Dirt Diggers Digest

Congress’s Corporate Accountability Charades

In recent days we’ve seen reprises of that old stand-by from the Congressional repertoire: hearings in which members of the House and Senate express indignation at corporate misconduct. Like similar performances that have come before, these events provided some short-term gratification but in all likelihood will ultimately prove frustrating.

The designated whipping boys this week were General Motors and Caterpillar. Both are legitimate targets. GM is embroiled in one of the worst safety scandals in its history as a result of mounting evidence that for years it concealed evidence of an ignition-switch defect that has been tied to a large number of deadly accidents. Caterpillar is under the gun because of a new Senate report accusing it of using accounting gimmicks to avoid more than $2 billion in federal taxes.

At a hearing of the Senate Commerce committee, GM chief executive Mary Barra was confronted with statements such as “The public is very skeptical of GM,” “GM is not forthcoming” and “I think this goes beyond unacceptable. I believe this is criminal.”

The amazing thing is that these statements were coming from both Democrats and Republicans, who differed little in their critique of the automaker. The same can, for the most part, be said about Barra’s only slightly milder interrogation by the House Energy and Commerce investigative subcommittee. Several Republicans sought to score some political points by emphasizing GM’s previous status as a government-controlled corporation, and Tennessee Republican Marsha Blackburn asked Barra whether the company’s safety lapses were related to the federal bailout (Barra sidestepped the question). Yet they did not press too hard in that direction.

The transcripts of the two GM hearings (available via Nexis) paint a very different picture of Congress from what we usually see these days. As Rep. Peter Welch of Vermont stated in the House hearing: “I have to congratulate General Motors for doing the impossible. You’ve got Republicans and Democrats working together.”

There was a similar seriousness of purpose and absence of simple-minded partisanship in the Senate hearing on Caterpillar. Subcommittee chair Carl Levin, a Michigan Democrat who has done extensive work to highlight corporate tax dodging, was of course aggressive in grilling company executives about Caterpillar’s funneling of vast amounts of profit through a tiny Swiss subsidiary to take advantage of an artificially low tax rate.

Yet the company did not get much sympathy from the Republican members of the subcommittee either, though Wisconsin’s Ron Johnson did manage to interject a reference to “our uncompetitive tax system.”

The unfortunate truth is that hearings such as these end up being nothing but a charade in which members of Congress pretend for a while to be tough on an egregious case of corporate malfeasance before they go back to doing the bidding of the monied interests.

For example, New Hampshire Sen. Kelly Ayotte, who was the one calling GM’s behavior “unacceptable” and “criminal,” sought to weaken the Consumer Financial Protection Bureau last year. Nevada Sen. Dean Heller, who joined in the critical questioning of Barra, once introduced a bill to prevent the Environmental Protection Agency from introducing “job-crushing regulations.”

The problem extends to Democrats as well. Veteran Rep. John Dingell, who was awarded special deference at the House hearing, has long-standing ties to General Motors and the other big U.S. automakers, which have been among his strongest political supporters. His wife Debbie Dingell worked for GM for 30 years. When the 87-year-old Dingell announced earlier this year that he plans to retire from Congress, a GM spokesperson said: “As a champion of the auto industry, John Dingell had no peer.”

If anything, the inclination of members of Congress to do the bidding of business will only increase, now that the Supreme Court has struck down limits on total amounts wealthy individuals can give to candidates, party committees and PACs. Chief Justice John Roberts wrote: “Money in politics may at times seen repugnant to some, but so too does much of what the First Amendment vigorously protects.”

By once again equating money with speech, Roberts is ensuring that those with the most of it, including giant corporations, are the ones to which Congress, apart from brief periods of public interest grandstanding, will bow.

Coal Ash Taints a Would-Be Corporate Paradise

DanRiverAshPipe It took a spill of tens of millions of gallons of water contaminated with toxic coal ash into a river used as a source of drinking water to put a halt to what was starting to look like a corporate coup in North Carolina. Duke Energy, the owner of the retired Dan River power plant in the town of Eden where the accident took place in early February, is now under siege, as is the governor who was doing its bidding.

North Carolina’s Department of Environment and Natural Resources (DENR) cited Duke Energy for “deficiencies” at the site of the spill and later charged the company with regulatory violations at other coal ash storage locations. DENR officials accused Duke, for instance, of deliberately pumping 61 million gallons of toxic slurry into the Cape Fear River several weeks after the Dan River accident. A federal criminal investigation that also covers DENR practices is also reported to be underway.

The actions were long overdue. Based in Charlotte, Duke is one of the largest utilities in the country, and it has long intimidated state regulators. The Charlotte Observer looked into the matter and found that over the past decade the company has been fined only four times during the past decade, paying less than $4,000.

Duke gained even more sway over the agency last year after Pat McCrory took office as governor. McCrory was Duke’s guy — not just in the sense that the company supported him — but because McCrory was a manager at Duke for three decades, including the 14 years he was also serving as the mayor of Charlotte. McCrory is one of the most egregious examples of the reverse revolving door: the movement of someone from the private sector into government.

McCrory brought his corporate sensibilities with him to the governor’s job and set out to make state government even more friendly to companies such as his long-time employer. One of the areas in which this was most pronounced was in environmental policy. With the support of far-right legislators, McCrory appointed businessman John Skvarla to head DENR with the apparent intention of defanging the agency. Agency staffers were told to focus on expediting permits rather than enforcement. As the New York Times has put it:

Current and former state regulators said the watchdog agency, once among the most aggressive in the Southeast, has been transformed under Gov. Pat McCrory into a weak sentry that plays down science, has abandoned its regulatory role and suffers from politicized decision-making.

McCrory’s apparent use of public office to advance the interests of Duke goes back more than 15 years. In 1997, while mayor of Charlotte, he testified before a Congressional committee in opposition to tougher air-quality standards that would have required Duke to install costly new emission controls at its coal-burning plants. Then he flew home on Duke’s corporate jet. The North Carolina Supreme Court once raised ethical questions about McCrory’s actions in connection with a decision by Charlotte to condemn a tract of land to help Duke Power obtain an easement.

Throughout his political career, McCrory has insisted that there was no conflict of interest between his position as a manager at a major corporation and his role as a public official. The recent coal ash controversies are stretching that dubious contention to the limit. The governor has been forced to take a more positive stance toward regulation while insisting that he has not had direct communications with his former employer about its coal ash problems. The new image took a hit when it came out that the lawyer hired by DENR to represent it in the federal criminal investigation once represented Duke. Echoing McCrory’s frequent refrain about himself, an agency spokesperson insisted that this was absolutely no conflict of interest.

The coal ash spills have created a serious health problem for the people of North Carolina, but they have also served the useful purpose of debunking the corporate paradise that McCrory and his allies have tried to create. Along with the remarkable Moral Monday protests against the retrograde policies adopted by the state legislature, the new awareness of environmental carelessness on the part of companies like Duke is making it more difficult for business interest to masquerade as the public interest.

Still Unsafe At Any Speed

unsafe In a resounding affirmation of the principle that the cover-up is worse than the crime, federal prosecutors emphasized Toyota’s deceptive practices in announcing that the carmaker will pay $1.2 billion to settle a criminal charge relating to the sudden acceleration controversy. The Justice Department press release uses just about every synonym for dishonesty in describing Toyota’s misdeeds.

“The company admits that it misled U.S. consumers by concealing and making deceptive statements,” the release states, adding that the company “gave inaccurate facts to Members of Congress.” Later it says that Toyota “was hiding” critical information from federal regulators and that it made public a “false timeline.” U.S. Attorney Preet Bharara alleges that the company “cared more about savings than safety and more about its own brand and bottom line than the truth.”

Such strong talk is gratifying, but Toyota, like so many other corporate miscreants, was offered a deferred prosecution agreement in place of an outright conviction. This was made somewhat more palatable by the provision in the agreement that bars the company from deducting the penalty amount from its taxes.

Prosecutors used the announcement to convey a thinly veiled warning to General Motors that it too will have to pay a substantial amount to resolve its own legal entanglements on safety issues. Bharara declared: “Companies that make inherently dangerous products must be maximally transparent, not two-faced. That is why we have undertaken this landmark enforcement action. And the entire auto industry should take notice.”

GM’s announcement several weeks ago that it was recalling hundreds of thousands of its small cars because of an ignition switch problem mushroomed into a major scandal as information came to light suggesting that the company had dragged its feet in dealing with the issue, even though it was linked to 13 deaths. Federal regulators, which had received several hundred complaints relating to the problem, were also criticized for being slow to act. Both Congress and the Justice Department have launched investigations of the matter.

In recent days, GM has tried to spin the situation to its advantage, with CEO Mary Barra putting herself out front and making extravagant promises that such a safety lapse would never happen again. Living up to such a commitment will be even more difficult for GM than it was for Toyota, which used similar p.r. stratagems during earlier phases of its controversy and ultimately failed.

After all, the history of GM is filled with examples of irresponsibility on safety issues. It is now 50 years since Ralph Nader exposed the defects of GM’s Corvair, prompting the company to spy on him and thus inadvertently give a boost to the nascent corporate accountability movement.

Later, GM failed to act when presented with reports that poorly sealed panels on some of its cars could cause dangerous levels of carbon monoxide to leak into the passenger compartment. After some deaths were attributed to the problem in the late 1960s, the company finally recalled 2.5 million cars to repair the defect.

During the 1970s and 1980s the company was frequently criticized by environmentalists and consumer advocates for its efforts to weaken federal rules on emissions and for its resistance to regulations requiring passive restraints such as airbags in all automobiles. In 1990 GM finally agreed to put air bags in all of its U.S. cars starting in 1995.

In 1992 the New York Times published an investigation concluding that GM had recognized as early as 1983 that its pickup trucks with side-mounted gas tanks were highly dangerous but took no action until 1988, even then saying the change was for design rather than safety reasons. During that period, more than 300 people were killed in collisions in which the tanks exploded.

GM resisted recalling trucks with the side-mounted tanks even after the federal government asked it to do so. Instead, it launched a campaign against safety advocates and plaintiffs’ lawyers. In 1994 the company reached a settlement with the U.S. Transportation Department under which the federal government gave up on its effort to get GM to recall the trucks in exchange for which the company agreed to contribute $51 million to auto safety programs. GM still faced a series of personal injury lawsuits in connection with the exploding gas tanks, including one in which a Los Angeles jury awarded victims $4.9 billion in damages. GM appealed, and the case was later settled out of court for an undisclosed amount.

It remains to be seen how much GM has to pay in fines and settlements for its current ignition switch scandal, but it will take a lot of punishment to get a company with such a long history of safety lapses to change its ways for good.

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New in CORPORATE RAP SHEETS: a profile of Yum Brands and its controversies relating to wage & hour violations, sanitation lapses and animal cruelty.

Injustice Incorporated

Pages from pol300012014en It’s been clear for a long time that oil drilling in Ecuador’s rain forests dating back to the 1960s caused severe environmental damage. Yet for more than two decades a lawsuit against the lead drilling company, Texaco, and its new owner, Chevron, has meandered through Ecuadoran and U.S. courts.

Chevron, fighting a $19 billion judgment against it in Ecuador (later reduced to $9.5 billion), has sought to turn the tables on the plaintiffs and their U.S. lawyer, Steven Donziger. Recently, a U.S. court ruled in favor of the company, bolstering its refusal to pay anything in compensation.

The challenges faced by the plaintiffs in the Chevron case are, unfortunately, the rule rather than the exception. It is often next to impossible to get a large transnational corporation to fully rectify serious environmental, labor or human rights abuses.

This frustrating reality is analyzed at great length in a new 300-page report from Amnesty International entitled Injustice Incorporated. The study begins with a primer on the relationship between corporations and international human rights law. Amnesty points out a key dilemma:

In some respects the corporate model is antithetical to the right to effective remedy; by admitting and addressing human rights abuses companies expose themselves to financial liability and reputational harm which shareholders (if not the directors and officers of the company themselves) see as entirely contrary to their interests.

Consequently, Amnesty points out, corporations tend to respond in ways that can compound the abuse: “deals with governments, denying victims access to vital information and using vastly greater financial means to delay and frustrate attempts to bring cases to court.”

Another problem highlighted by Amnesty is that large companies tend to be structured as a collection of separate legal entities whose liability is compartmentalized. While recognizing that it is not realistic to try to change this well-entrenched feature of corporation-friendly legal systems, Amnesty argues that “a counter-balance is needed to protect public interest and the international human rights framework.”

Amnesty amplifies its analysis through four detailed case studies. The first is the 1984 Bhopal catastrophe, in which a massive leak of toxic methyl isocyanate gas at a facility owned by a subsidiary of Union Carbide killed thousands and caused debilitating illnesses in tens of thousands more. Union Carbide paid what the victims considered grossly inadequate compensation while its CEO, with the help of the U.S. government, evaded extradition on criminal charges. Dow Chemical, which acquired Union Carbide in 2001, has refused to do anything more to help the victims.

The other situations examined in the Amnesty report are not as well known. The first is the Omai gold mine in Guyana, where the rupture of a tailings dam in 1995 spilled a vast quantity of effluent laced with cyanide and heavy metals into two rivers. The mining operation and the dam were run by Omai Gold Mines Limited, a company controlled at the time by Canada’s Cambior Inc. Soon after the accident, Cambior paid out modest amounts in compensation to local residents while vigorously contesting legal actions brought both in Guyana and in Canada. The company, which later merged with another Canadian firm, Iamgold, never paid out anything more.

Amnesty’s third case study deals with the Ok Tedi mine in Papua New Guinea, where for many years waste products were dumped into a river used by some 250 communities of indigenous people. In 1994 a lawsuit on behalf of local residents was filed in Australia, the home country of the company, Broken Hill Proprietary, which at the time was the primary operator of the mine. BHP, now part of BHP Billiton, eventually agreed to an out-of-court settlement that included the equivalent of $86 million in compensation but did not require it to build a long overdue tailings dam.

The final case study in the Amnesty report is also the most recent. In 2006 the Dutch oil trading company Trafigura signed a dubious agreement with a small firm in Ivory Coast that allowed it to dump petroleum waste products at various sites in the city of Abidjan. Thousands of residents exposed to the substances suffered from nausea, headaches, breathing difficulties, stinging eyes and burning skin. At least 15 were reported to have died. Trafigura reached a settlement that Amnesty labels as insufficient.

Amnesty finishes its report with an analysis of what it calls the three biggest obstacles in such cases: the legal hurdles to extraterritorial action, the lack of information needed to support claims for adequate reparations and the unwillingness of the governments of the countries involved to hold foreign corporations to full account. While offering a set of reforms aimed at alleviating these challenges, Amnesty harbors no illusions about the difficulty of bringing about such changes. Legal systems, it admits, exist primarily to protect powerful corporate interests.

Private Equity and Public Assistance

schwarzman Everything seems to be coming up roses for the barons of private equity. A front-page article in the Wall Street Journal headlined BLOWOUT HAUL FOR BUYOUT TYCOONS proclaims: “Private equity’s top moguls took home more than $2.6 billion last year as booming markets allowed their firms to cash out of investments and notch blockbuster gains.”

Leon Black, the founder and chief executive of Apollo Global Management, led the pack with $546 million in compensation. Stephen Schwarzman of Blackstone received $465 million and William Conway of the Carlyle Group $346 million. These three men are also well-placed on the new Forbes list of the world’s billionaires. Schwarzman comes in at No.122 with a net worth of $10 billion; Black at No. 240 and a net worth of $5.8 billion; and Conway No. 520 with $3.1 billion in net worth.

Vibrant stock markets are not the only reason for these massive paydays and accumulated fortunes. It’s well known that these firms and their principals also make out like bandits because of the favorable federal tax treatment of the revenue they extract from their portfolio companies. Now it is possible to demonstrate the extent to which the buyout kings are also being subsidized by state and local governments.

My colleagues and I at Good Jobs First recently unveiled a major enhancement of our Subsidy Tracker database. The main refinement in version 2.0 is the addition of parent-subsidiary linkages for more than 25,000 individuals entries accounting for 75 percent of the dollar value of the entire Tracker universe. These entries have been linked to nearly 1,000 parent companies, including many of the world’s largest corporations.

Included among the parent companies are the big private equity firms. In our matching process, we made sure to check which of the portfolio companies of those buyout firms were among the subsidy recipients included in Tracker. We found a lot.

Of the 50 largest buyout firms on the Private Equity International ranking of the largest players in that field, 30 were found to have subsidized portfolio companies. (Many of the other 20 either don’t reveal their portfolios or don’t do business in the United States.) Those companies had received a total of 1,332 subsidies worth $1.8 billion (dollar values are not available for some awards).

Here are the buyout firms whose portfolio companies have received the most in cumulative subsidies:

Silver Lake Partners is No. 35 on our list of top parent companies, with total associated subsidies of $482 million. This is mainly a reflection of the fact that Silver Lake took over the computer company Dell, which has received giant subsidies in places such as North Carolina and Tennessee. (We attribute past subsidies to a company’s current parent, since awards often stretch over many years and usually transfer with a change of ownership.)
Onex is No. 45 on the list with subsidies of $388 million, the largest amounts coming from the large packages Spirit AeroSystems received in North Carolina and Kansas.
Blackstone is No. 91, with 141 subsidy awards totaling $203 million awarded to several dozen of its portfolio companies.
Apollo Global Management comes in at No. 111, with 107 subsidies amounting to $158 million. Among its most heavily subsidized portfolio companies are Berry Plastics and Verso Paper.

Other major buyout firms are also on the list, including TPG Capital ($68.6 million), KKR ($54.9 million), Bain Capital ($51.6 million) and the Carlyle Group ($36.6 million).

By themselves, state and local subsidies are usually not the predominant factor in the profitability of a portfolio company, but they certainly can contribute to a fatter bottom line. In a recent article about Subsidy Tracker, the investor website Motley Fool wrote:

Companies which are clearly adept at seeking out incentives are much more likely to be able to keep more of their hard-earned income as these subsidies often take the form of a multi-year tax break. Lower effective taxes within a state can allow for more research and development as well as hiring, which can lead to even faster growth for these companies. In other words, seeking out companies with large subsidies is another way of giving yourself an edge over the uninformed investor. Keep in mind that a large subsidy alone is no guarantee of a companies’ success, but it often translates into lower taxes and higher profits.

And when that company is in the portfolio of a buyout firm, those higher profits means that the operation can more easily be taken public and further enrich the likes of Black, Schwarzman and Conway.

Subsidizing the Corporate One Percent

As a result of substantial enhancements Good Jobs First has made to our Subsidy Tracker database, it is possible for the first time to estimate the share of total state and local economic development awards going to big business. The data show a very high degree of concentration: we estimate that at least 75 percent of cumulative disclosed subsidy dollars have gone to just 965 large corporations, even though these companies account for only about 10 percent of the number of announced awards.

In Subsidy Tracker 2.0 we can also for the first time identify which companies have received the most cumulative awards, both in dollar terms and number of awards. In dollar terms, the biggest recipient by far is Boeing, with a total of more than $13 billion, reflecting the giant deals it has gotten in Washington and South Carolina as well as more than 130 smaller deals around the country. The others at the top of the cumulative subsidy dollar list are: Alcoa ($5.6 billion), Intel ($3.9 billion), General Motors ($3.5 billion) and Ford Motor ($2.5 billion). A total of 17 companies have received cumulative subsidy awards worth more than $1 billion; 182 have received awards of $100 million or more. A list of the top 100 parent companies can be found here.

These awards have gone not only to the corporate parents but also to their divisions and subsidiaries. For example, subsidy awards worth more than $1 billion have been given to Warren Buffett’s Berkshire Hathaway by way of its holdings such as Geico, NetJets, Nebraska Furniture Mart, General Re Corporation, Lubrizol Advanced Materials, and Webb Wheel Products.

The company with the largest number of awards is Dow Chemical, with 416. Following it are Berkshire Hathaway (310), General Motors (307), Wal-Mart Stores (261), General Electric (255), Walgreen (225) and FedEx (222). Forty-eight companies have received more than 100 individual awards. The award numbers include some for which no dollar amount has been disclosed (reflecting the inconsistent quality of state and local disclosure).

These totals and many more have just been made possible by a painstaking, several-month effort to link the data on individual subsidy awards we collect from state and local agencies to their respective corporate parents (the agencies almost never provide this information). Using a variety of sources (such as the Croctail compilation of the subsidiary lists which publicly traded companies are required to include in their 10-K filings with the Securities and Exchange Commission), we have matched more than 25,000 of the individual entries in Subsidy Tracker to 965 parents. These awards together account for $110 billion, or about 75 percent of the total value of the Tracker universe.

To cover the greatest number of deals as quickly as possible, our matching process focused first on subsidies awarded to units and subsidiaries of large corporations. The 965 parents we currently cover come from examining all the companies on the following lists: the Fortune 500, the Fortune Global 500, the Forbes list of the (224) largest private companies in the United States, and the Private Equity International list of the 50 largest private equity firms. We have also matched a portion (the top 150) of the Fortune Second 500 list.

In addition, we identified parents for many of the largest remaining subsidy awards, including all the entries in our May 2013 Megadeals report, which catalogued all 240 subsidy deals worth $75 million or more in U.S. history. We will add more parent coverage in the future, but for now the roughly 1,300 companies we have checked represent a good proxy for big business. Nearly three-quarters of these companies were found to have received at least one subsidy award; the rate would be even higher if we were to exclude the numerous companies on the Fortune Global 500 that do not operate in the United States.

Among the 965 parents we identified as subsidy recipients, the average number of awards is 26 and the average total dollar amount (from awards for which this information is disclosed) is $102 million. The aggregate value of their awards—$110 billion—is 74.8 percent of the total value of the Subsidy Tracker universe. The parent companies on the Fortune 500 alone account for more than 16,000 subsidy awards worth $63 billion, or about 43 percent of total Tracker dollars.

The list of most-subsidized parent companies overlaps considerably with the companies in our Megadeals report, which focused on the largest individual deals as opposed to the largest amounts by company we are examining here. Among those on the new list of 100 Top Parents, 89 are linked to at least one Megadeal. That is, only 11 had no individual deal worth $75 million or more.

Given the decline of manufacturing in the United States, it is interesting that the list of top parent companies is dominated by industrial firms. Of the ten biggest recipients, only one – Cerner – is primarily a service provider. As for specific industries, auto is well represented, with GM, Ford, Fiat (which now owns Chrysler) and Nissan in the top ten. Toyota is no. 16 and Volkswagen is no. 22. Other heavy industries represented include aerospace (Boeing, no.1), semiconductors (Intel, no.3), petroleum (Royal Dutch Shell, no.7), chemicals (Dow, no.12) and steel (ArcelorMittal, no.13).

Also significant is the presence of foreign-based corporations. There are three in the top ten (Fiat, Royal Dutch Shell and Nissan) and another five in the next 15. Since we include private equity firms as big-business parents, the list includes several of those firms. The most-subsidized is Silver Lake Partners, which now controls the computer company Dell and thus has Dell’s Megadeals in North Carolina and Tennessee attributed to it.

Although our parent company matching is a work in progress, one conclusion is already clear: large corporations account for an overwhelming share of the tax breaks and cash grants state and local governments have given out in the name of job creation. Our Megadeals study also found that since 2008, the number and cost of megadeals has spiked, even as the total number of new development deals has remained depressed. That is, both our new findings our Megadeals study clearly suggest a “corporate rich getting richer” trend.

Note: The text above is a slightly edited version of a report entitled Subsidizing the Corporate One Percent which I wrote and was just published by Good Jobs First.

Conservatives Discover the Wisdom of Workers

vw-westmoreland The United Auto Workers defeat in the Volkswagen representation election has conservatives gloating, even though their victory came only after they abandoned many of their core principles in favor of political expediency. Elected officials who typically denounce government interference in the market used their pulpits to meddle in a private business matter. Editorialists at the Wall Street Journal, who normally sing the praises of large corporations, declared that the vote showed that “workers are smarter than management.”

Such bogus industrial populism is easy to bandy about when the workers in question were pressured into voting against their own best interests. Typically, it is management and anti-union consultants who are responsible for defeating an organizing drive. In Tennessee, the company remained neutral and the intimidation campaign was carried out by politicians and out-of-state conservative ideologues. Leading the assault was U.S. Sen. Bob Corker, who brazenly promoted the apparent lie that a vote for the union would mean that a new VW assembly line for SUVs would be sited in Mexico instead of Chattanooga.

The Journal admitted that Corker may have been “impolitic” but it defended his “right to free speech.” State politicians also did damage, raising the prospect that VW, which got a $554 million subsidy package when it opened the plant, should not expect future financial assistance if the workers dared to choose the union.

The enthusiasm for the wisdom of the rank and file on the part of the Journal stands in stark contrast to its reaction when workers at VW’s original U.S. plant in Westmoreland, Pennsylvania asserted themselves. Frustrated at the low pay rates they were receiving in comparison to their counterparts at the Big Three plants in Detroit, the unionized VW workers staged a wildcat strike in 1978. Stopping production of VW’s Rabbit, the workers rallied under the slogan “No Money, No Bunny.”

A front-page story in the Journal about the strike (10/13/1978) included the following subheadline: “Pennsylvania Walkout Stirs Doubts on Cost, Stability of American Work Force.” The article quoted a Nissan official as saying: “The Volkswagen strike is quite upsetting to us.”

It was also quite upsetting to VW. Even after the walkout ended, labor-management relations remained hostile at the plant. VW, which was also confronted with a lawsuit charging that it discriminated against black employees, shut down the operation in 1988.

It is likely that VW managers had that experience in mind when they decided not to fight the UAW. Southern U.S. conservatives, like other pro-business types, push the notion that American workers need to accept the realities of a globalized market. What those conservatives refuse to recognize is that one of those realities, at least as far as VW is concerned, is an acceptance of unions and a cooperative approach to labor relations through works councils of the kind that the company wants to adopt in Tennessee. In fact, VW, like other German companies, has a supervisory board with labor representatives.

The latest irony in this situation is that Bernd Osterloh, a labor member of VW’s supervisory board and the head of its works council in Germany, reacted to the election results in Tennessee by saying he might block any future investments by VW in the Southern United States because of the hostility to unions. That would demolish the pernicious conventional wisdom that disempowered workers are always an essential ingredient for economic growth.

Osterloh’s statement helps to bring into focus the truth about the progressive deunionization of U.S. business. Rather than being part of an alignment with the realities of globalization, it is making the United States more of an outlier compared to other wealthy nations. Like this country’s refusal to accept the kind of single payer health insurance that is the norm in the developed world, the ongoing attack on unions puts us out of step with the way a modern economy is supposed to operate and reinforces the dangerous growth of economic inequality.

Healthcare Redlining

Protest-against-insurance-companies-in-Washington_3951547284_m-250x176 Media coverage of the Affordable Care Act these days bounces back and forth between good news and bad. One day the Obama Administration signals that there are more problems with the employer mandate and once again changes the rules. Two days later, federal officials are bragging that ACA enrollment is booming and that even the Young Invincibles are signing up.

Yet perhaps the most significant recent development is the analysis just published by the Wall Street Journal on the limited range of plan options in the ACA exchanges. The newspaper found that in 515 counties across 15 states there is only one insurer selling coverage through the online marketplaces. In more than 80 percent of those counties, the sole insurer is a local Blue Cross/Blue Shield plan.

For the residents of those counties who seek coverage through the exchanges, the ACA is forcing them to do business with a de facto monopoly that can get away with charging inflated premiums. The Journal cites the example of rural, low-income Hardee County in Florida, where comparable exchange-based coverage can cost $200 a month more than in nearby Tampa.

The ACA is premised on the idea that competition would bring down costs and provide better coverage. The Administration and most Congressional Democrats bought into that notion so deeply that they were willing to exclude a public option as unnecessary. That decision looks increasingly bone-headed.

It is true that those who qualify for federal subsidies may be shielded from the cost differentials, but a substantial portion of the uninsured earn too much to qualify for that assistance but are still far from affluent.

A big part of the problem is that major for-profit insurers such as Aetna and UnitedHealth Group have been participating in the exchanges on a very selective basis. The Journal noted that Aetna, for instance, has “targeted areas with stable levels of employment and income to attract desirable customers to its marketplace offerings.”

This is, to put it mildly, infuriating. The ACA was supposed to put a stop to the tendency of Aetna and the other insurance giants to decline coverage to certain categories of people, usually because of pre-existing medical conditions. Now the insurers were supposed to take on all comers, with the federal government functioning in essence as their marketing arm.

It turns out that the national insurers had found another way of cherry-picking. They are simply choosing not to participate in the ACA market in less affluent parts of the country, where they apparently assume that residents are going to have too many medical needs. In a presentation to investors, Aetna admitted that it was participating in exchanges in fewer than one-third of the states.

The decision to limit the scope of their involvement does not result from any financial distress on the part of the major players. In recent weeks Aetna, Humana and Wellpoint have all reported healthy gains in profits for 2013. The big boys are also getting bigger. Aetna swallowed competitor Coventry Health Care, which added $14 billion to its annual revenue stream.

For those of us who advocated a single payer approach, or at least a public option, the behavior of the insurance companies comes as no surprise. These companies have always found ways to increase profits at the expense of coverage, and they always will. Now that they cannot discriminate explicitly against those in poor health, they will discriminate against communities in which think there is likely to be larger numbers of less healthy residents. It is an insidious new form of redlining.

It is disappointing that the Obama Administration, which is going to such great lengths to help businesses adjust to the ACA, seems to have little inclination to help individuals contend with the substandard offerings in some of the exchanges. For them the Affordable Care Act may be far from affordable.

Worker Freedom in Tennessee

vw_uaw2 Major employers facing a union organizing drive, particularly in the South, have long relied on small-business owners, elected officials and other conservative voices to mount a counter-attack.

An interesting variation on this theme is taking place in Tennessee, where Volkswagen seems to be welcoming a United Auto Workers organizing effort at its plant in Chattanooga, yet local as well as national anti-union ideologues are on the warpath nonetheless. They are frantically trying to persuade VW workers to reject the union in a secret-ballot vote scheduled later this month. The company reportedly decided not to simply recognize the UAW, which has gotten a majority of the workers to sign membership cards, because of intense pressure from figures such as Tennessee Senator Bob Corker, who gained notoriety for opposing the federal rescue of the auto industry.

(Full disclosure: I am a member of the United Auto Workers via the National Writers Union/UAW Local 1981.)

VW has rejected the usual practice of foreign automakers, which despite any cooperative relationships with unions at home, have embraced American-style anti-union animus in their U.S. transplants. For many years, the UAW has sought to overcome this intransigence, as seen most recently in the ongoing effort to organize the Nissan plant in Canton, Mississippi.

VW wants to import the works council system of labor-management relations it has in Germany, but in the absence of a certified collective bargaining representative, that would amount to an illegal company-dominated union under U.S. labor law.

We thus end up with a situation in which a major corporation wanting to employ a set of practices designed to improve productivity and reduce turnover is being vilified by those who regard union avoidance as one of the grand traditions of the South.

Last month, Stephen Moore, who was recently named chief economist of the Heritage Foundation, told a business meeting in Chattanooga that the union effort at VW is “like inserting a cancer cell into a body. That one cancer cell is going to multiply and kill the body.” Anti-tax crusader Grover Norquist is helping to bankroll the opposition, apparently out of a concern that a union advance in Tennessee would impede his fiscal agenda. The National Right to Work Foundation and the Center for Worker Freedom are also involved, though their efforts fell flat when the National Labor Relations Board concluded that neither the UAW nor VW had violated labor law in any way.

Figures such as Moore and Norquist came into prominence as a result of a conservative backlash that big business set into motion three decades ago in response to advances of the labor, environmental and consumer movements. That Frankenstein monster took on a life of its own, and now rightwing groups pursue purist goals even when they conflict with corporate pragmatism — as seen, for example in the tea party push for a government shutdown over the objection of major companies.

These groups operate on the assumption that Americans are inherently conservative and that organizations such as the UAW will lead them astray. Foreign automakers such as Nissan and Toyota have gone along with this notion.

VW seems to have a different view, but for reasons that are generally not acknowledged. It tends to be forgotten that VW was the first foreign automaker to establish an assembly plant in the United States, back in 1978 in Pennsylvania.

After being welcomed by public officials with a subsidy package worth about $100 million — an astounding sum at the time — Volkswagen found that many of the people it hired were unhappy about being paid less than their counterparts at the Big Three plants. A wildcat strike ensued, catching even the UAW off guard. Stopping production of VW’s Rabbit, the workers chanted “No Money, No Bunny.” The plant, which never recovered from the worker unrest, shut down in 1988.

As opposed to the rightwing caricature of unions as the shock troops for a socialist takeover, VW regards the UAW as a partner that can help ensure the smooth functioning of the plant. If that’s done by giving workers more control over their working life, so much the better.

After years of being at the totally at the mercy of management, Southern autoworkers finally have a chance to play a greater role in controlling their destiny. That’s real worker freedom.

Corporate Virtue and Corporate Subsidies

corporate_flag2-1 For a speech that was supposed to focus on the plight of low-wage workers, President Obama’s State of the Union contained a surprising number of favorable references to specific large corporations. I counted seven plugs — for Apple, Costco, Ford, Google, Microsoft, Sprint and Verizon. The Ford mention, which alluded to “the best-selling truck in America,” sounded like a high-level product placement.

Most of these companies were cited for their supposed acts of corporate virtue, such as the role of the telecoms in helping to bring high-speed broadband to schools. There’s something else these firms have in common: they’ve all been recipients of substantial economic development subsidies from state and local governments.

My colleagues and I at Good Jobs First issued two reports this week that take a critical stance toward these types of financial aid to business. In one of the reports, Putting State Pension Costs in Context, we look at how the revenue loss from subsidies and corporate tax breaks and loopholes compare to the cost of public employee pensions in ten states where those retirement benefits have been under attack.

We find that in every one of the states the corporate giveaways far outweigh the current costs of providing pensions to state workers. In the case of Louisiana, for example, the giveaways are more than five times the retirement costs.

State legislators and governors have a tendency these days to get frantic about pension costs. Our research suggest that they should be more concerned about the larger revenue losses stemming from what are often ineffective “incentives” given to business.

The other report, Show Us the Subsidized Jobs, is the latest in our series of surveys on the performance of state governments in disclosing online which companies are getting financial assistance and what they are doing with it, especially in relation to job creation. There are two main messages that emerge from the study.

First is the fact that there is now at least some online recipient disclosure in all but a handful of states. The number has doubled since we did the first of these surveys in 2007. That’s the good news.

The other message is not so encouraging: There are vast discrepancies in the depth and the quality of the disclosure. Some states such as Michigan and North Carolina provide reasonably good disclosure for all their major programs, while others such as Nevada and South Carolina provide bare-bones disclosure — meaning company names only — for only one key program. In many cases no information is reported on the number of jobs subsidized companies are creating or the wages being paid.

To enable detailed comparisons of programs, we rate them on a scale of 0 to 100. Points are given for providing details on subsidy amounts, on job and wage outcomes, and on the inclusion of key information about subsidized projects and companies. We also rate programs on how easy it is to find and use the data.

Based on this system, the states with the best average scores for their key programs are Illinois, Michigan and North Carolina. Being best in relative terms does not mean that the absolute scores are very impressive. Top-ranking Illinois has an average of only 65 and Michigan comes in at 58. Every other state has an average below 50 percent. The average program score is only 21 (or 39 if you leave out those with no disclosure at all). Only seven programs score 75 or above.

These scores are so low mainly because so many programs fail to provide good reporting on outcomes, which account for a large portion of the points in our scoring system. Fewer than half of the 246 programs we examine include any reporting on jobs or wages in subsidized companies. And many of those that do provide only projections rather than the actual amounts. Less than one-tenth of the programs provide actual amounts for both jobs and wages.

In the report we emphasize that transparency does not equal effectiveness or complete accountability. A program can disclose all the essential details but still be a waste of taxpayer money. Transparency is what allows the public to determine when that is the case.

Our interest in disclosure is not only for abstract reasons of accountability. If states put more information online, there were will more for us to capture for our Subsidy Tracker database, a national search engine covering more than 500 programs.

Next month we will introduce Subsidy Tracker 2.0. Along with the raw data, we will add information on the parent company of the recipient firms. This will make it possible to see at a glance how much large companies such as the seven cited above have received across the country. The Dirt Diggers Digest will provide wall-to-wall coverage.