Archive for February, 2014

Subsidizing the Corporate One Percent

Tuesday, February 25th, 2014

1percent_graphicAs a result of substantial enhancements Good Jobs First has made to our Subsidy Tracker database, it is possible for the first time to estimate the share of total state and local economic development awards going to big business. The data show a very high degree of concentration: we estimate that at least 75 percent of cumulative disclosed subsidy dollars have gone to just 965 large corporations, even though these companies account for only about 10 percent of the number of announced awards.

In Subsidy Tracker 2.0 we can also for the first time identify which companies have received the most cumulative awards, both in dollar terms and number of awards. In dollar terms, the biggest recipient by far is Boeing, with a total of more than $13 billion, reflecting the giant deals it has gotten in Washington and South Carolina as well as more than 130 smaller deals around the country. The others at the top of the cumulative subsidy dollar list are: Alcoa ($5.6 billion), Intel ($3.9 billion), General Motors ($3.5 billion) and Ford Motor ($2.5 billion). A total of 17 companies have received cumulative subsidy awards worth more than $1 billion; 182 have received awards of $100 million or more.  A list of the top 100 parent companies can be found here.

These awards have gone not only to the corporate parents but also to their divisions and subsidiaries. For example, subsidy awards worth more than $1 billion have been given to Warren Buffett’s Berkshire Hathaway by way of its holdings such as Geico, NetJets, Nebraska Furniture Mart, General Re Corporation, Lubrizol Advanced Materials, and Webb Wheel Products.

The company with the largest number of awards is Dow Chemical, with 416. Following it are Berkshire Hathaway (310), General Motors (307), Wal-Mart Stores (261), General Electric (255), Walgreen (225) and FedEx (222). Forty-eight companies have received more than 100 individual awards. The award numbers include some for which no dollar amount has been disclosed (reflecting the inconsistent quality of state and local disclosure).

These totals and many more have just been made possible by a painstaking, several-month effort to link the data on individual subsidy awards we collect from state and local agencies to their respective corporate parents (the agencies almost never provide this information). Using a variety of sources (such as the Croctail compilation of the subsidiary lists which publicly traded companies are required to include in their 10-K filings with the Securities and Exchange Commission), we have matched more than 25,000 of the individual entries in Subsidy Tracker to 965 parents. These awards together account for $110 billion, or about 75 percent of the total value of the Tracker universe.

To cover the greatest number of deals as quickly as possible, our matching process focused first on subsidies awarded to units and subsidiaries of large corporations. The 965 parents we currently cover come from examining all the companies on the following lists: the Fortune 500, the Fortune Global 500, the Forbes list of the (224) largest private companies in the United States, and the Private Equity International list of the 50 largest private equity firms. We have also matched a portion (the top 150) of the Fortune Second 500 list.

In addition, we identified parents for many of the largest remaining subsidy awards, including all the entries in our May 2013 Megadeals report, which catalogued all 240 subsidy deals worth $75 million or more in U.S. history. We will add more parent coverage in the future, but for now the roughly 1,300 companies we have checked represent a good proxy for big business. Nearly three-quarters of these companies were found to have received at least one subsidy award; the rate would be even higher if we were to exclude the numerous companies on the Fortune Global 500 that do not operate in the United States.

Among the 965 parents we identified as subsidy recipients, the average number of awards is 26 and the average total dollar amount (from awards for which this information is disclosed) is $102 million. The aggregate value of their awards—$110 billion—is 74.8 percent of the total value of the Subsidy Tracker universe. The parent companies on the Fortune 500 alone account for more than 16,000 subsidy awards worth $63 billion, or about 43 percent of total Tracker dollars.

The list of most-subsidized parent companies overlaps considerably with the companies in our Megadeals report, which focused on the largest individual deals as opposed to the largest amounts by company we are examining here. Among those on the new list of 100 Top Parents, 89 are linked to at least one Megadeal. That is, only 11 had no individual deal worth $75 million or more.

Given the decline of manufacturing in the United States, it is interesting that the list of top parent companies is dominated by industrial firms. Of the ten biggest recipients, only one – Cerner – is primarily a service provider. As for specific industries, auto is well represented, with GM, Ford, Fiat (which now owns Chrysler) and Nissan in the top ten. Toyota is no. 16 and Volkswagen is no. 22. Other heavy industries represented include aerospace (Boeing, no.1), semiconductors (Intel, no.3), petroleum (Royal Dutch Shell, no.7), chemicals (Dow, no.12) and steel (ArcelorMittal, no.13).

Also significant is the presence of foreign-based corporations. There are three in the top ten (Fiat, Royal Dutch Shell and Nissan) and another five in the next 15.  Since we include private equity firms as big-business parents, the list includes several of those firms. The most-subsidized is Silver Lake Partners, which now controls the computer company Dell and thus has Dell’s Megadeals in North Carolina and Tennessee attributed to it.

Although our parent company matching is a work in progress, one conclusion is already clear: large corporations account for an overwhelming share of the tax breaks and cash grants state and local governments have given out in the name of job creation. Our Megadeals study also found that since 2008, the number and cost of megadeals has spiked, even as the total number of new development deals has remained depressed. That is, both our new findings our Megadeals study clearly suggest a “corporate rich getting richer” trend.

Note: The text above is a slightly edited version of a report entitled Subsidizing the Corporate One Percent which I wrote and was just published by Good Jobs First.

Conservatives Discover the Wisdom of Workers

Thursday, February 20th, 2014

vw-westmorelandThe United Auto Workers defeat in the Volkswagen representation election has conservatives gloating, even though their victory came only after they abandoned many of their core principles in favor of political expediency. Elected officials who typically denounce government interference in the market used their pulpits to meddle in a private business matter. Editorialists at the Wall Street Journal, who normally sing the praises of large corporations, declared that the vote showed that “workers are smarter than management.”

Such bogus industrial populism is easy to bandy about when the workers in question were pressured into voting against their own best interests. Typically, it is management and anti-union consultants who are responsible for defeating an organizing drive. In Tennessee, the company remained neutral and the intimidation campaign was carried out by politicians and out-of-state conservative ideologues. Leading the assault was U.S. Sen. Bob Corker, who brazenly promoted the apparent lie that a vote for the union would mean that a new VW assembly line for SUVs would be sited in Mexico instead of Chattanooga.

The Journal admitted that Corker may have been “impolitic” but it defended his “right to free speech.” State politicians also did damage, raising the prospect that VW, which got a $554 million subsidy package when it opened the plant, should not expect future financial assistance if the workers dared to choose the union.

The enthusiasm for the wisdom of the rank and file on the part of the Journal stands in stark contrast to its reaction when workers at VW’s original U.S. plant in Westmoreland, Pennsylvania asserted themselves. Frustrated at the low pay rates they were receiving in comparison to their counterparts at the Big Three plants in Detroit, the unionized VW workers staged a wildcat strike in 1978. Stopping production of VW’s Rabbit, the workers rallied under the slogan “No Money, No Bunny.”

A front-page story in the Journal about the strike (10/13/1978) included the following subheadline: “Pennsylvania Walkout Stirs Doubts on Cost, Stability of American Work Force.” The article quoted a Nissan official as saying: “The Volkswagen strike is quite upsetting to us.”

It was also quite upsetting to VW. Even after the walkout ended, labor-management relations remained hostile at the plant. VW, which was also confronted with a lawsuit charging that it discriminated against black employees, shut down the operation in 1988.

It is likely that VW managers had that experience in mind when they decided not to fight the UAW. Southern U.S. conservatives, like other pro-business types, push the notion that American workers need to accept the realities of a globalized market. What those conservatives refuse to recognize is that one of those realities, at least as far as VW is concerned, is an acceptance of unions and a cooperative approach to labor relations through works councils of the kind that the company wants to adopt in Tennessee. In fact, VW, like other German companies, has a supervisory board with labor representatives.

The latest irony in this situation is that Bernd Osterloh, a labor member of VW’s supervisory board and the head of its works council in Germany, reacted to the election results in Tennessee by saying he might block any future investments by VW in the Southern United States because of the hostility to unions. That would demolish the pernicious conventional wisdom that disempowered workers are always an essential ingredient for economic growth.

Osterloh’s statement helps to bring into focus the truth about the progressive deunionization of U.S. business. Rather than being part of an alignment with the realities of globalization, it is making the United States more of an outlier compared to other wealthy nations. Like this country’s refusal to accept the kind of single payer health insurance that is the norm in the developed world, the ongoing attack on unions puts us out of step with the way a modern economy is supposed to operate and reinforces the dangerous growth of economic inequality.

Healthcare Redlining

Thursday, February 13th, 2014

Protest-against-insurance-companies-in-Washington_3951547284_m-250x176Media coverage of the Affordable Care Act these days bounces back and forth between good news and bad. One day the Obama Administration signals that there are more problems with the employer mandate and once again changes the rules. Two days later, federal officials are bragging that ACA enrollment is booming and that even the Young Invincibles are signing up.

Yet perhaps the most significant recent development is the analysis just published by the Wall Street Journal on the limited range of plan options in the ACA exchanges. The newspaper found that in 515 counties across 15 states there is only one insurer selling coverage through the online marketplaces. In more than 80 percent of those counties, the sole insurer is a local Blue Cross/Blue Shield plan.

For the residents of those counties who seek coverage through the exchanges, the ACA is forcing them to do business with a de facto monopoly that can get away with charging inflated premiums. The Journal cites the example of rural, low-income Hardee County in Florida, where comparable exchange-based coverage can cost $200 a month more than in nearby Tampa.

The ACA is premised on the idea that competition would bring down costs and provide better coverage. The Administration and most Congressional Democrats bought into that notion so deeply that they were willing to exclude a public option as unnecessary. That decision looks increasingly bone-headed.

It is true that those who qualify for federal subsidies may be shielded from the cost differentials, but a substantial portion of the uninsured earn too much to qualify for that assistance but are still far from affluent.

A big part of the problem is that major for-profit insurers such as Aetna and UnitedHealth Group have been participating in the exchanges on a very selective basis. The Journal noted that Aetna, for instance, has “targeted areas with stable levels of employment and income to attract desirable customers to its marketplace offerings.”

This is, to put it mildly, infuriating. The ACA was supposed to put a stop to the tendency of Aetna and the other insurance giants to decline coverage to certain categories of people, usually because of pre-existing medical conditions. Now the insurers were supposed to take on all comers, with the federal government functioning in essence as their marketing arm.

It turns out that the national insurers had found another way of cherry-picking. They are simply choosing not to participate in the ACA market in less affluent parts of the country, where they apparently assume that residents are going to have too many medical needs. In a presentation to investors, Aetna admitted that it was participating in exchanges in fewer than one-third of the states.

The decision to limit the scope of their involvement does not result from any financial distress on the part of the major players. In recent weeks Aetna, Humana and Wellpoint have all reported healthy gains in profits for 2013. The big boys are also getting bigger. Aetna swallowed competitor Coventry Health Care, which added $14 billion to its annual revenue stream.

For those of us who advocated a single payer approach, or at least a public option, the behavior of the insurance companies comes as no surprise. These companies have always found ways to increase profits at the expense of coverage, and they always will. Now that they cannot discriminate explicitly against those in poor health, they will discriminate against communities in which think there is likely to be larger numbers of less healthy residents. It is an insidious new form of redlining.

It is disappointing that the Obama Administration, which is going to such great lengths to help businesses adjust to the ACA, seems to have little inclination to help individuals contend with the substandard offerings in some of the exchanges.  For them the Affordable Care Act may be far from affordable.

Worker Freedom in Tennessee

Thursday, February 6th, 2014

vw_uaw2Major employers facing a union organizing drive, particularly in the South, have long relied on small-business owners, elected officials and other conservative voices to mount a counter-attack.

An interesting variation on this theme is taking place in Tennessee, where Volkswagen seems to be welcoming a United Auto Workers organizing effort at its plant in Chattanooga, yet local as well as national anti-union ideologues are on the warpath nonetheless. They are frantically trying to persuade VW workers to reject the union in a secret-ballot vote scheduled later this month. The company reportedly decided not to simply recognize the UAW, which has gotten a majority of the workers to sign membership cards, because of intense pressure from figures such as Tennessee Senator Bob Corker, who gained notoriety for opposing the federal rescue of the auto industry.

(Full disclosure: I am a member of the United Auto Workers via the National Writers Union/UAW Local 1981.)

VW has rejected the usual practice of foreign automakers, which despite any cooperative relationships with unions at home, have embraced American-style anti-union animus in their U.S. transplants. For many years, the UAW has sought to overcome this intransigence, as seen most recently in the ongoing effort to organize the Nissan plant in Canton, Mississippi.

VW wants to import the works council system of labor-management relations it has in Germany, but in the absence of a certified collective bargaining representative, that would amount to an illegal company-dominated union under U.S. labor law.

We thus end up with a situation in which a major corporation wanting to employ a set of practices designed to improve productivity and reduce turnover is being vilified by those who regard union avoidance as one of the grand traditions of the South.

Last month, Stephen Moore, who was recently named chief economist of the Heritage Foundation, told a business meeting in Chattanooga that the union effort at VW is “like inserting a cancer cell into a body. That one cancer cell is going to multiply and kill the body.” Anti-tax crusader Grover Norquist is helping to bankroll the opposition, apparently out of a concern that a union advance in Tennessee would impede his fiscal agenda. The National Right to Work Foundation and the Center for Worker Freedom are also involved, though their efforts fell flat when the National Labor Relations Board concluded that neither the UAW nor VW had violated labor law in any way.

Figures such as Moore and Norquist came into prominence as a result of a conservative backlash that big business set into motion three decades ago in response to advances of the labor, environmental and consumer movements. That Frankenstein monster took on a life of its own, and now rightwing groups pursue purist goals even when they conflict with corporate pragmatism — as seen, for example in the tea party push for a government shutdown over the objection of major companies.

These groups operate on the assumption that Americans are inherently conservative and that organizations such as the UAW will lead them astray. Foreign automakers such as Nissan and Toyota have gone along with this notion.

VW seems to have a different view, but for reasons that are generally not acknowledged. It tends to be forgotten that VW was the first foreign automaker to establish an assembly plant in the United States, back in 1978 in Pennsylvania.

After being welcomed by public officials with a subsidy package worth about $100 million — an astounding sum at the time — Volkswagen found that many of the people it hired were unhappy about being paid less than their counterparts at the  Big Three plants. A wildcat strike ensued, catching even the UAW off guard. Stopping production of VW’s Rabbit, the workers chanted “No Money, No Bunny.” The plant, which never recovered from the worker unrest, shut down in 1988.

As opposed to the rightwing caricature of unions as the shock troops for a socialist takeover, VW regards the UAW as a partner that can help ensure the smooth functioning of the plant. If that’s done by giving workers more control over their working life, so much the better.

After years of being at the totally at the mercy of management, Southern autoworkers finally have a chance to play a greater role in controlling their destiny. That’s real worker freedom.