Month: November 2012

The Corporate Entitlement Problem

To the extent that the United States has a real fiscal crisis, it has been exacerbated by aggressive tax avoidance on the part of big business. Now the chief executives of many of those same giant corporations are inserting themselves at the center of the current fiscal cliff debate, claiming they know what is best for the country.

The Campaign to Fix the Debt, whose “CEO Fiscal Leadership Council” now has more than 100 members from the corporate elite, is not, of course, proposing that the Fortune 500 start paying its fair share of federal taxes. In fact, the group is pursuing an agenda that may very well result in their companies’ paying even less to Uncle Sam.

As the Institute for Policy Studies has pointed out, companies represented in Fix the Debt stand to save tens of billions of dollars from the territorial tax system the campaign seems to be promoting. IPS has also shown the hypocrisy in the fact that the Fix the Debt CEOs calling for “reforms” in Social Security have fat personal retirement assets from their companies, while many of those firms are underfunding their employee pension plans.

There are numerous other ways in which the companies represented in Fix the Debt are far from honest brokers in dealing with the fiscal cliff—and in actuality engage in practices that exacerbate the country’s fiscal and economic problems.

Take the fact that among those companies are some of the most anti-union employers in the United States, beginning with Honeywell, whose CEO David Cote is on the steering committee of Fix the Debt and is one of its main spokespeople. After members of the Steelworkers union at a uranium facility in Illinois balked at company demands for the elimination of retiree health benefits, reductions in pension benefits and other severe contract concessions, Honeywell locked them out for 12 months.

Also on the council is Lowell McAdam of Verizon Communications, which for years has fought against union organizing at its Verizon Wireless unit and took a hard line in its most recent round of contract negotiations covering its unionized workforce.

Then there is Douglas Oberhelman, the CEO of Caterpillar, which has one of the most contentious labor relations histories of any large company, including a 15-week strike at one plant earlier this year prompted by management demands for far-reaching contract concessions.

Not to mention W. James McNerney, Jr. of Boeing, which was accused of opening an assembly plant in right-to-work South Carolina as a form of retaliation against union activism at its traditional manufacturing center in the Seattle area.

These anti-union crusaders have helped bring about a climate of wage stagnation that not only undermines the living standards of their employees but also weakens businesses that depend on their purchasing power.

Fix the Debt CEOs also seem to think that their companies deserve to be lavishly rewarded when they make investments that create jobs. While it is difficult to discern these rewards at the federal level, where they come through the fine print of the Internal Revenue Code, the payoffs are abundantly clear in the lucrative subsidy deals the corporations receive from state and local governments.

For example, that Boeing plant did not only get the promise of a workforce that in all likelihood will remain unorganized. South Carolina also bestowed on the company a state and local subsidy package that has been valued at more than $900 million.

Verizon has received more than $180 million in subsidies from state and local governments around the country. Caterpillar got an $8.5 million grant from Gov. Rock Perry’s Texas Enterprise Fund as well as local subsidies when it eliminated jobs in Illinois and opened a new plant in the Lone Star State. Honeywell has received subsidies in at least 14 states.

The subsidy recipients represented in Fix the Debt are not limited to that anti-union group; there are many others. For example, Goldman Sachs, whose CEO Lloyd Blankfein has been a frequent spokesperson for the campaign, took advantage of $1.65 billion in low-cost Liberty Bonds when building its new headquarters in Lower Manhattan.

The refusal of these companies to deal respectfully with unionized workers and their insistence on taking lavish taxpayer subsidies they don’t need are two symptoms of a flawed business culture. The United States does have an entitlement problem, but it is not related to Social Security, Medicare or Medicaid. It is the notion held by too many large corporations and their CEOs that their narrow interests are synonymous with the national interest. Rather than presuming to fix the debt, big business needs to fix itself.

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New in CORPORATE RAP SHEETS: a dossier on drug giant GlaxoSmithKline, including its $3 billion fraud settlement with the federal government.

Pfizer’s Long Corporate Rap Sheet

The Dirt Diggers Digest is taking a break from commentary for the Thanksgiving holiday, but the Corporate Rap Sheets project marches on. I’ve just posted a dossier on drug giant Pfizer. Here is its introduction:

Pfizer made itself the largest pharmaceutical company in the world in large part by purchasing its competitors. In the last dozen years it has carried out three mega-acquisitions: Warner-Lambert in 2000, Pharmacia in 2003, and Wyeth in 2009.

Pfizer has also grown through aggressive marketing—a practice it pioneered back in the 1950s by purchasing unprecedented advertising spreads in medical journals. In 2009 the company had to pay a record $2.3 billion to settle federal charges that one of its subsidiaries had illegally marketed a painkiller called Bextra. Along with the questionable marketing, Pfizer has for decades been at the center of controversies over its pricing, including a price-fixing case that began in 1958.

In the area of product safety, Pfizer’s biggest scandal involved defective heart valves sold by its Shiley subsidiary that led to the deaths of more than 100 people. During the investigation of the matter, information came to light suggesting that the company had deliberately misled regulators about the hazards. Pfizer also inherited safety and other legal controversies through its big acquisitions, including a class action suit over Warner-Lambert’s Rezulin diabetes medication, a big settlement over PCB dumping by Pharmacia, and thousands of lawsuits brought by users of Wyeth’s diet drugs.

Also on Pfizer’s list of scandals are a 2012 bribery settlement; massive tax avoidance; and lawsuits alleging that during a meningitis epidemic in Nigeria in the 1990s the company tested a risky new drug on children without consent from their parents.

READ THE ENTIRE PFIZER RAP SHEET HERE.

Obamacare’s Dangerous Dependence on the Private Sector

After holding out as long as possible in the hope that Mitt Romney would be elected and the Affordable Care Act would be repealed, various red states are now being forced to decide whether they will set up the insurance exchanges mandated by the act or let the federal government do it for them. While this is a defeat for die-hard opponents of Obamacare, it is a windfall for a group of companies that regard the exchanges as a huge business opportunity.

Those companies are not just the private health insurance carriers, whose continued existence was guaranteed by Obamacare’s rejection of both single payer and the public option, and whose services will be hawked on the exchanges. It turns out that the creation of the exchanges, whether done under the auspices of a state or the feds, will involve private contractors.

Some of the states that have already opted to set up their own exchanges are doing so with the help of corporations that make a business out of government services. For example, California awarded a $359 million contract to consulting giant Accenture.  Xerox got a $72 million contract from Nevada, and Maximus was awarded $41 million by Minnesota.

Maximus is also reported to be among those companies competing for a federal contract that may be awarded to help the tardy states catch up. This would be in addition to several hundred million dollars in contracts already awarded by the Department of Health and Human Services to three contractors to help build the federal exchange.

While it is dismaying to see large amounts of taxpayer money going to the private sector for what is supposed to be a public service, it is even more dismaying to see which companies are at the front of the gravy train.

Take the case of Maximus, which was established in the 1970s but whose business really took off in the wake of the welfare “reform” of the 1990s. Among other things, the Personal Responsibility and Work Opportunity Act opened the door to state government use of contractors to administer public assistance and other social programs. The annual revenues of Maximus soared from $88 million in 1995 to $487 million in 2001.

That was great for its executives and shareholders, but taxpayers and participants in the social programs the company helped administer were often less enthusiastic. Maximus ended up at the center of one controversy after another as its performance faltered and its promises of vast savings from contracting-out frequently failed to materialize.

For instance, after Maximus took over In Connecticut’s program of child-care benefits for poor families in 1996, the system soon fell into such as state of disarray that the New York Times published an article about the situation headlined IN CONNECTICUT, A PRIVATELY RUN WELFARE PROGRAM SINKS INTO CHAOS.

In Wisconsin, where former Gov. Tommy Thompson put Maximus in charge of the state’s welfare-to-work program, a legislative audit found that the company was using public money for unauthorized purposes such as staff parties. At the same time, Maximus was found to be doing a poor job in getting clients into full-time jobs.

Maximus has also been accused of filing false claims with the federal government for its state and local clients. In 2007 the company had to pay $30.5 million to resolve Medicaid fraud charges related to its contract with the District of Columbia.

In Texas, Maximus was embroiled in a scandal relating to work directly relevant to health insurance exchanges. In 2005 the Texas Access Alliance, an entity formed by Accenture and Maximus, received a whopping $899 million contract from the state to develop a social services enrollment system. It turned out to be a disaster. There was a high volume of glitches in the computer system and poor performance by the related call centers. The Alliance eventually lost the contract and was sued by the state. The case was settled under a deal in which the Alliance agreed to forgo $70.9 million in payments and Maximus agreed to pay $40 million in cash and provide a $10 million credit against future work.

The rollout of the Obamacare insurance exchanges is already operating on a tight deadline. It is difficult to believe that the situation will get better by putting companies such as Maximus and Accenture in the picture. Using these contractors may instead provide more evidence of the Affordable Care Act’s dangerous dependence on the private sector.

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New in CORPORATE RAP SHEETS: a dossier on Dow Chemical and its sordid history of napalm, Agent Orange, dioxin and Bhopal.

If you’re focused on the BP settlement and want a reminder of the company’s long list of sins, see the fully updated BP Corporate Rap Sheet.

Corporate Power and the Second Obama Administration

The corporate lobby is dumbfounded. After spending billions of dollars to defeat President Obama and take Republican control of the Senate, business interests have nothing to show for their efforts.

By all rights, Thomas Donohue of the U.S. Chamber of Commerce, which went all-out for Republican candidates, should be handing in his resignation. The Big Business-loving editorial page of the Wall Street Journal should be exhibiting a bit of contrition.

Instead, Donohue issued a press release reiterating the Chamber’s laissez-faire position: “It is the private sector that drives economic growth and jobs, and it is the government’s responsibility to work on a bipartisan basis to pass policies that will unleash the private sector and help put Americans back to work.”  The Journal warns Obama not to “consider his reelection to be a mandate to repeat his first-term record of rejecting all GOP ideas and insisting on his priorities.” God forbid that a President returned to office with a resounding victory should seek to promote his own priorities.

Even with the election is over, conservatives cannot let go of their caricature of Obama as a radical leftist who refuses to compromise. This may have something to do with the fact that many of them are radical rightists who refuse to compromise.

After Obama was first elected in 2008, the Journal predicted that he would “seek middle ground with business on thorny issues.” You wouldn’t know it from the campaign, but that was often what happened during the past four years.  Far from being the Bolshevik envisioned in the fevered imagination of his critics, Obama led Democrats in pursuing an agenda that was solidly middle-of-the-road or, in some respects, conservative, by earlier standards. Let’s recall that Obama:

  • Promoted and got enacted a healthcare reform plan that preserves the private insurance industry;
  • Enacted a stimulus plan that, among other things, funneled billions into subsidies, grants and contracts for large corporations;
  • Helped rescue the auto industry through a plan that forced workers to make major contract concessions and that took a hands-off approach to the management of companies such as General Motors and Chrysler that received tens of billions in federal aid;
  • Occasionally talked tough but ultimately did little to prosecute the financial institutions that were responsible for the near meltdown of the economy through predatory lending and reckless speculation;
  • Enacted a financial reform bill that allowed venal megabanks such as Citigroup to remain in existence and then did little to challenge Republican efforts to stonewall implementation of its consumer protection provisions;
  • Abandoned, in the face of Republican opposition, the pro-union Employee Free Choice Act and cap-and-trade legislation;
  • Continued the practice of allowing corporate criminals to escape real punishment through deferred prosecution agreements;
  • Continued to promote the myth of “clean coal” and adopted a weak or inconsistent position on dangerous energy practices such as offshore drilling and fracking;
  • Went along with the wrong-headed notion that corporate income tax rates are too high;
  • Claimed to be reducing the influence of corporate lobbyists but chose as a senior advisor someone who also serves as a strategist for clients such as military contractor Pratt & Whitney and Keystone XL pipeline developer TransCanada;
  • Declined to directly criticize large profitable companies that have refused to rehire adequate numbers of U.S. workers; and
  • Chose executives from union-unfriendly offshore outsourcers such as General Electric to advise him on job creation.

The list could go on. By any reasonable assessment, this record could be considered business-friendly or at least not overly hostile. The problem is that business groups are comparing the reality of Obama to a fantasy of token regulation, minimal taxation, vanished unions—in other words, totally unfettered corporate power—and thus feel frustrated.

Unfortunately, left to its own devices, a second Obama Administration is likely to go on trying to placate corporate interests and the Right by promoting policies that will never satisfy them but will dilute critical progressive goals.  Wouldn’t it be great if the President felt he needed to try that hard to satisfy the other end of the political spectrum?

Who Pays for Extreme Weather?

As the northeast begins to recover from the ravages of Sandy, there are estimates that the giant storm caused some $20 billion in property damage and up to $30 billion more in lost economic activity.

The question now is who will pay that tab—as well as the cost of future disasters that climate change will inevitably bring about.

It’s already clear that the private insurance industry, as usual, will do everything in its power to minimize its share of the burden. Insurers take advantage of the fact that their policies often do not cover damages from flooding, passing that cost onto policyholders. Most of them are unaware of the fact and fail to purchase federal flood insurance until it is too late.

Insurers also exploit clauses in their policies that impose much higher deductibles for non-flood damages during hurricanes. Fortunately, governors in New York, New Jersey and Connecticut are blocking that maneuver by giving Sandy a different official designation (which is consistent with the National Weather Service’s use of the term “post tropical storm”).  It remains to be seen, nonetheless, to what extent the insurance industry manages to create new obstacles for its customers.

The challenges for homeowners are just one part of the problem. Sandy also did tremendous damage to public infrastructure—roads, bridges, subway stations, etc. Although these are government assets, should the public sector bear the cost of rebuilding?

Many people are arguing, in the words of a New York Times editorial, that “a big storm requires big government.” That’s certainly true when it comes to initial disaster response.  Many more people would have died and much more damage would have occurred but for the efforts of public-sector first responders and even the Federal Emergency Management Agency, which has been remade since its debacle during the aftermath of Hurricane Katrina.

But the challenges associated with extreme weather go far beyond those relief functions. There’s now discussion of the need for New York City to build a huge flood-prevention system along the lines of that in the Netherlands.

Taxpayers, especially those of the 99 percent, should not be forced to assume the entire cost of such a massive undertaking. Extreme weather is clearly linked to climate change, which in turn has been largely caused by the growth in greenhouse gas emissions caused by large corporations, especially those in the fossil fuel industry.

Holding corporations responsible for the consequences of climate change is not a new idea. Yet it is one that all too frequently gets drowned out amid the bloviating of the climate deniers, much of whose funding comes from the very corporate interests they are working to get off the hook.

Back in 2006 BusinessWeek wrote that lawsuits targeting corporations for global warming were “the next wave of litigation,” following in the footsteps of the lawsuits that forced the tobacco industry to cough up hundreds of billions of dollars in compensation. Such cases did materialize. For example, in 2008 lawyers representing the Alaska Native coastal village of Kivalina, which was being forced to relocate because of flooding caused by the changing Arctic climate, filed suit against Exxon Mobil, BP, Chevron, Duke Energy and other oil and utility companies, arguing that they conspired to mislead the public about the science of global warming and this contributed to the problem that was threatening the village.

Such suits have not had an easy time in the courts. The Kivalina case was dismissed by a federal district judge, and that dismissal was recently upheld by the federal court of appeals. A suit brought by the state of California against major automakers for contributing to global warming was also dismissed.

It is far from certain that corporations will continue to get off scot free. In fact, groups such as the Investor Network on Climate Risks argue that the potential liability is quite real and that this should be a matter of concern for institutional shareholders. The Network, a project of CERES, pursues its goals through initiatives such as appeals to the SEC to require better disclosure of climate risks and through friendly engagement with large corporations.

Yet it may be that a more confrontational approach is necessary to build popular support for the idea that big business needs to be held accountable for its big contribution to the climate crisis.

Unfortunately, we are already seeing steps in the opposite direction. The Bloomberg Administration in New York has already announced new storm-related subsidies that will apply not only to struggling mom-and-pop business but also to giant corporations. Unless there is a popular outcry, the city will repeat its mistakes in the wake of the 9-11 attacks of giving huge amounts of taxpayer-funded reconstruction assistance to the likes of Goldman Sachs (see the website of Good Jobs New York for the dismaying details).

The fact that the large New York banks that stand to benefit from Bloomberg’s new giveaways helped finance fossil-fuel projects that contribute to climate change shows just how self-defeating this approach is.

Rather than using public money to help wealthy corporations pay for storm damage on their premises, we should be forcing those companies to pay the costs of addressing the climate crisis they did so much to create.

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New in CORPORATE RAP SHEETS: a dossier on the many environmental and labor relations sins of chemicals giant DuPont.