Archive for the ‘Foreign Investment’ Category

The Price of a U.S. Manufacturing Revival

Thursday, February 23rd, 2012

A few decades ago, U.S. factory jobs began moving offshore to countries that lured corporations with the prospect of weak or non-existent unions, minimal regulation, lavish tax breaks and other profit-fattening benefits. Workers in those runaway shops enjoyed little in the way of a social safety net, thus making them all the more dependent on whatever dismal employment opportunities foreign firms had to offer. Much of the U.S. manufacturing sector was left for dead.

Now, we are told, U.S. manufacturing is undergoing a resurrection. “Manufacturing is coming back,” President Obama told a group of blue-collar workers at a recent public event. “Companies are bringing jobs back.” Obama earlier used the State of the Union address to tout the recovery of the U.S. auto industry in the wake of the bailout he championed. One of the bailed-out firms, Chrysler, aired a Super Bowl commercial called “It’s Halftime in America” in which Clint Eastwood hailed the country’s industrial recovery.

It’s true that manufacturing employment has been on the rise after many years on the decline. But is this something calling for unqualified celebration?

Boosters of the industrial resurgence would have us believe it is a reflection of improved U.S. productivity, entrepreneurial zeal or, as Obama put it in the State of the Union, “American ingenuity.” In the case of Chrysler, that should be Italian ingenuity, given that the bailout put the company under the control of Fiat.

But it can just as easily be argued that domestic manufacturing is advancing because the United States has taken on more of the characteristics of the countries that hosted those runaway shops. Deunionization, deregulation, corporate tax preferences, excessive business subsidies and a shriveled safety net are more pronounced than ever before in the U.S. economy. If any of the Republican Presidential candidates get in office, those trends will only accelerate.

Even the Obama Administration is on the bandwagon to a certain extent. Its Office of Information and Regulatory Affairs has obstructed a slew of new environmental and workplace safety regulations. Now the President has legitimized years of conservative rhetoric claiming that companies are overtaxed by introducing a corporate tax reform plan that would reduce statutory rates in general and create an even lower rate for manufacturers. The plan has some good intentions—such as ending special giveaways to Big Oil and other loopholes while encouraging corporations to bring jobs back home—but it ignores years of evidence from groups such as Citizens for Tax Justice showing that big business will exploit any softening of the tax code to bring its actual payments down to the absolute lowest levels.

The perils of joining the manufacturing revival chorus can be seen by looking at heavy equipment producer Caterpillar. The company has been getting a lot of attention lately for expanding its domestic employment through moves such as the planned construction of a $200 million plant in Athens, Georgia that is projected to employ about 1,400.

This needs to be put in some context. According to data in Cat’s 10-K filings, the company’s workforce outside the United States soared from around 13,000 in the early 1990s to more than 71,000 last year, growing to some 57 percent of the firm’s total employment. The number of foreign workers in 2011 was greater than the company’s total head count in 2003.

Cat’s love affair with places such as China blossomed as the company was trying to escape its U.S. unions, which it had unsuccessfully tried to destroy. Cat’s hard-line approach to collective bargaining soured relations with its workers, resulting in a series of strikes and other confrontations, including a dispute in the 1990s that lasted for more than six years.

It appears that unions have no role in Cat’s limited back-to-the-USA plan. The company’s new domestic facilities tend to be located in “right to work” states. After recently trying to impose huge pay cuts at a factory in Ontario (photo), Cat first locked out the workers, then shut down the plant and is now reported to be shifting the work to a facility in Muncie, Indiana, the latest state to adopt a “right-to-work” law to hamstring unions.

By locating the Athens plant in a labor-unfriendly state such as Georgia, Cat is expected to be able to pay wages far below those in its unionized plants. It is also worth noting that Cat agreed to build the plant in Georgia only after it received $75 million in tax breaks and other financial assistance, one of the largest subsidy packages the state has ever offered.

The message of all this seems to be that the U.S. can enjoy a renewal of manufacturing if we are only willing to put up with a few minor inconveniences such as union-busting and big tax giveaways to corporations. That’s apparently what is really meant by American ingenuity.

A Not-So-Slow Boat to China

Thursday, August 25th, 2011

While U.S. political figures are wringing their hands about lackluster job creation, transnational corporations are desperately trying to hide their dirty secret: they are expanding their payrolls — just not in the United States.

The Washington Post recently published a front-page story about the fact that fewer and fewer companies are providing a geographic breakdown of their workforce in their annual financial statements, making it more difficult to track their hiring patterns.

They can get away with this because the Securities and Exchange Commission does not require this key bit of information in the mountain of data that publicly traded companies must include in filings such as their 10-K annual reports. Many companies that had chosen to report the breakdown voluntarily in the past are now deciding that the numbers are too sensitive to publish.

As the Post points out, quite a few of the non-reporters are companies that have been lobbying heavily for a special tax break on profits that they have been holding abroad for tax dodging purposes. A corporate front group called WinAmerica is arguing that a repatriation tax holiday would lead to an employment boon in the United States, even though a similar move in 2005 had no such effect.

What the Post article did not mention is that, while companies don’t have to disclose how many of their workers are based overseas, they do have to report how much of their non-financial “long-lived” assets are located abroad. This requirement stems from segment reporting rules established by the Financial Accounting Standards Board. The information is usually buried in the notes to the company’s financial statement.

Assets are a reasonable proxy for headcount in assessing the extent to which large U.S. corporations are placing more of their bets on foreign countries such as China and India rather than the US of A.

For a quick case study of asset exporting, I took a look at the financial statements of the publicly traded companies included on the list of supporters on the WinAmerica website. I examined the domestic/foreign split for assets in 2010 and compared it to that of a decade earlier.

Take the five big tech companies on the list: Apple, Cisco, Google, Microsoft and Oracle. From 2005 to 2010 their combined foreign assets grew by 329 percent, a rate more than one-fifth faster than the increase in their domestic assets. The most remarkable increase in foreign assets occurred at Google—a more than tenfold jump to $2.3 billion. Apple’s overseas properties increased fourfold to $710 million.

At some companies the portion of total long-lived assets held abroad is soaring. At Oracle, for instance, the figure last year reached 39 percent, up from 21 percent five years earlier.

High foreign assets levels are not limited to this group of tech giants. Pfizer has 43 percent of its assets outside the United States, Hewlett-Packard 45 percent and IBM has just over half. Even more remarkable is the case of General Electric: its foreign assets total $48.6 billion — nearly three times the $17.6 billion held at home.

GE is one of the dwindling numbers of large companies that provide a geographic breakdown of their workforce. Last year 54 percent of the company’s headcount was foreign-based — up from 42 percent a decade ago. During the ten-year period, GE added 62,000 employees abroad and only 2,000 at home.

Both in terms of their investment practices and their hiring patterns, companies such as GE have to a great extent given up on the United States even as they continue to cook up new schemes for tax breaks that will supposedly spur domestic hiring.

The trend has been long in the making. As early as the 1980s, GE made it clear it viewed itself as a global company not tethered to the U.S. In fact, the CEO at the time, Jack Welch, liked to say that, ideally, factories would be built on barges that could easily be moved from one country to another in quest of the lowest wages and weakest regulation. These days companies like GE don’t even consider docking their barges in the United States.

 

Billionaires, Blowhards and Bribery

Friday, March 11th, 2011

Billionaire Sheldon Adelson

The bond between David Koch and Scott Walker is not the only relationship between a reactionary billionaire and a rightwing politician contaminating the U.S. political scene. Attention also needs to be paid to what’s going on between Sheldon Adelson and Newt Gingrich.

Adelson — the fifth wealthiest person in the United States, with a net worth estimated by Forbes at $23 billion — has made a major bet on Gingrich. Since 2006 he has contributed $7 million to Gingrich’s fundraising entity American Solutions for Winning the Future. Through this 527 vehicle (and a regular political action committee with the same name), Gingrich is raking in loads of cash as he teases the country about whether he plans to run for President while mouthing off with a variety of reckless policy pronouncements.

The American Solutions website has a section labeled Corruption. In January a post there announced a new feature called Corrupt Report that was supposed to monitor news of misbehavior “regardless of political party.” Somehow the site has failed to cover the recent disclosure by Adelson’s company, Las Vegas Sands, that it is being investigated by both the Securities and Exchange Commission and the U.S. Justice Department for possible violations of the Foreign Corrupt Practices Act. The Nevada Gaming Control Board is also said to be looking into the matter.

The investigations presumably involved Adelson’s four casinos in Asia — three in China-controlled Macao and one in Singapore — where Las Vegas Sands has branched out from its U.S. gambling operations.

It will be interesting to see how a gambling-related bribery scandal affects the political prospects of Gingrich, who already has the burden of reconciling his “family values” rhetoric with the fact that he has been twice divorced.

Adelson’s support for Gingrich is far from his only foray into conservative politics. Like a number of other billionaires, he seems to have built his reactionary views on a foundation of anti-union animus. This began in the late 1990s, after Adelson purchased the Sands hotel and casino in Las Vegas — the former hangout of Frank Sinatra and the Rat Pack — and tore it down to make way for the gargantuan Venetian gambling emporium.

The Sands had been a unionized operation, but Adelson refused to recognize the Culinary Workers at the Venetian. When union supporters picketed in front of the casino, he tried to have them arrested, setting off a legal battle that lasted for a decade. More recently, Adelson was an outspoken foe of the Employee Free Choice Act, and today the Las Vegas Sands brags in its 10-K filing that none of the workers at its casinos are covered by collective bargaining agreements.

In 2007 Adelson founded  Freedom’s Watch, an advocacy group that tried to build support for the Bush Administration’s surge strategy in Iraq, beat the drum on what it called the “Iranian Threat” and which in 2008 was being touted as the right’s answer to MoveOn.org — a claim that somehow missed the distinction between a group funded by large numbers of small contributions and one bankrolled mostly by a single multi-billionaire. Despite that money, Freedom’s Watch was a short-lived flop.

Adelson also became active in Israel, where he started a conservative newspaper and became a leading backer of rightwing politicians, especially Prime Minister Benjamin Netanyahu. He has also been an apologist for the repressive Chinese government, which allowed him to build his lucrative casinos in Macao.

At times Adelson has been called the Right’s answer to George Soros. The difference is that Adelson’s political views serve his financial self-interest, especially when it comes to paying taxes. According to a 2008 profile of the gambling magnate in The New Yorker, Adelson once said to an associate: “Why is it fair that I should be paying a higher percentage of taxes than anyone else?”

It’s amazing that Adelson, whose only higher education came from a stint at the tuition-free City College of New York, can forget that progressive taxation (or what’s left of it) is what pays for the public institutions and infrastructure that help people like him succeed.

Even more dismaying than billionaires’ deluding themselves into thinking that they are completely self-made is the fact that they can now use large amounts of their undertaxed wealth to promote policies that make life ever more harsh for the rest of us.

Mubarak’s Foreign Corporate Backers

Thursday, February 3rd, 2011

Pro-Mubarak thugs charged into Tahrir Square on horses and camels in an effort to save the embattled Egyptian dictator. It was not long ago that the regime was being propped up by a different breed of supporter: foreign investors arriving on corporate jets with billions of dollars in capital.

Long overdue attention is being paid to the foreign arms contractors that have equipped the Egyptian military with weapons funded by U.S. aid programs. Also deserving of close scrutiny are the major U.S. and European corporations that have invested heavily in Egypt, thereby shoring up the regime. Here are some of the main culprits.

BP. Formerly known as British Petroleum, BP has a long history in the Middle East in general and Egypt in particular. The company’s website makes no bones about its huge involvement in Egypt during the Mubarak regime: “BP Egypt has been a significant part of the Egyptian oil and gas industry for more than 44 years. During this time, we’ve been responsible for almost half of Egypt’s entire oil production and we are the single largest foreign investor in the country…Over the years we’ve established strong relationships with the Egyptian Government and the Ministry of Petroleum.” In July 2010 BP agreed to sell some of its Egyptian assets to Apache Corporation as part of a divestment effort to raise funds to pay for the cleanup of its massive oil spill in the Gulf of Mexico.

Nestlé. Just a week before protests broke out in Cairo, this Swiss food giant announced that it would invest some $170 million to expand its existing factories and distribution centers in Egypt, adding 500 new jobs to its 3,000-person workforce. After the announcement, the country’s Ministry of Investment put out a press release quoting Nestlé’s CEO as saying that the move was based on studies “that had proven Egypt to be a promising market with security, stability and high profitability in the long term.”

Procter & Gamble. In June 2010 P&G laid the cornerstone on a huge new diaper manufacturing plant outside Cairo. The $176 million facility would nearly double the value of P&G’s operations in Egypt, which currently involve the production of products such as detergents, soaps and other personal care products.

Electrolux. The Swedish appliance company announced last October that it would spend about $475 million to buy a controlling interest in Egypt’s Olympic Group, the largest producer of household appliances in the Middle East and North Africa.

Saint-Gobain. In July 2010 the large French construction materials firm opened a $100 million glass production plant in Ain El Sokhna on Egypt’s Red Sea coast.

PepsiCo. In December 2009, International Dairy and Juice Limited, a joint venture between PepsiCo and Almarai, announced that it had acquired Egypt’s International Company for Agro-Industrial Projects (Beyti).

Deals such as these – some of which are now on hold – helped to make Egypt the second largest recipient of foreign direct investment among African nations (behind Angola). In 2008 the U.S.-based National Outsourcing Association named Egypt its “Outsourcing Destination of the Year.”

The appeal of Egypt for foreign investors is not just better access to a market of 80 million consumers. As in China, a repressive political environment has weakened the power of labor and kept down wages to the advantage of major employers, both foreign and domestic.

Egyptian workers have been attempting to build a movement that would help raise their standard of living. A series of labor protests helped pave the way for the current uprising. The group that is credited with sparking the revolt, the April 6 Movement, takes its name from the effort to support workers who launched an aborted general strike in 2008. Hundreds of workers took to the streets of Cairo last May to call for an increase in the country’s pitiful minimum wage while also calling for an end to Mubarak’s rule. And amid the current revolt, Egyptian workers formed a new independent labor federation.

Large corporations try to have it both ways. They promote the view that the expansion of “free” markets goes hand-in-hand with the growth of free societies, yet they do not hesitate to do business in the most repressive societies. And they are quick to take advantage of repression’s side effects, above all weak unions.

However the uprising in Egypt turns out, it has served to highlight the hypocrisy not only of the U.S. government but also that of big business when it comes to selective support for democracy. And like the Obama Administration, major corporations will have to scramble to avoid ending up on the wrong side of history.

U.S. Workers Face Chinese Employers

Thursday, January 20th, 2011

Much of the discussion of Hu Jintao’s visit to the United States is focused on China’s treatment of its dissidents and its workers, but another issue is becoming increasingly important: the treatment of U.S. workers by the Chinese companies that are rapidly expanding their presence in the United States.

Hu’s decision to include a stop in Chicago is not meant primarily as an homage to President Obama’s hometown. He wants to spotlight a Chinese-owned company called Wanxiang America, which from its suburban Chicago headquarters has built an auto parts and renewable energy conglomerate that has become the largest example of direct foreign investment in the U.S. from the People’s Republic.

Until recently, China accounted for a negligible portion of overseas money flowing into the American economy. But in the past two years there has been an enormous influx. The Washington Post cites a consulting company estimate that the Chinese stake has jumped to $12 billion since the beginning of 2009.

There’s every indication that number will continue to rise rapidly. The Chinese government is encouraging the trend to help protect its access to American markets, and the job-hungry U.S. seems to no longer have any of the objections that thwarted the efforts of Chinese companies to buy the oil company Unocal and the appliance firm Maytag a half dozen years ago.

Many U.S. observers are celebrating the arrival of Chinese capital, but this is actually a very dismaying state of affairs. The fact that companies from a country in which many workers are paid near-starvation wages find it economical to produce here says a lot about the dismal state of labor in the United States. The anti-union hostility of American employers has forced down pay rates in this country to the point that the U.S. is now considered a low-wage haven, at least among the countries of the developed world.

There’s no indication that investors coming from a dictatorship of the proletariat will do anything to reverse the decline of U.S. workers’ power. If anything, they will follow the pattern of companies from heavily unionized countries in Europe and Asia that eagerly embrace the culture of union-busting once they arrive on these shores.

Chinese investment in U.S. industry has already shown signs of anti-union animus. Not long after China International Trust and Investment Corp. (CITC) took over bankrupt Phoenix Steel in Delaware back in 1988 with the support of the United Steelworkers, the new operation, named CitiSteel, refused to recognize and bargain with the union, which had represented the Phoenix workforce for decades.

And when appliance-maker Haier Group became the first large Chinese company to build a factory from scratch in the United States, it chose South Carolina, one of the states most hostile to labor unions. In subsequent years, Chinese firms have continued to concentrate on right-to-work states. For example, Tianjin Pipe is planning to build a $1 billion production facility in Texas.

Today’s U.S. affiliates of Chinese companies are not entirely non-union. Wanxiang America has taken over unionized auto parts operations being shed by major U.S. companies, but many United Autoworkers members depart during the buyouts and other workforce reductions that accompany the change in ownership. The UAW has also survived GM’s sale of Nexteer Automotive to China’s Pacific Century Motors—a deal that went through after union members approved a contract that cut wage rates.

The ability of these companies to maintain good relations with their unions will depend in part on whether they engage in the kind of restructuring ploys favored by U.S. employers. It was not an encouraging sign when Neapco Components, an affiliate of Wanxiang America, announced last year that it was shutting down its manufacturing plant in Pottstown, Pennsylvania and transferring the operation to Nebraska, where state officials arranged for the company to get $1 million in federal stimulus funds to underwrite the move.

The larger labor relations challenge is the inevitable clash between Chinese and U.S. workplace cultures. Even in non-union companies, U.S. workers are used to a certain level of respect for individual rights. Many Chinese firms retain the remnants of a repressive collectivism. The Haier plant in South Carolina, for instance, is festooned with motivational banners exhorting workers to “make the impossible possible without an excuse.” The original Chinese managers there caused resentment by chastising individual workers for slip-ups in front of the entire workforce.

It remains to be seen how U.S. workers take to the pseudo-Maoism of contemporary Chinese business, but there’s no question that the rise of Chinese investment is another strong argument for the revival of an aggressive U.S. labor movement.

The Real Cost of Obama’s Trip to India

Friday, November 5th, 2010

The rightwing media machine is up in arms about a dubious report that the cost of President Obama’s trip to India will turn out to be more than $200 million a day, for a 2,000-person entourage. The White House calls the cost figure wildly inflated.

The manufactured controversy about cost is taking attention away from what should be the main story: who is accompanying the President on the trip and what do they hope to get out of it. A big part of Obama’s entourage will be scores of top U.S. corporate executives, who are seeking Obama’s help in initiating or finalizing big deals with the Indian government and Indian corporations. Numerous other U.S. companies are not sending executives on Obama’s trip but are still hoping the visit will advance their interests in India.

Among the deals that have been reported are: the sale of ten military transport planes worth some $5 billion by Boeing and the sale of $800 million in fighter jet engines to the Indian military and $500 million in heavy duty gas turbines to India’s Reliance Energy, both by General Electric. Other dealmakers are said to include Eaton Corp., John Deere, Caterpillar and Harley-Davidson.

In other words, a President endlessly denounced by the Right as a socialist, is serving as a shill for some of the country’s largest corporations. This is far from the first time an American president has acted as salesman-in-chief for American products, and the White House makes no apologies for the trip, claiming that it will result in the creation of thousands of jobs.

The problem is that it is far from clear that landing big deals for U.S.-based corporations will result in many jobs for U.S. workers. The list of companies with executives going to India with President Obama (or that stand to benefit from the trip) include some of the most notorious practitioners of offshore outsourcing.

Take the two heaviest hitters on the trip. Boeing has made a science of shifting work from its traditional manufacturing operations around Seattle to factories around the world. It has clashed repeatedly with its unionized workers over the issue. And when it’s not sending jobs abroad, it moves them to domestic non-union plants, such as its big new operation in South Carolina.

General Electric is another unabashed offshorer. In the early 1990s about one-quarter of the company’s employees were outside the United States; at the end of last year, 56 percent of them were. What’s especially frustrating is that GE is offshoring jobs in emerging fields such as renewable energy, thus depriving many American workers of a shot at the jobs of the future.

Eaton, a diversified manufacturer of industrial products, now has 27 facilities in China with some 10,000 workers as well as four research and development centers in the country. In April, John Deere opened a manufacturing plant and parts distribution center in Russia. It already had factories in low-wage countries such as Brazil, China, Ecuador, India and Mexico. Caterpillar has eight plants in China, eight in Mexico, three in India and many more in other countries. It recently opened a logistics center in China to support what a company press release called its “growing manufacturing footprint” in that country.

Harley-Davidson is an icon of U.S. manufacturing, but it just announced plans to open a new plant in India to assemble U.S.-made motorcycle kits. It is unclear whether this will increase or decrease jobs at the company’s American plants, which have been exporting fully assembled motorcycles to the Indian market.

It’s true that these companies have to do a certain amount of production in countries such as China and India to sell to local customers, yet it is also undeniable that these firms and others seeking benefits from Obama’s trip have been reducing manufacturing operations in the United States that previously supplied goods for both domestic and foreign markets.

There is no guarantee that the jobs Obama hopes to generate with his sales trip to India will end up going to Americans. The companies whose wares he is promoting are in many cases American only in terms of where their headquarters are located. They are all too willing to destroy the livelihood of U.S. workers in their global pursuit of cheaper labor and fatter profits.

That kind of behavior costs this country much more than what the President’s delegation could ever spend on its trip to India.

Tracking Corporate Traitors

Friday, October 8th, 2010

Not too many years ago, America was up in arms about offshore outsourcing. The news media were filled with reports of the wholesale migration of both white collar and industrial jobs to low-wage havens in Asia. The mood of panic was reflected in articles such as the March 2004 Time magazine cover story Is Your Job Going Abroad?

For most people these days, the outsourcing controversy has largely been forgotten or recalled only in the context of the new NBC sitcom situated in an Indian call center.  But for the folks at the AFL-CIO, offshoring is neither a laughing matter nor a thing of the past. The labor federation and its community affiliate Working America have just released both a report and a database showing that the corporate practice of shifting jobs from the United States to cheaper foreign locales is still a burning issue for American workers and the American economy.

The report cites evidence that the use of offshoring is expanding in corporate America, though many companies have learned to be more discreet about it. The true extent of the job migration is difficult to determine, the report notes, because federal statistical agencies such as the Bureau of Labor Statistics and the Bureau of Economic Analysis are not set up to measure this kind of phenomenon accurately.

For those less inclined toward policy briefs and more concerned about conditions in their community, the AFL and Working America also released a new version of their Job Tracker database. It allows one to plug in a Zip code and see a Google map with pushpins indicating workplaces that have experienced job flight, as indicated by WARN Act filings, Trade Adjustment Assistance certification and other data sources. Job Tracker also shows which workplaces have been hit with health and safety violations (from the OSHA database), labor law violations (from the NLRB database) and employment discrimination violations (from the database of the Office of Federal Contract Compliance Programs).

This is a great resource for researching bad employers, whether or not they are moving jobs offshore. The site also has a feature allowing a user to recommend a company that should be featured on Job Tracker. It would be great to see it expanded even more to cover other forms of regulatory violations as well as key data such as government contracts and subsidies.

The Job Tracker is handy for finding out how employers in specific locations export jobs, but it is also helpful to see aggregate figures for corporate behemoths. The AFL/Working America report mentions the case of IBM, whose U.S. workforce dropped from more than 40 percent of the company’s worldwide total in 2005 to just over a quarter in 2009.

IBM is far from unique. Based on figures from its 10-K SEC filings, the U.S. share of General Electric’s workforce dropped from 51 percent at the end of 2005 to 44 percent at the end of 2009. During the same period, the U.S. share at Caterpillar fell from 52 percent to 46 percent. Even at Wal-Mart, celebrated for creating American jobs (such as they are), the U.S. share declined from 72 percent to 67 percent. For many corporations it is not possible to measure the trend, given that they choose not to give a geographic breakdown of employment in their 10-K or annual report.

The tendency of large U.S.-based corporations to invest and create low-wage jobs abroad is not a new story. But the decision by such companies to expand employment overseas at the expense of U.S. jobs during a period of severe recession at home amounts to a form of economic treason. In this way, the Job Tracker is not just a database but also a corporate crime detector.

European Companies Behaving Badly

Thursday, September 9th, 2010

Many American workers are irate these days about the jobs that are supposedly being taken away from them by undocumented foreign laborers. A new report from Human Rights Watch shows that the real threat to our living standards may come not from Mexican farmworkers, chambermaids or carwashers but from another group of “illegal” immigrants: European transnational corporations investing in the United States.

These companies – which include the likes of T-Mobile parent Deutsche Telekom, DHL Express parent Deutsche Post, French construction materials giant Saint-Gobain and Britain’s Wal-Mart rival Tesco – are illegal in the sense that they fail to comply with international labor norms when it comes to their U.S. operations.

Human Rights Watch, usually preoccupied with the mistreatment of dissidents and others in countries such as the Democratic Republic of Congo, Senegal and Kyrgyzstan, has not hesitated to point out that when it comes to the workplace, the United States is far from a paradigm of respect for individual rights. In 2000 it published a report called Unfair Advantage, which showed how workers’ freedom of association is routinely violated by employers.

Its new report, titled A Strange Case, shows how this pattern of abuse is practiced not only by domestic companies used to a climate of lax labor enforcement, but also by European companies that have much friendlier relations with unions in their home countries and that claim to abide by the principles regarding labor rights included in the declarations and conventions of the International Labor Organization, the Organization for Economic Cooperation and Development, and other global bodies.

Noting that these companies “exploit the loopholes and shortcomings in U.S. labor law” to engage in union avoidance and unionbusting practices, the report states: “The European Dr. Jekyll becomes an American Mr. Hyde.” Another way of putting it is that these companies behave like proper Westerners who indulge in sex with children when traveling to Southeast Asia: they are willing to do things abroad that they would never consider at home.

The Human Rights Watch report documents intimidation tactics used, for example, by T-Mobile in response to an organizing drive led by the Communications Workers of America and by DHL Express in response to a drive launched by the American Postal Workers Union. It also shows how European companies have tried to remove unions already organized, such as the decertification effort by Saint-Gobain against the United Auto Workers at a plant in Massachusetts.  Other case studies show how companies such as Norway’s Kongsberg Automotive use tactics such as the lockout of union workers during contract negotiations that, as the report puts it, are “unheard of in Europe.”

The report points out that these European companies exploiting the lax U.S. labor rights environment are invariably ones that profess to be practitioners of corporate social responsibility (CSR) and that claim to have policies of cooperating with worker organizations throughout their operations. This, along with the fact that environmental criminals such as BP can claim to be CSR advocates, shows that the organizations that rate firms on corporate responsibility have to do a lot more than take company statements at face value.

Although the Human Rights Watch report doesn’t address it, another factor in the ability of European companies to behave badly in the United States is the unwillingness of the unions in their home countries to take aggressive action on this issue. Some of those unions have spoken out forcefully in support of their beleaguered American cousins, but that has not been enough to stop the abuses.

Yet the central problem is not CSR hypocrisy or inadequate labor solidarity, but rather the dismal condition of labor law in the United States. It would be nice if European companies decided on their own accord to treat American workers as they do employees at home, but even better would be if the federal government compelled both foreign and domestic companies to respect the collective bargaining rights of all U.S. workers.

A “Poster Child for Corporate Malfeasance”

Thursday, March 25th, 2010

One of the cardinal criticisms of large corporations is that they put profits before people. That tendency has been on full display in the recent behavior of transnational mining giant Rio Tinto, which has shown little regard for the well-being not only of its unionized workers but also of a group of executives who found themselves on trial for their lives in China.

The China story began last July, when four company executives — including Stern Hu, a Chinese-born Australian citizen — were arrested and initially charged with bribery and stealing state secrets, the latter offense carrying a potential death penalty. The charges, which most Western observers saw as trumped up, were made during a time of increasing tension between Rio and the Chinese government, one of the company’s largest customers, especially for iron ore.

Earlier in the year, debt-ridden Rio had announced plans to sell an 18 percent stake in itself to Chinalco, the state-backed Chinese aluminum company, for about $20 billion. Faced with strong shareholder and political opposition, Rio abandoned the deal in June 2009. The arrests may have been retaliation by the Chinese for being denied easier access to Australia’s natural riches.

Although Rio claimed to be standing by its employees, the case did not curb the company’s appetite for doing business with the deep-pocketed Chinese. Rio continued to negotiate with Beijing on large-scale iron ore sales. It seems never to have occurred to the company to terminate those talks until its people were freed. In fact, only weeks after the arrests, Rio’s chief executive Tom Albanese was, as Canada’s Globe and Mail put it on August 21, “trying to repair his company’s troubled relationship with China.”

Before long, Rio was negotiating with Chinalco about participating in a copper and gold mining project in Mongolia. One thing apparently led to another. In March 2010 — after its still-imprisoned employees had been officially indicted and were about to go on trial — Rio announced that it and Chinalco would jointly develop an iron ore project in the West African country of Guinea.

When that trial began a couple of weeks later, the Rio managers admitted guilt, but not to the more serious charge of stealing trade secrets. Instead, they said they had engaged in bribery — but as recipients rather than payers. While the four defendants may have been guilty of some impropriety, it is likely that the admissions were a calculated move to gain a lighter sentence in a proceeding whose outcome was predetermined. And that was the case in large part because their employer decided that its business dealings were more important than demanding justice for its employees.

Rio is no more interested in justice when it comes to its operations outside China. It has been accused of human rights violations in countries such as Indonesia and Papua New Guinea. And it has a track record of exploiting mineworkers in poor countries such as Namibia and South Africa while busting unions in places such as Australia. Recently, Rio showed its anti-union colors again in the United States.

On January 31 its U.S. Borax subsidiary locked out more than 500 workers at its borate mine in Kern County, California. The workers, members of Local 30 of the International Longshore & Warehouse Union had the audacity of voting against company demands for extensive contract concessions. The company wasted no time busing in replacement workers.

In a press release blaming the union for the lockout, U.S. Borax complained that ILWU members earned much more than workers at the company’s main competitor Eti Maden. The release conveniently fails to mention that Eti Maden’s operations are in Turkey.

Also missing from the company’s statement is the fact that the biggest driver of demand for boron – a material used in products ranging from glass wool to LCD screens – is the Chinese market. If U.S. Borax busts the ILWU in a way that keeps down boron prices, then the ultimate beneficiary may be Rio Tinto’s friends in China.

It is no surprise that mining industry critic Danny Kennedy once wrote that Rio Tinto “could be a poster child for corporate malfeasance.”

The Risk of Green Offshoring

Thursday, March 4th, 2010

The United States may be indirectly subsidizing the movement of renewable-energy equipment production to low-wage havens such as China and India. That’s the finding of a new report just released by the Apollo Alliance and Good Jobs First. I co-authored the report in my capacity as the research director of Good Jobs First.

My responsibility was to analyze the recipients of Advanced Energy Manufacturing Tax Credits, a component of the American Recovery and Reinvestment Act. The program, also known as 48C because of its place in the Internal Revenue Code, provides a tax credit equal to 30 percent of the value of investments in new, expanded or re-equipped facilities in the United States that produce materials used in renewable energy generation or carbon capture.

In January the Obama Administration released of list of 183 projects in 43 states that had been approved for the initial $2.3 billion round of credits. Obama’s new budget calls for expanding the program by $5 billion.

I focused on the 116 projects involving wind and solar, the two forms of renewable energy that have the most growth potential. Those projects received $1.6 billion, or 68 percent, of the total 48C credits. There are 90 unique parent companies involved (some firms have more than one project).

While the 48C projects themselves are all located in the U.S., many of the companies are also investing in wind and solar manufacturing facilities in other countries. This is not surprising, given that 25 of the 90 firms are based outside the United States, mostly in Europe and Scandinavia. They have operations in their home countries as well as other in developed economies.

What I examined, instead, was the extent to which both the U.S. and foreign 48C recipients are also expanding output in the low-wage countries we typically refer to in discussing offshoring. It turns out that a quarter of them are doing so.

Most of these are companies from places such as Germany and Spain that are leaders in the global clean-energy manufacturing market—the likes of Gamesa, Nordex, Siemens and Winergy. Thirteen foreign 48C recipients produce in China, three in India and two in Mexico. There are also six U.S.-based 48C recipients with operations in China, Mexico, Malaysia and the Philippines.

In total, the U.S. has awarded $458 million in advanced energy tax credits to 23 companies that are also investing money and creating jobs in low-wage nations.

One might argue that companies have to produce abroad in order to supply foreign markets, especially in a booming economy such as China. Yet I found that some of the 48C recipients have adopted a business model that relies heavily on low-wage production for serving global markets. Here are three examples:

Advanced Energy Industries Inc. (based in Colorado; received $1.2 million in 48C credits). In its most recent 10-K annual report, the company states: “The majority of our manufacturing is performed in Shenzhen, China, where we produce our high-volume products. The remainder of our manufacturing locations, in Fort Collins, Colorado; Hachioji, Japan; and Vancouver, Washington, perform low-volume manufacturing, service and support.”

First Solar Inc. (based in Arizona; received $16.3 million in 48C credits). In December 2009 the company announced plans for the addition of eight production lines for its solar module manufacturing operation in Kalim, Malaysia. The Malaysian operation was already more than ten times the size (in square footage) of First Solar’s original plant in Perrysburg, Ohio.

SunPower Corporation (based in California; received $10.8 million in 48C credits). Although 90 percent of SunPower’s sales come from the United States and Europe, it has been doing almost all of its manufacturing in Asia. It produces solar cells at two facilities in the Philippines and is developing a third solar cell manufacturing facility in Malaysia. Almost all of its solar cells are combined into solar panels at the company’s solar panel assembly facility in the Philippines. Other solar panels are manufactured for the company by a third-party subcontractor in China.

Given their preoccupation with offshoring, there is a significant risk that such firms will follow in the footsteps of Evergreen Solar, which is not on the 48C list but which received some $44 million in state subsidies for its plant in Devens, Massachusetts. In November 2009 the company announced that it would transfer its solar-panel assembly operations from Devens to a plant in China.

Using programs such as the Advanced Energy Manufacturing Tax Credit to try to encourage renewable-energy companies to invest in the United States is good policy. But does it make sense to include firms that have put their primary emphasis on offshoring and may be using their 48C projects as little more than fig leaves to obscure where they are putting the bulk of their money? Are U.S. taxpayers indirectly subsidizing those foreign operations?

At the very least, the Apollo Alliance/Good Jobs First report recommends, the federal government should employ a clawback mechanism so that any company that later shifts its 48C jobs offshore would have to reimburse the Treasury for the tax credit. We also need to explore other ways of making sure that workers in the United States and other developed countries are not denied a place in the clean-energy manufacturing sector of the future.