Dealing Boldly with Big Pharma

Three days after Donald Trump took office in 2017, the Pharmaceutical Research and Manufacturers of America trade association launched a multimillion campaign to bolster its image in the face of criticism from across the political spectrum of exorbitant drug price hikes. Under the banner of Go Boldly, PhRMA sought to persuade lawmakers and the public that biopharmaceutical producers were doing great things to improve our quality of life and were not just price-gouging crooks.

Two years later, the campaign is still in operation, apparently because the public has not been won over. That’s not surprising, given that Big Pharma is still behaving badly. Relieved that the Trump Administration’s drug cost initiative turned out to be toothless, major drug makers are implementing new rounds of price increases.

Promoting the idea that the industry is preoccupied with innovation is also being made more difficult by the announcement that Bristol-Myers Squibb is seeking to spend $74 billion to acquire rival Celgene. The deal would unite two companies that each have been struggling with their cancer treatments.

Bristol’s Opdivo drug has been losing ground to Merck’s Keytruda while Celgene has been experiencing setbacks in clinical trials and is facing a patent expiration in 2022 for its major product Revlimid. A marriage of the two companies would serve mainly as an excuse to eliminate jobs and raise prices, while doing little that would benefit patients.

The merger would also bring together two companies that have checkered legal and regulatory track records. According to Violation Tracker, Bristol has racked up nearly $1 billion in fines and settlements for a wide range of offenses. These include a $515 million settlement with the Justice Department of allegations relating to drug marketing and pricing; a $150 million settlement with the SEC concerning accounting fraud; a $14 million settlement of Foreign Corrupt Practices Act allegations; and a $3.6 million settlement of Clean Air Act violations.

It has also faced criminal charges, including one case in which it paid $300 million and got a deferred prosecution agreement to resolve allegations of accounting manipulation and another in which it pled guilty to lying to the federal government during an investigation of a secret agreement to thwart a generic competitor to its blood thinner Plavix.

For its part, Celgene paid $280 million in 2017 to resolve allegations that it promoted two cancer drugs for uses not approved by the Food and Drug Administration.

The prospect of one ethically challenged and market weakened drug company paying $74 billion to acquire another is emblematic of what is wrong with the U.S. pharmaceutical industry. It provides additional justification for aggressive reforms such as the bill introduced by Bernie Sanders and Ro Khanna that would allow the federal government to authorize generic alternatives to overpriced drug or the proposal by Elizabeth Warren and Jan Schakowsky that the federal government itself produce generic alternatives under certain circumstances.

If we want to Go Boldly, let’s do it with alternatives that empower patients not drugmakers.

The 2018 Corporate Rap Sheet

The Trump Administration has been taking steps to weaken its enforcement activities against corporate criminals and regulatory violators, but diligent prosecutors and career agency administrators are still trying to do their job. Over the course of 2018 there has been a steady stream of announcements of substantial penalties imposed on major corporations for a wide range of offenses. The following is a selection of significant cases resolved during the year:

Sale of Toxic Securities: In cases left over from the financial crisis of the 2000s, three major banks agreed to pay ten-figure settlements to the Justice Department to resolve allegations of misleading investors in residential mortgage-backed securities: $2 billion by Barclays, $2.1 billion by Wells Fargo and $4.9 billion by The Royal Bank of Scotland.

Interest Rate Benchmark Manipulation: The French bank Societe Generale agreed to pay $475 million to settle allegations by the Commodity Futures Trading Commission that it manipulated or attempted to manipulate LIBOR and other interest rate benchmarks.

Foreign Exchange Market Manipulation: The French bank BNP Paribas pleaded guilty to participating in a price-fixing scheme in the foreign exchange market and paid the U.S. Justice Department a criminal fine of $90 million.

Anti-Money Laundering Deficiencies: U.S. Bancorp agreed to a $453 million civil forfeiture to resolve a case brought by the U.S. Attorney for the Southern District of New York alleging that it violated the Bank Secrecy Act by failing to file required suspicious activity reports.

Foreign Corrupt Practices Act: The Securities and Exchange Commission required Panasonic Corporation to pay $143 million to resolve allegations of making improper payments and committing accounting fraud in connection with its global avionics business. It paid an additional $137.4 million to settle related criminal charges brought by the Justice Department.

Consumer Financial Protection Violation: Wells Fargo agreed to pay a total of $1 billion to the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency in connection with abuses relating to a mandatory insurance program tied to auto loans, mortgage interest-rate-lock extensions and other practices.

Product Safety Violation: Polaris Industries agreed to pay a $27.25 million civil penalty to settle Consumer Product Safety Commission allegations that it failed to immediately report to the agency that some of its recreational off-road vehicles contained defects that could create a substantial product hazard or that they created an unreasonable risk of serious injury or death.

Controlled Substances Act Violations: Rite Aid agreed to pay $4 million and CVS agreed to pay a total of $2.5 million in two cases, all to resolve allegations of improper distribution of controlled substances.

Sexual Harassment: Poultry processor Koch Foods agreed to pay $3.75 million to settle allegations made by the Equal Employment Opportunity Commission involving sexual harassment, national origin and race discrimination and retaliation at a plant in Mississippi.

Clean Air Act Violations: The Justice Department, the Environmental Protection Agency and the Louisiana Department of Environmental Quality announced that Shell Chemical would pay penalties of $350,000 and spend $10 million to install pollution control equipment to reduce harmful emissions at its plant in Norco, Louisiana.

False Claims Act Violations: Toyobo Co. of Japan and its American subsidiary agreed to pay $66 million to resolve claims under the False Claims Act that they sold defective Zylon fiber used in bulletproof vests that the United States purchased for federal, state, local, and tribal law enforcement agencies.

Bid-Rigging: South Korea-based companies SK Energy, GS Caltex, and Hanjin Transportation agreed to plead guilty to criminal charges and pay a total of approximately $82 million in criminal fines for their involvement in a decade-long bid-rigging conspiracy that targeted contracts to supply fuel to United States Army, Navy, Marine Corps, and Air Force bases in South Korea

Investor Protection Violations: AEGON USA Investment Management and three other Transamerica affiliates agreed to pay $97 million to the Securities and Exchange Commission to resolve allegations that they misled investors through the use of faulty financial models.

Hiring of Undocumented Workers: Waste Management Texas agreed to forfeit $5.5 million and entered into a non-prosecution agreement with the U.S. Attorney’s Office for the Southern District of Texas to resolve allegations that it hired numerous undocumented workers at its Houston operation.

Tax Evasion: The Swiss bank Zurcher Kantonalbank agreed to pay $98.5 million and entered into a deferred prosecution agreement to resolve charges that it conspired to help U.S. taxpayer-clients file false federal tax returns and hide hundreds of millions of dollars in offshore bank accounts.

Data Breach: Uber agreed to pay $148 million to settle allegations that emerged from a nationwide investigation of a 2016 incident in which a hacker gained access to personal information on 57 million riders and drivers.

Note: Additional details on most of these cases can be found in Violation Tracker, which now contains 327,000 entries with total penalties of $440 billion, or in the next update of the database, scheduled to appear in mid-January.

Abandoning Human Rights to Benefit Crooked Corporations

According to the grievance-based worldview of Donald Trump, the United States is constantly being cheated. He purports to be addressing this through his trade policies and his attitudes toward international organizations such as NATO. Yet he seems to be a lot less concerned about another kind of cheating: the ongoing fraud committed against the federal government by military contractors.

This is an old story yet it takes on new relevance amid the current controversies over the murder of U.S.-based journalist Jamal Khashoggi by the Saudi government and ongoing American support for the brutal Saudi military intervention in Yemen. Trump’s main justification for refusing to take stronger action against the kingdom is his claim that it would jeopardize potential U.S. arms sales to the Saudis, the value of which Trump wildly inflates.

Trump usually frames this in terms of jobs, but it is actually more a matter of revenue and profits for major weapons producers such as Lockheed Martin and Raytheon. It comes down to this: Trump is undermining the moral stature of the United States and giving a green light to despots who want to eradicate dissidents, all in the name of pumping up the cash flow of a handful of corporations.

Although he fancies himself a master dealmaker, it is unclear what Trump is receiving in return from these companies. In the past, Trump has made noise about the cost of some Lockheed and Boeing contracts but there was little follow-up. The big weapons producers are not now among the president’s favorite tweet targets.

There is every reason to believe that the big contractors are continuing their long-standing practices of charging excessive amounts for their weapons and then cheating on the terms of the contracts. Sometimes they get caught doing the latter and are made to pay penalties they can easily afford.

To take a recent example: in early November the Justice Department announced that Northrop Grumman had agreed to pay $27.45 million to resolve allegations that it overstated the number of hours its employees had worked on two battlefield communications contracts with the Air Force. This matter, like most of the cases brought against military contractors, was handled primarily under the False Claims Act, which allows for a civil settlement and monetary penalties but no criminal liability.

The Northrop case was unusual in that there was a parallel criminal investigation of one of the contracts, but the Justice Department reached an agreement with the company under which it forfeited an additional $4.2 million and no criminal charges were filed.

This was just the latest in a series of False Claims Act cases in which Northrop has paid out in excess of half a billion dollars in penalties for various contract frauds. It is far from unique in this regard. For example, as shown in Violation Tracker, Boeing has paid out $744 million in penalties in eight False Claims Act cases since 2000 and Lockheed has paid $125 million in 13 cases.

It is bad enough that President Trump is abandoning U.S. support for human rights; it is even worse that he is doing so to benefit a group of corporations that regularly cheat the government he heads.

Is There Still A Corporate Ulterior Motive Behind Criminal Justice Reform?

Is it just a coincidence that Donald Trump has decided to embrace criminal justice reform just at the time he is more likely to become a defendant himself? He’s not the only party that may have mixed motives in supporting the legislation that is being hyped as an outstanding expression of bipartisanship.

One of the prime movers behind the initiative has been Koch Industries, whose owners Charles and David Koch are the epitome of partisanship. Their role on this issue was initially puzzling, given that the Kochs were not known for supporting anything that was remotely progressive.

Three years ago, the full story began to emerge.  The New York Times reported that one part of the reform being pushed by the Kochs and other business interests would require prosecutors to meet a more stringent standard in proving illicit intent, or “mens rea.” The Times stated that the Obama Justice Department was concerned that the change “would make it significantly harder to prosecute corporate polluters, producers of tainted food and other white-collar criminals.” PR Watch provided more detail on what the Kochs were up to.

In other words, what was made to look like a high-minded civic effort was also, at least in part, a move by corporations to shield themselves from prosecution. In the case of Koch Industries, the issue is far from a theoretical one. In Violation Tracker we document 275 cases in which the company has paid a total of $736 million for environmental, safety, employment and other offenses. One of these was a criminal case: In 2001 one of its subsidiaries pled guilty and paid $20 million to resolve allegations that it covered up Clean Air Act violations at an oil refinery in Corpus Christi, Texas.

Mens rea “reform” is not part of the current criminal justice package, but the issue is far from dead. Arkansas Sen. Tom Cotton just published an op-ed in USA Today calling for it to be added to the bill. Since Cotton’s support may be essential to passage, he may get his wish – and presumably the Kochs would be happy with that outcome.

Cotton is not the only one who has been beating this drum. Utah Sen. Orrin Hatch and Iowa Sen. Chuck Grassley have introduced mens rea legislation that would apply not only to criminal actions but also to “regulatory offenses.”

During the confirmation hearings on Brett Kavanaugh, Sen. Hatch brought up the issue of mens rea. He and the nominee both spoke enthusiastically on the need for “reform.” Here, as in much of the conservative discussion of the matter, proponents like to give the impression their concern is primarily with the rights of bank robbers and the like.

Yet it seems clear that the real intended beneficiaries are corporations and their executives supposedly being victimized by unjust regulations.

The issues surrounding criminal justice reform are complicated, but one thing is clear: it should not be used as a means of undermining the prosecution of corporate crime and misconduct.

Have Voters Killed the Crappy Coverage Comeback?

Democrats seized the House while Republicans increased their majority in the Senate, but the unambiguous and across-the-board winner in the election was regulation – specifically, regulation of the health insurance industry.

Rarely has the public sent such a clear message that it wanted government to rein in corporations and market forces in favor of consumer and public interest protections. The desire to retain provisions of the Affordable Care Act protecting those with pre-existing conditions was key to Democratic gains. Republicans responded by pretending they agreed with that principle, but few were fooled by this deception.

At the same time, voters in three deep red states – Idaho, Nebraska and Utah – approved ballot initiatives in favor of ACA Medicaid expansion. This amounted to an embrace not just of regulation but of out-and-out government-controlled health coverage.

All these results should put an end to the longstanding Republican crusade to repeal the ACA, but it remains to be seen whether there is also a termination of the Trump Administration’s effort to undermine the law through steps such as allowing wider sale of substandard policies.

One encouraging sign came even before the votes were counted. On November 2 a federal judge in Miami, acting at the request of the Federal Trade Commission, issued an order temporarily shutting down a Florida company called Simple Health Plans LLC, which along with related firms was selling policies the FTC called “predatory” and “worthless.”

The FTC complaint against the companies spells out a variety of deceptive practices meant to make customers think they were buying real coverage when in fact they were getting medical discount memberships of limited value.

It’s telling that one of the websites used by the firms is called Trumpcarequotes.com. Trumpcare is actually an appropriate term for the crappy coverage—both because Trump has been touting such plans and because the Trump name has been involved in previous scams such as Trump University. Let’s not forget that after his election Trump had to pay $25 million to settle litigation related to that venture, a step that the New York State Attorney General called “a major victory for the over 6,000 victims of his fraudulent university.”

The ACA’s provisions relating to protection for pre-existing conditions are inseparable from those setting minimum standards for coverage. Ensuring the right of patients to buy insurance is meaningless if they end up with plans that pay for next to nothing.

The proliferation of junk insurance through the efforts of companies such as Aetna was one of the dismal realities of the U.S. health insurance market that gave rise to the ACA. Republicans have been promoting similar low-cost plans as their solution to the supposed crisis of Obamacare. This is a cynical ploy to use a perverse form of consumerism to restore the old days of limited regulation. Let’s hope the election results have taught them a lesson about the consequences of messing with healthcare.

The Other Rogue Banks

The slow but steady weakening of bank regulation is continuing. Responding to legislation passed by Congress earlier this year, the Federal Reserve just voted to propose new rules for a group of banks that are large but not gigantic. Congress had called for a review of banks with assets between $100 billion and $250 billion but the Fed proposals would affect some larger ones as well. In all, 16 banks would enjoy loosened restraints.

Much of the commentary on banks focuses on mega-institutions such as Bank of America, JPMorgan Chase, Citigroup and Wells Fargo. These corporations have certainly done the most harm to the economy and whose demise would have the most dire consequences.

Yet the next tier of banks have their own track record of misconduct that argues against relaxed oversight. Some of these offenses relate directly to financial risk while others do not, but they all point to the need for more regulation rather than less. Here are examples taken from Violation Tracker.

U.S. Bancorp (total penalties in Violation Tracker: $1.2 billion): paid $453 million this year to settle Justice Department allegations that it had insufficient protections against money laundering and failed to file suspicious activity reports.

PNC Financial (total penalties: $472 million): in 2003 one of its subsidiaries paid $115 million to settle criminal charges of conspiring to violate securities laws (the deal included a deferred prosecution agreement).

Capital One (total penalties: $228 million): in 2012 one of its subsidiaries paid $165 million to settle  Consumer Financial Protection Bureau (CFPB) allegations that it deployed deceptive marketing tactics in its credit card business.

Charles Schwab (total penalties: $125 million): in 2011 it paid $118 million to settle SEC allegations that it made misleading statements to clients about one of its funds.

BB&T (total penalties: $93 million): in 2016 it paid $83 million to settle Justice Department allegations it knowingly originated mortgage loans insured by the Federal Housing Administration that did not meet applicable requirements.

SunTrust (total penalties: $1.5 billion): in 2014 it settled a case brought by the CFPB, the Department of Justice, the Department of Housing and Urban Development, and attorneys general in 49 states and the District of Columbia alleging that it engaged in systemic mortgage servicing misconduct, including robo-signing and illegal foreclosure practices. The settlement required SunTrust to provide $500 million in loss-mitigation relief to underwater borrowers and pay $40 million to approximately 48,000 consumers who lost their homes to foreclosure.

American Express (total penalties: $350 million): in 2017 it paid $96 million to settle CFPB allegations of having discriminated against customers in Puerto Rico and other U.S. territories by charging higher credit card rates than in the 50 states.

Ally Financial (total penalties: $668 million): in 2012 it paid $207 million to settle Federal Reserve allegations of mortgage servicing violations.

The list goes on for the remainder of the 16 banks: Citizens Financial (total penalties: $137 million), Fifth Third Bancorp ($121 million), KeyCorp ($19 million), Regions Financial ($170 million), M&T Bank ($119 million), Huntington Bancshares ($14 million) and Discover Financial Services ($232 million).

It’s interesting that the only institution on the list with a small penalty total ($203,000) is Northern Trust, which caters to corporations and wealthy individuals rather than the general public. If all the banks similar records, then perhaps some measure of deregulation might be warranted.

Yet as long as the large banks are as ethically challenged as the giant ones, they should continue to face strict oversight.

Exxon Mobil Called to Account

Climate crisis denial has become an article of faith for rightwing politicians, including the current occupation of the Oval Office, but the primary culprits are the fossil fuel corporations that for decades covered up and obfuscated the truth about greenhouse gases. Now one of those corporations may finally pay a steep penalty for its decades of deception.

After a three-year investigation, the Office of the Attorney General of New York State has filed a sweeping lawsuit against Exxon Mobil for defrauding investors about its accounting practices relating to the risks of climate change.

There’s an irony about the terms of the lawsuit. Exxon is not being sued for its contribution to global warming nor its attempts to downplay the severity of the problem. Instead, its alleged offense was to mislead investors into thinking that it was factoring in the likelihood of increasingly stringent regulation of emissions for its business planning and investment decisions. Instead, as AG Barbara Underwood (photo) stated, “Exxon built a facade to deceive investors into believing that the company was managing the risks of climate change regulation to its business when, in fact, it was intentionally and systematically underestimating or ignoring them, contrary to its public representations.”

In other words, the lawsuit is accusing the company of failing to account for potential liabilities such as exactly the kind of litigation being brought. Shareholders probably benefited from Exxon’s past deception, but the suit is arguing that the company did not prepare them for the emerging new reality.

Underwood alleges that Exxon essentially kept two sets of books when accounting for the impact of climate change – one for public consumption that included a proxy cost for carbon and another for internal purposes that greatly reduced that expected cost or eliminated it entirely.

Exxon is still engaged in duplicity. On the one hand, it has been trying to present itself in recent times as a corporate champion of climate responsibility through steps such as funding a carbon tax initiative. Yet its response to the Underwood lawsuit was classic Exxon. A spokesperson said the lawsuit contained “baseless allegations” that are “a product of closed-door lobbying by special interests, political opportunism and the attorney general’s inability to admit that a three-year investigation has uncovered no wrongdoing.”

What Exxon is conveniently ignoring is that the lawsuit was the culmination not only of the AG’s investigation but also detailed research into Exxon’s history of climate denial by the Exxpose Exxon Campaign, Inside Climate News and Harvard University researchers Naomi Oreskes and Geoffrey Supran. The latter included a close analysis of nearly 200 company statements dating back to 1977.

Exxon’s track record of downplaying hazards matches that of Big Tobacco and the asbestos industry. Legal liabilities pushed most of the asbestos industry into bankruptcy and disintegration, while the cigarette giants remained prosperous even after paying out billions in settlements. It remains to be seen which fate awaits Exxon and the rest of the fossil fuel industry.

A Not-So-Fond Farewell to Sears

The bankruptcy filing, store closings and general uncertainty surrounding the future of Sears have prompted a spate of nostalgic business-page articles about the history of the once dominant retailer. Whether or not the chain survives, it is important not to sugarcoat its past.

Sears, along with Montgomery Ward, brought the joys of mass-produced merchandise to rural America. Yet its mail-order operations undermined local merchants and initiated the long-term decline of traditional main street life. Sears’ hyper-efficient system for fulfilling mail orders, using conveyor belts and pneumatic tubes, was said to have helped inspire Henry Ford’s automobile assembly line with its mixed blessings.

Sears began opening retail stores in the 1920s, and in the postwar period it played a major role in automobile-focused suburbanization and its attendant social and environmental impacts. The company would later extract a $242 million subsidy package to relocate its headquarters from downtown Chicago to exurban Hoffman Estates after threatening to move out of state.

In the 1980s Sears was one of the prime examples of wrong-headed diversification as it acquired the Dean Witter brokerage house and the Coldwell Banker chain of real estate agencies, and then introduced the Discover credit card. During the 1990s Sears had to dispose of all those businesses, along with its Allstate insurance operation.

In 2005 Sears suffered the indignity of being combined with Kmart by private equity operator Edward Lampert, who believed he could solve the longstanding problems of the two chains but instead ended up simply stretching out their death spiral.

Sears had long resisted unionization of its stores, but it adopted paternalistic practices such as profit-sharing that partly substituted for collective bargaining. During the Lampert era there has been little paternalism. Instead, workers at Sears and Kmart have frequently found themselves the victims of abusive labor practices.

Since 2007 the two chains have been implicated in nine collective action wage theft lawsuits and have had to pay out more than $56 million in settlements and damages – more than any other broadline retailer except Walmart.

During the Lampert era the two chains have also been cited more than 50 times by OSHA for workplace safety and health abuses, paying some $600,000 in fines. They have also been involved in five cases with the Equal Employment Opportunity Commission, including one in which Sears had to pay $6.2 million in 2010 to settle allegations of widespread violations of the Americans with Disabilities Act.

Sears has also gotten into trouble in its dealings with the federal government. In 2017 Kmart had to pay $32.3 million to resolve allegations that its in-house pharmacies violated the False Claims Act by overbilling federal health programs when filling prescriptions for generic drugs.

Sears has played a significant role in the history of American retailing, but it has not always been a positive one. Now that its days appear to be numbered, we can focus our attention on the newer generation of bad actors, such as Amazon, that now dominate the system in which we obtain the necessities of everyday life.

The Belated Revival of Pension Fund Social Activism

The rich own a large and growing share of the wealth in the U.S. economy, but more than $20 trillion in assets is held by financial entities that represent a much broader portion of the population: pension funds. According to a recent article in the New York Times, some of these funds, especially public employee funds run by state governments, are becoming woke.

The Times points to the support some funds have been showing for the effort of workers at Toys R Us to get severance pay if the troubled retailer’s private equity owners let it go under. Funds have also been pressuring private equity firms over issues such as foreclosures in Puerto Rico and payday lending.

These initiatives are encouraging, but there is one problem: they are about 30 years too late. The recent spurt of pension fund social activism is hardly unprecedented. In the late 1970s, when U.S. big business began an open assault on unions, labor strategists began looking to “pension muscle” as a new device for shifting the balance of power in industrial relations. The idea was to use pension assets as leverage to get corporations to treat workers fairly, while also seeking to use them to invest in projects that would create well-paying jobs for union members.

In 1978 Jeremy Rifkin and Randy Barber published The North Will Rise Again, a manifesto for a pension-fund revolution. Labor officials expressed indignation that the pension funds of unionized workers were often heavily invested in the securities of some of the country’s most anti-labor and socially irresponsible companies. Even the business press took a worried look at the potential power of union pensions; Fortune, for instance, published a piece entitled “Pension Funds Could Be the Unions’ Secret Weapon.”

Bringing about the pension revolution was no easy task. First of all, most single-employer plans were firmly controlled by management. Unions had more sway over multi-employer plans, known as Taft-Hartley funds, in industries such as construction. Yet even the latter were restricted by efforts of the Reagan Administration Labor Department to label targeted or social investments as violations of the fiduciary duties of plan trustees.

Unions did manage to mobilize pension power in some campaigns, including those targeting J.P. Stevens, Phelps-Dodge and Louisiana-Pacific, but it never amounted to anything close to the revolution envisioned by Rifkin and Barber. Some money was directed to labor-friendly investments, but for the most part, unions used their influence over pensions mainly to promote reforms in corporate governance that often had a limited relationship to workplace conditions.

The same was true for public pension funds. A few such as California’s CALPERS took some social initiatives but most state funds were no more activist than mainstream asset managers such as Fidelity Investments.

When the leveraged buyout operators of the 1980s repackaged themselves as private equity firms in the early 2000s, pension funds were not in a position to challenge the looting that took place. On the contrary, the funds, desperate to pump up their faltering assets, became some of the most enthusiastic investors. In a February 28, 2007 column in the Wall Street Journal, Alan Murray wrote: “Public-pension-fund money is pouring into private equity, where there is little accountability to investors, limited transparency, and compensation levels that would make the average CEO blush.”

Unions such as SEIU became vocal critics of private equity, while union trustees of Taft-Hartley funds joined their public pension counterparts in becoming enthralled by the high returns promised by PE. The Times piece was accurate in describing the relationship between private equity firms and pension funds as “symbiotic.”

We can hope that the recent revival of pension fund social activism is more than an anomaly, but one can’t help wonder how different the economy would be if it had not been postponed for so many years.


Note: This piece draws from an article of mine entitled “Labor’s Lost Lever” published in the May 1988 issue of The Progressive.

The Not-So-Mysterious Solution to Wage Stagnation

Many steelworkers thought they had hit the jackpot. Back in March, Donald Trump announced steep tariffs on metals imported from most of the world, and three months later he added close allies such as Canada and Mexico to the list. As with many of his other economic policies, Trump claimed that the move was designed to benefit U.S. workers, a few of whom were brought to the White House with their hardhats to serve as props when the measure was first announced.

Now months have passed, and steelworkers are still waiting for the payoff. As one of them recently told the Washington Post, “It’s been a little like watching the air going out of a balloon.” When it comes to steel company profits, the party is still in full swing as the industry reaps the benefits of soaring prices.

Yet the producers are resisting sharing the wealth with their workers. In fact, the big companies took such a hard line in their contract negotiations with the United Steelworkers that union members authorized strikes against United States Steel and ArcelorMittal. If a walkout were to occur, it would interrupt the labor peace that has prevailed in the industry for several decades.

It has been widely reported that Trump’s tariffs may be harming more workers than they are helping, as industries dependent on the affected imports lay people off or otherwise squeeze employees to deal with the increased costs. The situation in steel shows that even in the favored industries workers do not necessarily benefit when their employers experience a windfall. They have to fight for their share.

The same principle applies in sectors not directly affected by tariffs. Take Amazon, which has been basking in praise after setting a $15 an hour minimum wage for its growing workforce. This was not a case of corporate generosity.

The company, headed by the ridiculously wealthy Jeff Bezos, has been under increasing pressure over poor working conditions at its distribution centers. Amazon had replaced Walmart as the prime exemplar of the abusive employer. Sen. Bernie Sanders recently introduced legislation called the Stop Bezos Act to penalize large companies whose low-wage workers had to depend on government safety net programs. This, plus the Fight for $15 campaign and the community groups organizing around the company’s plans to build a massive second headquarters complex in a yet-to-be-chosen city, compelled Amazon to start to move away from the low road.

In a recent interview with the PBS Newshour, Fed chairman Jerome Powell was the latest economic analyst to call it a mystery that wages are not rising more in a tight labor market. Decades ago, when pay levels were rising rapidly, mainstream economists did not hesitate to cite unions as a key cause—and in fact blamed organized labor for being too aggressive.

Yet these same economists cannot bring themselves to acknowledge that the weakening of unions, brought about by employer animus and government restrictions, is now a major reason for wage stagnation.

The good news is that collective action, both through unions and other labor organizations, seems to be making a comeback. That—and not the bogus labor-friendly trade and regulatory policies of the Trump Administration—will be what restores the living standards of the U.S. workforce.