November 2011 Archives

Removing the Burden of Student Loans

Undeterred by its eviction from public parks in numerous cities, the Occupy movement is looking to other venues, among them college campuses.

Occupying universities is not just a matter of finding new encampment sites. It is also a means of asserting the connection between the current protests and the student activism of the 1960s, which in many ways paved the way for the current upheaval.

Those historical links have been in full view in Berkeley, where Occupy forces have been struggling to maintain an encampment at the University of California on the very spot where the Free Speech Movement was born nearly a half century ago. The call by that movement’s leader, Mario Savio, for students to throw their “bodies upon the gears” of the capitalist/military machine is echoed in the speeches in today’s Occupy general assemblies.

Berkeley also serves as a reminder that the universities are not that far removed from Wall Street. A 1998 agreement by UC-Berkeley to put its biotechnology research under the control of drug company Novartis (later Syngenta) was a key event in the corporatization of academia and was prominently featured in Jennifer Washburn’s 2005 book University Inc.: The Corporate Corruption of Higher Education.

But perhaps the most compelling reason for Occupy efforts on college campuses is that they are the scene of the crime for the abuse that perhaps more than any other animates the current movement: the burden of student debt.

For many young Occupiers, who have never had a chance to take out a home mortgage on which to be foreclosed, their main relationship to Wall Street is through what they owe banks on the loans they amassed for their education. It is thus no surprise that some of the more common Occupy protest signs are those that say something like: “I have $80,000 in student loan debt. How can I ever pay that back?”

Occupiers are starting to move from simply bemoaning their student loans to rejecting the idea that those obligations have to be met. We’re seeing the emergence of a movement for student loan debt abolition.

To put this movement in context, it’s helpful to recall the modern history of higher education in the United States. Once the province of the upper class, colleges were transformed in the post-World War II era into a system for preparing a workforce that was becoming increasingly white-collar. The GI Bill and later the candidly named National Defense Student Loans were not social programs as much as they were indirect training subsidies for the private sector. The Basic Educational Opportunity Grants (later renamed Pell Grants) created in the 1970s brought young people from the country’s poorest families into the training system.

It was precisely this sense that they were being processed for an industrial machine that motivated many of the student protesters of the 1960s. As with many of today’s Occupiers, they ended up questioning the entire way of life that had been programmed for them.

Those challenges eventually ebbed, and the powers that be then pulled a cruel trick on young people. Once a college education had become all but essential for survival in society, students were forced to start shouldering much more of its cost. During the 1980s, the Reagan Administration slashed federal grant programs, compelling students to make up the difference through borrowing. As early as 1986, a Congressional report was warning that student loans were “overburdening a generation.”

Over the past 25 years, that burden has become increasingly onerous. Both Republican and Democratic Administrations exacerbated the problem by cracking down on borrowers who could not keep up with their payments, while at the same time giving the profit-maximizing private sector greater control over the system. That control was intensified by the privatization of the Student Loan Marketing Association (Sallie Mae) in the late 1990s and by the refusal of Congress for years to heed calls to get private banks out of the student loan business.

It was not until March 2010 that Congress, at the urging of the Obama Administration, eliminated the private parasites and converted billions in bank subsidies into funds for the expansion of the Pell Grant program. This was a remarkable step that will reduce future debt burdens, but by the time it occurred a great deal of damage had already been done.

During the past two decades, student loan debt has skyrocketed. Last year new loans surpassed $100 billion for the first time, and total loans outstanding are soon expected to exceed $1 trillion. According to the College Board, the typical recipient of a bachelor’s degree now owes $22,000 upon graduation. These numbers are all the more daunting in light of the dismal job prospects for graduates, millions of whom are unemployed or underemployed.

Given this history, young people are justified in viewing their student debts as akin to the unsustainable mortgages foisted on low-income home buyers by predatory lenders. President Obama recently announced some administrative adjustments to student loan obligations, but that will make only a small dent in the problem.

Even before the Occupy movement began, there was talk of a student loan debt abolition movement. Much of this talk was inspired by the writings of George Caffentzis, including a widely circulated article in the journal Reclamations. Caffentzis acknowledges the challenges to such a movement stemming from the fact that student loans are not repayable while borrowers are still in school: “Student loans are time bombs, constructed to detonate when the debtor is away from campus and the collectivity college provides is left behind.”

The advent of the Occupy movement is creating a new collectivity and a new way of thinking that addresses the call by Caffentzis for a “political house cleaning to dispel the smell of sanctity and rationality surrounding debt repayment regardless of the conditions in which it has been contracted and the ability of the debtor to do so.” Occupiers are also apt to be more receptive to Caffentzis’s argument that student debt should be seen not as consumer debt but in the context of education as an adjunct to the labor market.

A decade ago, many U.S. activists were building a Jubilee campaign for third world debt cancellation. We now need a similar effort here at home to liberate young people from the consequences of an educational financing system that has gone terribly wrong.

Making Corporations Disappear

From the 11-year prison term and $92 million fine imposed on convicted insider trader Raj Rajaratnam to the apparent misappropriation of hundreds of millions of dollars in client funds at failed brokerage firm MF Global to the admission by Japan’s Olympus Corp. that it has been cooking the books for years, the news is full of reminders about the criminality that pervades the corporate world.

At the same time, the ongoing Occupy movement has been bringing renewed attention to the disastrous consequences of the Supreme Court’s Citizens United ruling that enshrined corporate personhood. One of the more popular protest messages seen at Occupy encampments is: “I will believe that corporations are people when Texas executes one of them.”

As Russell Mokhiber of Corporate Crime Reporter points out, the idea is not so far-fetched. For the past two decades there has been a small but persistent campaign to promote the idea that the state-granted charters of rogue corporations could be challenged, thereby putting them out of business. The movement was pioneered by Richard Grossman, who co-authored a well-circulated 1993 pamphlet entitled Taking Care of Business, which outlined legal and historical justifications for charter revocations.

Grossman’s evangelism helped create the Community Environmental Legal Defense Fund, which helps communities fight corporate intrusions at the local level, and the Program on Corporations, Law and Democracy, which publishes materials that “contest the authority of corporations to govern.”

These groups and others were challenging corporate personhood even before Citizens United, and groups inspired by these ideas launched campaigns to challenge the charters of outlaw corporations such as Union Carbide (largely because of its role in the Bhopal disaster) and Unocal (because of its role in oil spills, frequent workplace safety and health violations, and human rights violations in its relations with repressive governments).

The idea began to catch on. In 1998, Eliot Spitzer, then a candidate for New York Attorney General, said he would not hesitate to push for the dissolution of corporations found guilty of criminal offenses. In the early 2000s, groups in California pushed for a corporate three strikes law to deal with recidivist business offenders such as Tenet Healthcare.

The charter revocation concept waned for a while but had a resurgence last year in response to the outrageous behavior of BP in the Gulf oil spill and that of Massey Energy in creating the conditions that led to the Upper Big Branch mine disaster in West Virginia. Massey ended up being taken over by another company, but BP remains in business despite the fact that its misconduct in the Gulf occurred while it was on probation for earlier federal offenses relating to a 2005 refinery explosion in Texas and 2006 oil spills in Alaska.

The Occupy movement sets the stage for a new assault on corporate recidivists. There is no shortage of offenders. For instance, the New York Times just showed that numerous investment banks have committed repeated violations of Securities and Exchange Commission anti-fraud rules. Mokhiber suggests that potential candidates for the corporate death penalty include health insurers, nuclear power plant operators, giant banks and firms engaged in hydraulic fracking.

The real challenge is to figure out what it would mean to execute a giant corporation. There are few precedents for doing so. Nearly all the major companies that have gone out of existence have done so as the result of takeovers by other large firms. In a limited number of cases such as Enron and Lehman Brothers, companies were forced to liquidate, but by the time this happened the firms were effectively worthless.

Unanswered is the question of what would happen if a large and healthy corporation had to cease operations because of a charter revocation. Selling off the company piece by piece in fire sales to other large corporations would have the undesirable effect of increasing concentration in the industry.

While it may be morally satisfying to say that such a firm should simply vanish, that would be unfair to the workers and other stakeholders who may have played no role in the criminal behavior that brought on the revocation. Besides, this too could result in higher industry concentration as other firms capture the disappearing company’s market share.

What’s needed is a set of protocols for a just transition of a de-chartered company to a new corporate form based on principles such as trust busting (splitting up business behemoths into smaller entities), worker ownership, environmental responsibility and community oversight.

A distinction would have to be made between disappearing companies in those industries that serve a legitimate need and those which need to be phased out for reasons aside from the behavior of individual firms (coal, tobacco, for-profit health insurance, etc.).

Figuring out how to dismantle large companies will be a huge and complicated task, but it is an essential undertaking if we are ever to escape from the era of corporate domination.

Tax Dodging Inc.

Given that big business provides the bulk of the money pouring into the political system, it is no surprise that members of Congress and presidential contenders alike tend to espouse the idea that large corporations are overtaxed. This myth gets repeated despite all the evidence that blue chip companies find endless ways to pay much less than the statutory rate.

It is now more difficult for the tax avoidance deniers to spread their snake oil. Citizens for Tax Justice and the Institute on Taxation and Economic Policy have just come out with a compelling study called Corporate Taxpayers & Corporate Tax Dodgers that examines the fine print of the financial statements of the country’s largest corporations and identifies scores of firms that fail to pay their fair share of the cost of government.

Looking at a universe of 280 companies, CTJ and ITEP find that over the past three years, 40 percent of them paid less than half of the statutory rate of 35 percent. Most of those paid what the study calls “ultra-low” rates of less than 10 percent. Thirty of the firms actually had negative tax rates, meaning that Uncle Sam was paying them for doing business. In dollar terms, the biggest recipients of tax subsidies over the three-year period were Wells Fargo ($18 billion), AT&T ($14.5 billion), Verizon Communications ($12.3 billion) and General Electric ($8.4 billion). The freeloaders had rates as low as minus 57.6 percent. You should read the study for yourself to get all the juicy details.

CTJ and ITEP have been putting out these bombshell reports periodically over the past three decades. The ones from the early 1980s drove the Reagan Administration crazy and paved the way for the Tax Reform Act of 1986, which reversed many of the corporate giveaways of the initial Reagan years.

It is tempting to think that this new report will subvert the current corporate tax relief movement, but that is a tall order. Part of the reason is that corporations, having bought much of the policymaking apparatus, have become much more brazen in their self-serving behavior.

Let’s take the case of Nabors Industries, the world’s largest oil and gas land drilling contractor. Nabors was not eligible to be considered for the CTJ/ITEP study because it is headquartered in Bermuda. The company is not really Bermudan. Its principal offices are in Houston, but it re-incorporated itself in the island nation a decade ago for one simple reason: to escape paying U.S. federal income taxes (Bermuda imposes no such levies on corporations). It was part of a wave of companies that in the early 2000s underwent what were euphemistically called corporate inversions.

Critics called the moves “unpatriotic” or even “akin to treason,” but Nabors went ahead with its plan. There was an effort later in Congress to collect retroactive taxes from Nabors and a handful of other firms that had carried out inversions, but the move was blocked by New York Rep. Charles Rangel after Nabors CEO Eugene Isenberg made a $1 million contribution to a help build the Charles B. Rangel School of Public Service at the City College of New York. Rangel was subsequently charged with an ethics violation in connection with the contribution.

Nabors and Isenberg have been in the news again recently in connection with another scandal. Nabors announced that it was paying Isenberg, now 81 years old, $100 million to give up his post as chief executive. Although the payment is linked to a severance agreement, Isenberg is remaining with the company as chairman of the board. The situation was remarkable enough to merit a front-page story in the Wall Street Journal, which is normally blasé about bloated executive pay.

Isenberg’s bonanza is the culmination of a series of outsized pay packages. In 2005, for instance, he received total compensation of more than $200 million. In 2008 his bonus alone was more than $58 million. In a non-binding vote earlier this year, a majority of Nabors shareholders disapproved the company’s executive pay policies.

It used to be that executive compensation was high in relation to worker pay rates put still a relatively small amount compared to revenue and profits in large companies. That has been changing. The payouts to Isenberg have a significant impact on the firm’s bottom line. The $100 million being collected by Isenberg to give up his CEO job more than wipes out the $74 million in profits Nabors posted for the most recent quarter. Nabors, by the way, has disclosed that it has been investigated by the Justice Department for making foreign bribes.

As the Institute for Policy Studies showed in a report a couple of months ago, it is not unusual for major companies to pay their chief executives more than they send to the Treasury in taxes. Add to that the CTJ/ITEP findings and the behavior of firms like Nabors, and it is difficult to avoid the conclusion that in many large corporations the dominant motivation is to enrich their principals, even if that means sidestepping obligations to shareholders, government and workers. In other words, big business is increasingly acting as little more than a vehicle for expanding the wealth of the 1%.