Big Business is One Thing — Corporate Influence is Quite Another!

That is basically the sum of Americans’ attitudes towards large corporations, according to a survey conducted by CNBC and public relations firm Burson-Marsteller. It gathered the responses of about 25,000 participants from 25 countries, including both rich and developing economies, regarding big business, its relationship with government, and similar issues (note that results for developing countries are skewed towards the wealthier and better educated citizens with computer access, and thus may be less representative — you can find the full report here).

The results, reported by the New York Times, were interesting in their nuance: although famously pro-business, Americans were nonetheless pretty skeptical when it came to the confluence of business and politics. When asked whether corporations have too much, too little, or just the right amount of influence over the country’s economic future, 48 percent of Americans chose “too much” — roughly the median between China, the lowest scorer at 24 percent, and Brazil, the highest at 63 percent.

Countries that are more concerned than America about big business’ role on economic future include the U.K., France, India, Japan, the Netherlands, Singapore, and Russia; among those that express more reservations than the U.S. are Italy, Spain, Australia, Germany, South Korea, Mexico, and Canada.

However, when the question regarding corporate influence was phrased in a different way, the results altered: when ask whether it a good thing or bad thing for corporations to be strong and influential, only 31 percent of Americans answered that it is a good thing, among the lowest of the countries surveyed, and well below the levels of major emerging economies like India, Mexico, Turkey, and China (in which 60 to 70 percent of respondents were favorable to greater business influence).

In fact, only Germany, Poland, the U.K., and Hong Kong were more cynical about companies having greater influence, although Australia, the Netherlands, Japan, and Canada were not far behind the U.S. in their dim view of more powerful businesses. Yet when asked whether corporate lobbyists exercise a high amount of influence over the national government, 59 percent of Americans responded in the affirmative, second only to Italy.

So what gives with this apparent contradiction? Times columnist Niel Irwin offers his assessment of the results:

When it comes to business exerting power over the economy, Americans have mixed views but are generally comfortable. But when it comes to business exerting power over government, they are much more exercised.

Americans aren’t antibusiness, in other words. They’re just against business having what they see as too much power in Washington.

Compare that with China, where citizens seem to view businesses as less powerful in terms of lobbying (only 19 percent seeing a lot of influence by corporate lobbyists, a full 40 percentage points lower than in the United States) but are more likely to believe it is good for companies to be strong and influential. One might imagine that Chinese citizens see less a phenomenon in which business overly influences government and one more in which government overly influences businesses.

Indeed, a remarkable pattern stands out. In some of the places where big business has the least power and capitalist economies are the least developed, optimism and support for the corporate sector is highest.

In Communist Party-led China, 74 percent of respondents agreed with the statement that “it is a good thing when corporations are strong and influential, because they are engines of innovation and economic growth.” That is around three times the level of support found in capitalist paradises like Britain, the United States and Australia.

Indeed, when asked whether the role of corporations in the future is a reason for hope or for fear, the U.S. and most other rich nations expressed the highest level of apprehension; conversely, the greatest amount of hope in the corporate sector were in the emerging economies like Indonesia, China, Malaysia and India.

As Irwin notes, it basically comes down to the fact that the less developed a corporate sector is in a given country, the more hopeful its people are that it will be a force for the better. Perhaps this is because these nations have yet to experience the large scale of business malfeasance than the long-industrialized West; or maybe it reflects greater trust in private institutions as opposed to the public ones — in most of these nations, particularly India and Brazil, governments are far less trusted.

Of course, it bears reminding that respondents from the developing world represent a smaller and more elite proportion of their respective nations — perhaps the average worker in these countries feels far less hopeful and trustworthy towards their corporations? What are your thoughts?

No Representation Without Taxation

Well, that is not quite the argument that Amy B. Dean made in her opinion piece for Al-Jazeera America, titled Not Enough Taxation and Too Much RepresentationBut she does point out the discrepancy between how little modern corporations invest in their community — whether through paying taxes or through offering decent employment — and how much they nonetheless continue to exercise disproportionate political influence.

For decades now, U.S. corporations have been cutting ties with the communities that enabled their success in the first place. The trend began in manufacturing, a sector that has slashed nearly 8 million jobs since 1979. It has since spread as companies have outsourced and offshored an expanding array of jobs. A good example comes from the semiconductor industry. According to the Government Accountability Office, beginning in the 1960s, semiconductor manufacturers began to move assembly plants to Asia. In the 1980s they followed these with wafer foundries and, beginning in the 2000s, design and engineering jobs as well. A survey of over 500 companies by the consulting firm Booz Allen Hamilton affirms this trend, finding “a salient shift toward locating more sophisticated and mission-critical work in countries such as India, China, Hungary, Brazil and the Philippines.”

From 2010 to 2012, three-quarters of the jobs created by the 35 largest U.S. companies from were outside the country, according to The Wall Street Journal. And for the 2000s, the newspaper reports, “U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers, have been hiring abroad while cutting back at home” — with domestic payrolls reduced by 2.9 million while 2.4 million jobs were established overseas.

As it is, the complaint about high statutory corporate tax rates is a red herring. As the Economic Policy Institute reports, the effective corporate tax rate has stayed at a relatively low 27.7 percent, on par with those of other economically advanced countries. In fact, the effective rate has remained well below the statutory rate since the early 1980s, making corporations’ complaints about their tax rate here seem hyperbolic. The fact remains that almost all the benefits of higher productivity have gone to corporations, and their profits are at an all-time high.

One could argue that this trend could be tolerated, were it not for companies nevertheless wanting to play an ever bigger role in domestic issues and local governance:

As corporate culture has grown more and more disconnected from American communities, it has demanded a greater and greater say in the country’s elections. Since 2000, independent expenditures in electoral campaigns have increased over 60-fold, from under $3 million to $186 million today. And an increasing amount of this money has come from avenues opened by the 2010 Supreme Court decision Citizens United, in which it upheld the idea that corporate money should be regarded as speech and thus be covered by First Amendment protections.

Given the long-term shift in corporate loyalties away from being invested in American communities, we should be moving in the opposite direction, taking action against corporations that have such a dominant role in our democracy. The ability to participate in democratic deliberations should be predicated on embracing the responsibilities of citizenship and being invested in the well-being of our communities.

Personally, I agree with this sentiment. Although I see myself as a citizen of the world, and think we have an obligation towards bettering the lives of others beyond the borders we happen to be born within, what is going on here is different: companies are decoupling from any sense of social responsibility towards their communities while still feeling entitled to disproportionately influence the policies of the very areas they have essentially abandoned.

Moreover, the fact that record profits have not translated to better pay or treatment for workers — in or out of the country — makes this practice all the more reprehensible. Many of these companies have the resources at their disposal, and can in fact continue making good profits while looking after communities both here and abroad; but alas, the demand for ever-higher payouts to shareholders and executives eats a bigger chunk of the profit that could be reinvested through better pay, benefits, and the like.

In short, what we see is part of a wider trend in which economic elites feel little social obligation towards the rest of society. They have the resources to isolate themselves geographically from the non-wealthy, or indeed to leave their communities altogether (whether local, state, or national). Globalization has only amplified this disconnection, as the wealthiest citizens can simply move themselves and their great resources wherever suits them.

But in a world where overall wealth is higher than ever — yet concentrated so that 85 individuals have more than 3.5 billion people — is this sort of decoupling morally justifiable? Cannot these prosperous companies and their investors spare even a fraction of what they have towards bettering the lives of the workers worldwide who contributed to that prosperity, rather than try to dominate them further by supporting even more onerous policies? It would appear that our business culture and economic system do not allow it.

What do you think? Do companies have an obligation to their communities? Should they refrain from exercising influence if they are going to be leaving their localities or even countries behind?

Seven Ways Corporations and Economic Elites

The following is courtesy of AlterNet.

1. Corporations Profit from Food Stamps

It’s odd to think about billion-dollar financial institutions objecting to cuts in the SNAP program, but some of them are administrators of the program, collecting fees from a benefit meant for children and other needy Americans, and enjoying subsidies of state tax money for services that could be performed by the states themselves. They want more people on food stamps, not less. Three corporations have cornered the market: JP Morgan, Xerox, and eFunds Corp.

According to a JP Morgan spokesman, the food stamp program “is a very important business to JP Morgan. It’s an important business in terms of its size and scale…The good news from JP Morgan’s perspective is the infrastructure that we built has been able to cope with that increase in volume..”

2. Crash the Economy, Get Your Money Back. Die with a Student Loan, Stay in Debt.

The financial industry has manipulated the bankruptcy laws to ensure that high-risk derivatives, which devastated the market in 2008, have FIRST CLAIM over savings deposit insurance, pension funds, and everything else.

But the same banker-friendly “bankruptcy reform” has ensured that college graduates keep their student loans till they die. And sometimes even after that, as the debt is assumed by their co-signing parents.

3. Almost 70 Percent of Corporations Are Not Required to Pay ANY Federal Taxes
 
And that’s even before tax avoidance kicks in. The ‘nontaxable’ designation exempts 69% of U.S. corporations from taxes, thus sparing them the expense of hiring tax lawyers to contrive tax avoidance strategies.

The Wall Street Journal states, “The percentage of U.S. corporations organized as nontaxable businesses has grown from about 24% in 1986 to about 69% as of 2008, according to the latest-available Internal Revenue Service data. The percentage of all firms is far higher when partnerships and sole proprietors are included.”

In recent years the businesses taking advantage of the exemption include law firms, hedge funds, real estate partnerships, venture capital firms, and investment banks.

4. Lotteries Pay for Corporate Tax Avoidance

This means revenue comes from the poorest residents of a community rather than from billion-dollar corporations. Many of the lottery players don’t realize how bad the odds are. Fill out $2 tickets for 12 hours a day for 50 years and you’ll have half a chance of winning.

Some astonishing facts reveal the extent of the problem. Low-income households spend anywhere from five to nine percent of their earnings on lotteries. A Pennsylvania survey found that nearly half of low-income residents planned to gamble at a newly-opened casino. America’s gambling losses in 2007 were nine times greater than just 25 years before.

5. The National Football League Pays No Federal Taxes

One of the most profitable organizations in America, with billions in tickets, TV rights, and merchandise sales, and with an NFL Commissioner who earned more money than the CEOs of Wal-Mart, Coca-Cola, and AT&T, is considered a non-profit. It has a tax-exempt status.

It gets even worse. While the individual teams themselves are not exempt from federal taxes, they enjoy multi-million-dollar subsidies from their states for new and refurbished stadiums. Fans – and non-fans – of the Washington Redskins, the Cincinnati Bengals, the Minnesota Vikings, the Seattle Seahawks, the San Francisco 49ers, and the Pittsburgh Steelers are among those who pay taxes for their hometown football fields. New Orleans taxpayers paid for leather stadium seats. For the Dallas Cowboys, a $6 million property tax bill was waived.

A Harvard University urban planning study determined that 70 percent of the capital cost of NFL stadiums has been provided by taxpayers, rather than by NFL owners.

6. Live on Park Avenue, Get a Farm Subsidy

A disturbing but fascinating report called “Farm Subsidies and the Big Dogs” lists Washington, DC, Chicago, and New York City, in that order, as the worst offenders.

— In New York, “Many entities receive the federal subsidies at their downtown office buildings, such as 30 Rockefeller Plaza, or at their million dollar residential condos.”

— In Chicago, “Nearly every neighborhood in the city receives federal farm subsidy payments – including the Gold Coast, Downtown-Loop, Lincoln Park, and even the President’s neighbors in Hyde Park.”

— In Washington, “Even U.S. Senators are receiving farm subsidy checks.”

Perhaps more of us should become farmers. In Florida, according to Forbes, “anyone could legally qualify their land as farmland by stocking it with a few cows.” Wealthy heir Mark Rockefeller received $342,000 to NOT farm, to allow his Idaho land to return to its natural state.

7. Profit Margin Magic: Turning a dollar into $100,000

Both printer ink and bottled water cost the consumer more than they should. Calculations by DataGenetics reveal that the ink in a $16.99 cartridge comes to almost $3,400 per gallon. The cost of a gallon of cartridge ink would buy enough gasoline to run the average car for over two years.

Water seems to cost less than that, until the details are factored in. Companies buy public water at almost no cost, treat it in unknown ways, and then sell it back to us at an exorbitant markup. Nestle, for example, pays about two dollars for public water that produces about 100,000 plastic bottles of water.

 

Could You Survive on Fast Food Wages?

Find out by taking this wage calculator from Mother Jones, which adjusts for the size of your household and the state and city you live in. As you’d imagine, the results aren’t pleasant.

As a single adult living in Florida, I would need to do the following just to make $26,000.

In order to make $26,000 a year, the typical fast-food worker has to work 56 hours a week.

A household like yours in Florida needs to earn $21,042 annually to make a secure yet modest living. A fast-food worker working full time would have to earn $10.08 an hour to make that much.

The average fast-food employee works less than 25 hours a week. To make a living wage in Florida at current median wages, s/he would have to work 45 hours a week.

In 45 hours, McDonald’s serves 129,375,000 customers and makes $141,224,400. That’s about 35,306,100 Big Macs.

Of course, I didn’t even include the fact that I’m partially supporting my parents; were I to add two adults, I’d have to make $32,000 to get by — which basically means I’d need a second job.

It’s worth keeping in mind that the median income for a fast food worker is a mere $8.94, well-below what’s needed to survive in most cities. To make matters worse, these are the sorts of jobs that have made up the bulk of new employment in recent years, meaning most people have no choice but to take on poverty wages (hence why the median age for a fast food worker is 28 in general, and 30 for women). If this is the new normal of our economy, than I fear for what the future holds.

Bangladeshi Factory Workers Still Without Justice

Several months after a horrific factory collapse killed over 1,000 Bangladeshi laborers — exposing the callous and pervasive disregard for workers in that country’s biggest industry — there has still been little change in businesses practices in one of the world’s poorest nations. A recent investigation by Richard Bilton of the BBC uncovered yet another disturbing practice: forcing already-low paid and neglected employees to remain at work for nearly 20 hours.

We’ve been told this factory — Ha Meem Sportswear — works incredible hours; we’re hiding in the shadows to get the proof.

There’s a guard sitting in front of the main gate. He hasn’t spotted us.

He’s about to do something shockingly dangerous.

At 01.15 – with workers still busy inside – he locks the main factory gate and wanders away.

This place had a fire a few weeks ago and they’re commonplace in the industry. If anything goes wrong tonight, the workers are trapped inside.

The shift finally ends at 02.30. That’s a nineteen and a half hour day.

One worker agrees to talk. He earned about £2 for the shift and he’s exhausted. He has to be back at work again for 07:00.

He says: “My feelings are bad and my health is too. In the last two weeks, approximately, it has been like this for eight nights.”

Two days later, I return to Ha Meem Sportswear. I am going undercover as a buyer from a fake British clothing company.

I want to hear what the factory owners say about shifts.

We are shown around. The factory is old and cramped. One woman is working under a table.

The managers show us the order they’re working on: 150,000 pairs of jeans and dungarees for the discount supermarket Lidl.

I ask about working hours and I’m assured the factory closes at 17:30.

I ask about whether gates are ever locked: they say they are always open.

It’s clear the buyer is told what he wants to hear.

They even provided timesheets for the night I watched the factory. They say the shift ended at 17:30.

The paperwork looks convincing. If I hadn’t seen it myself, I would never know that workers were being forced to work such long days.

Ha Meem Sportswear is far from the only clothing manufacturer pulling this trick.

Kalpona Akter, from the Bangladesh Center for Worker Solidarity, says many factories hide the truth about working hours from Western retailers.

“The factory owners, they keep two different books. So one they show to the buyers, the other they show to the worker. These retailers’ so-called audits really don’t work.”

It’s practices like this — common throughout the third world — that make me cynical about industry opposition to regulation and unionization. If this is the sort thing they do in the absence of any sort of oversight or check on their power, why should we give them more freedom? If firms don’t want labor movements or the state coercing them to be ethical, then they should be setting the example by treating their employees better on their own. 

Indeed, there has already been significant pushback against this widespread abuse, as thousands of garment workers have gone on strike to demand an ultimately modest rise in their pay.

More than 100 Bangladeshi garment factories were forced to shut on Monday as thousands of workers protested to demand a $100 a month minimum wage and about 50 people were injured in clashes, police and witnesses said.

Garments are a vital sector for Bangladesh and its low wages and duty-free access to Western markets have helped make it the world’s second-largest apparel exporter after China.

But the $20 billion industry, which supplies many Western brands, has been under a spotlight after a series of deadly incidents including the collapse of a building housing factories in April that killed more than 1,130 people.

Workers took to the streets for a third day on Monday, blocking major roads and attacking some vehicles in the Gazipur and Savar industrial zones, on the outskirts of the capital, Dhaka.

At least 50 people, including some policemen, were injured, witnesses and police said, as police fired teargas and rubber bullets, and workers responded by throwing broken bricks.

Some workers also vandalised factories, witnesses said.

“We had to take harsh actions to restore order as the defiant workers would not stop the violence,” an Gazipur police officer said.

The monthly minimum wage in Bangladesh is $38, half what Cambodian garment workers earn.

The government is in talks with unions and factory owners on a new minimum wage.

Bangladesh last increased its minimum garment-worker pay in late 2010 in response to months of street protests, almost doubling the lowest pay.

Recently, factory owners offered a 20 percent pay rise which workers refused, calling it “inhuman and humiliating”.

“We work to survive but we can’t even cover our basic needs,” said a protesting woman worker.

The fact that a billion dollar industry is reluctant to pay people a mere $100 a month — not including any benefits of perks — speaks volumes about the culture of greed and elitism that has taken hold of many corporations. It also says a lot about the sort of environment such firms would rather operate in, and what their vision of America would be like were they given the chance to implement.

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If Increasing the Minimum Wage Doesn’t Cost Jobs, How Does It Get Absorbed?

There’s been a lot of talk about raising the minimum wage lately, and rightfully so, given the mounting evidence that real wages and incomes (when adjusted for inflation and cost of living) have been stagnant for well over 40 years.  A higher minimum wage won’t fix our economy, but it will certainly help, especially given the rapid growth in low-paying work.

As humane as a higher wage would be, as with any purported policy, we should nonetheless apply a cost-benefit analysis to see if it would do more good than harm. The following article does a fairly good job at breaking down the basics, particularly the oft-repeated concern that a raised minimum wage would lead to unemployment or drastically high consumer prices.

First, as alluded to at the end of my earlier post, the initial question you want to ask is what share of the workforce is in the affected range and just how “affected” are they? A small increase, particularly one that’s come after many years of inaction, will affect few workers and in such cases there’s just not that much absorption that needs to take place.

Moreover, once a worker is in the “sweep” of the higher minimum (i.e., their hourly wage is between the old and new wage), there’s the issue of where they are in the sweep. If their wage puts them a few pennies below the new minimum, we’d expect less of an impact than if it will take $1 to bring them up to the new floor.

Schmitt examines this question from various angles in the context of recent minimum wage increases (see his table 1). Starting in the late 1980s, he finds 6 percent or less of the workforce has been in the sweep, with the average hourly wage increase ranging from around thirty to fifty cents. Is this a lot or a little?

History suggests that it’s a small enough impact that the wage increase tends to be absorbed not by job loss but by the various mechanisms discussed next. Let’s start with the three p’s: profits, productivity, and prices. Increased labor costs can be offset by:

Shaving profit margins: This is an attractive alternative right now, as the profit share of national income is at an all-time high while the compensation share is at a 50-year low. As James Surowiecki points out, this mechanism is limited by the fact that profit margins are thinner at retail and fast food companies than at tech firms and investment banks. Still, the fact is that Walmart, for example, is a highly profitable enterprise with low-labor costs as a key part of their model.

There’s little evidence for this mechanism, though a recent study from the UK finds a significant effect. You ask me, the fact that the affected lobbies fight so hard against higher minimum wages is pretty strong circumstantial evidence that this channel is at work.

A related mechanism emphasized by Schmitt is wage compression, i.e., along with some redistribution from profits to wage, there’s some empirical support for “… the possibility that employers may compensate for higher wage costs at the bottom by cutting wages of workers who nearer to the top.”

Higher productivity: One of the inefficiencies that low-wage firms face is high rates of turnover and vacancies. Raising the wage floors can help offset such costs by making easier to recruit, train, and hold onto workers. Schmitt cites numerous studies as this process at work, as labor turnover has been found to decrease substantially following an increase in the wage floor.

Higher prices: This one has been carefully studied, and the results show that part of the cost of the wage increase is passed through to higher prices. The literature finds small overall effects on the price level: a 10 percent increase in the minimum is associated with less than half a percent increase in the overall price level, though larger increases are found in low-wage labor intensive industries (around 1-4 percent).

Schmitt ticks through other possible absorption sources but there’s either little research on them or what there is doesn’t find much impact, including reduced hours, lower non-wage benefits, less spending on training, or greater product demand by recipients of the now-higher paychecks.

So there are lots of ways in which firms and economies absorb minimum wage increases. Not all are benign — higher prices, lower profits — though the fact that some of increase is absorbed by squeezing inefficiencies out of the low-wage labor market seems like an unequivocal plus. But at the end of the day, what’s most important here is that the research supports the contention that the benefits of the increase in the wage floor to low-wage workers significantly outweigh the costs.

The fact is, most of the nation’s low-wage workers are employed in large and highly-profitable companies. In other words, the businesses that have the most resources and capital for absorbing the cost of higher pay, are the ones most likely to nonetheless keep most of their employees with less than a living wage. There is simply no justifiable reason why firms that pay a handful of executives millions of dollars can’t shave even a fraction of that off to instead pay their workers better or provide them with benefits (in a similar vein, the growing demands of shareholders and investors are often a drain on profits as well).

In fact, there wouldn’t even be all this agitation for a higher minimum wage if companies were more socially-responsible and took better care of their employees. Any large and profitable business that can’t operate without paying people less than a liveable wage doesn’t deserve to operate.

That’s my opinion; feel free to share yours.

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Corporate Profits Soar as Workers’ Incomes Slump

There is yet more evidence that our economy has become a zero-sum affair, where the growth of corporate profits (and by extension the coffers of the elites) come at the expense of average workers.

With the Dow Jones industrial average flirting with a record high, the split between American workers and the companies that employ them is widening and could worsen in the next few months as

That gulf helps explain why stock markets are thriving even as the economy is barely growing and unemployment remains stubbornly high.

With millions still out of work, companies face little pressure to raise salaries, while productivity gains allow them to increase sales without adding workers.

“So far in this recovery, corporations have captured an unusually high share of the income gains,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

The result has been a golden age for corporate profits, especially among multinational giants that are also benefiting from faster growth in emerging economies like China and India.

These factors, along with the Federal Reserve’s efforts to keep interest rates ultralow and encourage investors to put more money into riskier assets, prompted traders to send the Dow past 14,000 to within 75 points of a record high last week.

While buoyant earnings are rewarded by investors and make American companies more competitive globally, they have not translated into additional jobs at home.

And why not? There is plenty of money to go around. Companies can well afford to hire new workers and pay their current ones better, and still have plenty of profits left over for their CEOs and shareholders.

As a percentage of national income, corporate profits stood at 14.2 percent in the third quarter of 2012, the largest share at any time since 1950, while the portion of income that went to employees was 61.7 percent, near its lowest point since 1966. In recent years, the shift has accelerated during the slow recovery that followed the financial crisis and ensuing recession of 2008 and 2009, said Dean Maki, chief United States economist at Barclays.

Corporate earnings have risen at an annualized rate of 20.1 percent since the end of 2008, he said, but disposable income inched ahead by 1.4 percent annually over the same period, after adjusting for inflation.

“There hasn’t been a period in the last 50 years where these trends have been so pronounced,” Mr. Maki said.

 

The problem is simple: corporations don’t want to to pay their workers better because their standards of sufficient wealthiness are getting ever higher. Business elites are finding their growing appetites for money ever more difficult to satiate. It used to be that making a million or so dollars was more than sufficient —  but nowadays, it seems every executive wants tens of millions, if not hundreds of millions, and their shareholders and board members are no better.

When a handful of people want more and more money, the natural consequence is to make cuts (e.g. layoffs, benefits, hours) and withhold investment (e.g. raises and benefits). Otherwise, where else will all this money come from? Consider the following  case in point:

“Right now, C.E.O.’s are saying, ‘I don’t really need to hire because of the productivity gains of the last few years,’ ” said Robert E. Moritz, chairman of the accounting giant PricewaterhouseCoopers.

At 218,300 employees, United Technologies’ work force is virtually unchanged from seven years ago, even though annual revenue soared to $57.7 billion in 2012 from $42.7 billion in 2005.

The relentless focus on maintaining margins continues, even though profit and revenue have never been higher; four days after the company’s shares soared past $90 to a record high last month, United Technologies confirmed it would eliminate an additional 3,000 workers this year, on top of 4,000 let go in 2012 as part a broader restructuring effort.

“There’s no doubt we will continue to drive productivity year after year,” Mr. Chenevert said. “Ultimately, we compete globally.”

And that last sentence denotes a bit part of the problem: even if a company’s executive or board wants to be ethical and pay their workers better, they’ll come under relentless pressure by investors and shareholders to provide a bigger return on investment. Competition is cutthroat and no-holds-barred, and this country’s particular hyper-individualism and dog-eat-dog mentality only makes it worse. There is no sense of social obligation — it’s all about the bottom line and how much one can make for themselves, regardless of the costs to others, the environment, or society as a whole.

Our culture and attitudes need to change. How to do so is a different story altogether.

The Breakdown of the Basic Bargain

Companies claim that the reason they can’t hire people (or pay those they do hire better) is that demand for their goods and services is low. Economists have similarly noted that a lack of demand is a major reason our economy is so sluggish. Here’s the problem: it’s precisely because people are jobless and underpaid that demand is low – without disposable income, people obviously aren’t going to buy things.

Indeed, that’s part of what started this crisis in the first place: 30 years of stagnant wages and incomes meant that people had to take on debt in order to pay for even basic things. Corporations are making record profits and sitting on almost $2 trillion of capital and assets. If they invested in paying their workers better or hiring more people, they’d create the market they’d need for their goods and services. Workers are also consumers, something Henry Ford observed almost a century ago when he paid his employees 3 times the average wage, leading to greater sales and more profits for his company.

And it’s not that many companies are making profit in spite of the economic downturn, but because of it, generally speaking of course. Joblessness makes people desperate enough to accept worse pay and fewer benefits. Productivity continues to rise even though wages haven’t kept pace. The basic bargain between workers and bosses has eroded.

The fact that companies seem either ignorant or apathetic to this problem gives lie to the notion that “business experience” has anything to do with being able to fix the economy. Running a company and helping to manage an economy are two different things. The former is about making profit for one entity and its shareholders, the latter is about improving conditions for society as a whole.

Of course, the same companies that claim they can’t afford to pay workers better often have plenty of money – millions in fact – to enrich executives and shareholders with. Not only is this an ethic quandary  but it makes little practice sense. It’s economically more useful to pay thousands of people better than to concentrate that wealth in the hands of a relative few. The former will stimulate the economy far better than the latter.

Of course, all this something of a collective action problem, as companies can’t always be coordinated to act in the interests of the economy. Again, business corporations aren’t formed for the public good. That is precisely why it’s traditionally been left to the government to be the “lender/spender” of last resort, through public works programs, unemployment insurance, stimulus spending, and the like. The problem is that our government either didn’t do these things as robustly as they should have, or did so incompetently – unlike, relatively-speaking the governments of Canada, Australia, or Germany, whose economies are performing far better than both are own and the developed-world average.

All of this raises another important point: the reason demand is so important in our economy is because our society, and by extension our economic system, is too consumerist. We shouldn’t need to keep buying things in order to thrive, especially since the environment cannot sustain such habits indefinitely. It’s easier said than done, but we need to reconsider the social and ethical values that place so much importance on endless consumption as a driver of prosperity. It’s a viscous cycle that the planet can’t support.

An Interesting Interview With Noam Chomsky

Slate had a  long and informative interview with Noam Chomsky some time back, and I’ve been meaning to share it. He covers a lot ground, including the future of the labor movement, the problems with our current political and economic system, and the pernicious influence of the media. I can’t share everything here, but the following are some of the highlights that stood out for me (I strongly encourage you to read the rest).

LF: Worker co-ops are a growing movement. One question that I hear is  — will change come from changing ownership if you don’t change the profit paradigm?

NC: It’s a little like asking if shareholder voting is a good idea, or the Buffet rule is a good idea. Yes, it’s a good step, a small step. Worker ownership within a state capitalist, semi-market system is better than private ownership but it has inherent problems. Markets have well-known inherent inefficiencies. They’re very destructive.  The obvious one, in a market system, in a really functioning one, whoever’s making the decisions doesn’t pay attention to what are called externalities, effects on others. I sell you a car, if our eyes are open we’ll make a good deal for ourselves but we’re not asking how it’s going to affect her [over there.] It will, there’ll be more congestion, gas prices will go up, there will be environmental effects and that multiplies over the whole population. Well, that’s very serious.

Take a look at the financial crisis. Ever since the New Deal regulation was essentially dismantled, there have been regular financial crises and one of the fundamental reasons, it’s understood, is that the CEO of Goldman Sachs or CitiGroup does not pay attention to what’s called systemic risk. Maybe you make a risky transaction and you cover your own potential losses, but you don’t take into account the fact that if it crashes it may crash the entire system.  Which is what a financial crash is.

The much more serious example of this is environmental impacts. In the case of financial institutions when they crash, the taxpayer comes to the rescue, but if you destroy the environment no one is going to come to the rescue…

LF: So it sounds as if you might support something like the Cleveland model where the ownership of the company is actually held by members of the community as well as the workers…

NC: That’s a step forward but you also have to get beyond that to dismantle the system of production for profit rather than production for use. That means dismantling at least large parts of market systems. Take the most advanced case: Mondragon. It’s worker owned, it’s not worker managed, although the management does come from the workforce often, but it’s in a market system and they still exploit workers in South America, and they do things that are harmful to the society as a whole and they have no choice. If you’re in a system where you must make profit in order to survive. You are compelled to ignore negative externalities, effects on others.

Markets also have a very bad psychological effect. They drive people to a conception of themselves and society in which you’re only after your own good, not the good of others and that’s extremely harmful.

LF: But they sort of give us a clock. If change hasn’t happened in ten minutes, it’s not going to happen.

NC: Well that’s a technique of indoctrination. That’s something I learned from my own experience. There was once an interview with Jeff Greenfield in which he was asked why I was never asked onto Nightline.  He gave a good answer. He said the main reason was that I lacked concision. I had never heard that word before. You have to have concision. You have to say something brief between two commercials.

What can you say that’s brief between two commercials? I can say Iran is a terrible state. I don’t need any evidence. I can say Ghaddaffi carries out terror.  Suppose I try to say the US carries out terror, in fact it’s one of the leading terrorist states in the world. You can’t say that between commercials. People rightly want to know what do you mean. They’ve never heard that before. Then you have to explain. You have to give background. That’s exactly what’s cut out. Concision is a technique of propaganda. It ensures you cannot do anything except repeat clichés, the standard doctrine, or sound like a lunatic.

LF: What about media’s conception of power? Who has it, who doesn’t have it and what’s our role if we’re not say, president or CEO.

NC: Well, not just the media but pretty much true of academic world, the picture is we the leading democracy in the world, the beacon of freedom and rights and democracy. The fact that democratic participation here is extremely marginal, doesn’t enter [the media story.]  The media will condemn the elections in Iran, rightly, because the candidates have to be vetted by the clerics. But they won’t point out that in the United States [candidates] have to be vetted by high concentrations of private capital. You can’t run in an election unless you can collect millions of dollars.

One interesting case is right now. This happens to be the 50th anniversary of the US invasion of South Vietnam – the worst atrocity in the post war period. Killed millions of people, destroyed four countries, total horror story. Not a word. It didn’t happen because “we” did it. So it didn’t happen.

Take 9-11. That means something in the United States. The “world changed” after 9-11. Well, do a slight thought experiment. Suppose that on 9-11 the planes had bombed the White House… suppose they’d killed the president, established a military dictatorship, quickly killed thousands, tortured tens of thousands more, set up a major international terror center that was carrying out assassinations, overthrowing governments all over the place, installing other dictatorships, and drove the country into one of the worst depressions in its history and had to call on the state to bail them out. Suppose that had happened? It did happen. On the first 9-11 in 1973.  Except we were responsible for it, so it didn’t happen. That’s Allende’s Chile. You can’t imagine the media talking about this.

And you can generalize it broadly. The same is pretty much true of scholarship – except for on the fringes – it’s certainly true of the mainstream of the academic world.  In some respects critique of the media is a bit misleading [because they’re not alone among institutions of influence] and of course, they closely interact.

Executives vs. Workers

CEO Pay

 

The data in question can be seen here. I understand that the Economic Policy Institute (EPI) is considered a left-leaning think tank, but regardless of its slant, I’ve yet to see this data disputed. From what I’ve read, the raw data pretty much confirms what most people are observing anecdotally: that our once widely-perceived meritocratic and classless society is becoming socioeconomically stratified like never before. Even the tax-heavy social democracies we regard as anti-business and “socialist” offer greater opportunities for upward mobility (as I discussed in a previous post).

A HuffPo piece that cites the article adds further detail (emphasis mine):

Income inequality between CEOs and workers has consequently exploded, with CEOs last year earning 209.4 times more than workers, compared to just 26.5 times more in 1978 — meaning CEOs are taking home a larger percentage of company gains.

That trend comes despite workers nearly doubling their productivity during the same time period, when compensation barely rose. Worker productivity spiked 93 percent between 1978 and 2011 on a per-hour basis, and 85 percent on a per-person basis, according to the Federal Reserve Bank of St. Louis.

Meanwhile, workers saw their inflation-adjusted wages fall in recent years as corporations postponed giving raises while adding to their record corporate profits.

Certainly, there are many reasons why our economy is faltering, but it seems that a major factor is the increasingly greedy and predatory nature of America’s business culture. Profits for most companies are at record highs, yet so too is unemployment.America has one of the lowest minimum wages in the developed world, while also having the highest proportion of its workforce employed in low-wage jobs, yet still many businesses – often the most profitable ones – continue to cut benefits, freeze wages, and work their employees harder. Companies are no longer investing in their workers.

These same self-entitled business elites crow for small government and the free-market; but in essence, they’re undermining their own ideology. If they want low taxes and less state involvement in the economy, then they must step up their social responsibility. If people got paid better, they wouldn’t need to rack up private debt or fall back on government programs to get buy. East Asian countries can get away with low taxes and low public spending partly because their communitarian societies, for the most part, take care of each other. It’s not a perfect arrangement, obviously, but it’s something to consider.

Whatever the case may be, this arrangement cannot lot. As history has shown time and again, a society cannot sustain such vast inequities – and the social dysfunctions that emerge as a result – for very long.