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Wal-Mart and Disney: Two Varieties of Corporate Irresponsibility

Thursday, May 16th, 2013

toysfromhellIt’s difficult to decide which company is acting in the more irresponsible fashion in the wake of the terrible Rana Plaza industrial accident in Bangladesh: Wal-Mart, which continues to source goods from the country but refuses to join a group of other companies in signing a binding agreement to improve factory conditions; or Disney, which simply decided to end its use of suppliers in Bangladesh and several other countries.

Both companies have a dismal record when it comes to sourcing from poor countries. Wal-Mart has been embroiled in controversies regarding labor practices by its foreign suppliers since at least 1992, when media outlets such as NBC’s Dateline reported that some of the company’s Asian suppliers were making use of illegal child labor.

In 2005 the International Labor Rights Fund filed suit against Wal-Mart in federal court in Los Angeles, charging that employees of the company’s suppliers in China, Bangladesh, Indonesia, Swaziland and Nicaragua were forced to work overtime without pay and in some cases were fired for supporting union organizing efforts. Unfortunately, the case was thrown out on legal technicalities.

After a November 2012 fire at a Bangladeshi garment factory supplying Wal-Mart and other Western companies killed more than 100 workers, the Wall Street Journal found that the factory managed to continue working for Wal-Mart despite third-part inspections that had raised concerns about fire safety.

Disney has been targeted over conditions in its foreign supplier factories since 1996, when a report published by the National Labor Committee (now the Institute for Global Labour and Human Rights) alleged that clothing contractors in Haiti producing “Mickey Mouse” and “Pocahontas” pajamas for U.S. companies under license with Disney were in some cases paying as little as 12 cents an hour, below the minimum wage in that country.

In a follow-up report, the group found that the contractors had raised wages to the legal minimum of about 28 cents an hour but said this still left workers living “on the edge of misery,” especially since they were often short-changed by employers.

Over the following two decades, groups such as China Labor Watch and Hong Kong-based Students and Scholars Against Corporate Misconduct (SACOM) have produced a steady stream of reports documenting abuses in Disney supplier factories, especially in China, concerning wages, working conditions and safety. The company has generally brushed off the criticism, saying it could not possibly monitor all of the facilities. It even refused to release a list of its supplier factories.

It thus comes as no surprise that neither Disney nor Wal-Mart is playing a constructive role in helping prevent a repetition of disasters like Rana Plaza. In the case of Wal-Mart, it is likely that the key reasons for its refusal to join with companies such as H&M and Carrefour are that the agreement they signed is legally binding and that international labor federations such as IndustriALL and UNI were involved in making the accord happen. Bangladeshi unions are also signatories to the agreement.

Wal-Mart, of course, is notorious for its aversion to any form of cooperation with unions (except the subservient ones in China). In its dealings with community groups and other non-profits, the company is equally infamous for avoiding binding agreements—preferring to give itself the ability to wiggle out of any commitments it may pretend to make. The National Retail Federation, which shares Wal-Mart’s attitude toward unions, defiantly rejected the accord, while The Gap justified its refusal to sign by warning of the possibility of lawsuits. In other words, like Wal-Mart, it apparently wants an agreement that will do little more than burnish its corporate image.

Disney is acting as if it can simply wash its hands of the problems in Bangladesh by cutting off its suppliers in that country. That does nothing to help the workers who had grown dependent on the jobs its licensees had created, as bad as they were. Liana Foxvog of Sweatfree Communities and Judy Gearhart of the International Labor Rights Forum got it right when they published a column on the New York Times website calling the move “shameful.”

The accord is an important step forward in addressing both the immediate problem of industrial safety in Bangladesh and in starting to make large corporations truly responsible for ameliorating the brutal working conditions they all too often help create in countries with large numbers of desperate workers.

Note: This piece draws from my new Corporate Rap Sheet on Disney, which can be found here.

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Posted in Globalization, Supply Chain, Unions, Workplace Safety & Health | No Comments »

Extraction and Disclosure

Thursday, August 23rd, 2012

The U.S. Securities and Exchange Commission often behaves like a watchdog with no teeth, but it has just stood up to intense pressure from big business and finally approved two rules that will shine a light on dealings between some of the world’s largest corporations and the poor countries from which they extract vast amounts of natural resources.

One of the final rules will require companies engaged in resource extraction to report on all payments to foreign governments, such as taxes, royalties, fees and presumably bribes. The other will require companies to disclose their use of certain resources originating in the Democratic Republic of Congo, where warring groups that have committed frequent human rights violations finance themselves through the sale of what are known as conflict minerals, which can end up being used in the production of goods ranging from jewelry to iPhones.

These rules derive from some of the lesser known provisions of the 2010 Dodd-Frank financial reform legislation, which the corporate world has been seeking to undermine in the rulemaking process after losing in Congress. Business lobbyists have fought the same kind of rear-guard action against the disclosure requirements that they have mounted in opposition to the central portions of Dodd-Frank.

Comments submitted to the SEC by companies and trade associations were filled with the usual kneejerk criticisms of regulation and far-fetched claims about potential harm. The American Petroleum Institute warned that public disclosure of “unnecessarily detailed information” on foreign payments would place companies at a competitive disadvantage and “jeopardize the safety and security of our member companies’ operations and employees.”

Exxon Mobil seconded API’s positions but also threw in the preposterous argument that the disclosure rule could be harmful by “inundating and confusing investors with large volumes of data.” Chevron argued that the information should be submitted to the SEC on a confidential basis, and the agency would then make public only aggregate amounts by country. It also urged the SEC to limit reporting to payments of a “material” amount, which would have meant that only huge ones would be revealed.

It takes a lot of chutzpah on the part of Chevron and Exxon Mobil to resist greater transparency, given that predecessor companies of theirs were at the center of the scandals that first brought the issue of questionable foreign payments to national attention in the 1970s.

Congressional investigations of the Nixon Administration’s Watergate crimes also brought to light widespread corruption by major corporations in the form of illegal campaign contributions and payoffs to foreign government officials. Under pressure from the SEC, these companies investigated themselves and disclosed what they found.

Exxon (prior to its merger with Mobil) admitted to making more than $50 million in foreign payments that were illegal, secret or both. Gulf Oil (which later merged into what is now Chevron) admitted to more than $4 million in such payments, including $100,000 used to purchase a helicopter for one of the leaders of a military coup in Bolivia. Smaller oil companies also spread around the cash. Ashland Oil, for example, paid $150,000 to the president of Gabon to retain extraction rights.

Foreign payoffs were not unique to the oil industry. Aerospace giant Lockheed disclosed more than $200 million in questionable payments, while its competitor Northrop admitted to $30 million. The revelations extended to numerous other sectors as well.

These revelations seriously tarnished the image of big business and paved the way to the enactment of the Foreign Corrupt Practices Act. They were also a big part of the impetus for the modern corporate accountability movement, which has put expanded disclosure at the center of its reform agenda.

It is thus no surprise that corporate accountability and human rights groups—many of which participate in the Publish What You Pay coalition—promoted the inclusion of the disclosure provisions in Dodd-Frank and welcomed the SEC’s vote to move ahead with the rules. Yet there is frustration that on several points the agency caved in to industry pressure. Global Witness, for instance, said it was “extremely disappointed” that the final rule concerning conflict minerals gives larger companies two years and smaller ones four years to determine the origin of the minerals they use.

The SEC also acceded to the demands of giant retailers such as Wal-Mart and Target that they be exempt from conflict minerals reporting requirements relating to products sold as store brands but produced by outside contractors not operating under the retailer’s direct control.

Efforts by large companies to weaken the disclosure rules are yet another sign of how they resist serious regulation in favor of less onerous industry initiatives. Many of those arguing against the proposed SEC rules said they were unnecessary given the existence of the Extractive Industries Transparency Initiative. The EITI is laudable, but it is voluntary and less than fully rigorous.

Business never gives up on its effort to make us think that, despite the prevalence of corporate crime, it can police itself. It has never done so effectively and never will.

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Posted in Corporate Crime, Disclosure, Globalization, Mining Industry, Petroleum Industry | No Comments »

Banking on Boeing

Thursday, May 17th, 2012

Recent passage of a piece of federal legislation on a broadly bipartisan basis was considered unusual enough for the Washington Post to treat it as front-page news. Yet what was most significant about the measure to extend the life of the U.S. Export-Import Bank was not its bipartisanship but rather the way it revealed a profound confusion on the part of both major political parties about how the federal government should relate to big business.

The fate of the Ex-Im Bank, which for decades has served mainly as a tool to promote exports by large U.S. manufacturers, had come into question after it was targeted by tea party types in Congress. While conservatives are usually inclined to do everything possible (short of bailouts) to assist corporations, many had come to accept the view that the Ex-Im Bank was an unjustified form of government intervention. Utah Senator Mike Lee denounced the bank’s operations as “corporate welfare that distorts the market and feeds crony capitalism.”

Supposedly anti-corporate Congressional Democrats joined with the likes of the U.S. Chamber of Commerce and the National Association of Manufacturers to defend the Ex-Im Bank. House Democratic Leader Nancy Pelosi said that Congress had to send “a strong signal to American businesses: we will help them get their products into markets abroad, and in doing so, we will create jobs here at home.” Independent Vermont Senator Bernie Sanders, on the other hand, maintained his long-time opposition to the bank.

In the end, the corporatist wings of the two major parties prevailed, but not before the Ex-Im Bank had been pummeled by conservatives who had begun denouncing the institution as “Boeing’s Bank.” They have a valid point. A huge portion of the agency’s resources have long been devoted to that one company. If you look at the list of loans and long-term guarantees in the bank’s annual report, Boeing’s name shows up repeatedly—more than 40 times last year, far more than any other company. The company got assistance in its deals to sell planes to airlines in more than 20 countries such as Angola, Indonesia and Tajikistan.

The right has assumed the role of Ex-Im Bank critic once occupied by the left. Back in 1974 the anti-imperialist magazine NACLA’s Latin America & Empire Report published a critique of the bank that concluded with the following statement: “Confronted by a world increasingly hostile to U.S. imperialism, strategists will employ the credit levers of the Eximbank in the coming years to punish countries that nationalize American corporations, and to reward those nations that cater to U.S. commercial interests.”

Eliminating Ex-Im Bank’s credit assistance was high on the list of programs proposed for elimination in the Aid for Dependent Corporations reports issued by the Ralph Nader group Essential Information in the 1990s. By that point libertarian groups such as the Cato Institute were also speaking out against the bank and other forms of corporate welfare. Also lining up against the bank were environmental groups concerned about its role—along with that of the Overseas Private Investment Corporation—in enabling hazardous projects such as the Three Gorges Dam in China.

The contemporary right’s misgivings about the Ex-Im Bank have nothing to do, of course, with anti-imperialism or environmental protection—and everything to do with absolutist ideas about the role of government. The problem these conservatives face is that the actual behavior of large corporations frequently bears little resemblance to pure free-market principles.

Boeing, for instance, is not only perfectly willing to accept federal export assistance but has also sought and obtained billions of dollars in state and local economic development subsidies for its U.S. plants. Its decision to locate a Dreamliner production facility in South Carolina garnered a subsidy package estimated to be worth more than $900 million. The company’s hold over the Palmetto State is so strong that it drove a wedge between South Carolina’s two paleo-conservative U.S. Senators during the Ex-Im debate, with Jim DeMint holding to laissez-faire principles while Lindsey Graham warned that eliminating the bank would jeopardize aerospace jobs.

When it comes to labor relations issues, Boeing suddenly turns into an ardent opponent of government. When the National Labor Relations Board took seriously an allegation by the Machinists that the company’s investment in South Carolina was a form of anti-union retaliation, Boeing screamed bloody murder and got support from all of the state’s leading politicians—and most of the corporate world.

It will be interesting to see how conservatives handle this tension between lionizing large corporations and demonizing them. The outcome of the Ex-Im debate suggests that, for now, corporatists retain the upper hand across the mainstream political spectrum.

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Posted in Corporate Lobbying, Corporate Subsidies, Globalization | No Comments »

Wal-Mart and Watergate

Thursday, April 26th, 2012

Wal-Mart has been probably been accused of more types of misconduct than any other large corporation. The latest additions to the list are bribery and obstruction of justice. In an 8,000-word exposé published recently in the New York Times, top executives at the giant retailer are reported to have thwarted and ultimately shelved an internal investigation of extensive bribes paid by lower-level company officials to expand Wal-Mart’s market share in Mexico.

While Wal-Mart’s outrageous behavior is often in a class by itself, the bribery aspects of the allegations are far from unique. In fact, Wal-Mart is actually a late arrival to a sizeable group of major corporations that have found themselves in legal jeopardy because of what in corporate circles are politely called questionable foreign payments.

That jeopardy has grown more significant in recent years as the Securities and Exchange Commission and the Department of Justice have stepped up enforcement of the Foreign Corrupt Practices Act, or FCPA, which prohibits overseas bribery by U.S.-based corporations and foreign companies with a substantial presence in the United States.

It is often forgotten that the Watergate scandal of the 1970s was not only about the misdeeds of the Nixon Administration. Investigations by the Senate and the Watergate Special Prosecutor forced companies such as 3M, American Airlines and Goodyear Tire & Rubber to admit that they or their executives had made illegal contributions to the infamous Committee to Re-Elect the President.

Subsequent inquiries into illegal payments of all kinds led to revelations that companies such as Lockheed, Northrop and Gulf Oil had engaged in widespread foreign bribery. Under pressure from the SEC, more than 150 publicly traded companies admitted that they had been involved in questionable overseas payments or outright bribes to obtain contracts from foreign governments. A 1976 tally by the Council on Economic Priorities found that more than $300 million in such payments had been disclosed in what some were calling “the Business Watergate.”

While some observers insisted that a certain amount of baksheesh was necessary to making deals in many parts of the world, Congress responded to the revelations by enacting the FCPA in late 1977. For the first time, bribery of foreign government officials was a criminal offense under U.S. law, with fines up to $1 million and prison sentences of up to five years.

The ink was barely dry on the FCPA when U.S. corporations began to complain that it was putting them at a competitive disadvantage. The Carter Administration’s Justice Department responded by signaling that it would not be enforcing the FCPA too vigorously. That was one Carter policy that the Reagan Administration was willing to adopt. In fact, Reagan’s trade representative Bill Brock led an effort to get Congress to weaken the law, but the initiative failed.

The Clinton Administration took a different approach—trying to get other countries to adopt rules similar to the FCPA. In 1997 the industrial countries belonging to the Organization for Economic Cooperation and Development reached agreement on an anti-bribery convention. In subsequent years, the number of FCPA cases remained at a miniscule level—only a handful a year. Optimists were claiming this was because the law was having a remarkable deterrent effect. Skeptics said that companies were being more careful to conceal their bribes, and prosecutors were focused elsewhere.

Any illusion that commercial bribery was a rarity was dispelled in 2005, when former Federal Reserve Chairman Paul Volcker released the final results of the investigation he had been asked to conduct of the Oil-for-Food Program in Iraq. Volcker’s group found that more than half of the 4,500 companies participating in the program—which was supposed to ease the impact of Western sanctions on Iraq—had paid illegal surcharges and kickbacks to the government of Saddam Hussein. Among those companies were Siemens, DaimlerChrysler and the French bank BNP Paribas.

The Volcker investigation, the OECD convention, and the Sarbanes-Oxley law (whose mandates about financial controls made it more difficult to conceal improper payments) breathed new life into FCPA enforcement during the final years of the Bush Administration and after President Obama took office.

The turning point came in November 2007, when Chevron agreed to pay $30 million to settle charges about its role in Oil-for-Food corruption. Then, in late 2008, Siemens agreed to pay the Justice Department, the SEC and European authorities a record $1.6 billion in fines to settle charges that it had routinely paid bribes to secure large public works projects around the world. This was a huge payout in relation to previous FCPA penalties, yet it was a bargain in that the big German company avoided a guilty plea or conviction that would have disqualified it from continuing to receive hundreds of millions of dollars in federal contracts.

In February 2009 Halliburton and its former subsidiary Kellogg Brown and Root agreed to pay a total of $579 million to resolve allegations that they bribed government officials in Nigeria over a ten-year period. A year later, the giant British military contractor BAE Systems reached settlements totaling more than $400 million with the Justice Department and the UK Serious Fraud Office to resolve longstanding multi-country bribery allegations. In April 2010 Daimler and three of its subsidiaries paid $93 million to resolve FCPA charges. Other well-known companies that have settled similar bribery cases since the beginning of 2011 include Tyson Foods, IBM, and Johnson & Johnson. In most cases companies have followed the lead of Siemens in negotiating non-prosecution or deferred prosecution deals that avoided criminal convictions.

A quarter century after the Watergate investigation revealed a culture of corruption in the foreign dealings of major corporations, the new wave of FCPA prosecutions suggests that little has changed. There is one difference, however. Whereas the bribery revelations of the 1970s elicited a public outcry, the cases of the past few years have generated relatively little comment in the United States—except for the complaints of corporate apologists that the FCPA is too severe. Among those apologists are board members of the Institute for Legal Reform (a division of the U.S. Chamber of Commerce), whose ranks have included the top ethics officer of Wal-Mart.

The Wal-Mart case could turn out to be a much bigger deal than previous FCPA cases—for the simple reason that the mega-retailer appears to have forgotten Watergate’s central lesson that the cover-up is often punished more severely than the crime. A company that has often avoided serious consequences for its past misconduct may finally pay a high price.

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Posted in Bribery, Corporate Crime, Corporate Lobbying, Globalization, Litigation | No Comments »

Green Jobs Blues

Thursday, September 1st, 2011

President Obama’s grand plan for job creation has not yet been released but it is already struggling. The capitulation to Speaker John Boehner on the scheduling of Obama’s speech to Congress about the plan is a sign of things to come.

Yet perhaps even more troubling is the announcement by a company that served as a showcase for the administration’s campaign to promote jobs in renewable energy that it is shutting down, sticking taxpayers with the bill for $535 million in federal loan guarantees. Solar panel maker Solyndra’s decision to close its manufacturing plant in California and file for bankruptcy will put more than 1,100 people out of work.

Conservatives are having a field day arguing that Solyndra’s demise illustrates the folly of government involvement in the market. It is hilarious to hear many of the same lawmakers who refuse to end subsidies to the ethanol industry and tax breaks for Big Oil get indignant about assistance to wind and solar companies.

It is also amusing to see Republicans try to turn the Solyndra debacle into a story about Obama Administration stimulus cronyism. Solyndra was approved for loan guarantees in 2007 by the Bush Energy Department based on the Energy Policy Act passed by Congress in 2005, though funding for the program was not appropriated until the 2009 Recovery Act.

The real issue is why Solyndra, even with the loan guarantees, was not able to succeed in a market that is supposed to be the wave of the future. And it’s not just an issue of this one company. Evergreen Solar, which received more than $40 million in state government subsidies in Massachusetts, filed for bankruptcy recently. Other U.S. renewable energy firms are also facing difficulties.

Rather than simply debating this country’s half-hearted industrial policy, more attention should be paid to the failures of the companies themselves. U.S. solar panel producers, for instance, were slow to get started and allowed foreign competitors to gain a strong foothold in the international market.

It is customary for firms such as Solyndra and Evergreen to cite low-cost producers in China as a key reason for their plight. What the U.S. renewable energy manufacturers fail to mention is that some of them helped develop the Chinese solar industry by locating some of their own facilities in that country. At the same time, companies like First Solar and SunPower Corporation have intensified global cost competition by building plants in other cheap-labor havens such as Malaysia and the Philippines.

Some European companies have shown it is possible to compete without depending on low wages offshore. Germany’s SolarWorld, which is in the top tier of global producers, does most of its manufacturing in its home country and in the United States (including a plant in Oregon that has received state subsidies). In June it sold off its share in a joint venture in South Korea, saying that it had “decided in favor of production at locations with the highest quality, environmental and social standards.” Imagine a major U.S. corporation saying that.

The fact that many U.S. companies—green or otherwise—cannot or will not compete by adopting a high-road approach does not bode well for the country’s future. As long as wages remain low or stagnant, the buying power of American workers will remain weak, and this in turn will keep the economy in a funk.

Compounding the problem is that, apart from a few tech sectors, innovation in American business seems to be limited to finding new ways to lower tax bills and increase executive compensation. A new report by the Institute for Policy Studies does a good job of linking the two, showing that numerous large corporations are now remunerating their CEOs more each year than the firms are paying in federal income taxes. Many of these same companies are not hiring in the U.S., preferring to rely instead on those offshore labor havens and extracting more work out of their existing domestic employees.

This is the dilemma facing the job proposals of the Obama Administration and state governments: they all ultimately rely on action by corporations whose outlook these days is dominated by executive self-enrichment, tax dodging and labor exploitation—not the creation of quality jobs.  Happy Labor Day.

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Posted in Globalization, Green Jobs, Offshoring, Tax avoidance/evasion | No Comments »

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.

 

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Posted in Disclosure, Employment, Foreign Investment, Globalization | No Comments »

Corporate America’s Paid Holiday

Thursday, June 23rd, 2011

According to the old saying, insanity can be defined as doing the same thing repeatedly and expecting different results. But what do you call corporate executives who want the country to adopt a business tax policy that has failed miserably in the past? Crazy like a fox.

Such self-serving fiscal delusion is on full display in the current push for a “repatriation holiday.” A slew of major U.S.-based corporations are proposing that they be allowed to bring home many billions of dollars in largely untaxed overseas profits and, for a limited time, pay only a fraction of the statutory rate. According to a corporate front group called Working to Invest Now in America, or WinAmerica, this is “a common sense solution that will immediately inject up to $1 trillion into our economy and provide businesses with the security and certainty they need to help get Americans back to work.”

The group should really be called ConAmerica. The corporate titans are proposing a scheme that was tried and failed miserably only a few years ago, not to mention the fact that it would reward big business for practices that already deprive the country of huge amounts of tax revenue and countless jobs.

First, a bit of background. Although the U.S. Internal Revenue Code is designed to tax corporations on their worldwide profits, it contains a provision that allows companies to defer paying domestic taxes on overseas earnings as long as they stay with a firm’s foreign affiliates.

That may sound reasonable to some, but what corporate giants designate as overseas profits actually includes disguised domestic earnings. That’s because corporate tax dodging frequently takes the form of accounting gimmicks that shift reported earnings to subsidiaries in tax haven countries like the Cayman Islands and Bermuda.

This is done in a variety of ways. A company may transfer ownership of valuable patents and trademarks to a tax haven subsidiary, which then collects royalties from other parts of the company. Earnings stripping is a similar ploy that involves bogus interest payments. And then there’s the big daddy of multinational tax schemes: transfer pricing. This is the practice of exchanging goods and services among parts of a corporation at rates that have little relation to real costs.

The objective of all these tricks is to maximize reported income in countries that subject profits to minimum taxation—or none at all. Thanks to the deferral rule, a lot less is paid to Uncle Sam. It is estimated that transfer pricing costs the U.S. Treasury more than $28 billion a year.

Having engaged in this brazen tax dodging, corporations now want the right to bring the profits back home and get another tax break through the repatriation holiday. Their complaints about the need from relief from U.S. tax rates sound a lot like those of the proverbial murder who kills his parents and then pleads for sympathy as an orphan.

What makes the chutzpah quotient of the repatriation holiday advocates even higher is that they are promoting the idea in the face of documented evidence of its ineffectiveness. In 2004 a similar big business campaign succeeded in getting Congress to enact a repatriation holiday that brought the statutory tax rate on the returning profits down to 5.25 percent for the following year only. The plan was dressed up as the Homeland Investment Act, which was part of the American Jobs Creation Act.

The 2005 tax holiday was hailed as a success by corporate apologists for repatriating some $312 billion in profits for more than 800 large companies led by pharmaceutical giants Pfizer, Merck and Eli Lilly.

What they don’t emphasize is that the plan was a dismal failure in its stated purpose of generating jobs and investment in the United States. This should not have come as a complete surprise, since Congress allowed companies to use the repatriated profits for other purposes such as acquisitions and repayment of debt. Another factor was the old problem of the fungibility of money.

According to an analysis produced for the National Bureau of Economic Research, the 2005 repatriation holiday did not lead to an increase in domestic investment, domestic employment or R&D spending. The biggest impact, the report found, was an increase in stock buybacks by corporations, which was not one of the intended purposes of the legislation.

In other words, the tax holiday was a scam. Instead of stimulating job growth, it served as yet another way for large corporations to continue shrinking their contribution to the costs of running the U.S. government that serves them so well. In fact, some of the companies that benefited most from the holiday—such as Merck—carried out large-scale layoffs of U.S. workers during the time they were bringing those profits home.

Six years later, the same misleading claims are being made for repeating the practice that did so little good. What makes this especially frustrating is that it is taking place not long after Barack Obama made the issue of deferred taxes an issue in his presidential election campaign and then sought to increase taxation of foreign profits during his first year in office.  Those plans have been forgotten, and now the repatriation holiday proponents are riding high, despite estimates that the scheme would result in a loss of $78 billion in federal revenues over the next decade.

Fortunately, not everyone is being taken in by WinAmerica. Along with stalwart critics such as Citizens for Tax Justice—which calls the idea “amnesty for corporate tax dodgers”—the repatriation holiday is being attacked by newer groups such as US Uncut, whose main target is WinAmerica ringleader Apple Inc.

One of US Uncut’s slogans is “Tax Dodging. Is there an app for that?” Actually, no app is necessary as long as Congress goes on buying the tax-break snake oil of Corporate America.

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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.

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Posted in Foreign Investment, Globalization, Offshoring, Outsourcing | No Comments »

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.

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Posted in Employment, Foreign Investment, Globalization, Unions | No Comments »

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.

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Posted in Corporate "Social Responsibility", Corporations & Human Rights, Foreign Investment, Globalization, Unions | 1 Comment »

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