Month: February 2010

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 14th 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.