Archive for the ‘Regulation’ Category

Neither Social Darwinism Nor Paternalism

Wednesday, April 4th, 2012

President Obama’s critique of the Republican budget plan as “thinly veiled social Darwinism” is a refreshingly blunt statement about the retrograde features of contemporary conservative thinking.

The efforts of House Budget Chair Paul Ryan and his colleagues to accelerate the upward redistribution of income and the unraveling of the social safety net deserve all the scorn that Obama served up.

While invoking a phrase that has a grand history in the critique of laissez-faire ideology, Obama failed to mention how social Darwinism was originally embraced not just by philosophers such as Herbert Spencer but also by leading industrialists such as Andrew Carnegie and John D. Rockefeller (a fact noted by Richard Hofstadter in his seminal work on the subject, Social Darwinism in American Thought).

Rather than pointing out how social Darwinist ideas can still be found in corporate boardrooms (especially those of Koch Industries) as well as in House hearing rooms, the purportedly socialist Obama went out of his way to sing the praises of business: “I believe deeply that the free market is the greatest force for economic progress in human history.”

Obama also used his speech to extol Henry Ford, specifically for the auto magnate’s policy of paying his workers enough so that they could afford to buy the cars they were assembling. Higher wages are a good thing, but it is misleading to cite Ford without putting his practices in some context.

Henry Ford gained fame as the man who instituted the Five Dollar Day for his workers in the 1910s. The facts were somewhat more complicated: not all workers at Ford Motor qualified for that amount, which in any event was not the base pay. A large part of the $5 consisted of a so-called “profit-sharing” bonus that had to be earned — by working at a high level of intensity on the job, and by living in a style that Ford considered appropriate off the job.

To enforce the lifestyle regulations, Ford created a Sociological Department with inspectors who visited the homes of workers and interviewed family members and neighbors. The company wanted to be sure that workers were not spending their share of Ford profits in a frivolous or irresponsible manner.

Ford’s practices were also designed to discourage unionization. When workers nonetheless tried to organize, Ford’s paternalism quickly dissolved. In 1932 a protest march to the company’s River Rouge plant in Dearborn, Michigan was met with tear-gas and machine-gun fire, which killed four persons. Dearborn police officers were supplemented by members of the Service Department, Ford’s own security force. Headed by Harry Bennett, the Service Department became notorious for its surveillance of workers both on and off the job. In a 1937 confrontation known as the Battle of the Overpass (photo), union organizers were attacked by Bennett’s security force and freelance thugs when they attempted to distribute leaflets outside the Rouge plant. Ford was the last of Detroit’s Big Three to give in to unionization.

It is telling that the word “unions” was not uttered a single time during Obama’s speech. Instead, Obama seems to want us to believe that the alternative to deregulation and trickle-down economics is a return to some kind of government and big business paternalism.

The first problem is that big business, despite giving frequent lip service to corporate social responsibility, has almost completely abandoned paternalism in favor of the human resources principles of Wal-Mart. As for government paternalism, Obama himself felt compelled to say in his speech that “I have never been somebody who believes that government can or should try to solve every problem.”

Even if the prospects for paternalism were more promising, it would not be the most effective way of responding to neo-social Darwinism. As the story of Henry Ford illustrates, paternalism is simply another form of social control by the powerful, and when necessary it is quickly abandoned in favor of repression and austerity. Collective action of the type that was put aside after Obama took office and recently revived by the Occupy Movement is the only real way forward.

Con JOBS

Thursday, March 22nd, 2012

Bipartisanship in Washington is back from the dead, at least for the moment, but its reappearance illustrates what happens when the two major parties find common ground: Corporate skullduggery gets a boost under the guise of helping workers.

That’s the story of the bill with the deliberately misleading acronym — the JOBS Act — which emerged from the cauldrons of the financial deregulation crowd and has now been embraced not only by Republicans but also by the Obama Administration and many Congressional Democrats. An effort by Senate Democrats to mitigate the riskiest features of the bill has failed, and now the legislation seems headed for final passage.

More formally known as the Jumpstart Our Business Startups Act, the bill is based on the dubious premise that newer companies are having difficulty raising capital and that weakening Securities and Exchange Commission rules—including those contained in the Sarbanes-Oxley law enacted in the wake of the Enron and other accounting scandals of the early 2000s—would allow more start-ups to go public, expand their business and create jobs. The outbreaks of financial fraud in recent years have apparently done nothing to shake the belief that less regulated markets can work miracles.

For many, that notion may be more of a fig leaf than an article of faith. One clear sign that the JOBS Act is trying to pull a fast one is that the “emerging growth companies” targeted for regulatory relief are defined in the bill as those with up to $1 billion in annual revenue. This is just the latest example of an effort purportedly designed to help small business that really serves much larger corporate entities. (What proponents on the JOBS Act don’t mention is that the SEC already has exemptions from some of its rules for companies that can somewhat more legitimately be called small—those with less than $75 million in sales.)

Critics ranging from the AARP to state securities regulators have focused on provisions of the JOBS bill that would allow start-up companies to solicit investors on the web, warning that this will pave the way for more scams.

I want to zero in on another issue, which is central to the mission of the Dirt Diggers Digest: disclosure. In the name of streamlining the rules for the so-called emerging growth companies, the JOBS Act would erode some of the key transparency provisions of the securities laws.

This is fitting, given that the original sponsor of the bill, Rep. Stephen Fincher of Tennessee (photo), has been embroiled in scandals involving gaps in his personal financial disclosure and last year was named  one of the “most corrupt” members of Congress by the watchdog group CREW.

The first problem with the JOBS bill is that it would allow firms planning initial stock offerings to issue informal marketing documents and distribute potentially biased analyst reports well before they have to issue formal prospectuses with thorough and candid descriptions of their financial and operating condition. In other words, the bill would postpone real disclosure until after the company has used a bogus form of disclosure to generate a quite possibly misleading image of itself.

When the company does have to file with the SEC, it would have to provide only two years of audited financial statements rather than three and would be exempt from reporting requirements such as the disclosure of data on the ratio of CEO compensation to worker compensation mandated by the Dodd-Frank Act. It would also be exempt from having to give shareholders an opportunity to vote on executive pay practices.

What’s worse, the JOBS bill also seems to opening the door to a broader erosion of disclosure provisions for all publicly traded companies. The bill would order the SEC to conduct a review of the Commission’s Regulation S-K to determine how it might be streamlined for “emerging growth” companies.

Yet it also calls for the SEC to “comprehensively analyze the current registration requirements” of the regulation, which could mean a weakening of the rules for all companies, no matter what their size. Regulation S-K is the broad set of rules determining what public companies have to include in their public filings on issues ranging from financial results to executive compensation and legal proceedings.

It is bad enough that the JOBS bill exploits the country’s desperate need for relief from unemployment to push changes that might mainly benefit stock scam artists. The idea that it could also allow unscrupulous corporations to conceal their misdeeds is truly infuriating. We just finished celebrating Sunshine Week; now Congress is hard at work promoting darkness.

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.

Fighting for the Right to Be a Weak Regulator

Thursday, January 5th, 2012

The conservatives fulminating about the Consumer Financial Protection Bureau and President Obama’s recess appointment of Richard Cordray to head it may feel outmaneuvered at the moment.  But if history is any guide, the bureau will not be too big a threat to the financial powers that be.

The federal government is filled with regulatory agencies whose main mission seems to be to protect the interests of the largest companies they are charged with regulating. There’s always the possibility that the CFPB will be the exception to the rule of regulatory capture, but the fledgling entity would have to clear some high hurdles.

Cordray and his colleagues would do well to study the track record of the federal agency that has supposedly served as a financial watchdog for the past seven decades: the U.S. Securities and Exchange Commission. The CFPB is getting off the ground just as the SEC is embroiled in a dispute that reveals its cozy relationship with the big banks and its feckless approach to enforcement.

Back in October, as part of its belated and half-hearted response to the chicanery that led to the financial meltdown of 2008, the SEC announced that giant Citigroup had agreed to pay $285 million to settle charges that it had misled investors about a $1 billion issuance of housing-related collateralized debt obligations that Citi knew to be of dubious value and had bet against with its own money. As is typical in such SEC cases, Citi neither admitted nor denied doing any wrong.

That would have been the end of a typical case if the judge overseeing the matter, Jed Rakoff the Southern District of New York, had not done something remarkable. He declined to rubberstamp the settlement and raised a host of questions about the size of the settlement—which was well below the estimated $700 million lost by investors—and the failure of the SEC to get Citi to admit guilt.

Rakoff (illustration), who had questioned settlements in several other SEC cases, rejected the deal the agency made with Citi and ordered a trial on the matter. In his November  28 order (which I retrieved, along with other case documents, from the PACER subscription database), Judge Rakoff called the amount of the settlement “pocket change to any entity as large as Citigroup” and said it would have little deterrent effect. He also pointed out that the SEC’s decision to charge Citi with mere negligence and allow it to avoid admitting guilt “deals a double blow to any assistance the defrauded investors might seek to derive from the S.E.C. litigation in attempting to recoup their losses through private litigation, since private investors not only cannot bring securities claims based on negligence.” In other words, Rakoff was accusing the agency of protecting the interests of the big bank.

Calling the deal “neither reasonable, nor fair, nor adequate, nor in the public interest,” Rakoff thundered:

An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous. The injunctive power of the judiciary is not a free roving remedy to be invoked at the whim of a regulatory agency, even with the consent of the regulated. If its deployment does not rest on facts – cold, hard solid facts, established by admissions or by trials -it serves no lawful or moral purpose and is simply an engine of oppression.

Finally, in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.

Instead of using Rakoff’s powerful order as leverage to extract a larger settlement from Citi, the SEC went on the attack against the judge. It appealed Rakoff’s order to the federal court of appeals, arguing that its enforcement process would be crippled if it had to hold out for admissions of guilt. Rakoff fired back with a charge that the agency had misled the appeals court and had withheld key information from him.

As the pissing match continues, one could only imagine the satisfaction felt by Citi at being able to sit on the sidelines and watch its regulator do battle with the judiciary to preserve its ability to handle financial misconduct with kid gloves. The SEC has suddenly become aggressive—not in fighting fraud but in defending its right to be a weak regulator. Richard Cordray, take heed.

Clawing Back from the 1%

Thursday, October 27th, 2011

Rick Perry has admitted that his recent attempt to revive controversy over President Obama’s birth certificate was done for “fun.” This came after Herman Cain said that his call for an electrified fence to protect the U.S. border with Mexico was meant as a joke.

The question, then, is whether their economic plans should also been seen as pranks. It is indeed difficult to take the proposals of the two men and the other presidential contenders seriously. Do they really believe that the solution to the country’s job crisis lies in massive tax reductions for the wealthy and large corporations along with a rollback of federal regulations on banks, health insurance companies and polluters? These ideas sound as if they were cooked up as part of a Yes Men parody to make the 1% look ridiculous in the face of the growing Occupy movement.

One sign that the candidates are not putting forth legitimate policy prescriptions is that their plans contain no accountability provisions. Perry’s just released “Cut, Balance and Grow” scheme, for instance, has repeated references to the wave of job creation that will supposedly be generated by overhauling the tax and regulatory systems, but nowhere does it say what will happen to those companies that, in spite of being freed from federal shackles, still fail to hire significant numbers of new workers.

When it comes to foreign policy, conservatives love Ronald Reagan’s dictum of “trust, but verify.” But in the realm of domestic economic policy their approach is “take it on faith” – giving the 1% everything they want and doing nothing to make sure that the purported benefits to the economy ever materialize. Actually, it is not only conservatives who adopt this posture. Many pro-corporate Democrats are also willing to give away the store to big business without imposing any real safeguards. This can be seen, for instance, in the bi-partisan campaign to slash taxes on repatriated foreign profits without ensuring that those savings actually result in job creation.

Presidential candidates and federal policymakers have something to learn in this regard from the states, including Perry’s Texas.  Together, the states spend tens of billions of dollars each year on tax credits, grants, low-cost loans and other forms of financial assistance to corporations in an attempt to stimulate job creation and economic development.

More and more of these subsidy programs attach strings to the government largesse. Corporate recipients must commit to creating a specific number of jobs, which are often subject to wage and benefit requirements. When companies fail to live up to those obligations, the state may recoup all or some of the subsidies (or restrict future benefits) through devices known as clawbacks. These provisions vary widely in stringency from state to state and sometimes within states.

My colleagues and I at Good Jobs First are currently studying the job creation, job quality and clawback practices of the major state subsidy programs around the country. Our report will not be issued until later this year, but I can say now that among the programs that contain clawback provisions are two that are closely controlled by Perry: the Texas Enterprise Fund and the state’s Emerging Technology Fund. These funds have been criticized for cronyism and other abuses, but at least there are some mechanisms for holding recipients accountable on their commitments.

The same cannot be said at the federal level. If Perry and others proposing national solutions to the jobs crisis were serious, they would be recommending that any tax reductions or regulatory relief be contingent on the creation of significant numbers of jobs—and quality ones at that.

I don’t expect this to happen any time soon. Both branches of the national political elite have bought into the idea that large corporations and the wealthy have to be, in effect, bribed to make job-creating investments in the U.S. economy and that there is no recourse when they fail to carry out what they were paid off to do.

Even before the current crop of pro-corporate economic plans, large companies and the wealthy have, of course, benefitted from a skewed tax system, special subsidies for selected industries, lucrative federal contracts, weak regulation, one-sided labor laws, and a justice system that is soft on business crime. And we have little to show for it in the way of decent jobs and economic security.

Rather than showering even more advantages on the 1 percenters, we should be demanding that they give something back. The Occupy movement can be seen as a big clawback effort whose goal is to recoup not just a tax break here or there but control over the future of the entire U.S. economy.

Corporate Environmental Opportunism

Thursday, September 8th, 2011

“There is too much regulation and this is acting as a depressant on the economy.”

This statement could have been made by any one of the current Republican presidential contenders, but the words come from a press conference held by Ronald Reagan shortly after taking office in 1981.

Reagan used the event to announce the launch of his effort to weaken federal rules in areas such as environmental protection and occupational safety and health—moves that were supposed to encourage job creation.

Little has changed over the past three decades in the thinking of conservatives about the purportedly harmful effects of government oversight of industry and the magic of deregulation. After all, they have gotten a lot of political mileage out of Reagan’s aphorism that “government is the problem.”

What’s more interesting is the changing posture of business, the constituency on whose behalf the assault on regulation is said to be mounted. Three decades ago, there was no question that large corporations were ardent foes of agencies such as EPA and OSHA, and they promoted the idea that aggressive regulation destroyed jobs and curtailed economic growth. They also acted on those beliefs.

Richard Kazis and Richard Grossman opened their 1982 book Fear at Work: Job Blackmail, Labor and the Environment by recounting the announcement in 1980 by Anaconda Copper (then owned by the oil company Atlantic Richfield) that it was shutting down its smelter and refinery operations in Montana because they could not be retrofitted to satisfy environmental standards. The move eliminated 1,500 jobs.

Critics pointed out that Anaconda could have received a multiyear extension of its Clean Air Act compliance deadlines but had chosen not to apply for one, suggesting that it had other reasons for the shutdown. Nonetheless, Anaconda’s action served to generate hostility not toward the company but toward the EPA and environmental activists. Other large companies also stoked anti-regulation sentiments.

With the exception of a few diehards such as Koch Industries, today’s major corporations do not espouse Neanderthal views on environmental regulation. Almost all of them purport to have enlightened stances on issues such as air and water quality, climate change and recycling as part of overall company policies on corporate sustainability and responsibility (CSR).

BP, which purchased Atlantic Richfield in 2000, took a hit to its image during the Gulf of Mexico oil spill last year, but before that it had acknowledged that global warming was a problem and claimed to be going “beyond petroleum” by investing (modestly) in renewable energy sources. BP’s competitor Chevron also became a proponent of environmental protection and launched an ad campaign with the tagline “Will You Join Us” that was apparently meant to convey the idea that the oil giant is in the vanguard of efforts to save the earth.

Such positions are not limited to the petroleum sector. Retailing behemoth Wal-Mart has taken high-profile steps to reduce its carbon footprint and has pressured its suppliers to do the same. Toyota, General Motors and other auto giants have put increasing emphasis on hybrids and electric cars. Goldman Sachs, a CSR pioneer in the investment banking world, was the first Wall Street firm to adopt a comprehensive environmental policy (after being pressured by groups such as Rainforest Action Network). Ceres, a non-profit that focuses on sustainability issues, has several dozen Fortune 500 companies in its coalition.

Given all this high-minded corporate thinking on the environment, how can Republican candidates continue to portray regulatory rollbacks as the pro-business position? Or even, in cases such as Newt Gingrich and Michele Bachman, get away with calling for the abolition of the EPA?

A key reason is that big business, despite its claim to have embraced sustainability, is not willing to apply that principle in the public policy arena. CEOs are not speaking out against the EPA bashers or denying them PAC contributions.

This gets to the heart of what is wrong with CSR. It is a system of voluntary and selective actions that companies adopt, largely for public relations purposes—not mandated and enforceable directives imposed by democratic institutions. CSR cannot take the place of the EPA.

The absence of progressive corporate voices on environmental issues makes it easier for the likes of Gingrich and Bachman to make outlandish statements on regulatory matters. To make matters worse, President Obama implicitly endorsed the wrongheaded notion that environmental regulations stand in the way of job creation in his recent decision to prevent the EPA from implementing a long-planned stricter air quality standard for ground-level ozone emissions.

What more could Corporate America ask for? It gets to portray itself as environmentally friendly while reaping the advantages of regulatory rollbacks being promoted across the political spectrum. That’s opportunism on a grand scale.

Does the Debt Deal Make You Sick?

Thursday, August 4th, 2011

Sinking stock markets are not the only sign that the eleventh-hour debt ceiling deal was the wrong solution to the wrong problem.

The announcement by Cargill that it is recalling an astounding 36 million pounds of salmonella-tainted ground turkey products is a perfect symbol of the hazards of shrinking government.

During the debt ceiling debate, Democrats frequently portrayed themselves as defenders of social insurance programs such as Medicare and Social Security. That’s all well and good, but their willingness to go along with substantial cuts to the budgets of federal agencies can also have serious consequences.

Among those agencies are the Food and Drug Administration, and the Food Safety and Inspection Service (FSIS) of the Department of Agriculture. FSIS is responsible for protecting the public from illness caused by tainted meat, poultry and egg products. FDA oversees safety issues for other food groups.

These agencies should be sacred cows, so to speak, but many of the anti-government yahoos now in Congress seem to view food safety regulations as an encroachment on the free market and personal liberty. Even before the new debt deal, this function was being targeted.

Last year, in the wake of incidents involving widespread contamination of eggs, peanut butter and spinach, Congress tightened food safety regulation and gave more authority to the FDA. The agency was finally given the power to issue mandatory recalls rather than depending on producers to withdraw dangerous products voluntarily. As soon as the law passed, rightwingers were moving to undermine it.

In December, Rep. Jack Kingston of Georgia, then the ranking member and now the chair of the appropriations committee overseeing the FDA, said that the number of food-borne illnesses in the country did not justify the cost of the new law. Kingston, whose website bio brags that he has “fought to lower taxes, balance the budget, and reduce government interference in our lives,” criticized the legislation as “overreach” and vowed to cut food safety spending to make it difficult to implement the new rules.

Kingston and his colleagues made good on that threat in June, when the Republican majority in the House voted to cut $87 million from the FDA budget and $35 million from FSIS.

The rightwing effort to eviscerate federal food regulation is justified with the assumption that corporate food producers are willing and able to monitor themselves. This assumption perseveres despite the dismal track record of the industry.

Take Cargill. Its current turkey problem is far from an anomaly for the company. Over the past decade or so, it has been involved in a series of recalls in its meat and poultry operations such as the following:

  • August 2010: recalled 8,500 pounds of ground beef after an outbreak of a rare strain of E.coli bacteria was traced to a company plant in Pennsylvania.
  • December 2009: subsidiary Beef Packers Inc. recalled 22,000 pounds of ground beef after an investigation of salmonella was traced to a company distribution center in Arizona.
  • October 2009: recalled 5,500 pounds of beef tongues because the tonsils may not have been completely removed, leaving in tissue that raises the risk of “mad cow” disease.
  • November 2007: recalled more than 1 million pounds of ground beef suspected of being tainted with E.coli.
  • April 2004: subsidiary Excel recalled 45,000 pounds of ground beef suspected of being tainted with E.coli.
  • October 2002: recalled 2.8 million pounds of ground beef suspected of being tainted with E.coli.
  • December 2000: recalled more than 16 million pounds of packaged poultry linked to an outbreak of listeria.

And this is the dismal record of an industry leader with more than $100 billion in annual revenues, not a fly-by-night operator without the resources to maintain decent standards in its operations.

Rep. Kingston likes to declare that the U.S. food supply is “99.99 percent safe.” That apparently fabricated figure does not change the fact that, according to the Centers for Disease Control, 48 million Americans are sickened by tainted food each year, of whom 128,000 are hospitalized and 3,000 die.

Debates over the proper levels of federal spending and regulation are typically framed in abstractions, but they can become a matter of survival. When Patrick Henry said “give me liberty or give me death,” I doubt he meant he would give his life for the right of a giant corporation to sell contaminated food without government interference.

An Indictment of the Financial Sector

Thursday, January 27th, 2011

The purpose of the traditional blue-ribbon government panel has to been to study a serious problem and issue a report with vague explanations of causes and mushy policy prescriptions. The new report from the federal government’s Financial Crisis Inquiry Commission is a refreshing exception to the rule.

In the place of such nebulous prose, the 600-page-plus document is filled with pointed analyses of who did what wrong when. In other words, it names names. The FCIC acknowledges that it needed to delve into arcane subjects such as securitization and derivatives, but the report’s preface states:

To bring these subjects out of the realm of the abstract, we conducted case study investigations of specific financial firms—and in many cases specific facets of these institutions—that played pivotal roles. Those institutions included American International Group (AIG), Bear Stearns, Citigroup, Countrywide Financial, Fannie Mae, Goldman Sachs, Lehman Brothers, Merrill Lynch, Moody’s, and Wachovia. We looked more generally at the roles and actions of scores of other companies.

To get a sense of the scope of the rogues’ gallery of financial players, take a look at the report’s index, which, interestingly, is not in the official PDF but can be found on the website of the publisher that is issuing the commercial version.  There are dozens of entries for specific firms and even more for specific individuals. Goldman Sachs and Lehman Brothers, for instance, each have listings for about 40 different pages.

The FCIC does not just mention names; it assigns responsibility and soundly rejects the notion—expressed at commission hearings by major financial industry executives—that the crisis came as a complete surprise:

The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public.

It is satisfying that the report acknowledges the culpability of figures in both the private and the public spheres. Along with Wall Street villains, it fingers government institutions and officials, especially those with regulatory responsibilities:

The sentries were not at their posts, in no small part due to the widely accepted faith in the self-correcting nature of the markets and the ability of financial institutions to effectively police themselves. More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe.

Figures such as current Fed Chairman Ben Bernanke, former Treasury Secretary Henry Paulson and former SEC chair Christopher Cox are singled out for making misleading statements in 2008 about the gravity of the situation just before the crisis erupted. The report goes on to state:

Our examination revealed stunning instances of governance breakdowns and irresponsibility. You will read, among other things, about AIG senior management’s ignorance of the terms and risks of the company’s $79 billion derivatives exposure to mortgage-related securities; Fannie Mae’s quest for bigger market share, profits, and bonuses, which led it to ramp up its exposure to risky loans and securities as the housing market was peaking; and the costly surprise when Merrill Lynch’s top management realized that the company held $55 billion in “super-senior” and supposedly “super-safe” mortgage-related securities that resulted in billions of dollars in losses.

Finding that “a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis,” the FCIC cites the high leverage ratios at the leading investment banks and the fact that “the leverage was often hidden—in derivatives positions, in off-balance-sheet entities, and through ‘window dressing’ of financial reports available to the investing public.”

The report continues: “When the housing and mortgage markets cratered, the lack of transparency, the extraordinary debt loads, the short-term loans, and the risky assets all came home to roost. What resulted was panic. We had reaped what we had sown.” One chapter, covering the explosion of risky financial instruments such as collateralized debt obligations is entitled “The Madness.”

Perhaps most damning is the FCIC’s finding of a “systemic breakdown in accountability and ethics” that “stretched from the ground level to the corporate suites.” For example, the report cites the case of the subprime lender Countrywide (later taken over by Bank of America):

As early as September 2004, Countrywide executives recognized that many of the loans they were originating could result in “catastrophic consequences.”  Less than a year later, they noted that certain high-risk loans they were making could result not only in foreclosures but also in “financial and reputational catastrophe” for the firm. But they did not stop.

All in all, the FCIC report paints an incriminating picture of the U.S. financial industry as well as the government regulators and private entities such as credit rating agencies that are supposed to put some checks on the unbridled pursuit of profit. In fact, the document in many ways reads like a criminal indictment. We would all be better off if some actual prosecutors pursued these leads.

Note: The report, dominated by a section of more than 400 pages endorsed by a majority of commissioners, also contains a 125-page dissent from the minority as well as 80 pages of endnotes. But that’s not all. The document indicates that it is not the sole repository of what the FCIC found:

A website—www.fcic.gov—will host a wealth of information beyond what could be presented here. It will contain a stockpile of materials—including documents and emails, video of the Commission’s public hearings, testimony, and supporting research—that can be studied for years to come. Much of what is footnoted in this report can be found on the website.

A critical researcher’s dream.

Aiding Corporate Outlaws

Friday, January 7th, 2011

In a move akin to asking burglars for suggestions on how to make security systems less effective, Rep. Darrell Issa, chairman of the Oversight and Government Reform Committee in the new Republican-dominated House of Representatives, is consulting corporations and trade associations on regulatory policy.

Seeking to revive the anti-regulatory fervor of the Reagan era, Issa is throwing around fabricated numbers ($1.7 trillion) about the cost of business compliance with government rules and bogus claims about the negative impact of regulation on job creation. And in an unambiguous signal that corporate interests are now to be considered paramount, he has been sending letters to scores of companies and associations asking for their deregulatory wish lists.

Issa’s office declined to disclose a complete list of those sent the love letters, but Politico reports that the recipients include trade groups such as the National Association of Manufacturers and the American Petroleum Institute, and individual companies such as Toyota, Duke Energy, Bayer and FMC Corp.

Of all these names, FMC is probably the least well known, but it is a good example of the kind of corporation that will probably benefit the most if Issa and his colleagues have any success – i.e. a company with an abysmal track record.

FMC is a $3 billion chemical company that produces pesticides, insecticides, herbicides and specialty chemicals for food processing and other industries. Headquartered in Philadelphia, the company dates back to the invention of an insecticide pump by John Bean in the 1880s. From the 1920s onward it functioned as a conglomerate, acquiring a wide range of food processing and chemical firms (it was also a military contractor for a period of time).

It was through these acquisitions that FMC assumed responsibility for some of the most hazardous production facilities and waste sites in the country. For example:

In 1977 FMC’s South Charleston, West Virginia plant was shut down under court order for discharging carbon tetrachloride (used in cleaning agents) into drinking-water supplies of communities along with Kanawha and Ohio rivers. After FMC and two of its executives were indicted in federal court on charges of conspiring to conceal excessive discharges at the plant, the company agreed to pay a fine of $35,000 and to place $1 million in escrow to finance future water pollution studies. In 1983 an explosion at the plant killed one worker and injured three others. OSHA later determined that safety violations by the company contributed to the conditions that caused the accident.

In 1983 FMC agreed to spend $6 million to clean up a hazardous waste site in Minnesota that threatened the drinking water supply of Minneapolis. The cleanup at the munitions plant in the town of Fridley, where chemical wastes were buried for more than two decades, involved the treatment of up to 58,000 cubic yards of soil for contaminants such as trichloroethylene.

In 1995 about 6,250 pounds of phosphorus trichloride spilled from an overfilled tank onto the ground, reacted with rainwater and sent a toxic cloud of hydrochloric acid from the FMC plant in Nitro, West Virginia.

In 1998 the EPA fined FMC $209,600 for underreporting Toxic Release Inventory data related to a phosphorous processing plant on the Shoshone-Bannock Fort Hall Reservation near Pocatello, Idaho. Later that year, FMC and the EPA reached agreement on a consent decree to resolve other violations at the plant by requiring the company to spend approximately $158 million on remedial measures. FMC also agreed to a penalty of $11.8 million, a record at the time for violations of the Resource Conservation and Recovery Act.

In 1999 FMC reached agreement with the EPA and the Justice Department regarding the cleanup of the Avtex Fibers Superfund site in Front Royal, Virginia, which FMC owned and operated from 1963 to 1976. Avtex bought the facility in 1976 but shut it down in 1989 under the weight of some 2,000 environmental violations related to many years of contamination with asbestos, lead and other toxic substances. FMC agreed to spend about $100 million for the clean-up of the site, considered the biggest environmental problem area in the state.

By 2000, FMC had been named as a potentially responsible party in connection with about 30 locations on the federal government’s National Priority List of hazardous waste sites.

Add to all of this FMC’s involvement over the years in cases involving price fixing, sex discrimination, defrauding the federal government and other violations of laws and regulations. In 2000 it paid $80 million to settle a whistle-blower lawsuit challenging the safety of the Bradley Fighting Vehicles the company was producing for the U.S. Army.

In recent years FMC has restructured itself, spinning off many of its operations. But it continues to battle with the federal government over regulatory issues. Its biggest fight has concerned the controversial pesticide carbofuran, sold by FMC under the name Furadan. In 2006 the Bush EPA finally acknowledged the product was so dangerous for humans and for animals that it should be completely banned, as the European Union has done.  The slow process of removing the product from the market has continued ever since, with FMC kicking and screaming in protest.

The company has been largely unsuccessful in its legal challenge up through the appellate level and has been considering an appeal to the U.S. Supreme Court. It may now hope for relief from Congress instead.

The deregulatory juggernaut is nothing more than an effort to aid and abet the country’s worst corporate outlaws. We’ll be in big trouble if Issa and his ilk succeed.

Full Graphic Disclosure

Friday, November 12th, 2010

Forget Joe Camel and the Marlboro Man. Federal regulators want people to think of disease, birth defects and death when they pick up a package of cigarettes. The Food and Drug Administration, implementing legislation passed by Congress last year, has just released three dozen proposed enhanced warning labels that manufacturers would have to print on each pack of cancer sticks.

In the place of the plain text warnings that have appeared on tobacco packaging for years, these labels would be much larger and much more visually striking. The proposals include, for example, photos of a smoker in an open coffin, a mother blowing cigarette smoke at her infant child, and a sickly cancer victim.

The main objective of the warnings is to encourage existing smokers to quit and the dissuade children from picking up the dangerous habit. But apart from consumer behavior modification, the labels can be seen as a form of disclosure—disclosure of the harmful effects of a product.

The need for bold messages about deleterious aspects of the things we buy is not limited to cigarettes. It might make sense to apply the FDA’s approach to a whole range of goods and services. For example:

  • SUV models shown to be prone to rollovers should come not just with a plain-text sticker showing miles per gallon, but also full-color photos of mangled vehicles with bleeding drivers and passengers.
  • Electric bills sent by utilities relying on coal-fired power plants should be required to include photographs of floods, droughts and other effects of catastrophic climate change.
  • The pumps at gas stations should be adorned with photographs of oil spills and refinery disasters.
  • A variety of products sold by Wal-Mart should have packaging containing images of the oppressive Chinese sweatshops in which they were produced.
  • Stores selling gold jewelry should display photographs showing the despoiled land around the cyanide-leaching facilities in which the precious metal is mined.
  • Producers of dangerous pharmaceuticals should be required not just to mention possible injurious side effects, which most people have tuned out, but to show images of actual victims.
  • Health insurance providers should have to send out pictures of policyholders who died because an expensive treatment was rejected by the company.
  • Perhaps manufacturers of the worst junk food should be required to air commercials with actors who are morbidly obese.
  • And, of course, gun sellers should have to hand out gory photos of victims of accidental discharges.

Given the exalted status of commercial free speech in this country, these ideas could never come to pass. Yet there is still a serious issue to address: How do we turn dry data about corporate harms into messages people pay attention to?

The objective, however, is not just to change consumer behavior but also that of producers. All disclosure is meant to highlight an activity that is subject to abuse and hopefully curb those abuses. The Environmental Protection Agency’s Toxics Release Inventory is designed to get manufacturers to clean up their production processes – and has had a positive impact. Campaign contribution disclosure is meant discourage the big-money takeover of elections (there’s obviously been a lot less progress on that front, especially now that much corporate electoral spending can take place anonymously). Disclosure of executive compensation is supposed to check the relentless march toward lavish CEO salaries, bonuses and stock options (another less than rousing success).

The fact that disclosure does not immediately cure the problem it is meant to highlight does not undermine the case for transparency. It may simply mean that the form of the disclosure is not compelling enough. That’s the beauty of the FDA approach to cigarettes.

In replacing the misleading feel-good images that marketers have long sought to associate with even the most noxious products, the aggressive warning labels begin to force corporations to be honest about what they sell and consumers to come to grips with the true nature of much of what they consume. This form of anti-advertising may begin to liberate us from the illusions of our manufactured desires.