Archive for the ‘Corporate Subsidies’ Category

Dodging Unions and Taxes

Thursday, April 21st, 2011

Boeing is used to getting its own way. Earlier this year, for instance, it emerged the surprise victor in a long-running battle for a massive Air Force tanker plane contract.

That charmed existence is now facing a setback potentially much more serious than the bad press the company faced recently when a hole ripped open in one of its old 737s during a Southwest Airlines flight from Phoenix to Sacramento. The National Labor Relations Board is charging the company with a violation of federal labor law for its 2009 decision to locate a second Dreamliner aircraft assembly line at a non-union facility in South Carolina.

The South Carolina move was not just a blow to aerospace workers in the Seattle area, Boeing’s traditional manufacturing base. It was also an egregious example of a large corporation riding roughshod over communities and labor by employing two socially irresponsible practices at the same time: avoiding unions and dodging taxes. It is reassuring that at least one of those ploys may now be backfiring.

Boeing’s dual avoidance strategies started well before it became enamored of the Palmetto State. Although the company’s Washington State operations were unionized long ago, Boeing has for years tried to weaken those unions by seeking two-tier wage structures and by steadily outsourcing portions of the work to foreign contractors.

When the company was ready to begin production of its much-anticipated Dreamliner, it forced Washington to compete with around 20 other states for the work and agreed to stay there only after the legislature in 2003 approved a package of research & development tax credits and cuts in Business & Occupation taxes (the state’s substitute for a corporate income tax), sales taxes and property taxes that together were estimated to be worth $3.2 billion over 20 years. The state also overhauled its unemployment insurance system to reduce costs for Boeing and other employers and tightened up on workers compensation claims.

All those giveaways did not satiate Boeing. Rather than showing its appreciation to Washington, the company went shopping for a better deal for the second Dreamliner production line. In South Carolina it was rewarded with both a subsidy package that has been valued at more than $900 million (click on illustration for details) and a “right to work” law that all but guarantees to keep out unions.

The cumulative effect of Boeing’s practices can be seen in the details of its 10-K annual filings. As a result of those subsidies, the company estimates its total 2010 state tax bill at less than zero—it expects to receive a net refund of $137 million—despite pretax U.S. profits of $4.3 billion. (Thanks to other forms of tax avoidance, it is paying only $13 million in federal taxes.) At the end of 2010, 34 percent of Boeing’s employees were covered by collective bargaining agreements, down from 47 percent a decade earlier.

While Boeing may be a particularly flagrant case, it is far from the only large corporation that dodges unions and taxes at the same time. Unfortunately, the movements addressing these two problems tend to operate separately from one another. Few of the many groups that have recently been chastising General Electric for its tax avoidance mentioned the company’s assaults on unions, while those criticizing Verizon for its anti-union practices rarely note its meager state and federal tax payments.

There are exceptions. With help from my colleagues and me at Good Jobs First (among others), the United Food and Commercial Workers has made Wal-Mart’s tax avoidance one of the issues in its campaign to reform the company and ultimately respect the collective bargaining rights of its workers.

Linking the two issues has been made more urgent by the fact that the Right is taking the offensive on both fronts. This year has seen more attacks on worker rights at the state level and more attempts to lighten the tax obligations of corporations (and the wealthy) at both the state and federal levels than at any other time in modern U.S. history. Beating back both of those campaigns is the only way to protect any semblance of a just economy.

The Selective Sanctity of Contracts

Friday, February 18th, 2011

Along with the rule of law and private property rights, the sanctity of contracts is considered fundamental to “economic freedom.”  Yet certain kinds of contracts, namely the collective bargaining agreements of U.S. public sector workers, are now starting to be regarded as dispensable.

In Wisconsin, newly elected Gov. Scott Walker – whose official website is emblazoned with the slogan “Wisconsin is Open for Business” – is trying to strip state employees of their right to bargain collectively on the full range of workplace issues and force them to pay a much larger portion of the cost of their pension and healthcare benefits, sparking unprecedented protests (photo).  Similar attacks on public bargaining rights are under way in states such as Ohio, and a wide array of public officials are talking about the possibility of reneging on state and local government pension benefits negotiated over many years.

These assaults on the contract rights of public workers are said to be necessitated by the dire fiscal condition of many states. Yet it is telling that those assaulting public unions are not also questioning the viability of other expensive government obligations, for which the beneficiary is business rather than labor.

State and local governments spend an estimated $70 billion a year on economic development subsidies – corporate income tax credits, property tax abatements, direct cash grants, etc. – to lure large companies to invest in their jurisdiction or to retain those already there. They do so despite extensive evidence that such subsidies are often immaterial in corporate site selection decisions and that their costs—which for some tax deals can last for decades—often far outweigh the economic benefits of the investment.

The current fiscal crisis is a perfect opportunity for states to abandon these self-defeating subsidy practices. Yet aside from a small number of places such as California, where Gov. Jerry Brown is seeking to eliminate the highly ineffective enterprise zone program, and a few other states where film production tax credits have been reduced or suspended, surprisingly little is being done to end the corporate giveaways.

Shutting down or cutting back the boondoggle programs would limit new obligations, but if states are truly facing a fiscal emergency perhaps they should also look for ways to escape from expensive financial commitments that are already in place. Why are state and local governments not looking for ways to abrogate existing subsidy agreements?

Some might say that companies would lay off workers if they had to return subsidies. That’s debatable, but the problem could be addressed by limiting the revocations to large and profitable companies. For example, why shouldn’t Google (2010 profits: $8.5 billion) be required to give back the big subsidy packages it has extracted for its data centers, including $200 million for a facility in Lenoir, North Carolina and about $50 million for one in Council Bluffs, Iowa?

The same goes for the big Wall Street firms. Should Goldman Sachs (2010 profits: $8.4 billion) be allowed to keep the $175 million in subsidies (and $1.7 billion in tax-exempt financing) it received for its new headquarters in lower Manhattan—or the $164 million it got for an operation across the river in New Jersey?

What about Boeing ($2.1 billion in profits for the first three quarters of 2010): Should it retain the estimated $900 million subsidy package it received for its new Dreamliner production line in Charleston, South Carolina?  Must Procter & Gamble ($12.7 billion in profits for the fiscal year ending June 2010) retain the $85 million tax break it got for a plant in Utah?

And, of course, there is Wal-Mart (which will soon announce annual profits expected to exceed $14 billion). Over the years it has received what my colleagues and I at Good Jobs First estimate at more than $1.2 billion in subsidies at hundreds of stores and around 90 percent of its 100 or so distribution centers—including at least five facilities in Wisconsin. Couldn’t it afford to give some of that back in a time of need for many of the communities in which it operates?

Business advocates would no doubt scream bloody murder if subsidy abrogation were ever seriously considered by state or city governments. They would accuse officials of breaking solemn promises and poisoning the business climate. They would mobilize small business owners to defend the rights of their larger brethren. And they would waste no time bringing suit against public officials for breach of contract.

On what basis can subsidy agreements be considered sacrosanct while public sector collective bargaining agreements and pension obligations are torn to shreds? The failure of those seeking to undermine commitments to public workers to also call for sacrifices by business suggests that their real objective may have more to do with ideology than fiscal relief.

Note: For more details on the subsidy deals cited above and many more, see the Accountable USA state pages of the Good Jobs First website (index by company name here). And see our Subsidy Tracker database as well.

Public-Private Power Grab

Wednesday, January 12th, 2011

As unemployment rates remain stubbornly high around the country, the Republican winners of November’s gubernatorial races face a dilemma: How do they respond to the clamor for more job creation while holding true to their opposition to government activism. The answer, apparently, is to go with a gimmick.

In at least four states, the gimmick consists of proposing that the state agency responsible for business recruitment—and other functions such as awarding subsidies that come under the rubric of economic development—be handed over to the private sector. Governors in Wisconsin, Ohio, Iowa and Arizona are calling on legislators to approve the dismantling of commerce or development agencies and the transfer of their responsibilities—and their funding—to public-private partnerships (PPPs).

It turns out that economic development privatization is nothing new. My colleagues and I at Good Jobs First have completed an analysis of the subject, which we’ve just published in a report titled Public-Private Power Grab.

We found that the idea is far from new but it is not a common or standard practice. Economic development PPPs date back more than 20 years, but only seven states currently allow private entities to control their business recruitment functions: Florida, Indiana, Michigan, Rhode Island, Utah, Virginia and Wyoming. Several other states previously employed PPPs but abandoned them because of performance problems.

Most of the seven states that currently make use of economic development PPPs have experienced a variety of performance problems. These include the following:

  • Misuse of taxpayer funds
  • Excessive executive bonuses
  • Questionable subsidy awards by the subset of PPPs that have a role in that process
  • Conflicts of interest in subsidy awards
  • Questionable claims by the PPP about its effectiveness
  • Resistance to accountability

Two of the features of the PPPs that promote corruption are that, in addition to public funding, they accept contributions from corporations and that their boards are often chosen by the governor will little or no legislative oversight. What this means is that the PPPs may end up favoring those contributors in making subsidy awards, and those awards are likely to go to the governor’s major corporate campaign donors.

Such sleazy practices have been seen most clearly in Texas, where the state’s Emerging Technology Fund is run by a public-private partnership controlled by Gov. Rick Perry and has a tendency to give its subsidy awards to Perry’s donors. According to an investigation by the Dallas Morning News, those donors have collected more than $16 million from the fund.

In 2006 the St. Petersburg Times published a 6,000-word investigation on Enterprise Florida, finding a pattern of conflicts of interest among the PPP’s board. In a follow-up editorial, the newspaper wrote that Enterprise Florida “has shown itself to be a public-private venture only in the sense that the public pays and the private receives. Despite critical audits, legislative questions and gubernatorial promises of reform, the group has proved to be virtually immune to the normal checks and balances.”

Aside from corruption, the PPPs tend to be characterized by incompetence or poor judgment. For example, the Michigan Economic Development Corporation (MEDC) found itself in hot water last year when it was revealed it had approved a $9 million subsidy to a company headed by a convicted embezzler and scam artist.

The Indiana Economic Development Corporation, which is often cited as a model by today’s privatization proponents, lost much of its luster last year after a TV station found that many of the jobs IEDC had taken credit for creating did not in fact exist. A former Indiana budget official recently told a reporter that “most of the numbers [IEDC] gave us were either not true or could not be substantiated,” adding that he considered IEDC “a political organization that really only served to make it seem like the governor was doing something about the economy.”

When challenged about their poor record, the chief executives of the PPPs tend to complain about the criticism rather than addressing their substance. In the wake of a series of scandals in 2010 about the MEDC’s handling of tax credit awards, the entity’s executive committee issued an open letter of complaint to the media and the legislature.  Rather than addressing MEDC’s shortcomings, the letter made the dubious claim that the controversy might prompt companies to shun the state. “Political in-fighting is a clear warning to business that a state lacks a cohesive climate for economic development,” the letter stated, “and a clear signal to invest elsewhere.”

Not surprisingly, our report concludes that economic development PPPs are a bad idea. Unfortunately, advocates of privatization in this area and others have a tendency to ignore evidence and persist in their misguided belief that the private sector can always do everything better.

IKEA Knocks Down Labor Rights

Friday, December 17th, 2010

When my colleagues and I at Good Jobs First introduced the Subsidy Tracker database recently, our hope was that the information would be helpful to a wide range of campaigns for economic and social justice. I can now offer one particular use.

By plugging the name Swedwood into the search engine, one finds that the company received a $1 million cash grant under the Virginia Investment Partnership program in connection with its vow to invest $281 million and create 740 jobs. Actually, this grant was just part of a series of subsidies worth a total of $12 million that Swedwood received from the state (the data in Subsidy Tracker are not yet comprehensive).

Swedwood is significant because the company, a unit of the retail giant IKEA, is at the center of a controversy over its labor practices at a furniture plant in Danville, Virginia for which it received the $1 million subsidy. Employees of the facility, fed up with dangerous working conditions and discriminatory employment practices, have been trying to organize with the help of the Machinists union, which produced a report concluding that the Danville operation may be the most hazardous furniture plant in the country. Swedwood and its parent have responded to the organizing drive by harassing union organizers and firing union supporters.

The Machinists and the Building and Wood Workers International labor federation have launched a campaign to pressure IKEA and Swedwood to respect the rights of the Danville workers. Among other things, the campaign is asking supporters to send a holiday card to IKEA Chief Executive Mikael Ohlsson with instructions on how to build a fair collective bargaining relationship with the workers (allen wrench not included).

The unions might also want to make an issue of the fact that a company that was generously subsidized with taxpayer funds is now flouting labor laws.

The financial assistance IKEA got in Virginia is not the only time it has played the subsidy game. In places such as Tempe, Arizona and Frisco and Round Rock in Texas, the retailer has received millions of dollars in sales tax rebates and infrastructure assistance to help finance new stores. It is expected to receive up to $18 million in subsidies for the store it is building in Centennial, Colorado.

In fact, tax avoidance is at the center of IKEA’s entire corporate structure, a complex arrangement that puts nominal control in the hands of a Dutch private foundation but allows founder Ingvar Kamprad and his family to dominate the company and grow wealthier from it (according to Forbes, Kamprad is the 11th richest person in the world, with a net worth of $23 billion).

IKEA is a prime example of how companies that have reputations for being socially responsible somehow get away with exploiting the system of economic development subsidies and with being hostile to unions in the United States – while cooperating with them in countries (such as IKEA’s native Sweden) where they are well established and protected. In the past, IKEA has relied on paternalism – including better than average employee benefits – to discourage unionization at its U.S. operations. The events in Danville suggest a troubling turn toward heavy-handed union busting.

Perhaps this will begin to change the view of corporate social responsibility arbiters such as Ethisphere magazine, which lists IKEA as “one of the world’s most ethical companies.” While the idea of corporate ethics is an oxymoron, companies should not be singled out for praise of any kind if they deny the rights of their workers to organize.

Note: The Dirt Diggers Digest index of information sources featured or utilized in the blog has finally been brought up to date.

Introducing Subsidy Tracker

Friday, December 10th, 2010

Over the past decade, the National Institute on Money in State Politics has built its Follow the Money database into an impressive resource for showing the influence of large corporations on state electoral campaigns. I have long wanted to create a comparable tool to track the flow of money in roughly the opposite direction: economic development subsidy awards from states to big business.

I am happy to announce that my colleagues and I at Good Jobs First have just introduced such a resource. Subsidy Tracker is the first national search engine for determining where a company has gotten economic development subsidies around the country. The database stitches together information from scores of different disclosure sources, many of them obscure reports and webpages. The subsidy programs covered include corporate income tax credits, property tax abatements, enterprise zone tax breaks, cash grants, reimbursement of worker training costs, and others.

In its initial form, the database contains information on more than 43,000 subsidy awards from 124 subsidy programs in 27 states; the number will soon jump to more than 64,000 in 34 states and will continue growing.

Here are some ways Subsidy Tracker can be used:

  • To find companies that have received subsidies in many places. Currently, for instance, Wal-Mart shows up 69 times, trailed by Target at 45.
  • To find companies that have gotten some very large individual subsidies. General Electric received a tax credit worth up to $115 million in Ohio in 2009.
  • To find bad actors that have received subsidies. Super-polluter and climate denier Exxon shows up 23 times in Louisiana alone. The anti-union T-Mobile shows up eight times so far. Wall Street villain Goldman Sachs has received more than $124 million in tax credits and grants in Utah and New Jersey.
  • To find good actors that have received subsidies. Flambeau River Papers, included on the American Rights at Work 2010 list of employers that “practice labor-management cooperation while creating pioneering solutions to the environmental challenges of the 21st century” shows up in Subsidy Tracker as having received a grant of $249,000 from Wisconsin in 2008.
  • To find companies that have received subsidies in states where they have made substantial campaign contributions. Agribusiness giant Archer Daniels Midland, which according to Follow the Money made more than $546,000 in campaign contributions in Illinois since 2003 (including those of its executives and employees), has received more than $87 million in enterprise zone tax credits in the state during the same period.
  • To find companies that profess extreme laissez-faire views and then take subsidies. Koch Industries, whose owners bankroll the Tea Party movement, received two tax credits worth a total of more than $10 million from Oklahoma in the past year.

I’m sure researchers, journalists and others will think of many more ways to use the database. Each entry in Subsidy Tracker contains a link back to the original online source (except a limited number of cases in which the data we obtained is not posted on the web). Search results can be downloaded to a spreadsheet. For more on the data and how the site works, see the User Guide.

Good Jobs First introduced Subsidy Tracker along with two other resources: a report called Show Us the Subsidies, which evaluates the subsidy disclosure practices of the 50 states and the District of Columbia; and Accountable USA, a set of pages that review each state’s subsidy policies, describe large and controversial subsidy deals and provide other provocative information.

We hope all these tools help shine a light on the many excessive and ineffective subsidies that are going to large companies at a time when states and localities can ill afford the loss of what is estimated at $60 billion a year in public revenue.

Subsidy Tracker is a work in progress. In this first phase, we have focused on data sources that we discovered in preparing Show Us the Subsidies and Accountable USA. In the months ahead, we plan to go deeper by using freedom of information requests to obtain data not currently disclosed in any form.

I hope that Dirt Diggers Digest readers will find Subsidy Tracker to be a useful tool in your research. I look forward to your comments and suggestions.

Resources

Subsidy Tracker main page

Subsidy Tracker User Guide

Inventory of data sources currently in Subsidy Tracker

Table of online disclosure links for major subsidy programs (not all data yet in Subsidy Tracker)

Accountable USA main page

Index of companies whose subsidy deals are profiled in Accountable USA

Show Us the Subsidies report and state appendices

Good Jobs First case studies of companies and industries that are major subsidy recipients

Corporations Want It All

Friday, October 22nd, 2010

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.

Will the Tea Party Movement Turn on Corporate America?

Thursday, October 14th, 2010

Like many unlikely marriages, the relationship between the Tea Party movement and Big Business is complicated. There’s no question that corporate money, at least from the likes of billionaire David Koch, has bankrolled the movement via front groups such as Freedom Works and  Americans for Prosperity.

A new film called (Astro)Turf Wars explores how “corporate American is faking a grassroots revolution.” Tea Party idol Glenn Beck has just embraced the U.S. Chamber of Commerce amid charges that it may be injecting foreign money into the midterm elections.

Yet the ideology of many Tea Partyers, to the extent it can be discerned, probably does not conform with mainstream corporate thinking. The movement may even be a threat to some vested business interests.

The misgivings of corporate types outside the Koch camp about the Tea Party phenomenon are becoming more apparent.  As the Center for Responsive Politics points out, Tea Party-backed Republican Senatorial candidates are receiving most of their campaign contributions in small amounts from individuals rather than from the Chamber, business PACs and corporate executives. Business Week has just come out with a cover story headlined: WHY BUSINESS DOESN’T TRUST THE TEA PARTY.

The article dwells on the anxiety of many businesspeople about the erratic and loony aspects of the Tea Partyers. It notes that even in South Carolina the state chamber of commerce could not bring itself to endorse the Tea Party-backed candidate for governor, Nikki Haley.

Yet the potential for a major rift between Tea Partyers and Big Business is more than a matter of political style. Among the core principles espoused by all the Tea Party groups are fiscal responsibility and “free” markets. Although large corporations may talk a similar line, they often seek special benefits from government that undermine fiscal discipline and violate laissez-faire principles.

After all, it was the financial industry that created the necessity for and led the push for the TARP bailout that so enrages Tea Partyers. Big business also received many large government contracts and loan guarantees through the Recovery Act that is also vilified by the movement. Not to mention the fact that the big for-profit insurance companies and other players in the medical-industrial complex stand to make a lot of money from the non-single-payer health reform plan enacted by Congress.

For all the noise they are making, Tea Party candidates could not do much about these programs if they get elected. The real test will be whether rightwing insurgents decide to target the much wider range of pro-corporate tax and spending policies that permeate government at all levels.

Some corporate types are clearly worried about this. In September the Wall Street Journal reported that business leaders and lobbyists fear that Tea Party-backed Republican candidates would oppose “special tax breaks” that benefit various industries, ranging from agribusiness to NASCAR racetracks.

The potential for such a rupture in the unholy alliance between the Tea Party and corporations is one of the few bright spots in the otherwise gloomy political outlook. But rather than sitting back and waiting for this estrangement to happen on its own, we should be looking for opportunities to force the issue and perhaps even reach out to some of the more open-minded rank-and-file elements of the Tea Party world.

It would not be the first time that Left and Right tried to find common ground in opposing “corporate welfare.” Something of the sort happened in the late 1990s when Ralph Nader and Republican House Budget Committee Chairman John Kasich (who is now running for governor of Ohio) led an effort to identify federal giveaways to business that people across the political spectrum agreed should be eliminated.

That effort ultimately collapsed, but the potential for cooperation is stronger than ever, given the unprecedented market bailouts of the past few years. And as I can attest from my work with Good Jobs First, the issue of runaway corporate subsidies is especially urgent at the state and local level.

It is popular on the Left to assume that the Tea Party movement is little more than a giant front group for corporate interests. Yet it is also possible that David Koch’s money has created a monster that he and his henchmen will ultimately not be able to control.

Wal-Mart Plays the Victim

Thursday, September 23rd, 2010

In the mid-1990s business groups such as the American Trucking Association – then led by Thomas Donohue, currently head of the U.S. Chamber of Commerce – launched a crusade to ban union corporate campaigns. The effort fizzled out, but now Wal-Mart may be trying something similar to thwart site fights pursued by community groups opposed to the opening of the giant retailer’s stores and distribution centers.

The company is pouncing on a story published in the Wall Street Journal in June reporting that rival grocery chains such as Safeway and SuperValu helped to pay for the services of a firm called Saint Consulting Group, which has worked with community groups around the country in campaigns against Wal-Mart projects. The article also reported that Saint’s fees are sometimes paid by the United Food and Commercial Workers. The UFCW does not hide the fact that it works with community groups opposed to the virulently anti-union Wal-Mart, whose expansion threatens the jobs of UFCW members at unionized competitors. The UFCW confirmed to the Journal that it has funded Saint and insisted it had every right to do so. The newspaper said that the rival chains declined to comment.

In a just-published follow-up article, the Journal reports that Wal-Mart is asking courts to compel its opponents to disclose who is paying their legal bills in various environmental lawsuits challenging the company’s expansion. This could be the first step in an effort to get courts and perhaps friendly legislatures to put restrictions on site fights and their funding. While Wal-Mart claims to be most upset about the involvement of its competitors, the company may try to use this issue to weaken community groups and the UFCW, its long-time nemesis.

It is the height of hypocrisy for Wal-Mart to complain about collusion among its adversaries. The beast from Bentonville has never hesitated to use every trick at its disposal – including the funding of front groups – to advance its expansion efforts. Over the summer it succeeded in getting permission to build a second store in Chicago by using tactics such as creating fake community groups and hiring low-income people to pose as demonstrators supposedly eager to get a Wal-Mart job. The company also pretended to have seriously negotiated with unions on wage rates for the store.

Several years ago, Wal-Mart sought to defuse criticism of its detrimental impact on local businesses by launching an “Opportunity Zone” program that amounted to little more than bribing small firms to back its agenda. In 2006 it came to light that two blogs that appeared to be written by independent supporters of the company were actually created by Wal-Mart’s public relations firm, Edelman. That was in addition to reports that the company was cultivating real bloggers, some of whom were repeating company talking points verbatim.

The amount of money Wal-Mart’s competitors have contributed to site fights probably does not compare to what Wal-Mart has spent itself. Apart from the direct costs of those site battles, the company cultivates political support through direct means such as campaign contributions and is believed to make wide use of indirect means such as giving consulting contracts to relatives of public officials.

State and local governments end up paying for the company’s campaigning through the economic development subsidies (estimated at more than $1.2 billion) they give to Wal-Mart and the forms of tax avoidance (estimated at billions more) that the company arranges for itself.

Wal-Mart may feel that the likes of Safeway and Supervalu are violating some unspoken rule by supporting site fights, but it has broken every rule in the book itself in pursuit of endless expansion. But rather than defending those rivals, the most important thing is to be sure Wal-Mart does not exploit this issue to put shackles on community groups and unions, which are often the only forces working against the company’s quest to take over everything.

Boeing’s Subsidy Coercion

Thursday, September 16th, 2010

For many years Boeing has complained that its European rival Airbus unfairly benefited from government subsidies as it grew to become the world’s top jet builder. The U.S. company felt vindicated when the World Trade Organization ruled last June that Airbus had indeed received improper below-market-rate loans from European governments.

But now Boeing has been hoisted by its own petard.  Responding to a counter-complaint filed by the European Union, the WTO has just concluded that Boeing received its own illegitimate government help – both from research contracts awarded by federal agencies and from states that put together large incentive packages to lure production facilities for Boeing’s next-generation 787 Dreamliner. The value of the questionable payments was said to be in excess of $20 billion.

The ruling itself was not made public, but the descriptions of it that have emerged in the press undermine Boeing’s long-standing contention that its government assistance, unlike that received by Airbus, is legitimate. The company has strained to argue that the deals offered by the states are incentives and that incentives are not the same thing as subsidies. The WTO now seems to be saying that this is one of those distinctions without a difference.

Since the text of the WTO decision is not available, I thought it would be helpful to recount what kinds of assistance Boeing has received from various states. The deals were well covered but it is easy to forget how willing the company has been to make use of public giveaways.

WASHINGTON STATE. Boeing’s association with Washington State dated back to the company’s founding in 1916, but when it was making plans in the early 2000s for the Dreamliner, it forced the state to compete with around 19 others to be chosen as the location for a $500 million plant and up to 1,200 jobs.

Eager to preserve his state’s status as a center of aerospace production, Gov. Gary Locke proposed huge tax breaks for the company and pressured the legislature to approve them virtually overnight in a special session. Locke got his way, and Boeing ended up with a package of research & development tax credits and cuts in Business & Occupation taxes (the state’s substitute for a corporate income tax), sales taxes and property taxes that together were estimated to be worth $3.2 billion over 20 years. Boeing agreed to locate the Dreamliner operation in Washington after the state also agreed to overhaul the unemployment insurance system to reduce costs for employers and tighten up on workers compensation claims.

KANSAS. Hoping to persuade Boeing to perform a portion of the work on its Dreamliner at its 12,000-person operation in Wichita, the Kansas legislature in 2003 approved a plan to make available $500 million in bond financing to the company. The proceeds from the state bond issue were to be turned over to Boeing, which would be allowed to pay off the interest by diverting the state payroll taxes collected from its workers assigned to tasks relating to the new jetliner. The projected cost to the state in lost revenue over the 20-year bond payoff period was estimated at $200 million. In 2005, before it could make use of the bond financing, Boeing sold its commercial operations in Wichita to a Canadian private equity firm, which was allowed to make use of the funding at a reduced level.

SOUTH CAROLINA. The Palmetto State was one of the losers in the 2003 competition set up by Boeing to decide where to locate its initial production facilities for the Dreamliner. But the state kept wooing the airplane manufacturer as well as some of its major suppliers. In 2004 it gave a subsidy deal worth more than $100 million to one of those suppliers, Vought Aircraft Industries. In 2009 Boeing received a subsidy package initially valued at $450 million – later pegged at $900 million – to locate its second Dreamliner production line in South Carolina, where it clearly hopes to keep its workforce non-union.

ILLINOIS. Boeing played the same subsidy game in 2001 when it decided to move its headquarters from Seattle to another part of the country. It set up a competition among three cities that was won by Chicago after state and local officials put together a package of tax credits, property tax abatements and other incentives worth a total of about $56 million.

What this history shows is that Boeing not only mimicked Airbus in making use of anti-competitive subsidies, but that it did so by coercing state and local governments. For Boeing, at least, the main problem is not that it violated the WTO’s abstract notions of fair competition but that it exploited the hunger for decent jobs to extract massive sums from the pockets of American taxpayers.

The Dark Side of Family Business

Friday, August 27th, 2010

Americans love entrepreneurship, and no form of it is more celebrated than the family business. Most of us distrust big banks and giant corporations, but who doesn’t have warm feelings about mom and pop companies or family farms? These are the types of firms that politicians of all stripes want to shower with tax breaks and other forms of government assistance.

The problem is that family enterprises, like pet alligators, may start out as small and cuddly but can grow into large and dangerous monsters. We’ve seen two examples of this recently in connection with the family-owned oil company Koch Industries and the egg empire controlled by the DeCoster Family.

Koch Industries and its principals David and Charles Koch are the subject of a detailed article in The New Yorker by Jane Mayer. Much of the information in the piece has previously come out in blogs, websites and muckraking reports by environment groups, but she does a good job of consolidating those revelations and presenting them in a prestigious outlet.

Mayer describes how the Kochs, who are worth billions, have for decades used their fortune to bankroll a substantial portion of rightwing activism and are currently the big money behind groups such as Americans for Prosperity that are helping coordinate the purportedly grassroots Tea Party movement. What makes the Kochs especially insidious is that they use the guise of philanthropy to fund organizations promoting policy positions – environmental deregulation and global warming denial – that directly serve the Koch corporate interests, which include some of the country’s most polluting and greenhouse-gas-generating operations. The Kochs also contribute heavily to mainstream philanthropic causes such as the Metropolitan Opera and the Sloan-Kettering Cancer Center to win influential allies and gain respectability.

The DeCosters, whose egg business is at the center of the current salmonella outbreak, are not in the same social circles as the Kochs, but they have an even more egregious record of business misconduct. Hiding behind deceptively modest company names such as Wright County Egg, the family, led by Jack DeCoster, has risen to the top of the egg business while running afoul of a wide range of state and federal regulations.

As journalists such as Alec MacGillis of the Washington Post have recounted, the DeCosters have paid millions of dollars in fines for violating environmental regulations (manure spills), workplace health and safety rules (workers forced to handle manure and dead chickens with their bare hands), immigration laws (widespread employment of undocumented workers), animal protection regulations (hens twirled by their necks, kicked into manure pits to drown and subjected to other forms of cruelty), wage and hour standards (failure to pay overtime), and sex discrimination laws (female workers from Mexico molested by supervisors).

Their lawlessness dates back decades. A November 11, 1979 article in the Washington Post about Jack DeCoster’s plan to expand from his original base in Maine to the Eastern Shore of Maryland states that he was leaving behind “disputes over child labor, union organizing drives and citations for safety violations.” In 1988 the Maryland operation was barred from selling its eggs in New York State after an outbreak of salmonella. In 1996 the Occupational Safety and Health Administration fined the DeCosters $3.6 million for making its employees toil in filth. Then-Labor Secretary Robert Reich said conditions were “as dangerous and oppressive as any sweatshop we have seen.”

The DeCosters were notorious enough to be featured in a 1999 report by the Sierra Club called Corporate Hogs at the Public Trough.  The title referred to the fact that concentrated animal feeding operations (CAFOs) such as those operated by the DeCosters were receiving substantial federal subsidies despite their dismal regulatory track record.

Articles about Jack DeCoster invariably describe him as self-made and hard-working. “Jack doesn’t fish, he doesn’t hunt, he doesn’t go to nightclubs,” a farmer in Maine told the New York Times in 1996. “He does business — 18 hours a day.” He was recently described as a “born-again Baptist who has contributed significant amounts of money to rebuild churches in Maine and in Iowa.”

Like the Kochs, DeCoster apparently thinks that some philanthropic gestures will wipe away a multitude of business transgressions. Yet no amount of charitable giving can change the fact that these men grew rich by disregarding the well-being of workers, consumers and the earth. Such are the family values of these family businessmen.