A Rogues Gallery of the One Percent

For the past 30 years, Forbes magazine has used its annual list of the 400 richest Americans as a platform for celebrating the wealthy. This year, amid the persistent jobs crisis and the growing challenge posed by the Occupy movement, the Forbes list has to be viewed in a different light. Rather than a scorecard of success, it comes across as a rogues gallery of the 1 Percent who have hijacked the U.S. economy.

Start with the overall numbers. Combined, the 400 are worth an estimated $1.5 trillion, up 12 percent from the year before. This at a time when both the net worth and annual income of the typical American household have been sinking. When the first Forbes list was published in 1982 there were only about a dozen billionaires. Today, every single member of the 400 has a ten-figure fortune. Their average net worth is $3.8 billion.

And where did this wealth come from? Forbes tries to justify the skyrocketing assets of the 400 by saying that “an alltime-high 70% are self-made…This is the working elite.” New riches may indeed be better than inherited wealth, but how did this “elite” climb the ladder of success?

The question is all the more pertinent, given the current inclination of conservatives to refer to the wealthy as “job-creators” as a way of rebuffing efforts to get the plutocrats to pay their fair share of taxes.

How much job creation can be attributed to the Forbes 400? In a chart on Sources of Wealth, the magazine notes that the largest single “industry” is investments, accounting for the fortunes of 96 of the 400. By contrast, manufacturing, which is more labor intensive, is listed as the source for only 17 of the tycoons.

Within the investments category, about one-sixth of the people in the top 100 made their fortunes from hedge funds, private equity and leveraged buyouts—activities that are more likely to result in the destruction than the creation of jobs. For example, Sam Zell (net worth: $4.7 billion) was ruthless in laying off workers after his takeover of the Tribune newspaper company.

Forbes no doubt would respond by pointing to the 48 people on the list who got fabulously wealthy from the technology sector. Yet many of these companies create very few jobs: Facebook, which made Mark Zuckerberg worth $17.5 billion, has only about 2,000 employees. Or, like Apple, which gave the late Steve Jobs a $7 billion fortune, they create most of their jobs abroad in low-wage countries such as China rather than manufacturing their gadgets in the United States. The same is now true for Dell—source of Michael Dell’s $15 billion fortune—which has closed most of its U.S. assembly operations.

The few people on the list who are associated with large-scale job creation in the United States got rich from a company known for paying lousy wages and fighting unions. Christy Walton and her immediate family enjoy a net worth of more than $24 billion deriving from the notorious Wal-Mart retail empire (other Waltons are worth billions more). The Koch Brothers ($25 billion) are bankrolling the effort to weaken collective bargaining rights and thereby depress wage levels, while satellite TV pioneer Stanley Hubbard ($1.9 billion) has been an outspoken critic of labor unions and was an aggressive campaigner against the Employee Free Choice Act.

Poor job creation performance and anti-union animus are not the only sins of the 400 and their companies. Some of them have a checkered record when it comes to other aspects of accountability and good corporate behavior.

Start at the top of the list. Bill Gates, whose $59 billion net worth makes him the richest individual in the United States, is known today mainly for his philanthropic activities. Yet it was not long ago that Gates was viewed as a modern-day robber baron and Microsoft was being prosecuted by the European Commission, the U.S. Justice Department and some 20 states for anti-competitive practices. In the 1990s there were widespread calls for the company to be broken up, but Microsoft reached a controversial settlement with the Bush Administration that kept it largely intact.

Today it is Google, whose founders Sergey Brin and Larry Page are estimated by Forbes to be worth $16.7 billion, that is at the center of accusations of monopolistic practices.

Amazon.com, headed by Jeff Bezos ($19.1 billion), has fought against the efforts of a variety of state governments to get the online retailer to collect sales taxes from its customers. By failing to collect taxes on most transactions, Amazon gains an advantage over its brick-and-mortar competitors but deprives states of billions of dollars in badly needed revenue.

Cleaning products giant S.C. Johnson & Son, the source of the combined $11.5 billion fortune of the Johnson family, recently admitted that it has used aggressive tax avoidance practices to the extent that it pays no corporate income taxes at all in its home state of Wisconsin. Forbes ignores this issue, but instead describes in detail the criminal sexual molestation charges that have been filed against one member of the family.

And then there are the environmental offenders, such as Ira Rennert ($5.9 billion.) His Renco Group was for years one of the country’s biggest polluters, and the Peruvian lead smelter of his Doe Run operation is one of the most hazardous sites in the world.

This is only a small sampling of the transgressions of the 400 and their companies. Rather than being hailed as job creators, they should be made to answer for their job destruction, their tax avoidance, their anti-competitive practices, their environmental violations and much more.  Rather than celebration, the Forbes 400 and the rest of the 1 Percent are in need of investigation.

The Ghostbusters of Liberty Plaza

Protesting near the haunted One Liberty Plaza building

Occupy Wall Street’s decision to use Liberty Plaza in lower Manhattan as its base camp is meant to evoke comparisons to Cairo’s Tahrir (Liberation) Square, the focal point of the popular uprising in Egypt earlier this year.

Yet the concrete plaza (also known as Zuccotti Park) turns out to be a fitting symbol of the big business debacles that the new Occupy movement is condemning.

Looming over the space is a hulking 54-story office building known as One Liberty Plaza, which is part of the real estate portfolio of Brookfield Office Properties, also owner of the plaza itself. The skyscraper, completed in 1972, was originally the New York City headquarters of U.S. Steel.

By the time U.S. Steel moved into the building, the company had begun to lose market share and was embarking on an ill-fated diversification process. Within it few years it liquidated more than a dozen mills and spent more than $6 billion on the acquisition of Marathon Oil. It continued to shed mills, and in 1986 it purchased another oil company and changed its name to USX to reflect its retreat from the steel business.

After fighting off a takeover bid by corporate raider Carl Icahn, USX underwent more restructuring and finally decided to spin off its oil operations and reclaim the U.S. Steel name. After 9/11 it unsuccessfully tried to engineer a merger of all the U.S. integrated steel companies into something that would have resembled the steel trust assembled by J.P. Morgan at the beginning of the 20th Century. Today U.S. Steel is far overshadowed by foreign competitors, especially ArcelorMittal.

In 1980 U.S. Steel had sold One Liberty Plaza to Merrill Lynch, which was then riding high atop the stock brokerage business. A year after the sale, Merrill’s chief, Donald Regan, went to Washington to serve as Secretary of the Treasury in the Reagan Administration. Regan had initiated a process of diversification into international banking, real estate, insurance and other financial services.

Merrill, which had always prided itself on serving the individual investor, became increasingly involved in wheeling and dealing. In the early 2000s Merrill’s reputation was seriously tarnished by its close ties to the corrupt Enron Corporation and by allegations that its analysts were strongly touting dubious internet stocks for which Merrill was providing investment banking services.

In 2007 Merrill’s CEO Stan O’Neal was ousted after the firm was forced to take an $8.4 billion write-down linked to sinking securities backed by subprime mortgages. Amid the meltdown of Wall Street in September 2008, Merrill Lynch avoided following Lehman Brothers into oblivion only by agreeing to be taken over by Bank of America. There was later a furor when it came to light that Merrill rushed through some $3 billion in bonuses before the merger took effect.

In 1984 Merrill Lynch had agreed to sell One Liberty Plaza to the real estate firm Olympia & York (O&Y) and move its headquarters to the World Financial Center development that O&Y was building a few blocks away in Battery Park City.

O&Y, under the control of the Reichmann Family, first amassed holdings in Canada and then made a splash in the New York City real estate world with an aggressive series of purchases. By the mid-1980s it had become the largest real estate company in the world while also investing heavily in natural resources companies such as Gulf Canada. Its dizzying growth came to an end in 1992, when it could no longer handle its $18 billion in debt and was forced to file for bankruptcy.

The man who ran O&Y’s U.S. real estate operations was former New York deputy mayor John Zuccotti—the guy the park is named after. He stayed on after the bankruptcy filing, oversaw the sale of O&Y’s portfolio to Brookfield Properties and was kept in place by Brookfield. He is currently on the board of directors of what is now known as Brookfield Office Properties.  So far, Brookfield has avoided any fiascoes of its own.

Yet the previous owners of One Liberty Plaza—U.S. Steel, Merrill Lynch and Olympia & York—haunt the office building and Zuccotti Park. Their track record of foolhardy restructurings, reckless borrowing and unscrupulous investment practices are emblematic of the misdeeds of large corporations over the past few decades. Those practices have enfeebled the U.S. economy and diminished the living standards of all but a narrow slice of the population.

The Occupy Wall Street movement is, in effect, trying to exorcise these demons.  And the ranks of the ghostbusters in Liberty Plaza and elsewhere seem to be growing every day.

The Forgotten Legacy of the Excess Profits Tax

Behind all the ideological posturing going on in Washington over the debt ceiling, there is a surprising amount of consensus on the wrongheaded proposition that corporations need more tax relief.

The bipartisan Gang of Six plan that has recently been at the center of attention provides for the reduction of the statutory corporate tax rate from 35 percent down to as low as 23 percent. It also calls for moving to a “competitive territorial tax system,” which, as Citizens for Tax Justice points out, would make it even easier for companies to exploit offshore tax havens. A reported new plan being discussed by President Obama and Speaker Boehner as this is being written would probably include something similar.

Corporate domination of our political discourse makes it all but impossible for national leaders to suggest that large companies, which have been enjoying abundant profits while much of the country suffers from high unemployment and other forms of economic distress, should be paying more, not less to keep the USA afloat. Behind many of the protestations against special tax breaks for the oil industry and ethanol producers are agendas that call for lowering the statutory corporate rate for all companies.

It wasn’t always this way.  The United States has a history, now largely forgotten, of imposing higher taxes on corporations during times of national emergencies. Excess profits taxes were imposed at various times to put a check on profiteering during wartime.

The first excess profits tax was enacted in 1917, less than a decade after the basic corporate income tax came into being. It remained in place through the World War I, and in 1919 President Wilson recommended that it be made part of the permanent tax system. Congress demurred, but the tax was not eliminated until 1921, well after the end of the war.

Interest in an excess profits tax was revived in the 1930s.The National Industrial Recovery Act of 1933 used a form of excess profits tax to prevent evasion of the declared-value capital stock tax. Later in the decade, as war seemed imminent, a broader based excess profits tax began to be discussed. In 1940 President Roosevelt, insisting that government should ensure that “a few do not gain from the sacrifices of many,” sent a message to Congress calling for a “steeply graduated excess-profits tax.”

There was little disagreement on the need for such a tax. The debate centered, instead, on how the levy would be calculated—especially the question of what base would be used to determine the excess. The tax remained in effect through 1945. Only five years later, Congress returned to an excess profits tax to help pay for the Korean War.

Writing in the Journal of Political Economy in 1951, economist George Lent wrote that the tax had “been accepted as an essential part of a broad system for the equitable distribution of the cost of defense.” Unfortunately, that acceptance turned out to be short-lived. The excess profits tax enacted in 1950 was terminated in 1953, and despite an ongoing Cold War and then large-scale intervention in Vietnam, corporations were no longer expected to shoulder a significant portion of U.S. military costs.

During the past decade the situation has grown even worse. Despite the existence of two expensive wars and a trend toward privatization of military functions that makes the conflicts extremely profitable to the private sector, no one talks of higher corporate taxes.  On the contrary, the demand for lowering those taxes has been relentless.

The justification for excess profits taxation need not be linked only to military costs and the profits of Pentagon contractors. Today we are seeing excessiveness of another kind in relation to corporate profits. Most large companies are enjoying bloated bottom lines by refusing to return their workforce back to pre-recession levels. They can do this because unemployment is high, unions are weak and those with jobs find it difficult to resist demands for intensified workloads.

Along with the wars in Iraq and Afghanistan, there is a war at home—a war against workers that amounts to a form of profiteering. If the leaders of this country were not in thrall to corporations, we would be talking about an excess profits tax focused on employers that keep their staffing levels artificially low.

It could very well turn out that higher, not lower taxes are what would induce companies to begin hiring again. Those companies which resist would at least be helping reduce the national deficit rather than further enriching the investor class.

Statehouse Inc.

State legislatures, once hailed by Supreme Court Justice Louis Brandeis as “laboratories of democracy” because of their progressive innovations, have for the past couple of decades often been hotbeds of plutocracy instead. The blame for this rests in no small part with a shadowy organization called the American Legislative Exchange Council (ALEC).

Thanks to a WikiLeaks-like initiative by the Center for Media and Democracy (CMD), we now know a lot more about the way that ALEC operates. CMD obtained and has just made public for the first time the full texts of more than 800 model bills and resolutions secretly approved by ALEC’s corporate and legislative members. These positions are often introduced—in many cases word-for-word—by rightwing state legislators and all too frequently become the law of the land. The trove of documents is available at a website called ALEC Exposed.

ALEC was created in 1973 by the far-sighted conservative strategist Paul Weyrich, who was also involved in the establishment of the Heritage Foundation and other institutions of the Right. Though it never became a household name, ALEC was playing an influential role in the direction of state policymaking as early as the 1980s. A 1984 article in The National Journal, noting that its leaders got “the red carpet treatment from the Reagan White House” when they met in Washington, called ALEC “the New Right group that has done the most to set the conservative agenda at the state level.”

That agenda is the same one being pushed more than a quarter-century later by the greatly expanded cohort of ALEC allies generated by the Republican landslide in last November’s elections: tax limitation, cuts in social spending, restrictions on public employee collective bargaining rights, privatization, reduced regulation of business, school vouchers, and much more.

Corporate critics first began to pay serious attention to ALEC about a decade ago. In 2002 two environmental groups—Defenders of Wildlife and the Natural Resources Defense Council—issued a report entitled Corporate America’s Trojan Horse in the States that debunked ALEC’s claim of being a non-partisan good government group and showed how it was dominated by and promoted the interests of large companies such as Chevron, Philip Morris and Enron. The legislators who made up the purported membership of ALEC were simply a conduit for policy prescriptions devised by corporate lobbyists and trade associations.

Progressive organizations set up a website called ALEC Watch to monitor the group’s activities and launched a counterpart entity called ALICE (American Legislative Issues Campaign Exchange). The latter was not a great success, but it helped give rise to today’s Progressive States Network.

Additional investigative reporting—including accounts by progressive infiltrators at ALEC events—and analyses such as a May 2010 report by the American Association for Justice called ALEC: Ghostwriting the Law for Corporate America—have revealed more about the group’s modus operandi.

What remained largely secret were the details of the proposed legislative language prepared by ALEC’s corporate members. Now that has changed with the arrival of ALEC Exposed.

The scope of the issues covered by ALEC’s model bills is extraordinary. CMD divides them into seven major categories ranging from worker/consumer rights to tax loopholes/budgets, each of which contains dozens of items on very specific issues.

Within the model bills on worker and consumer rights are, of course, the notorious Paycheck Protection Act (which seeks to weaken union participation in the political process) and the Prevailing Wage Repeal Act. But there’s also a bill that allows gives employers the option to pay workers with prepaid debit cards rather than cash.

There’s a model bill on “class action improvements” (designed to make it harder to certify classes), but also one on “admissibility in civil actions of nonuse of a seat belt.” In the health area, there’s a “model resolution on disease management of chronic obstructive pulmonary disease” as well as one on “taxation of moist smokeless tobacco.”

Browsing through the inventory of bills, one comes away with the unsettling feeling that Corporate America is asserting its interest in every single aspect of public policy. Given that corporations and their executives supply legislators not only with model bills but also campaign cash, those interests too often prevail.

Justice Brandeis is also known for having said: “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.” ALEC is helping to ensure we make the “Right” choice.

Corporate Taxes and Corporate Power

CTJ's 1985 report

In his 2009 utopian novel Only the Super-Rich Can Save Us, Ralph Nader conjures up a scenario in which a group of enlightened retired U.S. billionaires spark a populist uprising against excessive corporate power. One of the prime issues in the revolt is widespread tax dodging by big business, aided by the various forms of corporate welfare inserted in the tax code by compliant members of Congress.

Among the real-life characters in Nader’s fantasy is Bob McIntyre (misspelled as MacIntyre), head of Citizens for Tax Justice. For more than 30 years, CTJ has been shining a light on the inequities in the U.S. tax system. During the 1980s CTJ issued a series of reports that documented the disastrous consequences of the Reagan business tax cuts and paved the way for the Tax Reform Act of 1986. That law closed many of the loopholes and cracked down on tax shelters, reversing the precipitous decline in corporate tax payments—until George W. Bush came along.

Alas, Nader’s vision has not come to pass, though a funhouse-mirror version of it can be seen in the pseudo-populist Tea Party movement instigated by some very different billionaires, the rightwing Koch Brothers. Yet McIntyre and CTJ are still on the scene and re-fighting the battles of the 1980s. Now, as then, CTJ stands out for naming names—listing the specific large corporations that pay little or no federal income taxes.

CTJ has just released a preview of its new study of corporate tax avoidance that identifies a dozen major companies—including the likes of General Electric, DuPont and Wells Fargo—that together paid less than nothing in federal income taxes over the past three years. The dirty dozen had total U.S. pretax profits of $171 billion for the period but had a combined effective tax rate of negative 1.5 percent.

Had these companies paid the full 35 percent statutory corporate rate, CTJ notes, their combined tax bill would have been about $60 billion. Instead, they got $2.5 billion from Uncle Sam. The $62 billion difference exacerbated the country’s budget deficits and national debt.

It would be comforting to imagine that brazen corporate tax avoidance is leading us to a replay of the backlash of 1986, with changes to the tax code that force big business to pay something closer to its fair share of the costs of running a government that treats it so well.

Unfortunately, that now seems as unlikely as Nader’s rebellion of the billionaires—and the reason is not just the intransigence of Republicans. The Obama Administration has adopted the bizarre position that any revenue gains from the elimination of business tax subsidies should be used to fund new reductions in the statutory corporate tax rate, which virtually no large companies pay.

In other words, the debate over corporate tax reform within the Washington establishment is between the Obama Administration’s “revenue-neutral” approach and the desire of the Republicans to shrink corporate tax liability to a point at which it can be given the Grover Norquist drowning-in-the-bathtub treatment. Corporate taxes account for less than 9 percent of federal revenues, so we have already moved far in that direction.

CTJ, to its credit, is calling for a revenue-positive approach to corporate tax reform to help alleviate the country’s fiscal problems, as are other progressive groups such as the new US Uncut movement. But there are more fundamental reasons to make business pay more.

The windfall profits produced by tax dodging also serve to enhance the overall power of large corporations and make it easier for them to engage in anti-social behavior. It is telling that CTJ’s list of major tax avoiders includes several companies—including Boeing and Verizon—that are leading foes of unions and several others—including Exxon Mobil and American Electric Power—that are key environmental villains.

A fatter bottom line for such companies means they have more money to fight stricter regulation and consumer protection, more money to undermine labor organizing drives, more money for dubious mergers and acquisitions that reduce competition, more for lavish executive compensation packages, and of course, more for lobbying and public relations efforts to make sure that overall public policy continues to serve the needs of corporations above all else.

Restoring corporate tax payments to more appropriate levels will not by itself reform big business, but it would make it easier for the rest of us to accomplish that without waiting for a group of retired billionaires to come to the rescue.

The $100 Million Stickups

According to the FBI, the typical bank robber escapes with about $7,600. It would take more than 13,000 such capers to reach the amount that some individual corporations are netting in their own holdups, though of a legal variety.

This year has seen a series of cases in which large companies secure big subsidy packages by hinting that they may move their corporate headquarters to another state, and in several instances those packages have turned out to be worth an eye-popping $100 million.

The fact that state and local governments around the country continue to face severe budgetary shortfalls has not prevented them from offering—and companies from taking—these huge payoffs. Here are some new members of the $100 Million Club:

Motorola Mobility Holdings—one of the two spinoffs from the split-up of the old Motorola Inc. earlier this year—recently extracted $100 million in EDGE tax credits from Illinois as the price for keeping its headquarters and approximately 3,000 employees in the Chicago suburb of Libertyville. EDGE credits normally apply to corporate income tax payments, but the state legislature allowed the smart-phone company to keep employee income tax withholding payments instead. Motorola Mobility was awarded several million dollars more in job training and other grants.

When Panasonic Corporation of America let it be known it was considering moving its headquarters out of New Jersey, the state offered the company a tax credit worth just over $100 million to stay. But it couldn’t remain at its existing site in Secaucus. The Urban Transit Tax Credit required a relocation, so the state’s Economic Development Authority got the Japanese electronics firm to agree to move a few miles down the road to Newark. The arrangement was expected to provide a big boost in tax revenue for Newark (money in effect poached from Secaucus), but the struggling city for some reason decided it was necessary to give back a portion of that to Panasonic in the form of more subsidies, the amount of which has not yet been determined.

After raising the possibility of moving out of state in response to an increase of one half of one percent in local income taxes, American Greetings agreed in March to keep its corporate headquarters in northeast Ohio. All it took was a state package of grants, tax credits and low-interest loans worth an estimated $93 million over 15 years. Once the greeting card company settles on the exact site, it is likely to get additional local assistance that will put its total subsidies above $100 million.

A few weeks after the American Greetings deal, ATM manufacturer Diebold, which had made similar noises about a possible move to another state, was also induced to keep its headquarters in northeast Ohio. It, too, is slated to get total subsidies of about $100 million—$56 million in refundable tax credits from the state and anticipated local “incentives” of more than $40 million.

Sears Holdings could soon join the club as well. Actually, Sears is already a leader in it. Back in 1989 it got a subsidy package of $178 million for moving its headquarters from downtown Chicago to exurban Hoffman Estates, 29 miles away. The state and local tax subsidies from that deal are set to expire next year. Playing the we-might-move-out-of-state game, Sears has set off a frantic effort by Illinois officials to extend the company’s subsidies for another 15 years. No deal has yet been announced.

It is frustrating to see one company after another get away with job blackmail. If only we could get the FBI to take an interest in this kind of stickup.

Corporations Want It All

Most of U.S. Big Business seems to be on a capital strike these days, refusing to invest and create new jobs. A notable exception is semiconductor giant Intel, which just announced that it will spend up to $8 billion upgrading its chip fabrication plants in the United States and build a new one in Oregon.

What’s odd is that Intel CEO Paul Otellini is just as critical of American economic policies, especially those promoted by the Obama Administration, as many other companies that use that vote of no confidence to justify their redlining of the USA. One of Otellini’s main gripes is that the United States provides too little in the way of tax breaks and other incentives to corporations compared to other countries. Speaking at a recent event at the Council on Foreign Relations, he proposed “that we take a page from others’ playbooks and provide attractive incentives for companies to build factories here that will employ our workers.”

This is a truly bizarre comment from the head of company that has received more in economic development subsidies than just about any other corporation in the United States. Over the past two decades, taxpayers in states such as New Mexico, Arizona and Oregon have underwritten the company’s rise to its dominant position in the semiconductor market.

New Mexico. The process began in 1993, when Intel announced plans for what was then an unprecedented $1 billion investment in a new chip plant, to be built in a suburb of Albuquerque called Rio Rancho. The company pressured local officials to provide what would ultimately amount to about $455 million in property tax abatements and sales tax exemptions on the equipment purchased for the facility.

Arizona. Soon after getting its way in New Mexico, Intel put the squeeze on officials in Arizona, where it proposed to build another plant in Chandler, a suburb of Phoenix. The company received some $82 million in property tax abatements, sales tax exemptions and corporate income tax credits. In 2005 Intel strong-armed the state to change the method by which it calculates corporate taxes to a system known as single sales factor, which allowed Intel and other companies with lots of property and a big payroll but relatively low sales in the state to enjoy enormous tax reductions.

Oregon. In 1999 Intel announced plans for a large expansion of its semiconductor operations in Oregon but made it clear that the investment was contingent on receiving a huge property tax abatement. Actually, what Intel was demanding was an extension of tax breaks it previously received in the state, where its manufacturing operations dated back to 1974. Those breaks were enabled by the state’s Strategic Investment Program (SIP), which was adopted in 1993 with Intel in mind. The company’s new SIP deal reduced Intel’s property tax bill by an estimated $200 million over 15 years. In 2005 Intel got the county to extend the property tax break to 2025, locking in an estimated $579 million in additional savings. In addition to these property tax breaks, Intel enjoyed a substantial reduction in corporate income taxes thanks to Oregon’s decision to join the single sales factor bandwagon.

So what is Otellini complaining about? Perhaps his real gripe is that the Federal Trade Commission sued Intel last December, charging that the company “illegally used its dominant market position for a decade to stifle competition and strengthen its monopoly.” The parties settled the case in August, with Intel agreeing to end some of the pressure tactics it applies to computer makers.

Yet it is likely that Otellini’s comments reflect a broader attitude on the part of Big Business. The Supreme Court ruling in the Citizens United case and the resulting flood of corporate money into the current electoral campaigns appear to have given CEOs like Otellini the idea that they are entitled – entitled to buy elections and entitled to have government policy oriented to their serve their every need. The way things are going, those corporate titans may get their wish.

Tiananmen Square Inc.

Large corporations don’t depend on China only for cheap labor; they also seem to be adopting the practices of that country’s repressive government in the treatment of dissidents. It has just come to light that oil giant Chevron is working with Houston authorities in the prosecution of shareholder activist Antonia Juhasz, who berated executives and directors at the company’s annual meeting last May over environmental and human rights issues.

Juhasz, author of the book Tyranny of Oil and editor of an alternative annual report on Chevron, was removed from the May meeting and arrested. Rather than dropping the charges after the disruption was over, Chevron has pursued the matter. At a recent court hearing, the company pushed for Juhasz to get jail time for criminal trespass and other charges.

What happened to Juhasz was not the first time an activist was ejected from an annual meeting for speaking out. In 2004 veteran labor activist Ray Rogers was wrestled to the ground by security guards and forcibly removed from Coca-Cola’s meeting after he forcefully criticized the company for its ties to paramilitary groups involved in the murder of trade union leaders in Colombia. He was threatened with arrest but not taken into custody.

The criminal prosecution of Juhasz is a troubling turn of events. Annual meetings are the one occasion when corporations are supposed to give the semblance of being democratic institutions. CEOs and board members should endure the protests and not try to take revenge on their critics.

Some might say that the likes of Juhasz and Rogers are out to disrupt annual meetings and that they should instead work through proper channels to get their point of view across. But corporations are trying to close that avenue as well.

Corporate interests are up in arms about the Securities and Exchange Commission’s decision in August giving shareholders new powers to nominate directors to corporate boards. The move marks the beginning of the end of non-competitive board elections that have much in common with the selection of leaders in China and the old Soviet Union.

Corporations tried mightily to prevent this intrusion of democracy into their affairs. As I noted a year ago, the corporate comments submitted to the SEC about the proposal raised some ridiculous objections. The Business Roundtable claimed that the rules would violate a corporation’s First Amendment rights by forcing it to include comments by outside candidates in its proxy statement.

McDonald’s Corporation fretted that shareholders might nominate someone “who may not have even met the existing members of the Board.” Sara Lee Corporation claimed that the change would result in directors who represented a special interest rather than the interests of all shareholders – conveniently forgetting that many directors have been chosen because of their affiliation with a financial institution or other entity that has a significant relationship with the company—a suspicious practice known as corporate interlocks or interlocking directorates.

Having lost in the rulemaking process, business groups are now taking the matter to court. The U.S. Chamber of Commerce and the Business Roundtable have challenged the SEC decision in the federal court of appeals in Washington. The two groups – whose legal team is led by Eugene Scalia, son the Supreme Court Justice – depict activist shareholders as a special interest whose ability to nominate board candidates would violate the First and Fifth Amendment rights of corporations. Their brief implies that the whole idea of proxy access is a plot by unions.

Echoing the current Republican talking point, they claim that the new rules would create “uncertainty.” They even play the recession card, saying: “We respectfully submit that stewardship of the national economy during these difficult economic times counsels strongly in favor of a stay.” They conclude by saying that a failure of the appeals court to put a stop to the proxy reforms would cause “irreparable injury” to public traded corporations.

At one time, such arguments would be laughed out of court. But in the current climate, with business rights being treated as sacrosanct, the challenge has a reasonable chance of success. Democracy may not be coming to Corporate America after all.

Corporate Benevolence and Corporate Despotism

When we worry about the influence of big business on our existence these days, we generally think about a variety of companies: our employer, the financial institutions that handle our money, the drug companies that treat our ailments, the agribusiness firms that feed us, the telecoms that allow us to communicate, etc.

Yet there have been many situations in American history in which everyday life was dominated by a single corporation. This occurred when people found themselves residing in what were known as company towns.

The Company Town, an engaging new book by Hardy Green, is apparently the first general history of the efforts by a variety of capitalists in the United States to create communities in which they could control both the working life and the private life of their employees and their families. Green follows the evolution of this special form of urban planning from the textile towns of New England in the early 19th Century to the communities hastily erected by military contractors at the onset of World War II. He also finds modern analogues in amenity-laden corporate campuses such as the Googleplex in California.

Along the way he looks at communities across the country involved in industries such as mining, steel, petroleum, railcars, shipbuilding, meatpacking and logging. The corporate sponsors of these towns included the likes of U.S. Steel, Cannon Mills, Phelps Dodge, Hormel, Maytag, Kaiser Industries and even the federal government (in connection with Oak Ridge, Tennessee, the site of the Manhattan Project).

Green is careful to distinguish between company towns such as Hershey, Pennsylvania that were experiments in corporate paternalism and the harsh communities set up by coal companies to house their miners. The first type represented a form of industrial utopianism, while Green dubs the latter model “exploitationville,” reflecting not only workplace conditions but also substandard housing and overpriced company stores.

Green does a great job in weaving together the biographies of the entrepreneurs responsible for creating many of the company towns with the histories of their firms and industries, putting it all in the context of the tumultuous labor relations of the past two centuries. (Full disclosure: Green is a friend of mine.)

While some of the company towns were created to put manufacturing operations close to the sources of raw materials (e.g. meatpacking plants sited near livestock producers), many were set up to isolate workers from the influences of union organizers and radical agitators. Yet, as Green shows in numerous cases, those influences managed to infiltrate both the paternalistic and the unabashedly exploitative company towns.

He recounts a series of labor disputes beginning with the work stoppages at the Lowell mills and continuing through to the Pullman railcar workers strike in 1894, the Phelps Dodge miners organizing drive in 1917, the Cannon Mills walkout in 1921, the Hershey workers strike in 1937, and the Hormel meatpackers strike in the 1980s.

The willingness of these workers to confront management was all the more amazing in that their employers were also their landlords, meaning that a decision to go out on strike could quickly lead to eviction from one’s home. The will to fight did not always translate into an ability to win, and Green points out that in most cases strikes and organizing drives were crushed by company-town employers – whether they were of the paternalistic or exploitative variety.

Given this oppressive history, it is surprising that when it comes time to analyze the overall lesson of company towns, Green adopts an approach that is far from condemnatory. He suggests that employers who chose the more exploitative approach may not have had a choice, given low profit margins, low skill requirements and other factors in their industries. And he argues that the more paternalistic company towns have something to teach today’s employers.

Some of the features of the best benevolent company towns – affordable housing, day care, good schools, impressive libraries and recreational facilities – certainly have their appeal, especially in today’s climate of cutbacks in public services. Yet those benefits came at a steep price: a loss of freedom, especially in connection with the right to organize for a voice at work.

I would have liked Green to provide more analysis of what the paternalistic and exploitative employers had in common and how the two approaches were simply different ways of achieving the same objective: dominating the workforce while maximizing productivity and profits.

More than the company towns themselves, the struggles of workers in those difficult circumstances provide lessons in dealing with excessive corporate power, whether it comes from one company or many.

A Business Backlash?

By all rights, the laissez-faire crowd should be silent these days. Recent months have been marked by one example after another of the perils of deregulation and the folly of trusting large corporations to do the right thing. From Toyota to Goldman Sachs to Massey Energy to BP, 2010 has been the year of big business irresponsibility.

As in 2002 (after the accounting scandals involving Enron, WorldCom et al.) and 2008 (the meltdown of Wall Street), we’re now at one of those moments, following an outbreak of corporate misconduct, in which public sentiment about business is up for grabs, as is public policy.

The business camp is already working hard to regain support, in ways ranging from BP’s seemingly benign vow to “make things right” to Rep. Joe Barton’s shameless “shakedown” outburst designed to turn the Obama Administration into the villain. Here are some other signs that corporations and their defenders are already going back on the offensive:

  • A federal judge with personal investments in the petroleum industry struck down the Obama Administration’s moratorium on deepwater drilling, despite evidence brought to light by Congressional investigators that the practice is much more dangerous than we had been led to believe and none of the oil giants have adequate accident response plans. The challenge to the moratorium had been brought by smaller oil service firms, but the judge’s decision was hailed by majors such as Chevron and Royal Dutch Shell.
  • Massey Energy, apparently hoping for a like-minded judge, has filed suit against the federal Mine Safety and Health Administration in a brazen effort to pin the blame on regulators for the April explosion at the Upper Big Branch mine in West Virginia that killed 29 workers.
  • Verizon Communications CEO Ivan Seidenberg, the current head of the Business Roundtable, recently gave a speech in which he challenged regulatory initiatives in the telecom and financial sectors, criticized efforts to limit tax avoidance by multinational companies, and declared: “It’s time for us all to raise our game and embrace the power of the private sector that will create real value and real growth for our country.”

If business advocates are emboldened to speak out so soon, that suggests that corporations have not been reprimanded adequately for their misconduct. The criticism expressed by the Obama Administration and Congressional Democrats has had a ritualistic quality about it—a Kabuki dance of disapproval that may not result in any real change.

Even the $20 billion BP escrow fund feels inadequate, given the fact that there is no end in sight to the disaster. Although BP’s shareholders are agonizing over the suspension of the dividend payment, the company itself does not seem very put out by the creation of the fund, especially since it is being allowed to spread out the cost over several years.

The ability of BP to buy its way out of the crisis contributes to the sense that large corporations can do the most outrageous things and emerge relatively unscathed. It is unlikely that the forthcoming criminal case against the company will cause much more discomfort. The company has already been through that process with previous disasters involving oil spills in Alaska and a deadly refinery explosion in Texas. It paid the resulting penalties with no problem, and the fact that it was put on probation has had little practical effect.

What’s needed is a more dramatic response to corporate negligence. It might be the arrest of a top executive or an announcement that the federal government will no longer do business with companies with serious regulatory violations or an antitrust initiative to try to break up large firms which think that their size somehow makes them above the law. Only then might corporations think twice about lashing back and returning to business as usual.