had been chosen.
Caterpillar Inc. is the bulldozer manufacturer that President Barack Obama used to help push his $787 billion stimulus plan. Chief Executive Officer Jim Owens, 63, is a member of the president’s Economic Recovery Advisory Board. Obama visited the Peoria, Illinois, headquarters on February 12, 2009, the final day of his campaign to press for Congressional passage. - How’s the stimulus working out for Caterpillar?, Michelle Malkin, April 21, 2009
Caterpillar Inc. of Illinois announced nearly 2,400 layoffs despite President Obama using his home state’s company as an example of a struggling manufacturer that would benefit from his economic stimulus plan and save jobs. The new round of job cuts will span five plants in Illinois, Indiana and Georgia, and follows the January news that Caterpillar would slash 22,000 people from its 112,000-person workforce. Mr. Obama hosted an event in support of his stimulus plan at the company’s Peoria, Ill., headquarters in mid-February, saying the $787 billion stimulus would be “a major step forward on our path to economic recovery.” - Caterpillar slashes jobs despite stimulus, Washington Times, March 17, 2009
"The President’s plan, which leverages existing programs and proposals, will invest more than $500 million to jumpstart this effort," the White House said in a statement released Friday.
"Even though we’ve turned our economy in the right direction over the past couple of years, many Americans are still hurting, and now is the time to focus on nation building here at home," Obama said before explaining the partnership in his Saturday address.
In addition to the 11 corporations, the administration also picked a small group of universities to participate in the government-corporate partnership. These include the Massachusetts Institute of Technology, Carnegie Mellon University, Georgia Institute of Technology, Stanford University, the University of California-Berkeley and the University of Michigan. The White House did not say how these universities were selected.
In a speech in Pittsburgh Friday announcing the government-corporate partnership program, Obama said that in American history such partnerships have often led the way in enterpreneurial breakthroughs.
"Throughout our history, our greatest breakthroughs have often come from partnerships just like this one," said Obama. "American innovation has always been sparked by individual scientists and entrepreneurs, often at universities like Carnegie Mellon or Georgia Tech or Berkeley or Stanford. But a lot of companies don’t invest in early ideas because it won’t pay off right away. And that’s where government can step in."
As described in the White House statement, the largest single element of the partnership program will have the Departments of Commerce, Agriculture, Homeland Security, Energy and Defense spending an estimated $300 million in tax dollars to "co-invest with industry" in the development of products including "small high-powered batteries" and "alternative energy."
"Starting this summer, the Departments of Defense, Homeland Security, Energy, Agriculture, Commerce and other agencies will coordinate a government-wide effort to leverage their existing funds and future budgets, with an initial goal of $300 million, to co-invest with industry in innovative technologies that will jumpstart domestic manufacturing capability essential to our national security and promote the long-term economic viability of critical U.S. industries," said the White House statement. "Initial investments include small high-powered batteries, advanced composites, metal fabrication, bio-manufacturing, and alternative energy, among others."
In his weekly address, President Obama explained his view that "nation building here at home" means government "investment" in education and infrastructure, as well as in the development of technology--including the kind of "clean energy" technology that will be one focus of his new government-corporate partnership.
"That means giving our kids the best education in the world so they have the knowledge and skills to succeed in this economy. It means rebuilding our crumbling roads, railways, and runways," said Obama. "And it means investing in the cutting-edge research and technologies that will spur growth in the years ahead – from clean energy to advanced manufacturing."
In his Friday speech at Pittsburgh as he announced the Advanced Manufacturing Partnership, Obama also put a focus on government "investment" in "clean energy" and pointed to the government bailouts of General Motors and Chrysler as successes.
"If we want a robust, growing economy, we need a robust, growing manufacturing sector. That’s why we told the auto industry two years ago that if they were willing to adapt, we’d stand by them. Today, they’re profitable, they’re creating jobs, and they’re repaying taxpayers ahead of schedule," said Obama.
"That's why we’ve launched a partnership to retrain workers with new skills. That’s why we’ve invested in clean energy manufacturing and new jobs building wind turbines and solar panels and advanced batteries," he said.
The White House said the creation of the government-corporate partnership program was based on a recomendation by the President's Council of Advisers on Science and Technology (PCAST). PCAST is co-chaired by John Holdren, head of the White House Office of Science and Technology Policy.
In Human Ecology: Problems and Solutions, a 1973 book that he co-authored with Paul Ehrlich and Anne H. Ehrlich, Holdren and his co-authors wrote:
“A massive campaign must be launched to restore a high-quality environment in North America and to de-develop the United States."
“De-development means bringing our economic system (especially patterns of consumption) into line with the realities of ecology and the global resource situation,” Holdren and the Ehrlichs wrote.
“Resources must be diverted from frivolous and wasteful uses in overdeveloped countries to filling the genuine needs of underdeveloped countries," Holdren and his co-authors wrote.
"This effort must be largely political, especially with regard to our overexploitation of world resources, but the campaign should be strongly supplemented by legal and boycott action against polluters and others whose activities damage the environment. The need for de-development presents our economists with a major challenge. They must design a stable, low-consumption economy in which there is a much more equitable distribution of wealth than in the present one. Redistribution of wealth both within and among nations is absolutely essential, if a decent life is to be provided for every human being.”
In a videotaped interview with CNSNews.com in September 2010, reporter Nicholas Ballays asked Holdren what he meant by a campaign to de-develop the United States.
“What we meant by that was stopping the kinds of activities that are destroying the environment and replacing them with activities that would produce both prosperity and environmental quality," said Holdren. "Thanks a lot.”
Ballasy followed-up: “And how do you plan on implementing that?”
“Through the free market economy,” Holdren said.
April 4, 2011
Let’s start off with a general scenario that happens almost every election cycle: A corporate leader holds fundraisers for a politician. That politician gets elected into office. We’ve all heard examples of those very corporate leaders benefiting from government contracts and other kickbacks shortly after their chosen representative gets elected. Is this behavior ethical? Specifically, are cleantech companies and the Obama administration guilty of this behavior?
According to an analysis by the Center for Public Integrity, this collusion between corporation and State, specifically between clean tech companies and the Obama administration appears to be happening.
Some of the key findings include:
- Steve Westly, a venture capitalist, raised more than $500,000 for the Obama presidential campaign.
- Since 2009, four firms in The Westly Group’s portfolio are the beneficiaries of more than $510 million in Energy Department grants and loans.
- In August, Westly was appointed to an Energy Department advisory committee that guides Cabinet secretary Steven Chu.
Some may argue that this is merely a “public-private” partnership. Private companies and the Federal Government allegedly work together to better our countries energy resources, environment, and economy.
But what is called a public-private partnership from one point of view can also be called the collusion of corporation and state from another. Imagine if we had the same scenario, but instead of clean tech companies and the Obama administration, insert Big Oil and the Bush Administration. (We probably don’t even need to use our imaginations for the latter scenario.)
Wouldn’t we be up in arms with such overt collusion? Wouldn’t we call to question Big Oil companies making a profit with the help of Federal Government grants, loans, and/or subsidies? We need to hold clean tech companies and the Obama administration accountable for such unethical behavior. Otherwise, we would be hypocrites.
Don’t get me wrong, we need clean tech (especially renewables) now more than ever. But there is a right way to do it, and a wrong way to do it. The wrong way to do it is to have the Federal Government picking the winners and losers of the clean tech industry.
The right way to do it is to discover, fund, and succeed or fail the various clean technologies in the marketplace. It is through this process that the best technologies, balancing profit with planetary concerns, will emerge.
Whether it is Big Oil or clean tech in bed with the Federal Government, the collusion of corporation and state, is still a collusion of corporation and state. We need to move towards a new era towards the separation of corporation and state. That is the only way we can truly be sustainable, not only for our economy, not only for our environment, but also for our ethical social behavior with each other.