Archive for the ‘Corporate Profits’ Category

A Rogues Gallery of the One Percent

Thursday, October 13th, 2011

For the past 30 years, Forbes magazine has used its annual list of the 400 richest Americans as a platform for celebrating the wealthy. This year, amid the persistent jobs crisis and the growing challenge posed by the Occupy movement, the Forbes list has to be viewed in a different light. Rather than a scorecard of success, it comes across as a rogues gallery of the 1 Percent who have hijacked the U.S. economy.

Start with the overall numbers. Combined, the 400 are worth an estimated $1.5 trillion, up 12 percent from the year before. This at a time when both the net worth and annual income of the typical American household have been sinking. When the first Forbes list was published in 1982 there were only about a dozen billionaires. Today, every single member of the 400 has a ten-figure fortune. Their average net worth is $3.8 billion.

And where did this wealth come from? Forbes tries to justify the skyrocketing assets of the 400 by saying that “an alltime-high 70% are self-made…This is the working elite.” New riches may indeed be better than inherited wealth, but how did this “elite” climb the ladder of success?

The question is all the more pertinent, given the current inclination of conservatives to refer to the wealthy as “job-creators” as a way of rebuffing efforts to get the plutocrats to pay their fair share of taxes.

How much job creation can be attributed to the Forbes 400? In a chart on Sources of Wealth, the magazine notes that the largest single “industry” is investments, accounting for the fortunes of 96 of the 400. By contrast, manufacturing, which is more labor intensive, is listed as the source for only 17 of the tycoons.

Within the investments category, about one-sixth of the people in the top 100 made their fortunes from hedge funds, private equity and leveraged buyouts—activities that are more likely to result in the destruction than the creation of jobs. For example, Sam Zell (net worth: $4.7 billion) was ruthless in laying off workers after his takeover of the Tribune newspaper company.

Forbes no doubt would respond by pointing to the 48 people on the list who got fabulously wealthy from the technology sector. Yet many of these companies create very few jobs: Facebook, which made Mark Zuckerberg worth $17.5 billion, has only about 2,000 employees. Or, like Apple, which gave the late Steve Jobs a $7 billion fortune, they create most of their jobs abroad in low-wage countries such as China rather than manufacturing their gadgets in the United States. The same is now true for Dell—source of Michael Dell’s $15 billion fortune—which has closed most of its U.S. assembly operations.

The few people on the list who are associated with large-scale job creation in the United States got rich from a company known for paying lousy wages and fighting unions. Christy Walton and her immediate family enjoy a net worth of more than $24 billion deriving from the notorious Wal-Mart retail empire (other Waltons are worth billions more). The Koch Brothers ($25 billion) are bankrolling the effort to weaken collective bargaining rights and thereby depress wage levels, while satellite TV pioneer Stanley Hubbard ($1.9 billion) has been an outspoken critic of labor unions and was an aggressive campaigner against the Employee Free Choice Act.

Poor job creation performance and anti-union animus are not the only sins of the 400 and their companies. Some of them have a checkered record when it comes to other aspects of accountability and good corporate behavior.

Start at the top of the list. Bill Gates, whose $59 billion net worth makes him the richest individual in the United States, is known today mainly for his philanthropic activities. Yet it was not long ago that Gates was viewed as a modern-day robber baron and Microsoft was being prosecuted by the European Commission, the U.S. Justice Department and some 20 states for anti-competitive practices. In the 1990s there were widespread calls for the company to be broken up, but Microsoft reached a controversial settlement with the Bush Administration that kept it largely intact.

Today it is Google, whose founders Sergey Brin and Larry Page are estimated by Forbes to be worth $16.7 billion, that is at the center of accusations of monopolistic practices.

Amazon.com, headed by Jeff Bezos ($19.1 billion), has fought against the efforts of a variety of state governments to get the online retailer to collect sales taxes from its customers. By failing to collect taxes on most transactions, Amazon gains an advantage over its brick-and-mortar competitors but deprives states of billions of dollars in badly needed revenue.

Cleaning products giant S.C. Johnson & Son, the source of the combined $11.5 billion fortune of the Johnson family, recently admitted that it has used aggressive tax avoidance practices to the extent that it pays no corporate income taxes at all in its home state of Wisconsin. Forbes ignores this issue, but instead describes in detail the criminal sexual molestation charges that have been filed against one member of the family.

And then there are the environmental offenders, such as Ira Rennert ($5.9 billion.) His Renco Group was for years one of the country’s biggest polluters, and the Peruvian lead smelter of his Doe Run operation is one of the most hazardous sites in the world.

This is only a small sampling of the transgressions of the 400 and their companies. Rather than being hailed as job creators, they should be made to answer for their job destruction, their tax avoidance, their anti-competitive practices, their environmental violations and much more.  Rather than celebration, the Forbes 400 and the rest of the 1 Percent are in need of investigation.

Capping the Oil Profits Gusher

Wednesday, April 27th, 2011

You know the gas price problem is getting bad when even leading Republicans need to make noise about petroleum industry tax breaks.

John Boehner caused a stir the other day when he seemed to be telling an interviewer from ABC News that he was in favor of cutting federal subsidies for the oil giants. “It’s certainly something we should be looking at,” he said.

My initial reaction was that a Boehner look-alike working with the Yes Men had made the remarkable statement. Alas, it turned out to be a tease or a case of temporary sanity, for Boehner’s people later clarified that the Speaker was not actually calling for reductions in the giveaways. Perhaps he meant to say that we should examine the subsidies to be sure they are high enough.

Before Boehner’s true position became clear, President Obama seized on the moment to remind Congress about the Administration’s proposal to do away with “unwarranted” oil industry tax breaks. Such a move would be welcome but far from adequate.

Consider the size of those tax breaks. The Administration’s 2012 budget estimates that the repeal of eight oil & gas tax preferences would save all of $3.5 billion in 2012. The amount would rise to $5.4 billion in 2013 and then fall to $4.6 billion by 2016. The total increase in federal revenues over five years would be only $23 billion.

Compare these amounts to the profits being reported by the U.S.-based oil supermajors. For 2010, Exxon Mobil alone posted total profits of $30 billion, up 58 percent from the year before. Chevron’s net income was $19 billion and that of ConocoPhillips $11 billion. This year those amounts are expected to soar again.

If the entire loss of tax breaks were to be shouldered by these three companies alone, their combined profits would sink by only a couple of percentage points.

Rather than simply eliminating some subsidies, now is the time to revive the push for a windfall profits tax. That will not be music to the ears of Obama, who had made the idea a centerpiece of his 2008 presidential campaign, only to drop it shortly after being elected. That plan was expected to collect $65 billion over five years—much more than the savings from eliminating current tax breaks—and the proceeds were meant to help people pay for higher energy costs, not to make a small dent in the national debt.

Corporate apologists say that the federal government has no reason to complain about galloping oil industry profits because it collects more in tax revenues. Unfortunately, that federal share has been shrinking. In 2008 Exxon Mobil paid about $3 billion to Uncle Sam on pretax U.S. earnings of $10.1 billion, or about 30 percent. Last year Exxon’s domestic federal tax rate was only 16 percent. The rates paid by Chevron and ConocoPhillips also fell sharply. Moreover, Exxon and Chevron pay meager amounts of state income tax.

Rather than mitigating the profits windfall, the tax system—as manipulated by the oil giants—is exacerbating the problem.

It’s difficult to believe, but an oil industry windfall profits tax was once part of the mainstream policy agenda, even in the Republican Party. In his 1975 State of the Union Address, President Ford promoted the idea to compensate for the elimination of controls on domestic oil prices. In 1980 Congress enacted such a tax (actually an excise tax on crude oil) that remained in place for eight years.

Conventional wisdom these days is that aggressive tax policies—not to mention price controls—are counter-productive. Yet even Big Oil seems somewhat uncomfortable about its good fortune.

The American Petroleum Institute issued a press release the other day that used an unusual argument to try to blunt popular anger over the industry’s embarrassment of riches. API touted a new study purporting to show that oil and gas stock holdings have been providing a big boost to public pension funds.

Those would be the same public pension funds that are said to be desperately underfunded because of shortfalls in, among other things, corporate tax payments by the likes of the oil giants. Rather than depending on a bit of indirect capital appreciation, we would be much better off if the petroleum industry paid higher federal and state tax rates, especially when oil prices—and thus profits—are going through the roof.

Challenging Corporate America’s Hiring Freeze

Thursday, March 3rd, 2011

You would never know it from the preoccupation with budget deficits and the attack on public unions, but there is still a severe jobs crisis in the United States.

The focus on the state and federal fiscal situation has deflected attention from what should be a major scandal: the failure of big business to accelerate hiring in step with the emerging recovery in overall economic activity.

In recent weeks the dimensions of that scandal have become increasingly apparent as corporations report lush earnings for 2010 while hiring remains depressed. To highlight this incongruity, I looked at the top 50 companies on the most recent Fortune 500 list. Twenty-nine of them have recently reported their annual profits while also disclosing the size of their payroll as of the end of the fiscal year.

On the earnings side, it is truly fat city. The 29 posted aggregate net income of $239 billion, a whopping 48 percent increase from the year before. Oil companies, of course, are raking it in. Exxon Mobil was up 58 percent and Chevron 81 percent. Service sector giants are also reporting much richer bottom lines. UPS showed an increase of 62 percent and AT&T 63 percent. Some blue chip industrials more than doubled their earnings. Boeing soared 152 percent and Ford Motor 141 percent.

By contrast, the employment figures are pitiful. Together, the 29 corporations reported a decline of about 3,500 positions in their aggregate head count of some 4.6 million. While most of the companies showed little change—and some banks increased their hiring a bit—a few of the corporate giants slashed payrolls. Telecommunications behemoth Verizon Communications reduced its workforce by 28,500 jobs while boosting its profits more than 13 percent. General Electric, whose CEO Jeff Immelt is advising the Obama Administration on job creation, got rid of 17,000 net positions during 2010 while enjoying a 6 percent rise in earnings. (GE is one of the few companies that provide a geographic breakdown of their workforce. In the U.S. GE’s head count was down by 1,000.)

It’s interesting that the percentage decrease in head count at Verizon and GE is almost identical to the percentage increase in profits at each of the companies.

Given these numbers, why is big business facing little criticism for its hiring freeze? There is a tendency to regard even large corporations as helpless in the face of economic conditions, and they are not expected to resume hiring until the market mandates it. Yet the overall economy is picking up and still there is a resistance to hiring.

Corporate apologists such as the U.S. Chamber of Commerce would have us believe that the reason is excessive workplace regulation. The Chamber has just come out with a report making the preposterous claim that if state governments would only curtail their employment rules to the lowest common denominator, 746,000 new jobs would magically materialize.

A major reasons hiring is anemic is that workplace rules—and union presence—are too weak rather than too strong. Companies can do more business and garner more profits without increasing their head count largely because there is nothing stopping them from squeezing more work out of the same number of employees. Stricter protections and more collective bargaining would result in higher employment levels.

One of the favorite policy prescriptions for high joblessness is to offer tax credits to companies to hire more people. The existence of those programs at the state and federal levels is, however, contributing little to job creation.

Rather than thinking up more incentives, perhaps there we should create a disincentive for corporations to continue their hiring boycott. There is a growing awareness these days that big business is not paying its fair share of taxes.  We could begin to address this problem by creating tax penalties for profitable companies that refuse to use their earnings to alleviate understaffing.

Pressuring corporations to do more hiring would not only improve life for the overworked employed and reduce the ranks of the unemployed. The additional tax revenue that comes in—whether from the penalties or the withholding paid by the newly hired—would also alleviate the state and federal fiscal crunch and make it easier for us to ignore those who insist that cutting the size of government is the solution to everything.

Pressuring Big Business to Start Rehiring

Friday, October 9th, 2009

hyattThe conventional wisdom is that the emerging economic rebound will be a jobless recovery for a long time to come. Yet there is no consensus on why this is the case.

Congressional Republicans are all too willing to cite the purported shortcomings of the Democrats’ stimulus program, but their ulterior political motives are transparent. Some claim that banks are keeping too tight a lid on business credit, while others suggest that newly frugal consumers are to blame for not spending more.

There is surprisingly little criticism being directed at those who are in the best position to do something about joblessness: employers, especially large ones. The assumption seems to be that corporations are helpless victims of economic turmoil and cannot be expected to start hiring again on their own initiative.

Now, it is being said, we need to give companies an extra incentive to replenish their payrolls. Congress and the Obama Administration are reported to be giving serious consideration to the creation of a new tax credit for job creation. This would be a boon for those who get hired, but it is more than a bit infuriating that we now need to subsidize employers to do what used to happen routinely when the business cycle began to turn around.

The coddling of the employer class is all the more questionable given that, in many cases, large-scale layoffs appear to be a matter of choice rather than necessity. Take the case of computer maker Dell, which just announced that it will obliterate more than 900 jobs as part of its decision to close an assembly plant in Winston-Salem, North Carolina that it opened in 2005 after pressuring state and local governments to cough up some $300 million in subsidies. Dell said the move was “part of an ongoing initiative to enhance the long-term value it delivers to customers by simplifying operations and improving efficiency.” Translation: the company has been selling off its production facilities to cut costs and raise profits.

Or consider Simmons Bedding Company, which has laid off 1,000 workers and will probably shed more as it heads to bankruptcy court. Its problems are less the state of the economy than the effects of having been taken over by a series of private equity firms that have milked the operation dry.

Then there’s the situation of the housekeepers at Boston-area Hyatt hotels who were forced out of their $15 an hour jobs so the company could replace them with $8 an hour temps. Before being told that they were being booted out, the housekeepers were asked to train the temps, whom they were told would be filling in during vacations. The layoffs have prompted protests in Boston and around the country (photo).

In Fremont, California, nearly 5,000 workers at the New United Motor Manufacturing plant are losing their jobs because Toyota decided to get rid of its only unionized U.S. operation after the new federally subsidized General Motors exited what had been a 25-year joint venture between the two companies.

Last month, drugmaker Eli Lilly said it would eliminate 5,000 jobs as part of a restructuring designed to “speed medicines from its pipeline to patients.”

These recent examples are part of a trend that began well before the current crisis. For the past decade, U.S. private sector employment levels have been stagnant as corporations engaged in an orgy of offshore outsourcing, union-busting, downsizing and compelling the workers who remained to produce more than ever before.

This is not to say that all job losses can be blamed on restructuring and corporate greed, but neither is it accurate to attribute them all to forces beyond the control of employers. Instead of focusing exclusively on bribing corporations to hire people, it would be good to hear some criticism of big business for failing to do enough to help the country recover from the unemployment crisis—and for causing much of that crisis through its short-sighted and self-interested practices.

For years, large corporations announced layoffs as a way of currying favor with Wall Street. It would be refreshing to have them now feel pressure to announce new hiring to appease the rest of us.

An Embarrassment of Corporate Riches

Wednesday, April 30th, 2008

Things are rough all over. Unemployment is rising, inflation is up, foreclosures are rampant, poor countries are experiencing food riots. Today the front page of the Wall Street Journal pointed out that major agribusiness companies are facing a challenge of their own: soaring profits.

The likes of Cargill, Archer Daniels Midland and Monsanto have joined the Exxon Mobils of the world in experiencing windfall profits. Cargill, which is privately held but releases summary financial results, reported earlier this month that its net income for the quarter ending February 29 was up 86 percent over the same period last year. Monsanto beat that with an increase of more than 100 percent.

While the percentage increases are more than healthy, the absolute amounts involved—$1.1 billion in Monsanto’s latest quarter, for example—pale in comparison to the profits being raked in by the oil majors. Exxon is scheduled to announce its first quarter results tomorrow—May Day—and a gusher is expected. The company earned $11.7 billion in the fourth quarter of 2007 and more than $40 billion for the year as a whole. Only a few dozen U.S. companies have $40 billion in revenues.

The Journal also had an article today on how food and energy companies are escaping the kind of public opprobrium that followed the run-up of oil prices in the 1970s. It seems that, apart from the relatively small number of angry truckers who have been protesting fuel prices in Washington, DC, most Americans are willing to accept soaring commodity prices with little more than a grumble. According to the Journal, this is because food and energy represent a smaller share of consumer expenditures than three decades ago. But that will inevitably change as those costs continue to rise while wage and salary levels remain largely stagnant. A point may come when the energy and agribusiness giants are seen not as accidental beneficiaries but as crisis profiteers.