Will Obama Help Contractor Employees Join a Union?

June 19th, 2014 by Phil Mattera

vail-good-jobs-nationAfter the passage of the Wagner Act in 1935, labor activists organized workers with the slogan: “The President wants you to join a union.” We haven’t seen much encouragement of collective bargaining from the White House during the past 75 years, but there is a move afoot to change that, at least with respect to employees of companies working for the federal government.

The Good Jobs Nation campaign, which has been highlighting the plight of low-paid employees of federal contractors and helped prod President Obama to issue an executive order that will boost the pay of those workers to $10.10, is raising the ante. It is now calling for another executive order that would pressure contractors to bargain with workers in exchange for a commitment not to strike.

While there would certainly be legal challenges to such an order, it is the logical next step in the effort to address poor working conditions among portions of the federal contractor workforce and to use those standards to promote better standards for the entire U.S. working population.

It’s already well documented that many contractors flout federal workplace regulations. A report issued last year by the majority staff of the Senate Health, Education, Labor and Pensions Committee showed that contractors were among the worst violators in areas such as wage and hour standards and occupational safety and health. A federally mandated wage increase will certainly help, but it is only through collective bargaining that contractor employees will get all the protections they need.

Good Jobs Nation is focusing on workers in fields such as foodservice and security, but how much unionization is missing from the overall contractor workforce? To begin to answer this question, I looked at what the largest contractors are saying (or not saying) about unions in their filings with the Securities and Exchange Commission.

I started with the list of 50 largest contractors in FY2014 shown on the USA Spending website. Excluding those that are privately held, foreign-owned or non-profit, I looked at each firm’s 10-K annual report, which is required to report the total number of employees and has traditionally been the place where companies indicate the extent to which those workers are covered by collective bargaining agreements. Since the main goal of the 10-K is to inform investors of potential risks that could affect the value of their holdings, the company is supposed to indicate whether a work stoppage is possible.

Back in the day when unions were stronger, most large companies had something to report on labor relations. These days many companies indicate that they are not a party to any collective bargaining agreements or don’t bother to say anything on the subject.

Numerous 10-Ks of the top contractors fall into this category. Healthcare companies such as McKesson (the 5th largest contractor), Humana (8th) and UnitedHealth (20st) say nothing about unions. Other firms such as Health Net (11th), telecom equipment maker Harris Corp. (33rd) and Orbital Sciences Corporation (43rd) proudly announced that their U.S. workforce is union-free.

The companies with the biggest union presence are leading Pentagon contractors. Shipbuilder Huntington Ingalls (9th) reports the highest figure I found: 50 percent. Boeing (2nd) reports 37 percent while General Dynamics (4th) and L-3 Communications (10th) each give a figure of 20 percent. The largest contractor of them all, Lockheed Martin, says its unionization level is 15 percent.

On the other hand, some of the aerospace contractors are only lightly unionized: the figure for Raytheon (3rd) is 8 percent and for Northrop Grumman (19th) only 5 percent. Once a heavily unionized firm, General Electric (22nd) says only 7 percent of its total workforce has collective bargaining, even though it has shifted more than half of that workforce overseas, where unions remain stronger.

In other words, not a single one of the companies profiting most from the bloated military budget has a workforce that is majority union, and some have kept the union presence to a bare minimum.

Unions are even more scarce among the large information technology firms that account for another substantial portion of federal contractor spending. Among the firms that don’t mention any union presence are: SAIC, Computer Sciences Corporation, Hewlett Packard, CACI International and IBM.

Employees at these firms are certainly better paid than those employed by contractors performing functions such as building maintenance, but the absence of unions among better treated workers makes it harder for everyone to organize.

Cantor’s Collapse and Crony Capitalism

June 12th, 2014 by Phil Mattera

Dave Brat: hot stuff.It’s easy to see House Majority Leader Eric Cantor’s primary defeat as a sign that the country is moving far to the Right. Dave Brat’s successful underdog campaign was filled with the usual litany of immigrant bashing, Obamacare vilification and federal debt scare-mongering. Yet it appears that one of his most potent messages was an attack on Cantor for being too cozy with big business and thus fostering the culture of crony capitalism.

“If you’re in big business, Eric’s been very good to you, and he gets lots of donations because of that,” Brat (photo) was reported to have told supporters in a meeting earlier this year. “Very good at fundraising because he favors big business. But when you’re favoring artificially big business, someone’s paying the tab for that. Someone’s paying the price for that, and guess who that is? You.”

We tend to think that promoting anger at big business is a theme of the Left, but conservative libertarians such as Brat have their own version of that critique. Yet whereas progressives tend to criticize giant corporations for a variety of sins — wage suppression, union-busting, environmental degradation, monopolization, extravagant executive compensation, etc. — people like Brat focus on one thing: the way that those corporations use their influence to extract special favors and financial assistance from Uncle Sam. Business should be able to do pretty much whatever it wants and pay as little as possible in taxes, they argue, but taking subsidies is beyond the pale.

The libertarian Right has a long history of criticizing what used to be more commonly called corporate welfare. For more than two decades, groups such as the Cato Institute have been publishing diatribes against grants, loan guarantees and other forms of business assistance. In a 1995 Cato paper entitled “Ending Corporate Welfare as We Know It,” Stephen Moore and Dean Stansel wrote:

Because they intermingle government dollars with corporate political clout, business subsidies have a corrupting influence on both America’s system of democratic government and our system of entrepreneurial capitalism. Despite the conventional orthodoxy in Washington that the United States needs an even closer alliance between business and politics, the truth is that both government and the marketplace would work better if they kept a healthy distance from each other.

Over the years, Cato and like-minded group kept up a drumbeat calling for the elimination of programs such as the Export-Import Bank, whose efforts largely benefited the overseas business of U.S. companies such as Boeing and Bechtel. For a period of time, Ralph Nader, who had long attacked some of the same programs from a different direction, made common cause with the libertarians and created a “strange bedfellows” alliance. The alliance got a lot of attention and statements of support, but in the end entrenched interests preserved most corporate welfare programs.

In the past few years, the tea party movement has helped revive the opposition to federal corporate subsidies, though the critique has often been imprecise. There has been a tendency to conflate the TARP program to bail out the banks with the Recovery Act stimulus designed to help the overall economy recover from the recession generated by the financial meltdown.

There’s also the issue of hypocrisy. The Koch Brothers, who have directly or indirectly funded many of the tea party groups, have benefited from a considerable amount of corporate welfare given to their Koch Industries conglomerate, including more than $89 million in state and local assistance my colleagues and I have documented in Subsidy Tracker.

Nonetheless, the notion of crony capitalism, which gained much of its currency during the Solyndra scandal, continues to be a favorite on the Right. In the Daily Signal web news service recently launched by the Heritage Foundation, Cronyism is one of the few highlighted topics, up there with Benghazi and Obamacare.

In his new book Unstoppable, Nader cites corporate welfare as one of the cornerstones of an emerging left-right alliance to “dismantle the corporate state.” Such an alliance may very well succeed in eliminating some of the most dubious forms of federal business assistance, but it cannot overcome the gulf between those who believe that giant corporations should otherwise be left alone and those of us who see the need to use the power of the state to rein in the power of those enterprises.

Civil Servitude

June 7th, 2014 by Phil Mattera

madison protestPublic employees used to be known as civil servants, and the way things are going that label is becoming more and more accurate. The 5 million people employed by state governments and the 14 million employed by local governments are under attack in a variety of ways, and the U.S. Supreme Court may soon provide the crowning blow.

Going after public employees — even firefighters and other first responders — became a popular sport in the wake of the Republican gubernatorial victories of 2010. Wisconsin Gov. Scott Walker and his allies in the legislature defied mass protests (photo) and pushed through a law gutting public employee collective bargaining rights. Tennessee and Idaho enacted laws restricting bargaining rights for public schoolteachers. Ohio’s legislature curbed those rights for all state employees, but the move was repealed in a 2011 referendum.

At the same time, fiscal austerity measures led to widespread layoffs even among those public workers who did not lose their union protections. Between 2009 and 2013 state and local governments shed around half a million jobs, which has been a blow not just to those let go but also to the national economy. The private sector recovery has been held back by the ongoing slump in much of the public sector.

There are other pernicious forces at work. A new report by In The Public Interest describes the ways in which the outsourcing of public functions “sets off a downward spiral in which reduced worker wages and benefits can hurt the local economy and overall stability of middle and working class communities.” Using examples involving functions such as nursing, food service, trash collection and prisons, the report brings together data showing how job quality can plummet after the work is contracted out. For example, it notes that private-sector trash collectors earn around 40 percent less than their public sector counterparts.

Wages are not the only way in which privatized jobs are inferior. Slashing retirement benefits is one of the key ways that outsourcing companies achieve “savings.” Those who remain on public payrolls are also finding their pensions under assault. Led to believe that retirement costs for government workers are out of control, governors and legislators in numerous states have been moving to cut benefits, tighten eligibility requirements and push now hires into 401(k)-style defined contribution plans instead of traditional and more secure defined-benefit coverage.

As if all this were not bad enough, public employee unions are facing a legal challenge that could undermine their ability to survive. The Supreme Court is expected to rule this month on a case called Harris v. Quinn, which started out as a narrow dispute over the obligation of home health care workers to pay agency fees to unions that bargain on their behalf.

That case was concocted by the vehemently anti-union National Right to Work Foundation, which by the time the matter was heard by the Supreme Court in January was arguing that decades of settled law on the collective bargaining rights of all state and local employees should be scrapped.

This position was so audacious that even Justice Scalia seemed to have a problem with it. Yet other conservatives on the court as well as the man-in-the-middle Justice Kennedy seemed to be open to the idea. This could set the stage for a reprise of what happened in Citizens United: the transformation of a narrow case into a broad ruling with disastrous consequences.

The consequences being sought by the “right to work” crowd go far beyond the enfeeblement of public sector unions. They also want to dismantle the political influence of public sector unions, which are a key source of support for the Democratic Party and for progressive public policy. As Jay Riestenberg and Mary Bottari point out in PR Watch, the National Right to Work Committee has long had deep connections with rightwing players ranging from the John Birch Society to the Koch Brothers.

The ties with the latter are an indication that the “right to work” forces are not hurting for money. While enjoying their own solid funding, they are seeking to undermine the money flows which unions depend on to pursue their mission. In an era in which, as the Supreme Court has declared, money is free speech, the Right is doing everything in its power to silence workers and their representatives.

Subsidizing Corporate Offenders

May 29th, 2014 by Phil Mattera

moneybagsontherunIt’s been clear for a long time now that, despite recurring calls to get tough on corporate crime, companies can essentially buy their way out of legal entanglements. In most cases this has come about through the U.S. Justice Department’s willingness to offer companies deferred prosecution agreements. The recent Credit Suisse guilty plea, which is not doing much to impair the bank’s operations, shows that big companies can even go about their business with a criminal conviction.

That’s not the worst of it. It turns out that many of these corporate offenders have received tax breaks and other forms of financial assistance from state and local governments around the country. This does not come as a complete surprise, but it is now possible to quantify the extent to which this unfortunate practice is taking place.

This estimate comes from mashing up two datasets. The first is the Subsidy Tracker I and my colleagues at Good Jobs First have compiled. In recent months we have enhanced the database by matching many of the individual entries to their corporate parents. For 1,294 large companies we now have summary pages that provide a full picture of the subsidies they and their subsidiaries have received.

The other data source is a list of the companies that have entered into deferred-prosecution and non-prosecution agreements with the Justice Department to settle a variety of criminal charges. (Although I refer to these firms as corporate miscreants or offenders, it must be pointed out that they were never formally convicted.)

The list appeared in the May 26, 2014 issue (print version only) of Russell Mokhiber’s excellent Corporate Crime Reporter. Mokhiber obtained it from University of Virginia Law Professor Brandon Garrett, author of a forthcoming book on corporate crime prosecution, and used it for an article showing that the bulk of those agreements are negotiated by a small number of law firms.

I took the liberty of using the list for another purpose: determining how many of the companies also appear in Subsidy Tracker. The results are striking: more than half of the miscreants (146 of 269, or 54 percent) have received state and local subsidies. These include cases in which the awards went to the firm’s parent or a “sibling” firm.

Even more remarkable are the dollar amounts involved. The total value of the awards comes to more than $25 billion. A large portion of that total ($13 billion) comes from a single company — Boeing, which is not only the largest recipient of subsidies among corporate miscreants but is also the largest recipient among all firms. Boeing made the Justice Department list by virtue of a 2006 non-prosecution agreement under which it paid $615 million to settle criminal and civil charges that it improperly used competitors’ information to procure contracts for launch services worth billions of dollars from the U.S. Air Force and NASA.

To be fair, I should point out that not all the subsidies came after that case was announced. In the period since 2006, Boeing has received “only” about $9.8 billion.

The other biggest subsidy recipients on the list are as follows:

  • Fiat (parent of Chrysler): $2.1 billion
  • Royal Dutch Shell (parent of Shell Nigeria): $2.0 billion
  • Toyota: $1.1 billion
  • Google: $751 million
  • JPMorgan Chase: $653 million
  • Daimler: $545 million
  • Sears: $536 million

Altogether, there are 26 parents on the DOJ list that have received $100 million or more in subsidies. As with Boeing’s $13 billion figure, the amounts for many of the companies include subsidies received before as well as after their settlement.

These results suggest two conclusions. The first is that state and local governments might want to pay more attention to the legal record of the companies to which they award large subsidy packages. A company that ran afoul of federal law might not be punctilious about living up to its job-creation commitments.

More broadly, the ability of companies caught up in criminal cases to go on getting subsidies suggests that there is insufficient stigma attached to involvement in such cases. If companies know that they can not only avoid serious punishment but still qualify for rewards such as tax breaks and cash grants, they are more likely to give in to temptations such as fraud, bribery, tax evasion, price-fixing and the like. Without real deterrents, the corporate crime wave will continue.

Too Big to Punish

May 22nd, 2014 by Phil Mattera

get_out_of_jail_freeEver since the financial meltdown, corporate critics have been clamoring for criminal charges to be brought against major financial institutions. With the exception of the guilty plea extracted from an obscure subsidiary of UBS in a case involving manipulation of the LIBOR interest rate index, the Obama Administration long resisted these calls, continuing the dubious practice of offering corporate miscreants deferred prosecution agreements and escalating but still affordable fines.

The Justice Department has now given in to the pressure, forcing Credit Suisse’s parent company to plead guilty to a criminal charge of conspiring to aid tax evasion by helping American citizens conceal their wealth through secret offshore accounts. Yet what should be a watershed moment in corporate accountability is starting to feel like a big letdown.

Despite weeks of handwringing by corporate apologists about the risks for a bank of having a criminal conviction, along with impassioned pleas for mercy by Credit Suisse lawyers, the world has hardly come tumbling down for the Swiss financial giant since Attorney General Eric Holder announced the plea.

Particularly unsatisfying is the fact that no top executives at the bank were charged, meaning that we were prevented from seeing any high-level perp walks. While some lower level bank employees were prosecuted, CEO Brady Dougan is getting off scot free. Even the Financial Times found this unseemly, suggesting that he should have had the good manners to resign. Dougan, instead, handled things in classic damage-control mode, treating the matter as over and done, stating: “We can now focus on the future and give our full attention to executing our strategy.”

The Justice Department is bragging about the plea and the $2.6 billion in penalties, but it is downplaying the failure to achieve one of the main objectives of the case. Credit Suisse is not being compelled to turn over the names of the holders of the secret accounts.

Other parts of the federal government seem to be doing everything possible to cushion the impact of the plea. The SEC has decided, at least for the time being, to exempt Credit Suisse from a law that requires a bank to relinquish its investment-advisor license in the event of a guilty plea. The Federal Reserve, which received $100 million of the penalties, issued a “cease and desist order requiring Credit Suisse promptly to address deficiencies in its oversight, management, and controls governing compliance with U.S. laws,” but it has given no indication that the bank’s activities will be restricted.

There are also no signs that the private sector will punish Credit Suisse. Customers do not appear to be shunning the bank, and the stock market has reacted to the plea with equanimity. The company’s stock price has fallen only a few points since the reports of a possible conviction emerged in recent weeks, and in the wake of the actual plea it has held steady.

When an individual is convicted of a crime, his or her life is usually thrown into disarray. Along with a possible loss of liberty, there may be a forfeiture of assets and a loss of livelihood. Especially for white-collar offenders, there is likely to be ostracism.

For corporate offenders, we’ve long seen how companies can buy their way out of serious consequences through non-prosecution and deferred prosecution deals. Now that get-out-of-jail-free card seems to be available to a company with an actual conviction.

Why, then, did the Justice Department bother pursuing criminal charges? It’s difficult to avoid the conclusion that the prosecution was meant solely as a symbolic gesture—a political move to quiet criticism of the administration’s treatment of corporate misconduct.

The handling of the Credit Suisse case may end up doing more harm than good, both in symbolic and substantive terms. The moves to mitigate the impact on the bank neutralize the administration’s effort to appear tough on corporate crime. They also undermine whatever deterrent effect the prosecution was supposed to achieve.

Large corporations may no longer be too big to convict, but they are still regarded as too big to punish.

Note: For details on the sins of Credit Suisse, see its updated Corporate Rap Sheet.

A New Generation of Corporate Tax Traitors

May 15th, 2014 by Phil Mattera

Large U.S.-based corporations have long demonstrated that they are willing to put profits before patriotism. Over the past two decades, about two dozen of those companies have moved their legal headquarters offshore in order to drastically reduce their federal tax obligations. This disreputable practice is once again in vogue and being brought to a new level by Pfizer’s effort to acquire AstraZeneca and register the combined operation in the United Kingdom. The big Walgreen drugstore chain is also considering a foreign reincorporation move.

During the last big wave of what are politely known as corporate inversions, there was a great deal of protest. The decision by companies such as Tyco International and Ingersoll-Rand to reincorporate abroad was widely denounced as being akin to treason. Reacting to the controversy, Stanley Works dropped plans for a similar move.

Today there is surprisingly little anger over Pfizer’s plan. In fact, the business press is filled with articles indicating that numerous other companies are thinking along the same lines. Pfizer is facing some opposition, but it is mainly in Britain, where the company’s CEO Ian Read (photo) was grilled by members of parliament concerned that the merger will have a negative impact on employment at AstraZeneca.

While Pfizer has been quite open about the tax dodging aspect of its takeover bid, companies involved in inversions tend to justify their move by emphasizing the global nature of their business. The problem with this argument is that it is not supported by the facts. The companies that reincorporate abroad continue to do more business in the United States than in any other country. For example, the purportedly Irish company Ingersoll-Rand derives 59 percent of its revenues from the United States and has 80 percent of its long-lived assets in that country.

Inverted companies usually continue to trade on U.S. stock exchanges and keep their real headquarters at home. They also continue to win contract awards from the federal government. Accenture, another company claiming to be Irish, does more than $1 billion a year in business with Uncle Sam.

Along with their federal tax avoidance, many of the turncoat companies also take widespread advantage of tax breaks and other economic development subsidies from state and local governments. Here are some of the aggregate totals assembled by my colleagues and me at Good Jobs First for our Subsidy Tracker database:

If Pfizer succeeds in its bid, it would add another $200 million to this list, plus $9.2 million that has gone to AstraZeneca’s U.S. operations. Walgreen has received more than $12 million in subsidies.

Along with showing little loyalty to the United States, the corporate tax traitors do not hesitate to abandon their adopted countries when it is financially advantageous to do so. A number of the companies that had reincorporated in Bermuda and the Cayman Islands in the late 1990s and early 2000s subsequently moved to Europe. These include Ingersoll-Rand, Tyco International and Seagate Technology.

Doing so allowed them to avoid the stigma and legal complications of being based in Caribbean tax havens while still enjoying the relatively low corporate tax rates provided by countries such as Ireland and Switzerland. Britain, the intended new home of Pfizer, is now also regarded as one of the more respectable tax haven destinations.

While pretending to be Irish or Swiss or British may be regarded as more acceptable than pretending to be Bermudan, what these companies are doing is still brazen tax dodging and a betrayal of the country that helped them grow into corporate behemoths in the first place.

After the inversion controversies of the early 2000s, Congress took action that thwarted the practice. In today’s political climate in Washington, it is unlikely that restrictions will be placed on the new generation of runaway corporations. Business apologists are already using the Pfizer deal not as a call to arms to block more relocations but rather as an argument for giving in to longstanding demands to gut what remains of the corporate income tax.

According to this warped logic, the United States will solve the tax haven problem only by becoming one itself.

Targeting the Climate Culprits

May 8th, 2014 by Phil Mattera

CarbonMajorsImage1The new U.S. National Climate Assessment makes for sobering reading. In a document of more than 800 pages, it shows that climate change is not some possibility in the distant future but rather a crisis we are already beginning to experience. Extreme weather events linked to climate change, it states, are “disrupting people’s lives and damaging some sectors of our economy.”

Although it is forthright in stating the scientific evidence, the report, as an official government document, avoids assigning blame for the run-up in greenhouse gas emissions to specific parties, and it does not make specific proposals for mitigating the problem.

A very different approach is taken in research recently published by the Climate Accountability Institute, which as its name suggests is very much about naming names. The institute’s Carbon Majors project has accomplished the remarkable feat of estimating how much in the way of carbon and methane emissions can be linked to specific companies going back decades.

In a painstaking analysis, principal investigator Richard Heede has reconstructed the corporate lineage of the major fossil fuel and cement corporations,  assembled data on their historical output and estimated the greenhouse gas emissions caused by that output. In the case of Chevron, for example, the analysis goes back to 1912 and includes predecessor entities such as Standard Oil of California, Gulf Oil, Texaco, Getty and Unocal. The report also covers state-owned oil companies, which Heede notes have not done a good job of providing production statistics.

In all, Heede documents more than 900 billion metric tons of carbon dioxide equivalents and links them to 90 of the world’s largest oil, gas, coal and cement-producing entities. If contributing to the climate crisis can be considered an offense against the planet, these 90 entities are the biggest climate culprits.

So who are they? Table 11 of Heede’s report shows that the companies with the largest cumulative emissions are the following:

  1. Chevron: 51.1 billion metric tons
  2. Exxon Mobil: 46.7 billion metric tons
  3. Saudi Aramco: 46 billion metric tons
  4. BP: 35.8 billion metric tons
  5. Gazprom: 32.1 billion metric tons
  6. Royal Dutch Shell: 30.8 billion metric tons
  7. National Iranian Oil Company: 29.1 billion metric tons
  8. Pemex: 20 billion metric tons
  9. ConocoPhillips: 16.9 billion metric tons
  10. Petroleos de Venezuela: 16.2 billion metric tons

Pressuring these companies through a divestment campaign of the type that is beginning to take hold among U.S. universities (Stanford has just announced it will purge its portfolio of coal stocks) is a good start, but it will probably not be enough.

Other approaches are also being pursued. In an article in The Nation, Dan Zegart reports on efforts by environmental lawyers to mount a legal assault on fossil fuel companies like that used against Big Tobacco. It turns out that these lawyers are studying Heede’s research closely and are trying to figure out ways to use it in their suits.

Putting the industry on the defensive in the courts as well as in the streets is important, because the Carbon Majors will increasingly depict themselves as leaders of the effort to overcome the climate crisis rather than their true identity as key culprits in causing it to happen. I’m sure that Chevron is preparing a new version of its “Will You Join Us?” ad campaign of a few years ago, in which it painted a false picture of itself as part of the clean-energy vanguard.

The recent agreement by Exxon Mobil to insert warnings in its financial reports about the risks to its fossil fuel assets from possible stricter limits on carbon emissions is being hailed by environmentalists as a major transparency advance, but it could also be used by the company as a way of limiting future legal liability.

Another troubling sign of potential corporate maneuvering can be found in the National Climate Assessment itself. It is surprising to open Chapter 4 on Energy Supply and Use and find that one of the lead authors is Jan Dell of ConocoPhillips, one of Heede’s top-ten Carbon Majors. I, for one, would prefer not to see oil company representatives playing a role preparing key analyses of the climate crisis. The fossil fuel industry is a big part of that problem (to the tune of 900 million metric tons), not part of the solution.

Slapping Corporate Wrists a Little Harder

May 1st, 2014 by Phil Mattera

moneybagsontherunGovernments will go to ridiculous lengths to punish criminals. States that cling to the death penalty now resort to back-alley methods for obtaining the drugs used in lethal injections, leading to grotesque results such as the recent botched execution of Clayton Lockett in Oklahoma.

When it comes to corporate crime, a very different standard is applied. Prosecutors go out of their way to soften the impact on offenders. Criminal charges are often not filed, and when they are companies are offered deferred prosecution agreements that allow them to pay fines and make promises not to sin again.

Federal prosecutors are now feeling pressure to take a harder line, especially with global banks that may have flouted U.S. laws relating to tax evasion and international sanctions. The New York Times reports that the Justice Department is pushing to get guilty pleas from Credit Suisse, which has faced charges of helping wealthy Americans dodge taxes through secret bank accounts, and BNP Paribas, which is being investigated for violating U.S. economic sanctions against countries such as Sudan and Iran.

Getting a guilty plea from a major bank (rather than from one of its obscure subsidiaries, as happened in the LIBOR-manipulation case involving UBS) would be an important step in affirming that these institutions are not above the law. The problem is that the Justice Department does not seem to want to impose the kind of penalties that normally go along with a criminal conviction.

According to the Times, prosecutors are meeting with banking regulators “about how to criminally punish banks without putting them out of business and damaging the economy.”

We would never hear such a statement made about, say, an illegal gambling ring. There is no concern that going after such an operation would eliminate jobs and harm the economy.

As for banks, even when they are found to have engaged in egregious behavior, they are treated as legitimate institutions that must be preserved. It is true that not every employee may have been involved in criminal misconduct, but that is no reason why the continued survival of the bank in its existing form has to be regarded as an essential component of any resolution of criminal charges.

Corporate crime will not disappear until prosecutors are willing to consider truly punitive penalties for companies that engage in serious misbehavior. By this I mean consequences that go well beyond fines that a company can easily afford (and can often deduct from its taxes).

It’s often said that bringing criminal charges against corporations is pointless, since a company cannot be put in prison. Leaving aside the question of the feasibility of putting corporate executives behind bars, this view fails to acknowledge the other ways in which a firm’s liberty can be restricted.

We see such an example in the current scandal involving Los Angeles Clippers owner Donald Sterling, who is being fined $2.5 million and banned for life by the National Basketball Association for making racist statements but who also may be forced to sell the team. Why is the Justice Department not talking about forcing banks such as Credit Suisse and BNP Paribas to divest themselves of the operations in which the prohibited practices took place? I would prefer to see such criminal enterprises confiscated outright, but that may be too much to hope for.

Prosecutors have to weigh the economic impact of cases that might, for instance, lead to the revocation of a bank’s license to operate, which is considered the corporate equivalent of the death penalty. This is apparently behind the caution being exhibited in the Credit Suisse and BNP Paribas negotiations.

The lesson that prosecutors seem to have taken from the 2002 conviction of Arthur Andersen, the accounting firm that abetted Enron’s frauds, is that putting a company out of business is a big mistake. I don’t understand why.

The demise of Andersen and Enron and Drexel Lambert did not bring about economic calamity. In fact, the economy was probably better off without these corrupt institutions. We might also be better off if today’s miscreants met a similar fate, or at least had to undergo radical restructuring. And that would send a clear message to other corporations that they have to clean up their act.

 

Note: For an analysis of an industry that has a lot to clean up, including widespread wage theft, see the report just issued by the Restaurant Opportunities Center United and other groups on the National Restaurant Association and its members. I contributed the Rogues Gallery section.

Will Big Pharma Cripple Healthcare Reform?

April 24th, 2014 by Phil Mattera

big-pharma-pills-and-moneyFor those of us who criticized the Affordable Care Act for not going far enough, a big part of the concern was the law’s reliance on the private insurance industry to handle much of the expanded coverage. That industry, with its history of denying coverage and inflated premiums, deserved to be phased out rather than being awarded a large new captive customer base.

It now looks like an even more serious problem for healthcare reform will be another industry with a checkered past: Big Pharma. The drugmakers are generating a growing crisis not only for Obamacare but also for more established programs such as Medicare and Medicaid.

When the federal government recently released data on Medicare billings by individual providers, many of the top amounts were linked to doctors who administer expensive drugs in their offices and thus include the cost of those treatments in their Medicare claims. For example, some 3,000 ophthalmologists billed an average of $1 million each (one billed $21 million by himself), reflecting heavy use of an expensive medication for macular degeneration injected into the eye.

Another challenge comes from Sovaldi, a new hepatitis C drug sold by Gilead Sciences with a list price of $1,000 per pill, or $84,000 for a typical course of treatment. The product is doing great things for Gilead, which recorded $2.3 billion in sales for the drug’s first full quarter on the market — a pharmaceutical industry record.

It is causing problems for those entities that have to pay for use of the drug, including state Medicaid programs, the Department of Veterans Affairs and private insurance companies. One of the largest of those companies, UnitedHealth Group, recently cited the cost of hepatitis C treatments such as Sovaldi as one of the reasons for a drop in its earnings in the first quarter of 2014.

Earlier, several members of Congress, including Rep. Henry Waxman of California, sent a letter to Gilead expressing concern about the price of Sovaldi, but it generated little concern on the part of the company or the rest of the industry. One pharma industry analyst was quoted as saying: “We just look at this letter as a little bit of noise.”

Unfortunately, the dismissive tone was justified. Congress has done little to rein in the cost of prescription drugs and even took the absurd step of barring the federal government from negotiating with pharmaceutical providers in the Medicare Part D program.

The cost problem will only get worse. Patents are expiring on many major drugs, and the industry is creating fewer new ones, prompting companies to squeeze everything they can out of their shrinking product lines.

That means higher prices and other shady practices such as promoting drugs for uses for which they have not been approved. Many of the industry’s largest companies have paid large amounts to settle illegal-marketing charges brought against them by the Justice Department, among them Eli Lilly ($1.4 billion relating to Zyprexa), GlaxoSmithKline ($3 billion relating to Paxil and Wellbutrin) and Pfizer ($2.3 billion relating to Bextra and other medications).

Illegal marketing is just one of the serious charges brought against Big Pharma in recent years. The $3 billion GlaxoSmithKline settlement also covered allegations that it withheld crucial safety data on its diabetes drug Avandia from the U.S. Food and Drug Administration. Merck paid the federal government more than $650 million to settle charges that it routinely overbilled Medicaid and other government programs and made illegal payments to healthcare professionals to induce them to prescribe its products. Eli Lilly paid $29 million to settle foreign bribery charges.

It remains to be seen whether these cases have prompted Big Pharma to clean up its act. I remain skeptical, especially in light of recent signs that the industry is engaged in more concentration designed to allow companies to narrow their focus and thus gain bigger market share in particular sectors.

More specialization will mean less competition, which in turn will mean fewer choices and rising prices. When it comes to drugs, the Affordable Care Act will have increasing difficulty living up to its name.

A Fair Game’s Wage: Athletes Confront the NCAA

April 17th, 2014 by Thomas Mattera

cartel_branchGuest blog by Thomas Mattera

The biggest star of the 2014 Men’s NCAA Basketball Tournament was not a person, but a phrase. When the event’s nearly 103 million television viewers tuned in for the first time, they were less likely to be greeted visually by any one announcer, coach or player than they were by the term “student-athlete.” The fourteen-letter camera hog was plastered all over coverage of each game, including on the elongated screen next to the court, where it was featured in a constantly rotating stream of advertisements for some of the tournament’s largest corporate sponsors.

Any why not? It is a phrase worthy of a hundred One Shining Moment montages, a romantic notion in tantalizingly hyphenated form. But what of the origin of this phrase? Did it materialize from the mind of James Naismith alongside the idea for the peach basket? Or perhaps it was a serendipitous typewriter error on the essay portion of Knut Rockne’s SAT?

Of course, the correct answer is neither of these. Rather, the term was concocted out of thin air sixty years ago by the NCAA in an (successful) effort to avoid paying worker’s compensation to the wife of a player who died from a head injury sustained playing college football.

This historical footnote serves as a perfect example of the absurdity of college sports and audacity of its bloated beneficiary, the National Collegiate Athletic Association.  A term that is now the foundational marketing tool on the biggest stage of college athletics is merely another in a long line of creative NCAA solutions to continue the exploitation and deny the players a slice of the pie.

Deeming the question of whether to reconsider the status quo of collegiate athletics a “debate” is an insult to life’s real unsolvable quandaries. College athletes provide unpaid labor for a mammoth industry, often devoting nearly forty hours a week to their sport while risking serious permanent injury and operating on year-to-year scholarships that can be terminated at the school’s discretion. In many ways, it is like the American healthcare system: one of its kind, wildly unjust, and mired in stagnancy by those who benefit from the current reality. It is no wonder that Bill Maher found so many who agreed with this now famous tweet.

Of course, this is no new revelation. As the television contracts alone have grown into the tens of billions of dollars while many players remain unable to afford life’s basic necessities, the inequity has become even harder to hide and the drumbeat for change harder to silence.  Just the last five years have seen crucial developments in changing public perception on the issue, highlighted by a lawsuit led by former UCLA star Ed O’ Bannon regarding video game likenesses and Taylor Branch’s scathingly brilliant piece in The Atlantic.

To counter these well-articulated and pressing criticisms of their system, the NCAA has done what those in the way of societal progress always do: stuck their fingers in their ears and screamed “lalalalala.” Well, not exactly. They have clung to a pair of stale talking points in rationalizing the way things are: the monetary value of a scholarship and the impracticality of determining individual athletic benefits.

The former assertion, championed most recently by NCAA President Mark Emmert ($1.7 million annual salary), hinges on the idea that the free tuition many athletes receive is more than adequate compensation for their sporting efforts. This argument states that these young people are primarily students pursuing a degree and that athletics are only a secondary focus of their lives on campus.

The latter point states that even if one believes in the moral validity of monetary compensation and better benefits for college athletes, there is no practical way to administer these funds. How would we figure out how much each athlete should be paid? Should the members of the football team receive the same treatment as the star-studded fencing squad? Even if we should reward these athletes, there is no equitable way to do so. Therefore, it is a pointless endeavor.

Both arguments have obvious flaws in logic. While free tuition and board may be enough to reflect the value of many athletes, what of the superstars who singlehandedly prop up marketing campaigns and sell out campus merchandise stores?  What about those like Johnny Manziel, who by one estimate made more than $250 million for Texas A&M over two years? Clearly, a meal plan, stack of textbooks, and unlimited free entry to a few lecture halls is not a fair trade for his services.

Furthermore, the idea that we should not compensate athletes simply because it is too complicated to figure out the wage scale is the logical equivalent of not racially integrating a school district because it would be too hard to figure out the bus routes. Or not allowing women to vote because ordering new ballots would be inconvenient. Logistical challenges can be overcome given the proper strategy, much like injustice.

Despite these deficiencies, the arguments had mostly gotten the job done for the NCAA, allowing it to claim plausible deniability and stifle change for decades even as public perception shifted. It seemed we were headed for a world in which everyone thought the NCAA should change their ways but no one could do anything about it.

That is, until the introduction of former quarterback Kain Colter and the effort to unionize the Northwestern Football Team. Seeking primarily to address the issues of medical expenses, autonomy in transfer decisions, a post-graduation player trust fund, and better protocol for brain traumas, lawyers representing the players made the case to the National Labor Relations Board that they are, in fact, employees of the university with the right to organize and collectively bargain. Peter Ohr, regional director of the NLRB, concurred with this idea and ruled in favor of the players in a strongly worded twenty-two page decision released on March 26.

Nestled in the text of Ohr’s assertions are the perfect counterpoints for both of the two arguments the NCAA has come to rely upon. First, Ohr discusses the time commitment of participating in big-time college athletics, at one point producing a schedule from Northwestern training camp in which players were forced to allocate 16 hours a day exclusively to football. So much for the sanctity of academics and the overwhelming priority of schoolwork versus sports. These young people are already working like full-time employees, Ohr asserts, so they should be treated like it too.

As for the question of how to determine how much each player should be rewarded? Say hello to the idea of collective bargaining, the tried and true method for determining the wages and benefits of a myriad of workers for centuries. If it worked for the Samuel Gompers and Walter Reuther, it can work for Johnny Football and Shabazz Napier.

So what comes next? The decision has set up a vote on April 25 in which Northwestern’s players will decide whether to formally organize.  Less than gracious in defeat, Northwestern itself seems intent on confirming the veracity of Ohr’s argument, immediately assuming its role as the anti-union employer as head Coach Pat Fitzgerald does his best Bob Corker impersonation.

No matter the result of the vote or the endless string of appeals Ohr’s ruling is sure to generate, the argument of collegiate athletic compensation has been permanently altered. No longer can the proprietors of college sports hide their bounty in plain view behind canned responses and loaded phrases like “student athlete”. Colter and his allies have formulated a new game plan, executed it to perfection, and the once invincible NCAA bully may get sacked.