Phil Mattera

Profit, Baby, Profit

President Obama’s drill-baby-drill (but not quite everywhere) gambit does not only link him to an environmentally backward policy. It also will force his Administration to defend one of the most dysfunctional federal programs in modern history: the Interior Department’s offshore oil and gas leasing system.

Interior’s Minerals Management Service (MMS) is supposed to collect royalties from companies drilling in offshore public waters. After new activity was restricted in the wake of the devastating spill off the coast of Santa Barbara, California in 1969, the oil industry sought to make its leases more profitable by pressing for reductions in these payments.

In the mid-1990s, when energy prices were low, Big Oil got Congress to expand the “royalty relief” provisions that were already in the Outer Continental Shelf Lands Act of 1953. Royalties were supposed to return to higher rates when prices rebounded, but things got complicated. First, it came to light that MMS had failed to write those provisions into some 1,000 deepwater leases it signed in 1998 and 1999, putting into question its ability to collect billions of dollars in back royalties.

While this was being sorted out, one of the drilling companies – Kerr-McGee (now part of Anadarko Petroleum) – filed suit challenging the right of MMS to impose the higher royalties on any leases. The company’s self-serving arguments found a sympathetic ear in federal court. Last fall the Supreme Court declined to review an appellate ruling in favor of the company, thus allowing Anadarko to avoid paying more than $350 million in back royalties. For the industry as a whole, the Court blocked the Interior Department from trying to collect on a bill that the Government Accountability Office once estimated could run as high as $53 billion.

Then there’s the small matter of the wild parties and gifts that industry representatives lavished on MMS employees in charge of the agency’s royalty-in-kind program. In September 2008 Interior Department Inspector General Earl Devaney (now in charge of the Recovery Accountability and Transparency Board) issued three reports describing gross misconduct at MMS, including cases in which agency employees were literally in bed with the industry. Devaney concluded that the royalty program was mired in “a culture of ethical failure.”

Not all MMS employees were bought off. Some agency auditors came forward and charged that they had been pressured by their superiors to terminate investigations of royalty underpayments.

Once the Obama Administration took office, Interior Secretary Ken Salazar took steps to clean up MMS. Last September he announced plans to terminate the royalty-in-kind program, whose staffers had been at the center of the sex and gifts scandal.

For a while it was unclear whether Salazar would tighten up the remaining royalty programs. In fact, he told the editorial board of the Houston Chronicle last fall that in some cases he thought drilling companies should pay even lower royalty rates. He changed his tune this year, and the Administration is seeking modest increases in royalties and fees.

Yet the entire offshore leasing program still amounts to a giant boondoggle. Thanks to the federal courts, artificially low royalty rates are now effectively an entitlement for the drilling industry. Research conducted by the Interior Department itself suggested that the incentives result in little additional oil production. Not to mention the environmental risks.

And now, thanks to a dubious calculation that making concessions on offshore drilling will help prospects for a climate bill, the Obama Administration is bringing about a major expansion of a program that is disastrous even if there are no spills. Profit, baby, profit.

A “Poster Child for Corporate Malfeasance”

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

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

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

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

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

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

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

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

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

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

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

Throw the Bums Out — of the Boardroom

The financial reform bill just released by Senate Banking Committee Chairman Chris Dodd is facing a great deal of criticism for being too weak. Let me pile on by focusing on one of the less noticed parts of the bill: the provision dealing with the composition of financial institution boards of directors.

Among the many reasons for the financial debacle of the past few years was the failure of board members at the big commercial and investment banks to exercise any kind of meaningful oversight while the executives of those companies were applying the business principles of Charles Ponzi. This was a replay of what happened during the Enron and other corporate scandals of the early 2000s.

One of the key causes of feckless boards is the phenomenon of interlocking directorates — the tendency of large and powerful corporations to share directors. This happens when the chief executive of a big company or bank sits on the board of another corporate leviathan, or when retired business executives join multiple boards. In these cases the outside director can usually be counted on to endorse the strategies put forth by top management and to be generous when it comes to setting executive compensation policies. And perhaps be willfully ignorant when management is cooking the books.

According to the recent report from its bankruptcy examiner, that was the case when Lehman Brothers was engaged in its Repo 105 scam to hide the fact that its balance sheet was becoming overwhelmed by toxic assets. Prior to its collapse in 2008, the chair of the audit committee of Lehman’s board was the retired chief executive of Halliburton.

Tucked in Dodd’s 1,336-page bill is a short section (no. 164) that addresses the board issue by proposing a modification in what is known as the Depository Institutions Management Interlocks Act (DIMIA), an obscure law from 1978 that prohibits someone from sitting on the boards of more than one bank, depending on the size and location of the institutions. Dodd wants to apply DIMIA to the large nonbank financial companies that would be subject to additional regulation under his bill. In doing so he would bar the Federal Reserve from allowing any interlocks between those nonbank financial companies and large bank holding companies.

There’s nothing wrong with that, but it does not begin to address the corporate governance lapses that helped bring about the Wall Street meltdown. Those lapses showed that existing rules on corporate boards, such as those contained in the 2002 Sarbanes-Oxley Act, are not up to the task.

And we certainly can’t count on big financial institutions themselves to choose the best board members or even to exclude those whose track record should disqualify them. Citigroup made a big show last year of revamping its board, but the person it chose to chair that body was Jerry Grundhofer, who, in addition to being the former CEO of U.S. Bancorp, had served as a director of Lehman Brothers during its last ignominious year.

Another bailed out institution, Bank of America, also chose some new directors last year. Its choices included two former regulatory officials – Susan Bies of the Federal Reserve and Donald Powell of the Federal Deposit Insurance Corporation – whose agencies did little to detect or prevent the crisis. B of A also brought on Robert Scully, a former executive of Wall Street giant Morgan Stanley.

In the wake of the Enron scandal, groups such as the AFL-CIO called on companies on whose boards Enron’s outside directors also served to ease them out when they came up for reelection. In 2005 board members at Enron and at WorldCom had to pay millions of dollars of their own money to settle lawsuits brought by investors in the two companies brought down by fraud.

So far, those who served on the boards of the large banks have avoided a similar fate. It would be good to see them face litigation and public disapprobation, but at least they should be barred from continuing to serve on the boards of institutions where future financial crises may occur. Strengthening the rules against interlocks in a meaningful way would also help diminish cronyism in the boardroom.

Big Money requires the kind of strong external regulation that financial reform could conceivably bring about. That regulation should also make sure that institutions also have a decent first line of internal regulation in the form of truly independent and diligent board members.

Attacking the Wrong Earmarks

Congress is once again talking tough about budget earmarks. House Democratic leaders announced that they are banning earmarks designed to benefit for-profit entities, while House Republicans upped the ante by calling for the abolition of the practice across the board.

Even if this latest in a long line of anti-earmark initiatives takes hold, it will have limited impact on the channeling of taxpayer dollars to favored interests. The earmark database compiled by Taxpayers for Common Sense indicates that in the current fiscal year they amount to only $16 billion. And many of the 11,860 individual items cannot be linked to a specific recipient, making targeted bans meaningless.

Even the largest items linked to individual corporations—such as $19.5 million to Boeing for “Maui Space Surveillance System Operations and Research” in Hawaii; $12 million to BAE Systems for “Mk 45 Mod 5 Gun Depot Overhauls” in Kentucky; and $9.6 million to Northrop Grumman for “B-2 Advanced Tactical Data Link” in California—are drops in the bucket of $1 trillion in overall federal discretionary spending and a military budget of $530 billion.

It’s amusing to watch the posturing about these small amounts at a time when Congress may be about to endorse what can be seen as perhaps the largest earmark ever: the healthcare subsidies that will pass from lower-income Americans to private insurers in a public-option-less system. A new report from the Congressional Budget Office estimates that premium and cost-sharing subsidies under the current (pre-reconciliation) Senate version of the bill would cost $337 billion over the next decade. The TARP bailout was bigger, but in that case the taxpayers are recouping much of the outlay.

Healthcare is not the only example of how reform gets built on corporate handouts. The climate bill that passed the House last June (and got stalled in the Senate) would have essentially given away many of the emission allowances for the cap and trade system rather than requiring corporate polluters to pay in full for their greenhouse gas output.

Corporate subsidies are also at the heart of the job-creation initiatives making their way through Congress. Most Democrats have embraced the Republican notion that the best way to increase employment is to decrease business taxes. The same goes for federal efforts to promote renewable energy. At the center of the green jobs initiatives in the Recovery Act were corporate tax breaks such as the $2.3 billion Advanced Energy Manufacturing Tax Credit, which the Obama Administration would like to expand by $5 billion. The Administration also wants to give $8 billion in loan guarantees to the Southern Company to build a nuke in Georgia.

In addition to the direct contracts and tax breaks, corporate America is also in effect being subsidized by the unwillingness of much of Congress to tighten regulation of business, even in cases of reckless behavior. The delay and dilution that have characterized financial reform are worth billions to the banks. The moves to exempt sectors such as payday lenders from federal oversight is an enormous boon to those businesses.

Healthcare reform, climate-crisis mitigation, job creation, renewable energy development and financial reform are all laudable goals, but it is frustrating that they are all being pursued in ways that often reward the same large corporations that created many of the problems these initiatives are meant to address. And it is mind-boggling that the critics of this business-friendly agenda repeatedly denounce it as socialistic.

Democrats should spend less time posturing on earmarks and more time trying to figure out how they can fix what’s wrong with the country without giving away the store to big business.

The Risk of Green Offshoring

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sucked Into the Offshoring Whirlpool

Critics of the $787 billion Recovery Act complain it is not doing enough to revive the economy, but they rarely ask why the companies that are receiving stimulus contracts and grants are not hiring more people. Now one of those recipients is facing a growing controversy over its employment practices in a case that helps explain why jobs remain in short supply.

Appliance maker Whirlpool is under fire from organized labor for its decision to shut down a 1,100-worker refrigerator plant in Evansville, Indiana and shift the work to a company factory in Mexico. The announcement was actually made last August, but it did not get national attention until recently, when union activists realized that Whirlpool had been given a $19.3 million grant by the U.S. Department of Energy to develop “smart appliances.” The funding was part of the Recovery Act’s $4.5 billion pot of money to encourage the development of the smart transmission grid.

The grant was not directed to the Evansville plant, but unions are nonetheless indignant that a company engaged in exporting jobs to a foreign low-wage location is receiving federal aid. The company made things worse for itself by warning workers not to participate in a planned protest demonstration featuring AFL-CIO President Richard Trumka. The union at the plant, IUE-CWA Local 808, has filed an unfair labor practice charge over the warning.

This situation shows the difficulty of using stimulus funds or other incentives to generate employment at a time when so many large corporations no longer have an interest in producing things in the United States.

Consider Whirlpool. For decades its production activities were almost entirely located in the USA. In the 1980s that began to change as the company started to focus more on overseas markets. It bought large shares in the Canadian company Inglis, Mexico’s Vitromatic and then the European appliance business of the Dutch company Philips. In 1990 Forbes wrote that Whirlpool was “going global—with a vengeance.”

If Whirlpool’s foreign expansion was meant only to meet demand in foreign markets, that would be one thing. But the company began a process of reducing its manufacturing in the United States and other developed countries while increasing it in foreign low-wage havens. One of its favorite havens was Mexico. In the late 1980s the company closed numerous U.S. plants and shifted production to Mexican maquiladora plants. In 1996 the plant in Evansville lost about 265 jobs when some refrigerator production was moved to Mexico. In 2003 Whirlpool shifted some production from its facility in Fort Smith, Arkansas to a new plant south of the border.

The latter move came a decade after a bitter dispute between the company and the workers in Fort Smith represented by the Allied Industrial Workers union. In 1989 Whirlpool unilaterally imposed concessions on members of AIW’s Local 370, prompting the union to launch a national boycott of the company. In 1991 the head of the local confronted Whirlpool executives and directors at the company’s annual meeting, calling on them to abandon their “narrow-minded, shortsighted, union-busting behavior.” The dispute was not settled until 1993.

In 2006 the Evansville and Fort Smith plants lost a total of about 1,200 jobs to Mexico. Or, in the antiseptic terms of Whirlpool’s press release: “The company also is adjusting its workforce levels at several of its North American manufacturing facilities to optimize production levels and take advantage of its expanded manufacturing footprint.”

In other words, the current shutdown plan in Evansville is just the latest in a series of “adjustments” by which Whirlpool is ridding itself of decently paid U.S. workers and replacing them with much cheaper labor abroad. The 1,100 losing their jobs are the remnant of a Whirlpool workforce in Evansville that back in the early 1970s totaled nearly 10,000 (photo). Companywide, 26 of Whirlpool’s 37 production facilities are now located outside the United States.

It did not seem to occur to Whirlpool that there was anything unseemly about accepting federal stimulus funds at a time when it was closing a domestic plant. In fact, something similar happened seven years ago. In 2003, during a period when the downsizing of the Evansville plant was already under way, the company accepted a $1.3 million grant from the U.S. Department of Energy – via the Indiana Department of Commerce – to help develop a new manufacturing process for energy-efficient refrigerators produced in Evansville (source: Associated Press, February 8, 2003 via Nexis).

Until the federal government is prepared to do something serious about offshoring, it should at least refrain from giving financial assistance to firms that engage in the practice, even if the aid is going to a different part of the company—and even if it is for a laudable purpose such as promoting energy efficiency. The federal government now has a (non-public) contractor misconduct database to help it avoid giving procurement awards to bad actors. Perhaps there should also be a list of job-exporting companies which would be ineligible for federal aid until they reaffirm their commitment to domestic production.

ARRA as a Corporate Rescue Plan

A war of words is raging over the impact of the Obama Administration’s $787 billion stimulus program, which is now one-year old. Conservative members of Congress are mounting a relentless assault on what they see as an abject failure, even as many of them unabashedly promote and at least implicitly take credit for individual American Recovery and Reinvestment Act (ARRA) projects in their home districts.

Meanwhile, the office of Vice President Joe Biden has issued a report insisting that ARRA has created or saved 2 million jobs and has brought many states back from the brink of fiscal disaster. The stimulus effort, Biden insists, “is going well.”

The debate boils down to an age-old disagreement between those opposed to allegedly wasteful social spending and those who believe government has to reinforce the social safety net during a time of economic distress.

Both sides are ignoring the fact that ARRA, to a significant degree, is a rescue plan not just for unemployed workers and struggling state governments, but also for parts of corporate America. This goes far beyond the roughly $50 billion in business tax breaks that Republicans last year insisted be part of the plan.

The Recovery Act represents a big step in the direction of what was once called industrial policy. Billions of ARRA dollars are being used by the federal government to encourage the development of new industries in areas such as renewable energy and health information technology that are seen as the foundation of future economic growth. Billions more are being spent on traditional procurement contracts to boost private-sector activity.

Here are some examples of larger injections of ARRA funds going directly to the corporate sector:

ADVANCED ENERGY MANUFACTURING TAX CREDITS

Hemlock Semiconductor, a joint venture of Dow Corning (itself a joint venture of Dow Chemical and Corning Inc.) and two Japanese companies: $141 million for the production in Michigan of polycrystalline silicon used in solar panels.

Wacker Polysilicon North America LLC, a subsidiary of the German chemical company Wacker Chemie: $128 million for a plant in Tennessee that will produce polysilicon for solar cells.

United Technologies Corporation, the big military contractor: $110 million for new equipment at its Pratt & Whitney plants to help produce more energy-efficient jet engines.

Alstom, the big French power and transportation equipment firm: $63 million for a Tennessee facility that will produce the world’s largest steam turbines for nuclear power plants.

GRANTS FOR DEVELOPMENT OF ADVANCED BATTERIES FOR ELECTRIC VEHICLES

Johnson Controls: $299 million for work on nickel-cobalt-metal battery cells

A123 Systems Inc.: $249 million for work on nano-iron phosphate cathode powder and electrode coatings.

General Motors: $105 million for production of high-volume battery packs for the GM Volt.

“CLEAN” COAL POWER INITIATIVE

American Electric Power Company: $334 million for the development of a chilled ammonia process to capture CO2 at a power plant in West Virginia.

Southern Company Services: $295 million for the retrofitting of a CO2 capture installation at a coal-fired power plant in Alabama.

BROADBAND EXPANSION

ION HoldCo LLC, a partnership led by Sovernet Communications: a $39 million grant to expand fiber-optic broadband in rural areas of upstate New York.

Biddeford Internet Corp. (dba GWI): a $25 million grant to extend a fiber-optic network to rural and disadvantaged parts of Maine.

ENERGY LOAN GUARANTEES

Solyndra Inc.: a $535 million loan guarantee to support the construction of a commercial-scale manufacturing facility for cylindrical solar photovoltaic panels.

PROCUREMENT CONTRACTS

Lockheed Martin: $165 million to work on the crew vehicle for NASA’s Project Orion.

Clark Construction Group: $152 million to design and build a new headquarters for the U.S. Coast Guard in Washington, DC.

General Motors: $104 million to supply light trucks, station wagons and alternative fuel vehicles to the General Services Administration.

GlaxoSmithKline: $62 million from the Department of Health and Human Services to do research on the H1N1 flu vaccine.

To this list can be added the thousands of contracts that states have awarded to private companies to carry out ARRA-funded activities such as highway repair, school construction and environmental remediation.

It is surprising that there has been so little debate on the relative merits of all these projects and programs – as well as on the wisdom of providing direct subsidies to profit-making entities. Are these grants, contracts, tax credits and loan guarantees a smart investment in the future or nothing more than business boondoggles?

With a significant portion of the Recovery Act going to aid corporations, we also have a right to ask why they are not creating more jobs with the taxpayer funds they have received. It would also be helpful to know – though the limitations of ARRA data collection make this difficult – how good are the jobs that have been created (in terms of wages and benefits) and whether those jobs are being equitably distributed among different portions of the population.

If we are ever going to reach any meaningful conclusions about the whole stimulus endeavor, we’ve got to go beyond tired debates about Big Government versus the Free Market. Like the bailout of the banks and the auto companies, ARRA is changing the relationship between the public and private sectors. Now we need to know whether the new arrangement is working and who is reaping the benefits.

Kowtowing to the Corporate Elite

Two national political figures recently made statements about the pay practices of the big banks that did so much to create the current economic crisis. Can you tell which one was made by Barack Obama and which came from the mouth of Sarah Palin at the recent Tea Party convention?

Comment A: “While people on main street look for jobs, people on Wall Street, they’re collecting billions and billions in your bailout bonuses. Among the top 17 companies that received your bailout money, 92 percent of the senior officers and directors, they still have their good jobs. And everyday Americans are wondering, where are the consequences for them helping to get us into this worst economic situation since the great depression? Where are the consequences?”

Comment B (responding to a question about the $9 million in compensation received by Lloyd Blankfein of Goldman Sachs and the $17 million received by Jamie Dimon of JPMorgan Chase): “I know both those guys. They are very savvy businessmen. And I, like most of the American people, don’t begrudge people success or wealth. That is part of the free-market system…$17 million is an extraordinary amount of money. Of course, there are some baseball players who are making more than that and don’t get to the World Series either, so I am shocked by that as well… I guess the main principle we want to promote is…that shareholders have a chance to actually scrutinize what CEOs are getting paid, and I think that serves as a restraint and helps align performance with pay.”

Sad to say, the lame second statement, which sounds like something composed by a not particularly imaginative flack for the financial industry, was made by President Obama in an interview with Bloomberg BusinessWeek. His comments caused such an initial uproar that the Administration’s Deputy Communications Director Jen Psaki felt compelled to put up a post on the White House blog to try to clear up any “confusion” about what the standard bearer of the Democratic Party was saying.

If Psaki’s aim was to repair Obama’s progressive bona fides, she actually made matters worse by reiterating her boss’s previous comments about the glories of the free market and the wonders of individual wealth.

What is going on here? At a time when the public is outraged at the behavior of Big Finance — and when even a dunce such as Palin realizes she must condemn Wall Street greed — Obama decides to soft-pedal his criticism. Rather than acknowledging the damage done by the likes of Blankfein, he treats the matter as an intellectual exercise of fine-tuning pay to match performance. Wall Street pay is well-aligned with performance. The problem is that what’s been performed – the bad loans and toxic assets in the period leading up to the crisis and the stingy lending and bailout abuses in its aftermath – is good for the banks but disastrous for the economy as a whole.

Much of the Obama interview is an embarrassing obeisance to corporate power. The President seems to be apologizing for giving even the slightest the impression that he is anti-business. “Everything we have done over the last year,” he said, “and everything we intend to do over the next several years, I think is going to put American business on a stronger footing.” Asked why he does not have a “major CEO” in his cabinet, Obama replies: “We want and need more input from the corporate community.”

And he gushes over CEOs he admires. He lauds Fred Smith of FedEx as “thoughtful” and says that “sitting down and talking to him was incredibly productive and helps inform how we shape policy.” Hopefully, that does not include labor policy, given FedEx’s resistance to unionization and its abuse of the independent contractor classification. According to BusinessWeek, Obama had a staffer send a follow-up e-mail with a list of his other favorite CEOs, including Ivan Seidenberg of Verizon, another foe of unions.

A generous interpretation of Obama’s BusinessWeek interview is that he is simply trying to counteract overheated right-wing rhetoric depicting him as some kind of socialist. Yet he doesn’t seem to feel the same discomfort about the fact that, as Obama admits in the interview: “On the left we are perceived as being in the pockets of Big Business.”

He seems to regard that image, based on his mostly timorous approach to matters such as healthcare and financial reform, as a political benefit. During normal times in laissez-faire America, that might be the case. Yet this is an era in which an endless series of scandals and misbehavior have left the legitimacy of big business in tatters. Kowtowing to the corporate elite is bad politics and bad policy.

Toyota Totals Its Corporate Social Responsibility Creds

It would not surprise me if the people who do public relations for Toyota are flipping through their old scrapbooks to cheer themselves up amid the worst crisis in the company’s history.

They might be looking longingly at the 2003 Business Week cover story headlined: “Can Anything Stop Toyota: An Inside Look at How It’s Reinventing the Auto Industry.” Or the 2006 New York Times paean entitled “Toyota Shows Big Three How It’s Done.” Perhaps they are going back even further to the 1997 love letter from Fortune: “How Toyota Defies Gravity.”

These days Toyota is instead experiencing the unbearable heaviness of being exposed as just another unscrupulous automaker that, whether through incompetence or greed, puts many of its customers behind the wheel of a deathtrap.

New revelations that the company knew about the defective gas pedals for years before taking action are all the more scandalous because Toyota had a longstanding reputation not only for business prowess but also for social responsibility.

The company, of course, fostered this image. Its website proclaims: “Toyota has sought harmony between people, society, and the global environment, as well as the sustainable development of society, through manufacturing. Since its foundation, Toyota has continuously worked to contribute to the sustainable development of society through provision of innovative and high-quality products and services that lead the times.”

All big corporations make similar declarations, but Toyota managed to convince outside observers of its pure heart. Last year the Ethisphere Institute included the automaker on its list of “the World’s Most Ethical Companies.” Toyota is ranked 14^th on the “Global 100 Most Sustainable Corporations in the World.” And it received the highest score among automakers in a 2006 CERES assessment of corporate governance changes adopted by large corporations to deal with climate change.

Toyota’s environmental reputation is not completely unblemished. In 2007 the company incurred the wrath of green groups for its opposition to an effort to toughen fuel economy standards in the United States (a stance it modified in response to the pressure). In 2003 Toyota agreed to pay $34 million to settle U.S. Environmental Protection Agency charges that it violated the Clean Air Act by selling 2.2 million vehicles with defective smog-control computers.

Overall, however, Toyota was regarded as a much more environmentally enlightened company than Detroit’s Big Three. In fact, its successful efforts to bring hybrids into the auto industry mainstream made it something of a corporate hero in green circles. Michael Brune, who was recently named the new executive director of the Sierra Club, brags that he and his wife have been driving a Prius since 2004.

Toyota’s more laudable stances on sustainability issues did not prevent it from being completely retrograde when it came to respecting the collective bargaining rights of its U.S. employees. It has successfully kept unions out of its heavily-subsidized American plants and has taken advantage of contingent workers to keep down costs in those operations.

Just as good environmental policies do not automatically lead to good labor practices, the current safety scandal shows that a company can be green and totally irresponsible at the same time. Despite Toyota’s claim about promoting “harmony between people, society, and the global environment,” it appears the company put its business interests ahead of the safety of its customers and others with whom they share the road.

The automaker’s safety scandal is another indication that voluntary corporate social responsibility policies go only so far. It is only through rigorous government regulation, backed by aggressive environmental and other public interest activism, that major corporations can be kept honest.

A Corporate Full-Body Scan

The one redeeming feature of the abominable Supreme Court ruling on corporate electoral expenditures is the majority’s retention of the rules on disclaimers and disclosure. While opening the floodgates to unlimited business political spending, the Court at least recognizes that the public has a right to know when a corporation is responsible for a particular message and a right to information on a corporation’s overall spending.

Writing for the majority, Justice Kennedy states: “The First Amendment protects political speech; and disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.”

There’s no question that steps must be taken to mitigate the Citizens United ruling, whether through changes in corporation law, shareholder pressure, enhanced public financing of elections, or even a Constitutional amendment.

Yet while these efforts progress, it is also worth taking advantage of the Court’s affirmation of the principle of transparency and push for even greater disclosure than what we have now. Groups such as the Sunlight Foundation are already moving in this direction.

The effort could begin with pressing the Federal Election Commission to tighten the existing reporting rules on what are known as “electioneering communications” and to enforce them more diligently. But that’s not enough.

In the wake of Citizens United, we’ve got to demand more information on the many ways corporations exercise undue influence not only on elections but also on legislation, policymaking and public discourse in general. Now that Big Business is a much bigger threat to popular democracy, we have to subject corporations to intensive full-body scans to find all their hidden weapons of persuasion. The following are some of the areas to consider.

Lobbying. In his State of the Union Address, President Obama said that lobbyists should be required to disclose every contact with the executive branch or Congress. That’s fine, but why stop there? Many corporations do their lobbying indirectly, through trade associations which disclose little about their sources of funding. How about rules that require those associations to disclose the fees paid by each of their members and require publicly traded companies to disclose exactly how much they pay to belong to each of their various associations?

Front Groups. Corporations also indirectly seek to influence legislation and public opinion by bankrolling purportedly independent non-profit advocacy groups. Such front groups—such as those taking money from fossil-fuel energy producers to deny the reality of the climate crisis—do not have to publicly disclose their contributor lists. Why not require publicly traded companies, at least, to reveal all of their payments to such organizations?

Union-Busting. Encouragement of collective bargaining is still, in theory, official federal policy. Yet many companies violate the principle—and the rights of their workers—by using corporate funds to undermine union organizing campaigns. The existing rules on the disclosure of expenditures on anti-union “consultants” are too narrow and not vigorously enforced. That should change.

These are only a few of the ways that undue political influence and other forms of anti-social corporate behavior could be addressed through better disclosure. Yet, as we’ve seen, transparency by itself does not counteract corporate power unless something is done with the information.

This came to mind in reading the last portion of the Citizens United ruling. Not all five Justices in the majority went along with the idea of maintaining the disclaimer and disclosure rules. Parting with Kennedy, Roberts, Scalia and Alito, Justice Thomas argued not only that corporate independent expenditures should be unrestricted, but also that they should be allowed to take place under a veil of secrecy.

He bases his argument not on legal precedent, but rather on dubious anecdotal evidence that some supporters of California’s anti-gay-marriage Proposition 8 were subjected to threats of violence after their names appeared on public donor lists. Thomas thus suggests that corporations should be able to make their political expenditures anonymously to avoid retaliation.

While I am in no way advocating violence, I think activists need to use the information that becomes public as the result of expanded disclosure to make corporations pay a price for any attempts to buy our political system. If we can get them to worry about (non-violent) retaliation to the point that they limit their expenditures, then we will have gone a long way toward neutralizing the pernicious effects of the Citizens United ruling.