Dominant and Diabolical Dynasties

July 24th, 2014 by Phil Mattera

mellonFor more than 30 years, Forbes magazine has been publishing a list of the 400 richest Americans. These annual celebrations of wealth are often accompanied by text emphasizing entrepreneurship. Readers are supposed to come away with the conclusion that these tycoons earned their treasure.

Now, in a move that says a great deal about where American society is headed, Forbes has published its first ranking of America’s Richest Families. No longer is the individual striver being venerated; now we are supposed to marvel at the compilation of 185 families with accumulated wealth of at least $1 billion. Forbes, unselfconsciously using a phrase that could have been penned by ruling class analyst William Domhoff, headlines the feature “Dominant Dynasties.”

Perhaps a bit uneasy about glorifying financial aristocracies, Forbes writes: “One thing that stands out is how many of the great fortunes of the mid-19th century have dissipated. The Astors and the Vanderbilts, the Morgans and the Carnegies, none make the cut.”

The fact that not all 150-year-old family fortunes have survived hardly makes the United States a model of economic egalitarianism. Forbes has to admit that the du Ponts, whose wealth dates back two centuries, are still high on the list (to the tune of $15 billion), as are the Rockefellers ($10 billion). The magazine chose to put on its cover members of the sixth and seventh generations of the Mellon dynasty, whose wealth is pegged at $12 billion.

Even among the newer fortunes, many go back several generations. Few of the listed families include living founders. In some cases family members are living of off the success of their forebears; in other cases, they have built on the achievements of their parents and grandparents. Yet in all cases they have benefited from a tax system that increasingly favors inherited wealth.

That tilt dates back to initiatives taken by the man responsible for the fortune enjoyed by the individuals on the Forbes cover: Andrew Mellon (illustration). As Secretary of the Treasury in the 1920s he unabashedly pushed for reductions in income and estate tax rates, even though as one of the country’s richest men he had a great deal to gain personally from those cuts.

Aside from the questions relating to the perpetuation of class structure, there is the issue of where the fortunes came from in the first place. That subject cannot be avoided when the family at the very top of the list, the Waltons, enjoys wealth estimated at $152 billion thanks to their affiliation with a retail empire built on cheap labor, union-busting and a variety of other sins.

The Kochs, number two with $89 billion, have grown rich through the exploitation of fossil fuel-based industries that are threatening the planet, as did the Rockefellers and many others on the list. The du Pont fortune was originally based on gunpowder and was later enhanced by inventions that included dangerous chemicals such as perfluorinated compounds (used in Teflon) linked to serious health and environmental problems.

Lower down on the list is the Steinbrenner fortune ($3.1 billion), which is based not only on the absurd appreciation in the value of the New York Yankees but also from a shipping business whose interests were furthered by illegal campaign contributions to Richard Nixon in the 1970s. There’s also the Lindner fortune ($1.7 billion), which was built in part by Carl Lindner’s close association with the junk bond empire of the felonious Michael Milken.

Balzac is credited with the statement that “behind every great fortune is a great crime.” Further research will be required to know if that is true of all the entries on the Forbes list, but there are no doubt plenty of examples. And along with any specific crimes is the offense against democracy generated by the unbridled accumulation of intergenerational wealth.

Real Abuses, Sham Reforms

July 17th, 2014 by Phil Mattera

bosses_900It is now a full century since the Progressive Era ended some of the worst abuses of concentrated economic power. This year is the 100th anniversary of the Clayton Act and the Federal Trade Commission Act.   It is 103 years since the dissolution of the Standard Oil trust, 108 years since the passage of the Pure Food and Drug Act.

Yet even a casual reading of the business news these days suggests that we live in an economy disturbingly similar to the age of the robber barons.

Back then, the trusts shifted their incorporation to states such as New Jersey and Delaware that were willing to rewrite their business laws to accommodate the needs of oligopolies. Today large corporations are reincorporating themselves in foreign tax havens to dodge taxes. The practice is reaching epidemic proportions in the pharmaceutical industry.

Back then, unscrupulous drug companies and meatpackers sold adulterated products that could sicken or even kill their customers. Today General Motors is caught in a growing scandal about ignition switch defects that resulted in at least 13 deaths. The news about the automaker’s recklessness grows worse by the day, with the New York Times now reporting that company withheld information from federal regulators about the cause of fatal accidents.

Back then, wheeler-dealers such as James Fisk peddled dubious securities in companies that later collapsed, impoverishing investors. Today we’re still trying to get over the impact of the toxic mortgage-backed securities that the big banks packaged and sold during the housing bubble. Just the other day, Citigroup became the latest of those banks to settle charges brought by the Justice Department. Yet the $7 billion extracted from Citi, like the amounts obtained from the other banks, will cause little pain for the mammoth institution and will thus do little to deter future misconduct. The provision in the settlement for “consumer relief” is too little, too late.

And, of course, back then, the trusts got to be trusts by eliminating their competition. Today concentration is alive and well. Recently, the second largest U.S. tobacco company, Reynolds American, proposed a takeover of Lorillard, the number three in the industry. If this deal goes through, it won’t be long before Reynolds tries to marry Altria/Philip Morris, putting virtually the entire carcinogenic industry in the hands of one player, the way it was a century ago during the reign of the American Tobacco Company, aka the Tobacco Trust.

The movement toward a Media Trust just accelerated with the revelation that Rupert Murdoch’s 21st Century Fox, already huge, is seeking to take over Time Warner. The deal would put a mind-boggling array of entertainment properties under one roof. Murdoch offered to sell off Time Warner’s CNN – a meaningless concession given that the news network has struggled to survive against Murdoch’s despicable Fox News. Murdoch’s move comes as another media octopus, Comcast, is awaiting approval for its deal to take over Time Warner’s previously spun off cable business.

While we have all too many indications of a new Gilded Age, still scarce are signs of an effective response. We’ve got a good amount of muckraking journalism and a fair number of people (and even a few elected officials) who calls themselves progressives. Yet somehow this does not add up to a movement that can take a real bite out of corporate crime.

Part of the problem is that many of those in power professing progressive values are not serious about challenging corporate power. Some historians argue that the original Progressives were, like the New Dealers who came later, mainly concerned with saving capitalism from itself rather than changing the system. Yet they still managed to impose significant restrictions on big business through antitrust and other forms of regulation.

Today’s progressive officials often seem to want nothing more than to give the appearance of reform. That’s the story at the Justice Department, which has raised settlement levels and extracted some token guilty pleas but still allows corporations to buy their way out of serious legal jeopardy. Meanwhile, antitrust enforcement is tepid, and as the GM case increasingly shows, regulation is often a joke.

A resurgence of robber-baron behavior requires real, not sham reform.

Inverted Values

July 10th, 2014 by Phil Mattera

medtronic-headquartersConservatives are up in arms about the surge of undocumented women and children coming across the border from Mexico. So great a threat is purportedly being caused by this influx that Republican members of Congress are clamoring for legislation that would allow faster deportations. Even President Obama seems to agree.

Much less urgency is being expressed about another sort of immigration crisis: the presence of a growing number of foreign-based corporations masquerading as American companies. Large-scale tax dodging by these firms does much more harm to the United States than the modest impact of those desperate Central Americans.

A recent report by the Congressional Research Service describes a new wave of companies going through a process politely known as “inversions.” What’s really happened is that these firms have renounced their U.S. “citizenship” and reincorporated themselves in tax haven countries in order to escape federal taxes.

Yet these companies go on operating as before, keeping their U.S. offices, their U.S. sales and all the other benefits of doing business here but not paying their fair share of the cost of government. They are the real illegitimate aliens.

While a few members of Congress have spoken out against this corporate treason, many adhere to the idea that the companies are blameless — that it is the supposedly oppressive tax system that is to blame. The editorialists at the Wall Street Journal, who can always be counted on to go to any length to defend corporate avarice, recently began a piece on inversions by writing: “What kind of country does this to itself?”

This is typical of the pro-corporate mindset: Big business, apparently, can do no wrong, so if a company does something controversial, it is the rest of us who are to blame.

In reality, many of the companies that have turned to inversions are not only tax dodgers; they are bad actors in other respects. Take the case of Medtronic, which is involved in the most recent re-registration deal involving a plan to merge with Covidien, a competitor in the medical devices industry that earlier turned itself into an “Irish” company.

Only a couple of weeks before the Covidien deal became public, the U.S. Justice Department announced that Medtronic would pay $9.9 million to resolve allegations under the False Claims Act that it made improper payments to physicians to get them to implant the company’s pacemakers and defibrillators in Medicare and Medicaid patients. The settlement came less than three years after Medtronic had to pay $23.5 million to resolve another False Claims Act case involving other kinds of improper inducements to physicians.

And five years before that, Medtronic paid $40 million to settle yet another kickback case. In 2010 the company had to pay $268 million to settle lawsuits claiming that defective wires in its defibrillators caused at least 13 deaths.

An even worse track record belongs to Pfizer, which attempted an inversion a couple of months ago by seeking to acquire Britain’s AstraZeneca but has backed off for now. In 2009 Pfizer agreed to pay $2.3 billion to resolve criminal and civil charges relating to the  improper marketing of Bextra and three other medications. The amount was a record for a healthcare fraud settlement. John Kopchinski, a former Pfizer sales representative whose complaint helped bring about the federal investigation, told the New York Times: “The whole culture of Pfizer is driven by sales, and if you didn’t sell drugs illegally, you were not seen as a team player.”

Like Medtronic, Pfizer has had problems with questionable payments. In August 2012 the SEC announced that it had reached a $45 million settlement with the company to resolve charges that its subsidiaries, especially Wyeth, had bribed overseas doctors and other healthcare professionals to increase foreign sales.

Or take the case of Walgreen, which is reported to be planning an inversion of its own. In 2008 it had to pay $35 million to settle claims that it defrauded the federal government by improperly switching patients to different version of three prescription drugs in order to increase its reimbursements from Medicaid. Last year, the Drug Enforcement Administration announced that the giant pharmacy chain would pay a record $80 million in civil penalties to resolve charges that it failed to properly control the sales of narcotic painkillers at some of its stores.

The examples could continue. Corporations resorting to extreme measures such as foreign re-incorporations are not innocent victims. Their tax dodging is just another symptom of corporate cultures that put profit maximization above loyalty to country and adherence to the law.

Religion Inc.

July 3rd, 2014 by Phil Mattera

samuel-alito-jr-2009-9-29-10-13-28Is Justice Samuel Alito really that clueless? During the 2010 State of the Union address, he nervously mouthed the words “not true” when President Obama warned that the Supreme Court’s Citizens United ruling would allow corporate special interests to dominate U.S. elections. A few days ago, Alito wrote an outrageous opinion in the Hobby Lobby case affirming the religious rights of corporations but insisting this would not do much other than prevent a few companies from having to include several kinds of birth control in their health insurance plans.

Alito’s claim about the narrow scope is already beginning to unravel. Although the written opinion suggested that only four types of contraception such as IUDs that religious zealots view as tantamount to abortion would be affected, the Court subsequently ordered lower courts to rehear cases in which employers sought to deny coverage for any form of birth control.

Business owners with other religious views contrary to federal policy will undoubtedly soon speak up. This is exactly what Justice Ginsburg warned about in her powerful dissent, calling Alito’s opinion “a decision of startling breadth” that enables “commercial enterprises, including corporations, along with partnerships and sole proprietorships, [to] opt out of any law (saving only tax laws) they judge incompatible with their sincerely held religious beliefs.”

Alito was apparently so shaken by Ginsburg’s accusation that he felt a need to deny it at length. The denial is not only unconvincing, it is clumsy and takes Alito into some strange territory for a supposed business-friendly conservative.

In their religious zeal, Alito and the other conservatives on the Court apparently forgot that corporations have been trying for the past century to depict themselves as totally apart from religious and moral concerns. Business enterprises are amoral institutions, laissez-faire proponents such as Milton Friedman repeatedly told us—they exist only to maximize their profit. It has often been corporate critics who have brought religious and moral issues into disputes over business practices.

Alito seems to embrace the notion of corporate social responsibility (CSR) when he writes (p.23):

Modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so. For-profit corporations, with ownership approval, support a wide variety of charitable causes, and it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives.

Alito even makes reference to growing acceptance of the benefit corporation, which he describes as “a dual-purpose entity that seeks to achieve both a benefit for the public and a profit for its owners” (p.24).

It’s unclear whether Alito sincerely believes in the validity of CSR initiatives or is simply using this comparison to try to make his assertion of corporate religious rights more palatable. Oddly, he describes as “unlikely” the possibility that a large publicly traded company would ever make a religious claim, even though such firms are among the biggest promoters of CSR.

Whatever Alito really thinks, his reference to CSR does not make the ruling any more convincing. CSR is already problematic to the extent that its practitioners try to use their supposedly high-minded voluntary initiatives to discourage more stringent and more enforceable government regulation. But at least these corporations are simply trying to influence government policymaking rather than asserting an absolute right to be exempt because of supposed religious convictions.

As much as Alito tries to deny it, his ruling has the potential to cause a great deal of mischief. A religious component can already be seen in the climate crisis denial camp; what will prevent companies from asserting that their beliefs prevent them from complying with environmental regulations? Is it that hard to imagine that business owners holding a scripture-based belief that women should be subservient to men may claim they should not be subject to anti-discrimination and equal pay laws?

Alito seems to be opening the door to such aggressive stances when he insists that “federal courts have no business addressing” the question of whether a religious claim by a corporation is reasonable (p.36). It’s true that, in general, government should not be passing judgment on matters of faith, but that principle falls apart when special interests try to use religion to undermine democratically adopted public policies. It’s even worse when those interests are employers asserting their beliefs at the expense of their workers.

The Supreme Court has done considerable damage by elevating the free speech rights of corporations; now it is compounding the sin by giving those corporations special religious rights as well.

Ikea’s Double-Edged Living Wage Initiative

June 26th, 2014 by Phil Mattera

ikea2In an era of rising inequality, the announcement by Ikea that it will adopt a living wage policy for employees at its stores in the United States is good news for those who will enjoy a fuller paycheck. Yet the news is not as good as it could be.

Ikea’s move, like a similar action by Gap Inc. earlier this year, is a voluntary initiative, not a legislated or negotiated policy that can be enforced. Just as Ikea adopted the wage policy on its own, it could rescind or modify that policy in the future.

It’s significant that in its announcement Ikea noted that the new wage structure, which will raise the average hourly minimum to $10.76, does not apply to those working at its U.S. distribution centers and manufacturing facilities. That’s because, the company says, those facilities “have hourly wage jobs that are already paying minimum wages above the local living wage.”

What Ikea fails to mention is that some of those workers are represented by collective bargaining agreements that brought pay rates to their current levels. Also omitted is the fact that those unions were organized because of poor conditions, including inadequate wages.

For example, in 2010 the Machinists union (IAM) and the Building and Wood Workers International labor federation organized a campaign to pressure Ikea over dangerous working conditions and discriminatory employment practices, as well as pay and benefit issues, at the company’s Swedwood furniture plant in Danville, Virginia.

That campaign served as a springboard for a successful union organizing effort at the plant, where IAM members ratified their first contract with the company in December 2011. A month later, workers at the Ikea distribution center in Perryville, Maryland voted in favor of representation by the IAM. In May 2014 Teamster members  at an Ikea distribution facility in Washington State approved their initial contract.

It’s quite possible that Ikea’s new wage policy for its stores is an effort to undermine any union organizing at those outlets. For if there is one thing large companies hate more than paying higher wages, it is paying those higher wages and having to negotiate on other conditions of work.

The desire by management to retain control is the shortcoming of both voluntary wage increases and other initiatives undertaken under the rubric of corporate social responsibility. What proponents of CSR rarely acknowledge is that these supposedly enlightened corporate policies really amount to an effort to avoid stricter, enforceable regulations. Companies would prefer to congratulate themselves for deciding to cut greenhouse gas emissions or eliminate toxics rather than being compelled to take such actions under government mandate. A management-designed wage increase is more palatable than a union contract.

Corporate apologists would have us believe that CSR is preferable to tough regulations and collective bargaining, but what they fail to acknowledge is that major corporations have a long history of engaging in abusive practices.

In the case of Ikea, taking advantage of weak labor laws in the United States is far from the whole story. Two years ago, Ikea was forced to apologize after an investigation showed that it had benefitted from forced prison labor in East Germany in the 1980s. There were similar reports concerning Cuba. And now the company is facing allegations that during the same period it channeled funds to a firm run by the secret police in Romania.

Earlier, Ikea was embroiled in controversies over the use of child labor in countries such as Pakistan, India, Vietnam and the Philippines. One way the company sought to overcome that stigma was through philanthropic initiatives such as a partnership the Ikea Foundation created in 2013 with Save the Children and UNICEF to help children in Pakistan “find a route out of child labor.” Unaddressed, of course, was the issue of how companies such as Ikea got them into child labor in the first place through their use of exploitative contractors.

The same issue applies to the wages of Ikea’s U.S. store employees. There would be no need for a living wage initiative if the company had not been paying too little to begin with. That’s the problem with much of CSR and voluntary corporate reforms: they are all too often initiatives designed to address problems that companies created themselves and are structured in a way that does not prevent them from reverting to those bad practices again in the future.

Will Obama Help Contractor Employees Join a Union?

June 19th, 2014 by Phil Mattera

vail-good-jobs-nationAfter the passage of the Wagner Act in 1935, labor activists organized workers with the slogan: “The President wants you to join a union.” We haven’t seen much encouragement of collective bargaining from the White House during the past 75 years, but there is a move afoot to change that, at least with respect to employees of companies working for the federal government.

The Good Jobs Nation campaign, which has been highlighting the plight of low-paid employees of federal contractors and helped prod President Obama to issue an executive order that will boost the pay of those workers to $10.10, is raising the ante. It is now calling for another executive order that would pressure contractors to bargain with workers in exchange for a commitment not to strike.

While there would certainly be legal challenges to such an order, it is the logical next step in the effort to address poor working conditions among portions of the federal contractor workforce and to use those standards to promote better standards for the entire U.S. working population.

It’s already well documented that many contractors flout federal workplace regulations. A report issued last year by the majority staff of the Senate Health, Education, Labor and Pensions Committee showed that contractors were among the worst violators in areas such as wage and hour standards and occupational safety and health. A federally mandated wage increase will certainly help, but it is only through collective bargaining that contractor employees will get all the protections they need.

Good Jobs Nation is focusing on workers in fields such as foodservice and security, but how much unionization is missing from the overall contractor workforce? To begin to answer this question, I looked at what the largest contractors are saying (or not saying) about unions in their filings with the Securities and Exchange Commission.

I started with the list of 50 largest contractors in FY2014 shown on the USA Spending website. Excluding those that are privately held, foreign-owned or non-profit, I looked at each firm’s 10-K annual report, which is required to report the total number of employees and has traditionally been the place where companies indicate the extent to which those workers are covered by collective bargaining agreements. Since the main goal of the 10-K is to inform investors of potential risks that could affect the value of their holdings, the company is supposed to indicate whether a work stoppage is possible.

Back in the day when unions were stronger, most large companies had something to report on labor relations. These days many companies indicate that they are not a party to any collective bargaining agreements or don’t bother to say anything on the subject.

Numerous 10-Ks of the top contractors fall into this category. Healthcare companies such as McKesson (the 5th largest contractor), Humana (8th) and UnitedHealth (20st) say nothing about unions. Other firms such as Health Net (11th), telecom equipment maker Harris Corp. (33rd) and Orbital Sciences Corporation (43rd) proudly announced that their U.S. workforce is union-free.

The companies with the biggest union presence are leading Pentagon contractors. Shipbuilder Huntington Ingalls (9th) reports the highest figure I found: 50 percent. Boeing (2nd) reports 37 percent while General Dynamics (4th) and L-3 Communications (10th) each give a figure of 20 percent. The largest contractor of them all, Lockheed Martin, says its unionization level is 15 percent.

On the other hand, some of the aerospace contractors are only lightly unionized: the figure for Raytheon (3rd) is 8 percent and for Northrop Grumman (19th) only 5 percent. Once a heavily unionized firm, General Electric (22nd) says only 7 percent of its total workforce has collective bargaining, even though it has shifted more than half of that workforce overseas, where unions remain stronger.

In other words, not a single one of the companies profiting most from the bloated military budget has a workforce that is majority union, and some have kept the union presence to a bare minimum.

Unions are even more scarce among the large information technology firms that account for another substantial portion of federal contractor spending. Among the firms that don’t mention any union presence are: SAIC, Computer Sciences Corporation, Hewlett Packard, CACI International and IBM.

Employees at these firms are certainly better paid than those employed by contractors performing functions such as building maintenance, but the absence of unions among better treated workers makes it harder for everyone to organize.

Cantor’s Collapse and Crony Capitalism

June 12th, 2014 by Phil Mattera

Dave Brat: hot stuff.It’s easy to see House Majority Leader Eric Cantor’s primary defeat as a sign that the country is moving far to the Right. Dave Brat’s successful underdog campaign was filled with the usual litany of immigrant bashing, Obamacare vilification and federal debt scare-mongering. Yet it appears that one of his most potent messages was an attack on Cantor for being too cozy with big business and thus fostering the culture of crony capitalism.

“If you’re in big business, Eric’s been very good to you, and he gets lots of donations because of that,” Brat (photo) was reported to have told supporters in a meeting earlier this year. “Very good at fundraising because he favors big business. But when you’re favoring artificially big business, someone’s paying the tab for that. Someone’s paying the price for that, and guess who that is? You.”

We tend to think that promoting anger at big business is a theme of the Left, but conservative libertarians such as Brat have their own version of that critique. Yet whereas progressives tend to criticize giant corporations for a variety of sins — wage suppression, union-busting, environmental degradation, monopolization, extravagant executive compensation, etc. — people like Brat focus on one thing: the way that those corporations use their influence to extract special favors and financial assistance from Uncle Sam. Business should be able to do pretty much whatever it wants and pay as little as possible in taxes, they argue, but taking subsidies is beyond the pale.

The libertarian Right has a long history of criticizing what used to be more commonly called corporate welfare. For more than two decades, groups such as the Cato Institute have been publishing diatribes against grants, loan guarantees and other forms of business assistance. In a 1995 Cato paper entitled “Ending Corporate Welfare as We Know It,” Stephen Moore and Dean Stansel wrote:

Because they intermingle government dollars with corporate political clout, business subsidies have a corrupting influence on both America’s system of democratic government and our system of entrepreneurial capitalism. Despite the conventional orthodoxy in Washington that the United States needs an even closer alliance between business and politics, the truth is that both government and the marketplace would work better if they kept a healthy distance from each other.

Over the years, Cato and like-minded group kept up a drumbeat calling for the elimination of programs such as the Export-Import Bank, whose efforts largely benefited the overseas business of U.S. companies such as Boeing and Bechtel. For a period of time, Ralph Nader, who had long attacked some of the same programs from a different direction, made common cause with the libertarians and created a “strange bedfellows” alliance. The alliance got a lot of attention and statements of support, but in the end entrenched interests preserved most corporate welfare programs.

In the past few years, the tea party movement has helped revive the opposition to federal corporate subsidies, though the critique has often been imprecise. There has been a tendency to conflate the TARP program to bail out the banks with the Recovery Act stimulus designed to help the overall economy recover from the recession generated by the financial meltdown.

There’s also the issue of hypocrisy. The Koch Brothers, who have directly or indirectly funded many of the tea party groups, have benefited from a considerable amount of corporate welfare given to their Koch Industries conglomerate, including more than $89 million in state and local assistance my colleagues and I have documented in Subsidy Tracker.

Nonetheless, the notion of crony capitalism, which gained much of its currency during the Solyndra scandal, continues to be a favorite on the Right. In the Daily Signal web news service recently launched by the Heritage Foundation, Cronyism is one of the few highlighted topics, up there with Benghazi and Obamacare.

In his new book Unstoppable, Nader cites corporate welfare as one of the cornerstones of an emerging left-right alliance to “dismantle the corporate state.” Such an alliance may very well succeed in eliminating some of the most dubious forms of federal business assistance, but it cannot overcome the gulf between those who believe that giant corporations should otherwise be left alone and those of us who see the need to use the power of the state to rein in the power of those enterprises.

Civil Servitude

June 7th, 2014 by Phil Mattera

madison protestPublic employees used to be known as civil servants, and the way things are going that label is becoming more and more accurate. The 5 million people employed by state governments and the 14 million employed by local governments are under attack in a variety of ways, and the U.S. Supreme Court may soon provide the crowning blow.

Going after public employees — even firefighters and other first responders — became a popular sport in the wake of the Republican gubernatorial victories of 2010. Wisconsin Gov. Scott Walker and his allies in the legislature defied mass protests (photo) and pushed through a law gutting public employee collective bargaining rights. Tennessee and Idaho enacted laws restricting bargaining rights for public schoolteachers. Ohio’s legislature curbed those rights for all state employees, but the move was repealed in a 2011 referendum.

At the same time, fiscal austerity measures led to widespread layoffs even among those public workers who did not lose their union protections. Between 2009 and 2013 state and local governments shed around half a million jobs, which has been a blow not just to those let go but also to the national economy. The private sector recovery has been held back by the ongoing slump in much of the public sector.

There are other pernicious forces at work. A new report by In The Public Interest describes the ways in which the outsourcing of public functions “sets off a downward spiral in which reduced worker wages and benefits can hurt the local economy and overall stability of middle and working class communities.” Using examples involving functions such as nursing, food service, trash collection and prisons, the report brings together data showing how job quality can plummet after the work is contracted out. For example, it notes that private-sector trash collectors earn around 40 percent less than their public sector counterparts.

Wages are not the only way in which privatized jobs are inferior. Slashing retirement benefits is one of the key ways that outsourcing companies achieve “savings.” Those who remain on public payrolls are also finding their pensions under assault. Led to believe that retirement costs for government workers are out of control, governors and legislators in numerous states have been moving to cut benefits, tighten eligibility requirements and push now hires into 401(k)-style defined contribution plans instead of traditional and more secure defined-benefit coverage.

As if all this were not bad enough, public employee unions are facing a legal challenge that could undermine their ability to survive. The Supreme Court is expected to rule this month on a case called Harris v. Quinn, which started out as a narrow dispute over the obligation of home health care workers to pay agency fees to unions that bargain on their behalf.

That case was concocted by the vehemently anti-union National Right to Work Foundation, which by the time the matter was heard by the Supreme Court in January was arguing that decades of settled law on the collective bargaining rights of all state and local employees should be scrapped.

This position was so audacious that even Justice Scalia seemed to have a problem with it. Yet other conservatives on the court as well as the man-in-the-middle Justice Kennedy seemed to be open to the idea. This could set the stage for a reprise of what happened in Citizens United: the transformation of a narrow case into a broad ruling with disastrous consequences.

The consequences being sought by the “right to work” crowd go far beyond the enfeeblement of public sector unions. They also want to dismantle the political influence of public sector unions, which are a key source of support for the Democratic Party and for progressive public policy. As Jay Riestenberg and Mary Bottari point out in PR Watch, the National Right to Work Committee has long had deep connections with rightwing players ranging from the John Birch Society to the Koch Brothers.

The ties with the latter are an indication that the “right to work” forces are not hurting for money. While enjoying their own solid funding, they are seeking to undermine the money flows which unions depend on to pursue their mission. In an era in which, as the Supreme Court has declared, money is free speech, the Right is doing everything in its power to silence workers and their representatives.

Subsidizing Corporate Offenders

May 29th, 2014 by Phil Mattera

moneybagsontherunIt’s been clear for a long time now that, despite recurring calls to get tough on corporate crime, companies can essentially buy their way out of legal entanglements. In most cases this has come about through the U.S. Justice Department’s willingness to offer companies deferred prosecution agreements. The recent Credit Suisse guilty plea, which is not doing much to impair the bank’s operations, shows that big companies can even go about their business with a criminal conviction.

That’s not the worst of it. It turns out that many of these corporate offenders have received tax breaks and other forms of financial assistance from state and local governments around the country. This does not come as a complete surprise, but it is now possible to quantify the extent to which this unfortunate practice is taking place.

This estimate comes from mashing up two datasets. The first is the Subsidy Tracker I and my colleagues at Good Jobs First have compiled. In recent months we have enhanced the database by matching many of the individual entries to their corporate parents. For 1,294 large companies we now have summary pages that provide a full picture of the subsidies they and their subsidiaries have received.

The other data source is a list of the companies that have entered into deferred-prosecution and non-prosecution agreements with the Justice Department to settle a variety of criminal charges. (Although I refer to these firms as corporate miscreants or offenders, it must be pointed out that they were never formally convicted.)

The list appeared in the May 26, 2014 issue (print version only) of Russell Mokhiber’s excellent Corporate Crime Reporter. Mokhiber obtained it from University of Virginia Law Professor Brandon Garrett, author of a forthcoming book on corporate crime prosecution, and used it for an article showing that the bulk of those agreements are negotiated by a small number of law firms.

I took the liberty of using the list for another purpose: determining how many of the companies also appear in Subsidy Tracker. The results are striking: more than half of the miscreants (146 of 269, or 54 percent) have received state and local subsidies. These include cases in which the awards went to the firm’s parent or a “sibling” firm.

Even more remarkable are the dollar amounts involved. The total value of the awards comes to more than $25 billion. A large portion of that total ($13 billion) comes from a single company — Boeing, which is not only the largest recipient of subsidies among corporate miscreants but is also the largest recipient among all firms. Boeing made the Justice Department list by virtue of a 2006 non-prosecution agreement under which it paid $615 million to settle criminal and civil charges that it improperly used competitors’ information to procure contracts for launch services worth billions of dollars from the U.S. Air Force and NASA.

To be fair, I should point out that not all the subsidies came after that case was announced. In the period since 2006, Boeing has received “only” about $9.8 billion.

The other biggest subsidy recipients on the list are as follows:

  • Fiat (parent of Chrysler): $2.1 billion
  • Royal Dutch Shell (parent of Shell Nigeria): $2.0 billion
  • Toyota: $1.1 billion
  • Google: $751 million
  • JPMorgan Chase: $653 million
  • Daimler: $545 million
  • Sears: $536 million

Altogether, there are 26 parents on the DOJ list that have received $100 million or more in subsidies. As with Boeing’s $13 billion figure, the amounts for many of the companies include subsidies received before as well as after their settlement.

These results suggest two conclusions. The first is that state and local governments might want to pay more attention to the legal record of the companies to which they award large subsidy packages. A company that ran afoul of federal law might not be punctilious about living up to its job-creation commitments.

More broadly, the ability of companies caught up in criminal cases to go on getting subsidies suggests that there is insufficient stigma attached to involvement in such cases. If companies know that they can not only avoid serious punishment but still qualify for rewards such as tax breaks and cash grants, they are more likely to give in to temptations such as fraud, bribery, tax evasion, price-fixing and the like. Without real deterrents, the corporate crime wave will continue.

Too Big to Punish

May 22nd, 2014 by Phil Mattera

get_out_of_jail_freeEver since the financial meltdown, corporate critics have been clamoring for criminal charges to be brought against major financial institutions. With the exception of the guilty plea extracted from an obscure subsidiary of UBS in a case involving manipulation of the LIBOR interest rate index, the Obama Administration long resisted these calls, continuing the dubious practice of offering corporate miscreants deferred prosecution agreements and escalating but still affordable fines.

The Justice Department has now given in to the pressure, forcing Credit Suisse’s parent company to plead guilty to a criminal charge of conspiring to aid tax evasion by helping American citizens conceal their wealth through secret offshore accounts. Yet what should be a watershed moment in corporate accountability is starting to feel like a big letdown.

Despite weeks of handwringing by corporate apologists about the risks for a bank of having a criminal conviction, along with impassioned pleas for mercy by Credit Suisse lawyers, the world has hardly come tumbling down for the Swiss financial giant since Attorney General Eric Holder announced the plea.

Particularly unsatisfying is the fact that no top executives at the bank were charged, meaning that we were prevented from seeing any high-level perp walks. While some lower level bank employees were prosecuted, CEO Brady Dougan is getting off scot free. Even the Financial Times found this unseemly, suggesting that he should have had the good manners to resign. Dougan, instead, handled things in classic damage-control mode, treating the matter as over and done, stating: “We can now focus on the future and give our full attention to executing our strategy.”

The Justice Department is bragging about the plea and the $2.6 billion in penalties, but it is downplaying the failure to achieve one of the main objectives of the case. Credit Suisse is not being compelled to turn over the names of the holders of the secret accounts.

Other parts of the federal government seem to be doing everything possible to cushion the impact of the plea. The SEC has decided, at least for the time being, to exempt Credit Suisse from a law that requires a bank to relinquish its investment-advisor license in the event of a guilty plea. The Federal Reserve, which received $100 million of the penalties, issued a “cease and desist order requiring Credit Suisse promptly to address deficiencies in its oversight, management, and controls governing compliance with U.S. laws,” but it has given no indication that the bank’s activities will be restricted.

There are also no signs that the private sector will punish Credit Suisse. Customers do not appear to be shunning the bank, and the stock market has reacted to the plea with equanimity. The company’s stock price has fallen only a few points since the reports of a possible conviction emerged in recent weeks, and in the wake of the actual plea it has held steady.

When an individual is convicted of a crime, his or her life is usually thrown into disarray. Along with a possible loss of liberty, there may be a forfeiture of assets and a loss of livelihood. Especially for white-collar offenders, there is likely to be ostracism.

For corporate offenders, we’ve long seen how companies can buy their way out of serious consequences through non-prosecution and deferred prosecution deals. Now that get-out-of-jail-free card seems to be available to a company with an actual conviction.

Why, then, did the Justice Department bother pursuing criminal charges? It’s difficult to avoid the conclusion that the prosecution was meant solely as a symbolic gesture—a political move to quiet criticism of the administration’s treatment of corporate misconduct.

The handling of the Credit Suisse case may end up doing more harm than good, both in symbolic and substantive terms. The moves to mitigate the impact on the bank neutralize the administration’s effort to appear tough on corporate crime. They also undermine whatever deterrent effect the prosecution was supposed to achieve.

Large corporations may no longer be too big to convict, but they are still regarded as too big to punish.

Note: For details on the sins of Credit Suisse, see its updated Corporate Rap Sheet.