Previous Weeks' Conservative Press

     October 6 to December 29, 2003

     This file was just started on the week of June 2, 2003. In the brief time since then, note the number and diversity of articles that were published in America's most respected conservative financial publications.

     In one way or another, they clearly demonstrate the hypocrisy of those conservatives who claim that:

     So, grab your barf bag and read on!

     (Note: the abstracts below are presented for purposes of criticism only. Because of copyright laws—and in the interests of brevity and readability—they are necessarily incomplete. Those who are interested in the investment or other implications of the articles should read the originals.)

The week of...

December 29

December 22

December 15

December 8

December 1

November 24

November 17

November 10

November 3

October 27

October 20

October 13

October 6

Week of December 29

     The following excerpt of a run-of-the-mill article in the conservative financial press has several instructive lessons for American voters.

From The Wall Street Journal, December 31.

Fund Investors Face
Higher Post-Scandal Costs

Tougher Rules to Boost
Legal Expenses, Insurance;
Paying for Others' Sins

Regulatory efforts to root out wrongdoing in the $7 trillion mutual-fund industry are driving up costs for the victims of the share-trading abuses—fund investors themselves.

Though fund-management companies could end up absorbing fines and restitution payments—as New York Attorney General Eliot Spitzer is demanding in settlements—insurance, legal and administrative costs are soaring. These expenses, tied to enforcement of stricter rules, could easily total more than $1 billion a year—money that likely will come out of fund assets, and therefore out of the pockets of fund investors.

"Even fund companies that had nothing to do with this, and their shareholders, are going to pay the price for the sins of others," says Jim Atkinson, president of Guinness Atkinson Funds, a small fund-management company that hasn't been drawn into the trading scandal….

Fund companies will be loath to immediately boost fees they charge investors, particularly because of the potential public-relations backlash. But there are ways that firms can push up their fees without drawing attention. Fund companies sometimes arbitrarily waive part of their fees. Louis Harvey, president of Dalbar Inc., a Boston fund-research firm, says a fund company looking to boost fees could simply undo such a waiver….

"The idea that the management company is going to pay for all this is fleeting, at best," Mr. Harvey says. "Even if the management company agreed to pay, at the next discussion of management fees they'll raise their fees a few" hundredths of a percentage point….

With monotonous regularity we learn from our own conservative publications that:

  • Greed exacts huge costs from the American public, as corporate executives bend the rules to enrich themselves.

  • Not only does the public have to pay for the obscene incomes of the corporate executives, the executives’ misbehaviors require that

  • Our government enact more regulations and provisions to prevent abusive behaviors in the future, which

  • Creates still more expenses that new regulations always entail. And when

  • Corporate executives find that their incomes will be reduced because of the increased costs of regulations, they then

  • Pass on to consumers the increased costs (which resulted from their own misbehavior.), and

  • The executives are just as rich as they ever were, and even moreso.

     Of course, when it is all over, Republicans and conservative Democrats will tell the voting public: “See, we told you so. We need to get government out of your lives so we can reduce the cost of doing business.”

     If you want to know whose interests America’s conservatives favor, just read the editorials in their most respected financial publications. The full editorial below enumerated Wal-Mart’s negative effects on local businesses, suppliers, and employee wages and working conditions—as well as it’s benefits: lower costs to consumers and bigger returns for investors.

     Of course, the problem in such editorials is the balance is all skewed. While consumers save some money as a result of, for example, the brutalization of employees, the main beneficiaries are the investors. As far as Barron’s is concerned, that makes Wal-Mart a fine example of capitalism at its best.

From Barron’s, December 29.


America at a Discount

Wal-Mart is a success story that some love to hate


… Despite ritual poor-mouthing by retail companies, Americans are still shopping like they suddenly came into an inheritance. And a lot of them are shopping at Wal-Mart, a chain of stores that they have been told they ought to hate, despite its low prices.

For years now, Wal-Mart has been handed up as the symbol of all that's wrong with America: Along with "Coca-Colonization," there's the "Wal-Martification" of America and the world. In books, magazines and newspapers, Wal-Mart is often depicted as the company that ruined Main Streets in rural America, the company that uses its size to bankrupt its competitors, the company that exploits its workers by refusing to countenance unions, the company that impoverishes its American suppliers by driving impossibly hard bargains, the company that ruins the economies of Third World countries by a constant demand for the lowest-cost goods….

One place (Wal-Mart’s cost cutting) goes is into the pockets of Wal-Mart customers and another place is into the pockets of Wal-Mart shareholders—who include hundreds of thousands of past and present Wal-Mart workers, as well as five of Sam Walton's heirs who happen to be among the 15 richest people in the world.

Wal-Mart's niche-market victories add up to 40 years of astonishing success in the U.S. retail industry—a difficult industry that is marked by more failures than manufacturing. Starting from a small store in a small state, Wal-Mart now would be the 31st largest economy in the world if it were a country—bigger than Saudi Arabia and all its oil, bigger than Switzerland and all its banks, factories and tourism.

The Wal-Martification of America: How can we sneer at a bargain like that?

     Unstated in this editorial: the large numbers of failures in the retailing business (and other businesses) are due to the immoral and ruthless corporations that drive moral and conscientious corporations out of business. And they’ll do it every time, if there are not enough governmental protections of workers, the environment and sound business practices.

     The following excerpt demonstrates yet another disconnect between editorial policies and news reporting in the same conservative financial publication.

From Fortune, December 29.


Double Agents

The pros you've hired to manage your money are more deeply conflicted than you may think.

The market-timing scandals of the past months have made one thing very clear: Mutual fund executives don't always have their customers' interests at heart.

But then, wouldn't it be strange if they did? The people who run mutual funds have needs, hopes, and dreams of their own. Most obviously, they want to make money. The same is true for brokers, hedge fund managers, and financial planners. These people are agents, hired to act on someone else's behalf. Many do a perfectly good job. Many don't, usually for the simple reason that their interests and those of their clients don't happen to coincide…

An added conflict evolved at big brokerages as trading commissions shrank and investment banking became a big profit center in the 1980s and 1990s. Some Wall Street firms came to see the executives who gave them IPO and M&A business as their true customers, so the "research" they handed out to brokerage customers evolved into puffery. In effect, they'd become double agents, shifting their loyalty to new paymasters while still collecting from the old ones….

     After clearly explaining why unsophisticated investors have been—and always will be—taken to the cleaners by Wall Street, Fortune still supports the privatization of Social Security. Go figure.

     (Note: this was a very large article. Those interested in its investment implications should read the original.)

     So, it turns out that some of those Indian telephone clerks are not performing as well as expected. And the article excerpted below doesn’t even deal with the most important issue.

From Fortune, December 29.

Hang-Ups in India

Call center backlash! India isn't the answer, say some firms.

…Corporations are having to tread more gingerly on the outsourcing front for fear of backlash from elected officials and customers. If the U.S. economy keeps strengthening, that backlash should fizzle. But CEOs are being forced to realize that while their shareholders may think it's swell that customer calls can be routed seamlessly to people in India making $2,000 a year, many customers are less pleased…. ….

     The most important issue that is not even discussed in today’s media: corporations have shifted the costs of customer services from themselves to their customers.

     Think about it. Instead of being able to dial a number and talk directly to someone who has been trained to actually help you, you now must go through an endless supply of menus—and may not even be connected to anything that you’re looking for. And if you make a single mistake, you have to go through the entire process again.

     So, instead of providing employment to well-trained corporate representatives who are actually useful to consumers—corporations utilize computers and poorly trained foreigners—and thus saving money for themselves while costing you your valuable time and raising your frustration level to historic proportions.

     The real conservative strategy is represented by this single paragraph in an article against tariffs.

From Fortune, December 29.


Steel Glut

On balancing international supply and demand in steel.

The only way to balance international supply and demand in steel is to end market-distorting subsidies or tariffs, as the EU has largely done. To achieve that happy outcome, the OECD has been hosting talks with steel producers for the past two years. But asking developing countries like Brazil and China to treat steel firms like businesses rather than national treasures is uphill work—particularly when the U.S. sets such a terrible example.

     That just about says it: Our country is a business, not a society that considers stable communities and reliable employment for working-class Americans as national treasures.

     Republicans and conservative Democrats are all about money folks. The quality of life for workers is irrelevant.

     Sure, China is the country of the future. But investors beware.

From Fortune, December 29.


How to Play the China Boom

Investors have been rushing into this red-hot market. But be warned: It's one easy place to get burned. Here, a few safer ways to bet.

Investing in China ought to be a no-brainer. With an economy that has barreled forward at an average rate of 7% for five years running and that will probably advance 9% in 2003 despite SARS, China boasts the world's most compelling growth story. As it rises, China is roiling markets everywhere—driving up the price of commodities from copper to gas, sucking in billions of dollars of investment from foreign multinationals, and fanning protectionist sentiment in Washington, Tokyo, and Brussels. For all appearances, China's transformation from communist backwater to manufacturing powerhouse is a megatrend right up there with the Industrial Revolution….

Experts pale at the suggestion that small investors emulate the Sage of Omaha by loading up on shares of a single company. "The last thing you want to do in this market is put all your chips on one or two stocks in the hope of finding China's IBM," says Geoff Lewis, head of investor services at JF Asset Management in Hong Kong. They also warn against following a broader index. Too few China shares trade on overseas exchanges to build a balanced portfolio….

Alas, for now, predicting Chinese growth remains a lot easier than profiting from it. ….

     Unstated in the above article is the ultimate danger in investing in any country that has become a magnet for industries seeking low wages and no protections of workers or the environment. Eventually, those corporations who are unwilling to the most ruthless in the treatment of workers and the environment will eventually go out of business—no matter where they are located. And if you invested in them—too bad.

     (Note: this is a brief excerpt if an extremely lengthy article. Those interested in the investment implications should read the original.)

     From Enron to Wal-Mart, examples of the destructiveness of executive greed are reported in the conservative business press itself. The following excerpt represents more of a tally (one more checkmark against corporate American ethical standards) than an attempt to detail specific actions.

From The Wall Street Journal, December 29.

Many Companies Report
Transactions With Top Officers

'Related Party' Deals Disclosed
By 300 Large Corporations;
Potential for Conflict

…To get a better handle on the extent of related-party transactions, The Wall Street Journal examined filings made with the Securities and Exchange Commission by more than 400 of the nation's biggest public companies over the past two years.

The survey found that some 300 of those companies reported one or more related-party transactions. Major corporations, from Wal-Mart Stores Inc. to Walt Disney Co. reported multiple related-party transactions. Many of the deals involved millions of dollars. All these deals present the risk of conflicts between a company official's two roles: representative of the shareholder and individual seeking to get the best deal for himself….

     This was a massive article that detailed example after example of those who have enriched themselves at the probable expense of shareholders and the general public. These violations of common ethical standards are so well known by now they will not be repeated here.

     It’s absolutely delicious when the conservative press is confronted with one of their own who decides to tell the truth.

From The Wall Street Journal, December 30.


The Soros Agenda

The press corps is finally giving billionaire George Soros the attention he deserves as the new Daddy Warbucks of the Democratic Party. Mr. Soros has responded that all he's doing is exercising his own Constitutional right to free speech. We'd agree, except for the detail that the world's 38th richest man (according to Forbes) is using his money to restrict everyone else's freedom….

The hedge-fund operator made his money practicing capitalism but now he spends it trying to give himself and his ideological allies an advantage over other voices….

As his clout grows, we hope the media pay even more attention to the views of Mr. Soros and his web of left-wing activists…. We'd say they reveal a billionaire who is himself a threat to what he likes to call an "open society."

     The “freedom” that Soros wants to restrict is the ability of the established wealthy and corporations to use their money to deliberately lie to the American public through the mainstream media that they already own.

     To conservatives, the “open” society is the society that they totally control. And when a successful capitalist exposes their motivations and strategies, it drives them bonkers.

     As you read the following seemingly innocuous excerpt, remember: one of the keys to keeping wages low is to increase the labor supply.

From The Wall Street Journal, December 30.

Luring Moms Back to Work

To Fight Female Flight, Some Companies
Overhaul Leave Programs; a Five-Year Break

As more working mothers seek lengthy leaves to care for their families—or quit jobs entirely—some companies are devising new ways to lure them back to work.

After years of steady increases, the rate of working mothers with young children is declining. The percentage of new mothers who work fell to 55% in 2000 from 59% in 1998—and it hasn't risen since, according to the U.S. Census Bureau. The growing efforts to retain mothers may seem odd at a time when the labor market remains soft. But companies say that keeping ties with old workers is often cheaper than recruiting and training new workers….

KPMG anticipates that the labor market will start tightening at some point and is preparing itself for the day when workers have choices again, he says….

     And why do so many women have to go back to work? Simple, it now takes two working members of a family to have a decent income.

     If there weren’t so many working mothers, corporations might have to pay working fathers enough money to actually support a family of four in this country.

     You can get a good idea of the values held by the editors and writers for The Wall Street Journal from the following excerpt.

From The Wall Street Journal, January 2.

Stock Funds Were No Scandal

Year That Marked the Uncovering
Of Harmful Practices Also Yielded
Gains of 32%, Reversing Pain

Plenty of shame, but plenty of gains.

While 2003 will be remembered as a year in which investigators uncovered a host of unsavory practices in the mutual-fund industry, the year just ended also handed fund investors some of the richest returns of the past 20 years.

The average diversified U.S.-stock fund gained 32.77% through Tuesday (the latest calculation available), according to Lipper Inc.—a happy and dramatic reversal after three years of stock-fund and stock-market losses. That preliminary figure, which doesn't reflect Wednesday's mixed stock performance on the last trading day of the year, exceeds the average 31.95% advance recorded in 1995 and would be the best calendar-year return for diversified U.S.-stock funds since 1991's advance of 37.65%....

     See previous excerpts from conservative financial publications during the past three months about the outrageous scandals in the mutual fund industry. It’s painfully clear that insiders made huge illegal profits through practices that enriched themselves at the expense of shareholders.

     In the above excerpt, the Journal implicitly justifies these behaviors by saying that investors still made money during the last year (and despite the fact that investors lost money during the previous three years).

     (Note: this is a brief excerpt of a long article, for purposes of criticism only, and readers who are interested in the investment implications should read the original.)

Week of December 22

     Have you noticed the glowing reports of our country’s improving productivity? On radio, TV, and in the newspaper editorials, conservatives say our improving productivity is a harbinger of a better economy to come for workers.

     If you want to know the real implications of these “improving” productivity numbers for workers, you need to look at what conservatives are saying when they give advice to investors.

From Forbes, December 22.

Financial Strategy

Profits and Layoffs

By A. Gary Shilling

Productivity gains in this recovery are mostly the result of trimming workers from the payroll. And so earnings have benefited. Alas, this elixir can't keep working forever. Look out.

The jobless recovery, much in the news lately, is a scary notion. That's why optimists seize upon any shred of evidence that employment is coming back, such as the small downtick in unemployment claims in mid-November. And we keep hearing that U.S. unemployment really isn't so bad after all—just 6.1%, versus three percentage points higher in Europe.

So there's nothing to worry about, right? Wrong. Layoffs are a key concern. And that will have baleful consequences for investors who are betting on better times….

The nation saw a productivity boom in the 1990s, chiefly powered by marvelous advances in information technology. Better labor training, more-efficient staffing structures (fewer managers) and smarter corporate strategy were helpful. Today's better productivity, though, is catalyzed by layoffs….

The sober truth is that cutting costs is the only route to profits salvation these days. Most costs, directly or indirectly, are labor. And that means more layoffs.

These announcements just keep coming. Sprint, for instance, said on Nov. 24 it would lop 2,000 workers, 2.9% of its payroll. The latest manufacturing employment numbers (six months through October) show a 1.4% drop, about in line with a year ago….

Cost-cutting layoffs will squeeze consumer incomes. Fiscal and monetary stimuli, which masked the devastating effects of layoffs on consumer incomes, are fading, too….

I hate to be the bearer of bad tidings. But if you expect the economy and the market to keep climbing next year, you will be sorely disappointed.

     “Alas, this elixir can't keep working forever.” Translation: you can’t keep improving profits forever by screwing your workers. Eventually, they get totally screwed out and there is no other place to go.

     Note: this brief excerpt of an article is presented for purposes of critique only. Readers who are interested in the investment implications of the article should read the original. It also should be pointed out that most financial advisors today are predicting a good stock market next year.

     Mr. Shilling’s observations (above) about the nature of our country’s recent productivity “improvement” were confirmed by Business Week.

From Business Week, December 22.

U.S. GDP Revisions:
The Recovery's Lift Is Slower For Workers

…Of more interest to the outlook are the new data on income. Businesses and workers alike earned more money so far in this recovery, but not by an even margin.

Total national income was revised higher by increasing amounts, so that by 2002, there was $967 billion more income. Much of the gain came from an inclusion of certain taxes into the income accounts. But Commerce also says that corporate profits have grown at a far faster pace in this recovery than first thought, mostly because companies had to expense fewer stock options exercised by workers. In the second quarter of 2003, profits totaled more than $1 trillion, 14% higher than the $897 billion previously reported.

Wages and salaries grew as well, but the gain was not as large. Pay in the second quarter totaled $6.17 trillion, up just 1.2% from the old $6.09 trillion figure.

What the data suggest is that companies relied more on cost-cutting in this recovery than was first thought. The resulting productivity growth benefited capital more than labor. The data also explain why workers have been so pessimistic in this business cycle, even though the unemployment rate did not rise much by historic standards….

     As usual, the financial benefits of improved productivity favored investors and corporate executives, and not the understaffed workers who brought it about: employees working harder, longer, and for less pay.

     The current Business Week reports what a "smashing success" NAFTA was for Mexico—although not, apparently, as seen by most Mexicans.

     "Success" depends upon who benefited. The Mexicans who like NAFTA are the ones who got rich off of it. Those who don’t like NAFTA are workers and taxpayers who see their overall quality of life going to hell.

From Business Week, December 22.

Mexico: Was NAFTA Worth It?

A tale of what free trade can and cannot do

…On Jan. 1, NAFTA will celebrate its 10th anniversary. The assessment? The grand experiment was a smashing success on many levels. American manufacturers, desperate for relief from Asian competition, flocked to Mexico to take advantage of wages that were a 10th of those in the U.S. Foreign investment flooded in, rising to an annual average of $12 billion a year over the past decade, three times what India takes in….

But rightly or wrongly, a large proportion of Mexicans today believe the sacrifices exceeded the benefits. The Mexican mood is infecting other Latin countries, which after 15 years of gradually opening their own economies to trade and investment are showing pronounced fatigue with the "Washington consensus," the free-market formula preached by the U.S. and the International Monetary Fund. In an August poll of 17 Latin countries carried out by Chile-based Corporación Latinobarómetro, just 16% of respondents said they were satisfied with the way market economics were working in their countries….

Mexicans also feel shortchanged by globalization. They thought they would be America's biggest workshop. That honor now belongs to China, whose workers often earn a fraction of what Mexicans do. Mexican policymakers thought even more trade pacts would deliver additional benefits: That's why Mexico has signed trade agreements with 30 other countries, more than any other nation. Sure enough, consumers got cheaper and better goods. Yet local manufacturers of everything from toys to shoes, as well as farmers of rice and corn, are struggling just to survive the onslaught of cheap imports.

Ordinary Mexicans hoped NAFTA would generate enough jobs to keep them at home. Instead, the jobless are flocking in ever-greater numbers across the border. Voters figured that somehow NAFTA's gains would be translated into better schools. Yet a cash-starved government is still struggling to deliver the minimum in teachers, classrooms, and books. Vital but controversial reforms that pressed on Mexico before NAFTA—such as modernizing the power sector and overhauling the leaky tax code—are an even more difficult sell now that political power is split among several parties.

Do Mexico's woes disprove the value of free trade? Few would argue that Nafta was a waste. "If we didn't have Nafta, we'd be in far worse shape than we are today," says Andrés Rozental, president of the Mexican Council on Foreign Relations. If NAFTA has disappointed, it is in large part because the Mexican government has failed to capitalize on the immense opportunities it offered. "Trade doesn't educate people. It doesn't provide immunizations or health care," says Carla A. Hills, the chief U.S. negotiator in the NAFTA talks. "What it does is generate wealth so government can allocate the gains to things that are necessary."

If a government does not allocate the new wealth correctly, the advantages of free trade quickly erode. That is Mexico's plight….

While U.S. companies praise the work of their Mexican employees, they now make it abundantly clear that there are other, cheaper locales. The numbers tell the tale. An assembly line worker in Mexico earns $1.47 an hour; his counterpart in China makes 59 cents an hour, according to a recent McKinsey & Co. report….

     If you read between the lines in articles like this, you find that conservatives who are benefiting from globalization always blame government for the failures of the unregulated market to bring better lives to average citizens. According to them, globalization’s failures are never caused by the greed of the globalization masterminds—who always skim the cream off the top—it’s the fault of government bureaucrats.

     In a sense, their charge is true. But the government bureaucrats are at fault because they are serving the rich and powerful in their own country—and doing exactly what they are told to do. And, as always, an unprincipled government makes sure that the poor and powerless make all the sacrifices.

     Just as in the U.S., the Mexican investors and corporations get rich by not paying enough taxes to correct the social and economic disruptions that economic growth always causes. And, of course, a major reason American corporations have located there is that they were given extremely favorable tax treatment, and lax environmental regulations and enforcement, by the Mexican government.

     Note: this was a massive article, and those who are interested should read the original. However, the implications for the future of average Mexican citizens are just as ominous as the excerpt above suggests.

     When the conservative Forbes magazine suggests that ethics may be a problem with an American corporation, readers should pay attention.

From Forbes, December 22.

Coke's Sinful World

Islamic fundamentalists, cozy ties to strongman dictators, rogue bottlers--this is a growth opportunity?

Coca-Cola Co. has "arguably the strongest and most pervasive marketing and distribution system in the world," Chairman Douglas Daft told investors at the annual shareholder meeting in April….

But here's the part Douglas Daft left out: Building business overseas requires dealing with the devil and other questionable characters—relatives of dictators in the Middle East, Latin American bottlers who allegedly work with assassination squads and Marxist rebels in Colombia….

It has been sued in a class action accusing it of forcing "unneeded" beverage concentrate on bottlers to stoke its growth numbers. And Coke has watched a well-funded bottler that was to be its gateway to central Asia wither amid charges of misappropriated funds, tax dodges and cozy inside deals….

Coke's Colombian bottlers have allegedly conspired with right-wing death squads to target six trade union activists at their plants—one was actually assassinated—and intimidate dozens more since 1990….

The biggest bottlers aren't subsidiaries of Coke, nor are they completely independent. Coke effectively controls them by maintaining big equity stakes and a heavy presence on their boards, and by providing their main source of business. Yet it keeps its stakes in the bottlers below 50%, thereby avoiding getting hit with their piles of debt and any unpleasant liabilities.

Today signs of a Coke rebound continue on its long march to conquer the world. Coke has built its booming overseas business by teaching thousands of bottlers, distributors and retailers how to sell the world's best-known soda. Now if only the company could teach its overseas partners a thing or two about ethics.

     The dirty little secret that Forbes neglects to reveal in this article is the major reason corporations’ overseas activities are so successful. When they make deals “with the devil,” they know that their unscrupulous foreign associates are quite willing to take a few ethical shortcuts to get easy profits—like murdering labor union organizers.

     And by owning less than 50% of the devil’s operation, they get the benefits of partnership with the devil, yet have legal deniability of the wrongdoing they know is occurring.

     By using a football analogy, Roger Martin clearly explains why our compensation systems for U.S. CEOs are so totally screwed up.

From Barron’s, December 22.

The Wrong Incentive

Executives taking stock will behave like athletes placing bets


…In football, there is a rigid separation of the real market—the games played on Sundays—from the expectations market, or the betting that takes place prior to the game. No participant in the real market is permitted to participate in any way in the expectations market. If they do, they risk a lifetime ban for even one infraction….

Senior executives, arguably the most critical players in the real market, are strongly encouraged and often compelled to participate in the expectations market. They are given massive stock-based compensation under the misguided theory that stock-based compensation aligns their interests with the interests of shareholders.

Stock-based compensation does nothing of the sort. Like encouraging NFL players to bet on football, it encourages executives to manipulate the expectations market and the real market to benefit themselves at the expense of outside shareholders.

There is only simplistic logic in assuming that powerful stock-based compensation incentives will cause executives to work hard in the real market to improve performance, which then will increase the stock price and make investors rich….

Stock-based compensation is an incentive to increase expectations, not performance. The easiest way to do that is to hype the stock by talking up the company's prospects on TV and in newspapers and magazines. Alternatively, a hungry executive can use extremely aggressive accounting to inflate performance in the real market in an attempt to raise expectations. Or he can make a bunch of acquisitions that appear to produce profitable growth in the short run but hurt the firm in the long run. Better still: Combine all three, like Tyco International!...

The greatest incentive for stock-compensated managers is to create as big a gap as possible between expectations and reality—in either direction—then utilize their superior knowledge either to sell or buy stock for personal profit.

In the numerous stock-market scandals of the recent years—Enron, Worldcom, Global Crossing, Qwest, Tyco, Adelphia, etc. –observers seemed shocked that senior managers appeared so misaligned with the interests of outside shareholders, despite high levels of stock-based compensation.

There should have been no shock. Senior managers were completely misaligned with the interests of outsider shareholders because of their high levels of stock-based compensation….

     This is one of the clearest explanations of why most CEOs of American corporations have incentives to MISmanage their own corporations—at the direct expense of outsider stockholders, consumers, and the general public.

     And the Bush Administration has given these very people huge tax breaks—while cutting government services to the people who need them the most.

     The extent of corporate misdeeds and outright fraud continues to amaze even the most cynical observers.

From The Wall Street Journal, December 23.

CIBC's Penalty
For Enron Role
Is $80 Million

Canadian Bank Accepts Burden
For Financial Manipulations;
Complexity No Excuse, SEC Says

In the latest fallout from the Enron Corp. collapse, Canadian Imperial Bank of Commerce struck accords with U.S. prosecutors accepting responsibility for the alleged criminal activity of some of its employees in helping Enron manipulate its financial statements….

Earlier this year, in civil settlements with the SEC, bank regulators and the Manhattan District Attorney's Office, J.P. Morgan Chase & Co. agreed to pay $162.5 million, and Citigroup Inc. agreed to pay $126.8 million. Meanwhile, Merrill Lynch & Co. agreed to an $80 million SEC settlement this spring and, a few months later, also settled with the Justice Department, acknowledging "responsibility" for its employees' actions and accepting wide-ranging oversight of its structured-finance activities.

The various settlements all have been tied to intricate financial transactions that regulators and prosecutors say served to dupe investors as to the true financial condition of the once-powerful energy-trading company, which entered into bankruptcy-court protection in December 2001….

     Of special note: Darrell Komansky, Chairman of the Board of Merrill Lynch raked in $14,436,344 in 2002. Robert Rubin, Chairman of the Executive Committee of Citigroup made $18,333,332 in 2002. William B. Harrison, Chairman and CEO of J.P. Morgan Chase & Co. made $13,207,722 in 2002. How much the top executives of CIBC is not easily available.

     (If you’re interested in how much other CEOs of American corporations made in 2002, check out PayWatch.)

     How all these guys can be in charge of so much skullduggery, and make so much money in the process, is truly one of the mysteries of the age we’re living in.

     But why the Bush Administration gave them such huge tax breaks is no mystery at all: they're in his club, they support him, and he paid them back.

Week of December 15

     Remember all the promises that were made to American workers that NAFTA would create more jobs in the U.S. than it would lose? And ever since NAFTA was passed, it was claimed that we were actually, in fact, gaining more jobs than we were losing.

     Now the truth finally comes out, even in our conservative financial press. It's buried, of course, in the middle of an article about the Bush Administration’s attempts to put still more pressures on the incomes of working-class Americans.

From The Wall Street Journal, December 18.

U.S. Reaches a Trade Agreement
With 4 Central American Nations

WASHINGTON—The Bush administration reached agreement on a free-trade deal with four Central American countries but now faces an election-year fight that could mirror the brawl in the early 1990s over opening up trade with Mexico.

Free-trade skeptics in Congress say the agreement must overcome stiff opposition amid rising anxiety in the U.S. over the flight of jobs overseas and the merits of trade liberalization….

The Central American Free Trade Agreement, known as Cafta, will stir controversy in Congress because of what opponents describe as its weak provisions on labor and environmental rules, and tough patent protections that could limit access by Central Americans to important medicines. Many lawmakers also are concerned that increasing trade with Latin America could lead to more job losses in the U.S., particularly in the hard-hit textile and clothing sector….

Debate a decade ago over the North American Free Trade Agreement, or Nafta, drew loud warnings that liberalized trade with Mexico would lead to huge job losses in the U.S. Trade with Mexico has soared since Nafta's debut in 1994, but recent studies have concluded that the U.S. did lose more jobs in various industries than it gained because of the pact….

     What’s worse—even more than the fact that Nafta caused us to lose more jobs than we gained—is that the wages of the workers who didn’t lose their jobs to other countries were depressed because of the increase in the labor supply in this country.

     And that, of course, is the hidden agenda of America’s Republicans and conservative Democrats: cut labor costs to increase corporate profits. Benefit investors at the direct expense of working-class Americans. And they’ve been incredibly successful.

     As you read the following excerpt from our leading conservative financial newspaper, keep in mind that:

  • Jack Bovender, CEO of HCA, Inc., made $9,372,270 in 2002, and has $19,201,323 in unexercised stock options from previous years, and

  • Jeffrey Barbakow, CEO of Tenet Healthcare, made $31,992,980 in 2002, cashed out $111,050,000 in stock options exercises, and has another $208,475,680 in unexercised stock options from previous years.

     Given the intense competition for the honor, it would be difficult today to award the top prize for unabashed greed and callous moral standards to any single CEO. However, these guys are probably right up there in the running.

From The Wall Street Journal, December 17.

Hospitals Will Give Price Breaks
To Uninsured, if Medicare Agrees

They Concede Many Charges Aren't Fair
To the Needy, but Blame Federal Rules

Under pressure from lawmakers and consumer advocates, the hospital industry said it would consider making broad price cuts for the uninsured—provided the federal government approves. The announcement by the American Hospital Association included a stark admission that some hospital billing and collections practices are unfair to needy patients….

At the heart of the issue is the hospitals' common practice of charging full listed prices to the nation's 43.6 million uninsured patients. Meanwhile, other patients enjoy steep discounts negotiated on their behalf—either by private insurers and HMOs or by government programs such as Medicare and Medicaid, the federal-state program for the poor. In some areas, the hospitals' official charges amount to several times the discounted rates.

Adding to the problem for the uninsured, many hospitals have become more aggressive in seeking payment of these bills. Hospitals have placed liens on debtors' homes, garnisheed wages, seized bank accounts and, in some cases, sought the arrest of debtors who miss court dates, a practice known in some states as "body attachment."…

A major for-profit hospital chain, HCA Inc. of Nashville, Tenn., said it struggled for months to craft a program of price breaks for uninsured patients that would satisfy Medicare rules….

Meanwhile, another large, for-profit chain, Tenet Healthcare Corp. of Santa Barbara, Calif., said it hasn't been able to move forward on its own discounting plan, which involved billing low-income, uninsured patients at the same discounted prices it gets from HMOs. …

     As in almost all other areas of our economy, fairness and justice have no roles in decision making. It’s all about power and who has it. Right now, with Republicans and conservative Democrats in control of government, the wealthy and powerful reap all the benefits and the poor and powerless make all the sacrifices.

     Actually, I suppose these CEOs of HCA and Tenet are worth the incomes they’re getting. As everyone knows, for-profit organizations always do better at keeping costs—like medical care—down for everyone.

     Incidentally, CEOs of other corporations involved in the industry make incomes similar to those mentioned—pharmaceutical, insurance, accounting, and virtually all aspects of delivering health care to the public. If you’re curious to check out the incomes of any particular CEO, go to Paywatch.

     A pair of articles from the same issue of The Wall Street Journal demonstrate how absurd it was to allow U.S. corporations to export whole industries overseas to other countries.

From The Wall Street Journal, December 16.

Indian Immigrants Return Home
Where Software Jobs Await Them

A year ago, Gaurav Maheshwari was living the dream of a generation of Indian engineers. The 30-year-old software programmer was earning more than $100,000 a year at a Silicon Valley start-up, living in a luxury San Jose, Calif., apartment complex with a swimming pool, and driving a Nissan Maxima with a souped-up sound system.

Then, Mr. Maheshwari learned that his employer, Lumenare Networks Inc., was moving all of its programming jobs to India to reduce costs. Uncertain of his U.S. prospects amid the tech slump, and with strong family ties tugging him home, Mr. Maheshwari volunteered to go….

As companies like Lumenare increasingly move software and other service-sector jobs to India, Mr. Maheshwari effectively wound up competing against himself in the global labor market. Tens of thousands of U.S. programmers are unemployed, and pay is declining for those still working.

In returning to India, Mr. Maheshwari may be in the vanguard of a growing reverse migration. Over the past decade, hundreds of thousands of Indian engineers moved to the U.S. for jobs, adventure and Silicon Valley wealth. Now, the U.S. job market is lousy and the government is tightening the rules on immigrants….….


Indian Techs Step Up
Rivalry With the West

Some Now Hire Away 'Rainmakers'
From U.S., European Competitors
To Help Bring In Bigger Contracts

PARIS—India’s computer-services companies have drawn heavy attention for taking contracts—and jobs—from U.S. and European rivals. Now, the Indian upstarts are opening a new front in the battle: luring employees of the Western competitors….

These high-profile hires are a big part of the Indian companies' strategies for winning the biggest contracts, valued over $100 million each, that largely still elude them….

To win such work "we need to get top talent," says Arindom Basu, head of Infosys's consulting team in London and a former Accenture consultant….

     This is how globalization works:

  • The first corporations to outsource jobs to another country—like computer programming to India—make huge profits and gradually take business away from other corporations that have much higher labor costs.

  • In order to survive, other corporations also send their low-skill jobs to India, and eventually wages are more equalized at the lowest levels in both countries.

  • Then, the process steps up a notch. The more greedy corporations decide to send top talent to India to teach them how to take more high-skill jobs from the U.S. , and again, other corporations are forced to follow suit or go out of business.

  • Eventually, the process works up the skill and income ladder, until the entire industry is in India, and if American workers are to have jobs, they must go to India to work.

     The moral of these stories: increasing your skills doesn’t assure you of having a good income in this country—or even having a job. Investors can send overseas any job that doesn’t absolutely have to be done in this country.

     I’m not their fan, but 15 years ago, Ross Perot, Pat Buchanan and Ralph Nader all warned us of the giant sucking sound that we were creating. They were right, and the leaders of the conservative movement knew it, but denied it.

     The lesson you can take to the bank: the Republican and conservative Democrats who have been assuring us that globalization will eventually benefit all Americans are either deliberate liars and hypocrites—or just plain stupid.

     At one time, IBM took pride in its commitment never to fire employees without cause. It became America’s premier corporation as a desirable place to work. It produced quality products, had excellent management, and employees could rely on it as a stable source of employment.

     Globalization has changed all that. Now, IBM is just another corporation that must join the abandonment of American communities and workers in order to survive.

From The Wall Street Journal, December 15.

IBM to Export
Highly Paid Jobs
To India, China

In one of the largest moves to "offshore" highly paid U.S. software jobs, International Business Machines Corp. has told its managers to plan on moving the work of as many as 4,730 programmers to India, China and elsewhere….

Some workers are scheduled to be informed of the plan for their jobs by the end of January. After that they will be expected to train an overseas replacement worker in the U.S. for several weeks. The IBM workers marked for replacement have 60 days to find another job inside the company, likely to be a difficult task at a time when IBM is holding down hiring….

The trend looms as one of the most serious long-term threats to U.S. employment and labor. Countries with lower-paid workers are no longer siphoning just unskilled or blue-collar jobs from U.S. workers; they now are scooping up skilled work from U.S. companies on a large scale….

Unlike low-wage manufacturing, the U.S. computer-services jobs to be moved overseas by IBM typically pay $75,000 to $100,000 or more a year, according to one person familiar with the operations. In contrast, hiring a software engineer with a bachelors or even a masters degree from a top technical university in India may cost $10,000 to $20,000 annually, analysts say….

Google Inc., the online search leader, said recently it plans to open an engineering center in India early next year as part of an expansion….

Still, IBM is sensitive to political and employee criticism of its overseas moves. Last summer, union activists obtained a tape of a conference call led by Tom Lynch, IBM's director for global-employee relations, to discuss the delicate issue of offshoring. In that call Mr. Lynch warned other human-resources managers that offshoring "is going to raise a lot of tensions," and is likely to foster union activity at historically non-union IBM.

In particular, he predicted "to train someone to do a job that you know will no longer be yours" raises issues of "dignity and fairness" that unions might exploit….

     Talk about unmitigated gall. Not only are IBMers going to lose their jobs, they will have to train their replacements. And, to get an extra six month pay, they will do it.

     If anyone ever doubted workers’ need for unions, all they need to do is look at the behind-the-scenes communications of senior management. Of course, given the current state of our political environment and our conservative judiciary, the ability of unions today to protect workers is severely limited.

     It goes without saying that IBM’s only reason for offshoring is to cut labor costs. They aren’t going to the middle of the distribution area, near where the raw materials are, or even where people are already trained.

     That’s what globalization is all about folks, cost reduction and corporate profits. And, increasingly, it’s a matter of corporate survival.

     Welcome to the new economy that Republicans and conservative Democrats have given us.

     If you want to know what conservatives really think about the world economy, never read their editorials or listen to what they say on radio or TV. In these media, they always claim that globalization is good for American workers and average citizens.

     It’s when they are giving investment advice to rich investors that you hear what they really think.

From Barron’s, December 15.

Stepping Up to the China Plate

THE APPETITE FOR CHINESE EQUITIES last week appeared vast and undaunted, as China Life Insurance priced the largest initial public offering of the year and Hong Kong shares generally gained. U.S. and global investors lined up for allocations and sought alternate ways to invest in China.

About 50 registered investment advisers crowded the lines to listen to a presentation last week by Frank Holmes, the San Antonio-based chief investment officer of U.S. Global Investors, which runs the tiny U.S. Global China Region Opportunity mutual fund. That's a huge number for a small firm, even with a fund that's up 50% this year. And indeed, the fund's assets have ballooned to $45 million today, from $11 million on Jan. 1….

What is behind the demand? Hyper-easy credit, a sinking U.S. dollar, enormous economic growth in China, and speculation that China may revalue its currency higher, boosting returns to dollar investors….

Steel consumption in China is up 25% to about 230 million tons….

That's a cause for concern for U.S. investors. Lennon sees "a crisis developing over the next six months. If growth doesn't slow in China, we are literally going to run out of critical raw material. There just isn't enough to sustain the growth rates."

Already, Lennon (Jim Lennon, head of global commodity research at Macquarie Bank in London) says, aluminum smelters have needed to shut down capacity because of a paucity of electric power. Shortages of iron ore and coke also will restrict the steel industry's ability to produce….

     By getting Congress and the Presidency to support globalization policies, conservatives have created an investment boom in China—which has allowed them to realize huge gains in wealth as a result of the declining wages in this country and abroad.

     Of course, the ones who got there first will profit most, and are likely the ones who will get out in time before the world economy collapses from its own weight.

     Their incredible short-sightedness has already seriously damaged our U.S. economy, as people have lost their well-paying jobs, and the rest of the workers’ wages have stagnated for at least the past 25 years.

     In effect, America’s wealthy investors have sold our economy to China, India, Mexico, etc. at great profit to themselves. They’ve effectively cashed-in the wealth that American workers created over the previous century.

     And it looks like the final gasp of globalization will occur in China, as it produces the world’s products and uses the world’s raw materials.

     Of course, until the end of the process of selling-out American workers comes, the prices of energy and raw materials are going to go up, and the American investors in commodities will also reap huge profits.

     The following two excerpts from an article and a commentary in the same issue of Business Week demonstrate what globalization has done to the moral standards and economic health of the U.S. and the world.

From Business Week, December 15.

Where Free Trade Hurts

Thirty million jobs could disappear with the end of apparel quotas

By Cambodia's modest standards, Tuch Phearom is a success story. For the past four years she has been sewing sweaters, a job that now earns her as much as $80 per month, including overtime. The money has helped her family build a new wooden house that sits on stilts, leaving room for the chickens, pigs, and cattle to sleep and forage below. And her wages have allowed her father to expand the plot of land he farms to 4.5 hectares.

The winds of global commerce, though, may soon blow right through Tuch's humble prosperity. The U.S. and Europe next year are set to remove a 30-year-old regime of strict import quotas on clothing and textiles, which could put Tuch and the 1,300 other workers at the Thai-Pore Garment Manufacturing Co. Ltd. out on the street. The reason: Once the quotas are lifted, a handful of countries—most notably China—are expected to quickly dominate the clothing industry worldwide, using their low wages, modern factories, and good infrastructure to put outfits like Thai-Pore out of business. "I'm worried my family will have nothing," says the 24-year-old Tuch. Adds her boss, managing director Roger Tan: "China is a major, major threat."

It's not just a threat to Cambodia. From the Dominican Republic to Bangladesh, some 30 million workers in dozens of developing countries could see their jobs suddenly evaporate….

That kind of competition benefits consumers around the developed world. Prices have already fallen by 30% on dozens of items that went off quota last year, according to industry estimates. And buyers from companies such as the Gap and Nike have been flooding China in search of new suppliers in anticipation of the end of the quota regime….

Indonesia, meanwhile, will have a hard time competing on price….

"Take anything—garments or textiles—and people will say, 'Sorry, China is cheaper than anywhere else,"' says G.K. Ram, general manager of a Kahatex Group factory in Bandung, Indonesia, that churns out apparel for Wal-Mart Stores Inc. (WMT ) and Kmart (KMRT ). Perhaps sooner than most realize, Tuch Phearom and millions like her will be struggling to find new jobs.


From Business Week, December 15.

Commentary: Lessons From A Faded Levi Strauss

It has one of the world's best-known brands, but it's not hip. And sales are dismal

By Wendy Zellner

…UNFORTUNATELY, NICE GUYS OFTEN DO FINISH LAST. With a long history of taking care of its workers and an admirable commitment to American manufacturing, Levi's discovered that it simply couldn't compete with brands produced more cheaply overseas. So after years of plant shutdowns, Levi's announced in September that it would close its last two U.S. plants. Union leaders say Marineau and the controlling Haas family made the move reluctantly. For too long, Levi's history and culture has prevented it from becoming the lean marketing and design organization needed to compete…..

     Finally, it’s becoming clear to everyone what a disaster globalization is becoming. Benefits of globalization to workers are always temporary and fleeting—with corporations abandoning workers as soon as they start making decent incomes.

     Not even morally responsible corporations, like Levi, can resist the immoral tide that brutalizes working-class people throughout the world.

     Remember the Neil Bush who was a disaster in every business venture he got involved in?

     Finally, it looks like he’s successful—unfortunately for taxpayers and the security of the U.S.

From Business Week, December 15.

A Bush In Hand Is Worth...A Lot

The President's brother is working for a chipmaker with powerful ties to Beijing

The executives at Grace Semiconductor Manufacturing Corp. know a thing or two about guanx, the web of connections that fuel so much of business in China….

So it should come as no surprise that Grace last year hired a certain Neil Bush. After all, he's the son of the former President and brother of President George W. Bush. Neil Bush's retainer with Grace, which pays him $400,000 in stock annually over five years, came to light during Bush's divorce proceedings in Texas. Although the 48-year-old Bush admitted in a divorce deposition that he has little knowledge of semiconductors, his family tree offers plenty of Washington guanxi—not unlike Jiang and Wong.

So just what has Neil Bush done for Grace? Even the company seems a bit unclear on that point. According to a contract that was filed with Bush's divorce papers, Grace hired him as a consultant. Grace, however, says Bush is a director—and officials decline to say anything more about his role….

Still, there is little doubt that Grace could use a bit of help in its dealings with the U.S. Grace is one of many Chinese and Western companies that would benefit from a repeal of controls on the sale of tech equipment that Western countries fear could be used by the Chinese military…..

     Who could object to a little influence peddling when a person can’t succeed at anything else?

     As if more arguments were needed for not privatizing Social Security, more evidence appears daily in the conservative financial press.

From Business Week, December 15.

Breach Of Trust

The mutual-fund scandal was a disaster waiting to happen. An inside look at how the industry manipulated Washington

…With so much chicanery taking place, why was Washington caught flat-footed? The answer goes far beyond the chronic underfunding of the SEC by Congress. The truth is more complex. The SEC put too much trust in mutual funds to do the right thing. The agency failed to look deeply enough at industry practices to detect patterns of abuse.

At the same time, a highly persuasive and aggressive trade association—of 400 fund complexes that make up the Investment Company Institute—for years overpowered or co-opted most attempts to tighten fund regulation. Congress, cowed by an industry with a 60-year record of serving small investors (marred by only a few minor scandals), kept its distance. Even now, with funds and their executives facing charges of fraud, the ICI has been able to talk the House of Representatives out of requiring that fund boards be chaired by independent outsiders….

Put it all together—light regulation, a savvy trade association, a compliant Congress, a declining market, and frantic competition over a shrinking investment pie—and you get the witches' brew of unsavory business practices now being uncovered. It was a disaster waiting to happen…..

     It’s hard to find in a single article so many descriptions of what’s wrong with our economy and political system: greed, political influence, industrial favoritism, weak regulations, and on and on.

     Note: this is a brief excerpt of a huge article that details the skullduggery of the securities industry—the very same industry that Republicans and conservative Democrats want unsophisticated workers to entrust their retirement funds with.

Week of December 8

     The unabashed greed of today’s corporate executives knows no bounds.

     One would think that articles like the one below would embarrass them enough to make them at least pretend that they had the interests of their lower-level employees at heart.

     Not even remotely so.

From The Wall Street Journal, December 10.

For Pension Plans, Risky Is Fine

Accounting Rules Let Companies
Benefit From Investment Upside,
Escape Consequences of Mistakes

…In the past decade, many employers have quietly taken on more risk in pension plans—loading up on stocks, their own securities and nontraditional and illiquid investments—thanks to accounting rules for pensions that enable employers to capture all of the investment upside, while postponing losses and shifting the consequences of poor investment results to their workers and retirees….

(Companies are) merely taking advantage of accounting rules that can make pension investments a no-lose proposition for employers. The key to this investing success lies in accounting rules that allow companies to use "assumed" returns for the pension assets. In 2002, large companies generally assumed rates of return between about 8.5% and 9%, though a few used assumptions as high as 10%.

If the investments do better than expected, companies can stockpile the excess gains and use them later. Meanwhile, if the investments go sour, companies can postpone the losses, and dribble them into their income calculations over many years.

While these rules were intended to cushion companies from the ups and downs of their pension investments, they have also given companies an incentive to take on more risk than they otherwise might if they were truly on the hook for lousy investment results….

By law, employers are required to invest pension assets prudently, and must make investment decisions in the interests of the employees in the pension plan. Historically, employers had a good reason to do so: After all, if the pension plan loses money, employers have to come up with the shortfall eventually, and might even have to dump more into the plan to pay the promised benefits. (That's what makes pensions different from 401(k)s, in which employees bear all of the investment risk.)

But increasingly, that risk equation has changed, thanks in part to the accounting rules, which protect employers from any immediate consequences for bad investment decisions in the pension plans….

The risk equation is further skewed by employers' ability to cut pensions: When the pension assets lose money, employers can cut benefits, which generates accounting gains that offset the stockpiled investment losses before they begin to hurt the company's financial results.

Indeed, in the past year, many companies, citing pension-plan losses, have cut pensions by making the formulas less generous, or even terminated the pension plans….

…executive pensions are rarely invested in company stock. Employees with regular pensions have often complained that rules permitting employers to invest as much as 10% of pension assets in company stock leave the pension underdiversified.

Delta Air Lines Inc., for instance, specifically forbids the use of Delta stock or debt obligations in its executive trusts. Delta confirmed this information, but declined to comment further.

     So, the executives of our fine American corporations get their pensions funded by solid, conservative investments that they can count on.

     Their lower-level employees’ pensions are funded by risky investments that may allow the company—if it is lucky—to take money out of the pension fund for other purposes. And if those investments lose money, well, they just cut—or eliminate—the pension payouts to retirees.

     Incidentally, the CEO of Delta Air Lines, Leo Mullin, made $12,901,554 in 2002. And his pension will be guaranteed by investments other than Delta stock.

     Is this a great economy or what?

     Finally, workers in undeveloped countries who have been victimized by American corporations may be getting some justice.

     Anyone who pays attention knows that conditions described below are characteristic of what’s happening in country after country, as foreign political leaders do whatever American corporations require to ensure a low-wage, compliant labor force.

From The Wall Street Journal, December 9.

Trial of Unocal on Claims
Of Slave Labor Set to Start

Unocal Corp. Tuesday is set to become the first American company to stand trial in the U.S. for alleged human-rights violations committed overseas….

Although Unocal did not operate the field, owned by the government of Myanmar, American lawyers for the villagers assert in a lawsuit that the company was aware of the labor conditions and therefore faces legal liability.

Attorneys for the El Segundo, Calif., company dispute that the villagers even worked for the pipeline and add that, even if they did, Unocal is shielded from any liability because its Myanmar venture involved only its foreign-based subsidiaries, not the parent. Indeed, Unocal fought unsuccessfully to have the matter tried in either a Myanmar court, or in Bermuda, where the subsidiaries are based….

"We are using the American justice system to hold corporations liable for their conduct in foreign countries," said Dan Stormer, a Los Angeles attorney who is representing some of the villagers….

While the plaintiffs' lawyers categorize the units as shell corporations, Unocal contends they are viable entities with combined assets in the billions….

The villagers—the women and 10 men—say their lives have been turned upside down after being forced to work on the Unocal venture. According to the villagers' lawyers, Myanmarese soldiers ordered hundreds of nearby peasants to work on the gas pipeline, uprooting them from homes and retaliating against any who tried to refuse. For example, one woman said she and her baby were thrown into a fire after her husband tried to escape. She said the baby died and she suffered injuries. Other villagers report being beaten, raped and otherwise mistreated when the alleged slave-labor conditions were going on….

     There ought to be law that makes unbelievable stupidity a crime. American corporate executives know damn well—or ought to know—that these kinds of conditions are caused by their own pressures on foreign governments to ensure cheap, compliant workers for them.

     And if they don’t know—their ignorance has to be at a level that should be considered illegal.

     Incidentally, Charles R. Williamson, CEO of Unocal, made $1,466,280 in 2002.

     The world economy is beginning to unravel. And the political conservatives who caused it are beginning to get nervous.

From Fortune, December 8.


The Unlikely Trade Warrior

Bush never planned to be a protectionist. But his presidency is turning into a free-traders' nightmare.

By Justin Fox

President George Bush is a free-trader. So is every last one of his economic advisors. "Certainly the rhetoric has been the strongest of any President since Roosevelt in favor of free trade," says Dartmouth economist and trade expert Douglas Irwin.

But now, in one of those delicious ironies that makes American politics so maddeningly interesting (think Nixon goes to China), free-trader George Bush appears to be dragging us back to the protectionist past.

It started, as these things do, with the 2001 recession. When economic times are tough, American voters—or at least key voters in key states whose jobs happen to be disappearing—lose patience with vague talk about how trade benefits us all. So in 2002 the President slapped a 30% tariff on steel imports and signed a farm bill chock full of protectionist measures. This November he imposed a quota on Chinese bras and bathrobes. The plan, if you can call it that, was to keep pushing for free trade through forums like the World Trade Organization but grab headlines (and votes) with a few high-profile protectionist moves….

"There is a Mid-Atlantic trade storm whipping up," Niall FitzGerald, co-chairman of Anglo-Dutch food and consumer-products giant Unilever, told the BBC in late November. "There will be retaliation and then retaliation to that retaliation, which could lead us to a 1930s decline."

That's a stretch—the steel tariffs and the planned European response are nowhere near the size or scope of the Smoot-Hawley Tariff Act that set off the 1930s trade wars. And while Smoot-Hawley and its foreign counterparts worsened the Great Depression, hardly anybody thinks they caused it….

     At least Fortune, unlike most of America’s right-wing propagandists, doesn’t pretend that the Smott-Hawley tariff caused the depression. (After all, it didn’t even pass until 1930, after the damage had already been done.) They couldn’t stand to let it go at that, however, so they simply say that it made the depression worse.

     Not even that is true. The cause of the depression was that rich investors world-wide took too much profit off the top, and left too little for those who actually spent their money for products and services. Businesses everywhere found that they couldn’t sell their products at a profit, so they stopped producing, and started dumping—and working-class citizens everywhere lost even more of their incomes and savings.

     When the politicians of the world realized that they had been had, again, by rich investors—they tried, too late to correct the situation by implementing the tariffs that would protect workers’ wages.

     Now, it’s happening all over again. And, again, America’s right-wing propagandists will blame tariffs, not corporate and investor greed, as the culprit.

     Remember what conservatives were saying—for public consumption—after Clinton got his deficit reduction act passed in 1993? That’s right. It was “the biggest tax increase in history.”

     If you want to know what conservatives really think, you need to read their objective analyses of the economy when they are advising investors about what they should do with their money.

From Forbes, December 8.

The Wages of War

By Steve H. Hanke

Like it or not, the war on terrorism is going to mean more public spending, regulations, taxes and inflation. Invest accordingly….

What about taxes? Yes, the Bush Administration has delivered cuts. Enjoy them while you can. Wars are expensive and eventually have to be paid for. And big tax reductions are vulnerable to Washington's whittling ways. Just look at what happened to President Reagan's supply-side tax cut of 1981. Less than a year later the Gipper put his pen to another tax law that raised taxes by almost 1% of GDP, making it the biggest peacetime tax increase in American history. And that was not all. In every subsequent year of Reagan's presidency, with the exception of 1988, Congress passed and Reagan signed tax increases.

The wages of war are always the same: a more obese and intrusive government and, yes, more inflation, too. The prices of precious metals and other commodities, an early indication of inflation, are already in a bull-market phase.

Faced with these prospects, what should an investor do? Dump conventional bonds and position the core of your portfolio (65%) in inflation-protected government bonds….

     So, who really passed “the biggest peacetime tax increase in American history”? Your favorite president and mine, the Gipper.

     And what do conservatives see in our inevitable future: more tax increases to undue the damage the Bush Administration’s tax cuts have obviously done to our economy.

     Business Week’s cover story tried to put a good face on globalization by citing all kinds of supposed long-term benefits to the world.

     But the key paragraphs are presented below:

From Business Week, December 8.

The Rise Of India

Growth is only just starting, but the country's brainpower is already reshaping Corporate America

…Still, this deep source of low-cost, high-IQ, English-speaking brainpower may soon have a more far-reaching impact on the U.S. than China. Manufacturing—China’s strength—accounts for just 14% of U.S. output and 11% of jobs. India's forte is services—which make up 60% of the U.S. economy and employ two-thirds of its workers. And Indian knowledge workers are making their way up the New Economy food chain, mastering tasks requiring analysis, marketing acumen, and creativity.

This means India is penetrating America's economic core….

A study by McKinsey Global Institute, which believes offshore outsourcing is good, also notes that only 36% of Americans displaced in the previous two decades found jobs at the same or higher pay. The incomes of a quarter of them dropped 30% or more. Given the higher demands of employers, who want technicians adept at innovation and management, it could take years before today's IT workers land solidly on their feet.

India's IT workers, in contrast, sense an enormous opportunity. The country has long possessed some basics of a strong market-driven economy: private corporations, democratic government, Western accounting standards, an active stock market, widespread English use, and schools strong in computer science and math. But its bureaucracy suffocated industry with onerous controls and taxes, and the best scientific and business minds went to the U.S., where the 1.8 million Indian expatriates rank among the most successful immigrant groups….

Throughout U.S. history, workers have been pushed off farms, textile mills, and steel plants. In the end, the workforce has managed to move up to better-paying, higher-quality jobs. That could well happen again. There will still be a crying need for U.S. engineers, for example. But what's called for are engineers who can work closely with customers, manage research teams, and creatively improve business processes. Displaced technicians who lack such skills will need retraining; those entering school will need broader educations….

     Increasingly, it’s becoming painfully obvious that globalization is dealing our economy and society a severe body blow to “America’s economic core.”

     Think of it. One-fourth of Americans who lost their jobs in the past 20 years have suffered an income loss of over 30%—and only 36% got the same or higher incomes. That means the 34% got lower incomes. And all the while investors and high-level corporate executives got incredibly rich.

     And does anyone seriously believe that, just as Americans left the farms to go to work in factories, that something like that will happen again? (Why workers leaving textile mills and steel factories were included in the example is baffling. That’s a relatively recent development and those workers still haven’t found decent jobs.)

     When ultra-conservative Forbes magazine complains about the “cozy ties” that exist on Wall Street, readers had better pay attention.

From Forbes, December 8.

Team Players

By Neil Weinberg

The SEC somehow missed the fact that bad things have been going on in the mutual fund industry. Could that be because of its cozy ties?

"The fund industry can be proud of its history of promoting a culture of honesty, integrity, transparency and accountability, and also should be proud of its commitment to strong fund governance and compliance practices."

These are the words of Paul Roye, director of the Securities & Exchange Commission's Division of Investment Management—the guy who writes the rules for the $7 trillion industry. He uttered them in March, six months before it came out that certain funds had been allowing unethical, possibly criminal, trading to take place in their shares.

Roye's admiration for the industry he regulates is reciprocated. At the same conference Matthew Fink, president of the Investment Company Institute, the fund management lobby, said: "Strong day-to-day regulation by the SEC has protected the nation's 95 million mutual fund shareholders and kept the industry free of systemic scandal for more than 60 years."

The coziness says a lot about how trading rip-offs managed to stay under the radar for so long. The industry's lobbying arm is immensely powerful and is aided by a revolving door connecting the regulated to the regulators. Indeed, Roye and his colleagues at the SEC have known about many of the problems for years—like lax governance, weak fee disclosure and under-the-table payments between fund firms and brokerages—but have a long history of making rules that don't solve the underlying problems….

     The only mystery now is: Given the obvious corruption of the entire securities industry, how can the Forbes editorial staff—in good conscience—still recommend that Congress privatize Social Security?

     Just when you think that Forbes would never support anything that actually will benefit consumers instead of corporations—it surprises you.

From Forbes, December 8.

Don't Blame Canada

By Ira Carnahan

Free marketeers make a case for allowing reimportation of prescription drugs. It's not just drug company bashers and politicians pandering to the elderly who want to let U.S. residents buy cheaper prescription drugs abroad. So do some renegade free-marketeers, who argue that their usual allies have got the issue all wrong.

The Bush Administration, most conservatives in Congress and scholars at nearly all the big think tanks on the right—including the American Enterprise Institute and the Heritage Foundation—oppose drug reimportation. They say it could lead to a flood of dangerous counterfeit drugs; what's more, it will slash incentives to invest in costly research. The House-passed bill is "dangerous legislation," the Bushies warn.

But experts at the Cato Institute, a Washington, D.C. think tank with impeccable free-market bona fides, beg to differ. Says Cato's Roger Pilon: "There is something intuitively wrong with the current situation, and the average American understands it. When he or she has to pay three, four times as much for pharmaceutical drugs as Europeans and Canadians, this cannot last long." The solution is simple, Pilon adds. "Let's open the market up."…

     This article proves that even a stopped clock can be right at least twice a day. Finally, Forbes and the Cato institute came down on the right side of an issue.

     The following is merely another monotonous reporting of corruption in corporate America.

From Forbes, December 8.

Where's That Deposit Insurance?

HomeGold Financial propped up a failing mortgage business with cash from a subsidiary. Duped investors didn't spot the trouble until $275 million went missing….

For the people of Easley, a bucolic burg of 18,000 in northwest South Carolina, the big yellow-and-black sign for Carolina Investors on East Main Street represented a familiar brand for 40 years. It was a consumer lender, specializing in loans for homes, cars and cemetery plots for senior citizens, blue-collar workers and the wealthy alike. But its focus shifted in the 1990s, as it began heavily promoting an investment account offering a handsome annual return, most recently 7.5%, for anyone depositing $10,000 for three years.

Carolina branches looked an awful lot like banks. The investments looked like savings accounts--why, the balances were posted in passbooks. But this wasn't any bank, and the accounts were not federally insured. The investments were junk bonds, unsecured and not registered with the Securities & Exchange Commission….

So far no payments have been made. Inspired by the collapse of Carolina, the state legislature rammed through a law this summer giving prosecutors more teeth to indict securities fraudsters. Cold comfort for Carolina's investors….

     Despite an almost unlimited stories like the above, Forbes still chronically opposes any regulation of corporate America.

     More corporate and political sleaze. This excerpt has it all—profiteering, insider no-bid contracts, corporate deniability, etc.—and those who are interested should read the original article.

From The Wall Street Journal, December 12.

Halliburton's Contracts in Iraq
Face Investigation by Pentagon

The Pentagon has launched a sweeping investigation of Halliburton Co. activities in Iraq and found evidence of "substantial overcharging" in $1.2 billion of fuel sales by the company once run by Vice President Dick Cheney….

The larger audit is sure to become politically explosive because of Halliburton's past ties to Mr. Cheney and allegations by the administration's critics that the company won its lucrative contracts in Iraq through political favoritism. KBR's contracts in Iraq are currently valued at $5 billion….

Halliburton officials said KBR would be cleared of any wrongdoing once the audit agency's questions are answered. "It is not fact that KBR has overcharged. KBR has acted in full accordance with its fiduciary and contractual responsibilities under the contract," said Halliburton Chief Executive Dave Lesar in a statement. "We expect and want continuing reviews and audits that detail our work in Iraq. We welcome a thorough review of any and all of our government contracts," he said.

As to the fuel audit, Mr. Lesar said that the U.S. Army Corps of Engineers, which oversees the work, had repeatedly found "no signs of overcharging or any other impropriety." The Army Corps, he said, also directed KBR to buy fuel in Kuwait and has been unable to find anyone else to do the job, which KBR has been trying to relinquish. The company "only makes a few cents on the dollar when fuel is delivered from Kuwait to Iraq," he said.

KBR so far has received about $2.3 billion through a no-bid contract it received in March to help rebuild Iraq's oil industry. About $1.2 billion of the money KBR received was to supply gasoline and other fuels for the Iraqi people, with almost all of that money coming from seized assets or Iraqi oil revenue….

     What everyone knows, but isn’t in the article, is that if open bids had been allowed by the Bush Administration—and Germany, Italy, France, and Russia could have participated—the American taxpayer would have saved a bundle on the cost of fuel in Iraq. And the cost of virtually everything else in Iraq for that matter.

Week of December 1

     Despite all the propaganda, the conservative economic policies of our country for the past 20 years have been a disaster for working-class Americans. Now, even the conservative Business Week can’t avoid reporting the reality of what’s happening.

From Business Week, December 1.
Commentary: Waking Up From The American Dream

By Aaron Bernstein

Dead-end jobs and the high cost of college could be choking off upward mobility

There has been much talk recently of the "Wal-Martization" of America, a reference to the giant retailer's fervent attempts to keep its costs—and therefore its prices—at rock-bottom levels. But for years, even during the 1990s boom, much of CorporateAmerica had already embraced Wal-Mart-like stratagems to control labor costs, such as hiring temps and part-timers, fighting unions, dismantling internal career ladders, and outsourcing to lower-paying contractors at home and abroad.

While these tactics have the admirable outcome of holding down consumer prices, they're costly in other ways. More than a quarter of the labor force, about 34 million workers, is trapped in low-wage, often dead-end jobs, according to a new book entitled Low-Wage America: How Employers Are Reshaping Opportunity in the Workplace. Many middle-income and high-skilled employees face fewer opportunities, too, as companies shift work to subcontractors and temp agencies and move white-collar jobs to China and India.

The result has been an erosion of one of America's most cherished values: giving its people the ability to move up the economic ladder over their lifetimes. Historically, most Americans, even low-skilled ones, were able to find poorly paid janitorial or factory jobs, then gradually climb into the middle class as they gained experience and moved up the wage curve. But the number of workers progressing upward began to slip in the 1970s, when the post-World War II productivity boom ran out of steam. Upward mobility diminished even more in the 1980s as globalization and technology slammed blue-collar wages….

…new studies, which follow individuals and families over many years, paint a paradoxical picture: Even as the U.S. economy was bursting with wealth in the 1990s, minting dot-com millionaires by the thousands, conventional companies were cutting the middle out of career ladders, leaving fewer people able to better their economic position over the decade….

…according to a study by two Federal Reserve Bank of Boston economists that analyzed families' incomes over three decades, the number of people who stayed stuck in the same income bracket—be it at the bottom or at the top—over the course of a decade actually increased in the 1990s. So, though the boom lifted pay rates for janitors and clerks by as much as 5% to 10% in the late 1990s, more of them remained janitors or clerks; fewer worked their way into better-paying positions…. Today, upward mobility is determined increasingly by a college degree that's attainable mostly by those whose parents already have money or education….

The changing dynamic of the U.S. economy clearly has the most impact on those at the bottom….

Problem is, that all-important sheepskin is out of reach for most students from low-income families….

Last year, Wichita State University sociology professor David W. Wright and two colleagues updated a classic 1978 study that looked at how sons fared according to the social and economic class of their fathers. Defining class by a mix of education, income, and occupation, they found that sons from the bottom three-quarters of the socioeconomic scale were less likely to move up in the 1990s than in the 1960s. Just 10% of sons whose fathers were in the bottom quarter had made it to the top quarter by 1998, the authors found….

     Increasingly, it’s becoming so obvious, even the conservative press must recognize it: we’re rapidly losing the bedrock of our society—the middle class.

     And as more people get permanently stuck in the lower echelons of society, it gets worse daily.


  • Matthew Rose, CEO of Burlington Northern, made $5,024,285 in 2002.

  • Richard Davidson, CEO of Union Pacific, made $16,278,789 in 2002.

     Undoubtedly, they cite their outstanding management skills as justification for such high incomes. These skills would include cutting labor and equipment costs to the bare bones—to the point where both people and machines are stretched to their breaking points.

     Employees not only experience more stressful working conditions, they also find that their vulnerability to future layoffs prevents them for pressing for higher wages—even enough to keep up with inflation. In today’s economy, it seems that only low-level employees must make the sacrifices necessary for corporate profits.

     As you read the following excerpt, ask yourself: was the public well served by the effects of these incredibly greedy CEOs on the national economy?

From The Wall Street Journal, December 1.
Railroad Logjams
Threaten Boom
In the Farm Belt

Delays in Grain Shipments
Reduce Potential Profits,
May Affect Overall Economy

In a harbinger of potential snags across the U.S. economy, a sudden boom in the farm sector has combined with shortages of railcars and crews to delay freight trains and lead to higher delivery costs for farmers across the country….

That is because years of cost-cutting on both personnel and equipment have left railroads short-handed, forcing them to scramble to deal with the unexpected surge in both the agriculture sector and the economy in general.

Indeed, railroad delivery times for everything from lumber to containers of consumer products have started to climb. And that could eventually lead to higher prices for items ranging from breakfast cereal to cars….

The problems threaten to give the railroad industry a black eye just as it was poised to try to grab more business from trucks. Railroads unveiled new, faster schedules in the summer, and some public officials are showing more interest in funding rail projects that would remove trucks from congested roads….

Meanwhile, railroads are scrambling to hire more crews and secure more locomotives. Burlington Northern plans to increase its capital spending next year to $1.9 billion from $1.7 billion this year, as it expands track and acquires new freight cars….

Burlington Northern, for instance, was caught off-guard by the record U.S. corn harvest and a bumper wheat crop. It had allowed its fleet of grain-hopper cars to shrink 24% over the past five years to 26,500 cars. Grain cars are now in such short supply that Burlington Northern has temporarily stopped guaranteeing when it will deliver any more to customers….

In addition to equipment, the railroad industry is short of skilled workers. For example, Union Pacific Corp., the nation's largest railroad, didn't move quickly enough to replace retiring locomotive crews….

Grain industry officials say the logjams are the worst since 1997, when railroad mergers left the Farm Belt in knots. The added expenses threaten to put a dent in the recovering agricultural sector. Some grain elevators—the economic engine of many Plains towns—are seeing their potential profits shaved by their limited ability to conduct business during the recent commodity-price rallies….

Even when the train shortage ends, some costs will remain higher. Burlington Northern plans to raise its basic rate for hauling corn from the Northern Plains to ports in the Pacific Northwest by 8%, or $160, by February. Canadian Pacific says it is raising its rate for similar service by 8% to 10%.

"It galls people that they're putting in a rate increase when they can't perform with what they got," says Jerry Cope, transportation manager of South Dakota Wheat Growers Association, a farmer-owned cooperative based in Aberdeen, S.D. ….

     Cutting costs is all the rage today, no matter how stupid, and as long as it improves the short-term bottom-line. Instead of maintaining employees and equipment—by repairing, training, upgrading and preparing for the future—the egomaniacs at the tops of our railroad corporations wanted to make their quarterly reports look good so their bonuses and stock options would be worth more.

     So, they got incredibly rich, while forcing expenses on practically all other sectors of the society, which are paying dearly for their greed and poor management.

     If you think our political process is broken, you’re right. Even The Wall Street Journal finds facts of politics hard to ignore in their news columns. Of course, in their editorials, they still defend the purchasing of politicians as a form of “free speech.”

From The Wall Street Journal, December 1.
Louisiana Lobbyist
Keeps State Laws
On Drinking Loose

Alcohol-Related Deaths Rise,
But George Brown Has
Friends in the Legislature

…In Louisiana, cans of beer packed in ice beckon from gas-station bins, grocery stores sell liquor 24 hours a day and many bars never close their doors. Taxes on beer are so low that a 16-ounce Busch "tall boy" sells for as little as 89 cents, less than the same amount of milk or apple juice. Unlike in most other states, bars are explicitly shielded by state law for whatever drunk patrons do once they walk out the door. Louisiana was one of the last states to raise its drinking age to 21, and among the last to set tougher blood-alcohol limits for drunk drivers.

A big reason: the Beer League's Mr. Brown, who at 80 years old remains Louisiana's most powerful lobbyist, and one of the nation's most effective advocates for the alcohol industry. While the industry elsewhere has given up ground in battles with legislators, regulators and advocacy groups, Mr. Brown and the Beer League have held the line with campaign contributions, longstanding friendships and aggressive tactics. They've also exploited Louisiana's freewheeling drinking culture, where Bourbon Street bars sell "go-cups" for revelers and state lawmakers defend citizens' right to have a beer while driving to college football games.

Mr. Brown's success shows the lingering power of personality and politics in shaping life-and-death policy debates. His lobbying efforts are remarkable given a broad national shift in public opinion away from his industry in favor of tough regulation of alcohol sales, drinking and driving.

In the past year alone, Mr. Brown has helped block bills intended to keep underage drinkers out of bars, to crack down on repeat offenders of the state's weak drunken-driving laws and to tighten a vehicle open-container law that police say is nearly unenforceable. State excise taxes on beer haven't risen here since 1948, the year before Mr. Brown became a lobbyist. His streak has remained unbroken even as other states faced rising pressure to boost taxes amid deepening budget deficits and new research suggesting that higher prices curb underage drinking….

Alcohol-related highway deaths nationwide have risen for a third consecutive year, and Louisiana ranks second in alcohol-related traffic fatalities per mile traveled, after South Carolina, federal statistics show. Nearly half of the state's 875 traffic deaths in 2002 were alcohol-related; only six states had a higher percentage. Underage drinking is common….

Mr. Brown—who won't disclose his salary—reported a relatively modest $63,000 in contributions to state legislators so far this year. He also advises wealthy beer and liquor distributors on how to direct their contributions to lawmakers and works closely with lobbyists for Louisiana retailers, restaurants and gas stations. He gives away hundreds of cases of beer each year for campaign events and parties….

To help the brewers and save jobs, Mr. Brown says he persuaded legislators to exempt Louisiana brewers from their first $150,000 in taxes. The bill was signed in 1974 by Gov. Edwin Edwards.

After the bill passed, Mr. Brown says he was asked by a lawmaker to approach the brewers and demand $15,000. In secret grand jury testimony reviewed by The Wall Street Journal, a Dixie manager said he met Mr. Brown at the Beer League and gave him an envelope stuffed with $20 bills….

     Whatever happened to campaign reform? And why does the public still vote for the Republicans, who blatantly defend the right of the wealthy to purchase the favors of politicians?

     China is emerging as a world-class superpower. Its effects on the U.S. and the world are indications of the failures of our national policies—both economically and environmentally.

     Again, the discrepancy between The Wall Street Journal’s excellent news reporting and its editorial policies have never been clearer. The following news item clearly describes what’s happening to our world—yet, the Journal continues to support unmanaged world trade and opposes environmental controls on corporations.

This excerpt is from The Wall Street Journal, December 3.
China's Growing Thirst for Oil
Remakes the Global Market

Beijing's Buying Keeps Prices
High—and Could Reshape
Politics of Middle East

With its factories working overtime, and its consumers on course to buy almost two million cars this year, China is developing a world-class thirst for oil. And its hunt for steady supplies is reshaping the global energy market, the environment and world politics.

China—which this year surpassed Japan as the No. 2 petroleum user after the U.S.—is increasing its oil purchases even faster than it is pumping up its brawny economy….

So far, the most obvious impact has been on prices. In recent years, China has drawn fire in the U.S. and Japan for exporting deflation, as its factories pump out low-price T-shirts, sneakers, radios and other goods. In the $1 trillion-a-year market for oil, the opposite is happening. This year and next, China is expected to account for about a third of the increase in global oil demand….

Meanwhile, China's mushrooming fleet of cars is adding to worries about this smokestack nation's impact on the environment. In the next decade, the number of cars on Chinese roads is expected to grow fivefold to 100 million, approaching half of the U.S. total, according to the Development Research Center, a government think tank. China is set to tighten its emission standards by 2005, and in 2008 it plans to introduce standards that could be even tougher than those in the U.S.

"If all our bicycles turn into our cars, that's a horrible figure," says Zhai Guangming, retired director of oil exploration at state-run China National Petroleum Corp. "It would scare the world."…

Still, many analysts are wary of a Beijing that could begin to feel boxed in by its energy needs. The study noted that China might emerge as a major arms supplier to the Saudis. Other analysts fear that China might be tempted to trade weapons technology for access to oil in countries such as Libya and Iran….

     This single article highlights several disasters caused by—or aggravated by—our own Congress and Executive branch. By making it legally acceptable to abandon American communities and workers to countries like China, we’ve effectively frozen working-class wages at pre-1973 levels (adjusted for inflation).

     In addition, the countries that got our industries increase the world-wide demand for oil—thus raising the price of oil to American consumers (workers included), while enriching the entire oil industry and their investors.

     The higher costs of energy force countries like China and North Korea to seek ways to get money to purchase oil, possibly by selling weapons technology and materials to countries like Libya and Iran.

     And, believe it or not, even the Chinese recognize the dangers to the environment as more people drive cars and consume energy at ever-increasing rates: It “plans to introduce standards that could be even tougher than those in the U.S.” How’s that as a horrible comparison with the Bush Administration’s head-in-the-sand stance toward the environment? The U.S. can’t beat even the Chinese for having a minimally-acceptable moral concern for the future of the environment.

     So, drive your Hummer H2 while it’s still legal. Eventually, even the Republicans will recognize the damage they’ve done to the futures of their own children.

     So this is what a good economic recovery looks like. Productivity and profits are going up and more jobs are being created.

     That’s fine, except those who benefit most are wealthy investors who are getting richer and paying less for what they buy because “wage inflation” isn’t keeping up with either the productivity or the profit improvements.

     Why? Simple. The large corporations have moved their manufacturing operations to third world countries—thus putting downward pressures on all wages in the U.S.—and the downsized workers are getting jobs in poorer-paying smaller companies of all kinds.

Excerpt is from The Wall Street Journal, December 4.
Small Companies Slowly Build
Momentum in the Job Market

As Business Comes Back,
Mom and Pops Add Staff;
Hints of Broader Recovery

…After a long dry spell, hosts of small firms across the country are starting to take on workers again—a significant step in an economic recovery that hasn't seen much job creation. The nation's 23 million small businesses employ an estimated 57.1 million workers—more than half of all private-sector employees—and create more than half of the nonfarm private gross domestic product, according to the Small Business Administration.

A wave of small-business hiring could help sustain consumer confidence and tide the economy over until larger companies regain the will to significantly boost payrolls—and begin restoring the 2.4 million jobs lost nationwide since the recession began in March 2001….

Jobs at small firms also don't pay as well as jobs at large ones. Small businesses employ more than half of the private-sector employees, but their collective payroll is only 44.5% of the total U.S. private payroll. The new operations supervisor at Mike Jarrett's logistics and shipping firms in Orrville, Ohio, is taking a pay cut to join the small company, after having worked for Newell Rubbermaid for years.

"You have to be realistic, going from a fairly large corporation where you worked a number of years to a smaller organization," says Mr. Jarrett. "You're not going to make as much."…

Downsizing also has created opportunities for smaller companies. Bigger businesses, having expanded significantly in the go-go '90s, have been cutting jobs over the past two years, and offloading work onto small businesses. Mr. Jarrett, of Jarrett Logistics Systems Ltd., finds himself picking up work managing deliveries that companies once did themselves. "They can reduce internal cost—whether payroll, head count or infrastructure—and shift that cost to a third party such as us," he says….

Shelly Nseir received a National City loan to start a restaurant outside of Detroit. The timing was right, she says, not just because of the low interest rates but because her husband, a mechanical designer in the auto industry, felt increasingly vulnerable.

"The auto industry in Detroit has really taken a turn for the worse. Security isn't there," she says. He is managing the restaurant, while she continues her day job as an engineer. They have 10 employees and ideally want to have twice as many, with a mix of full- and part-time workers….

     Understand the terrible implications of this article. Large employers cut labor costs by outsourcing—even within this country—to smaller companies who pay less, offer fewer or no benefits, and have worse working conditions.

     And those who are able, take great risks to go into business themselves, and hope to make a living by paying low wages to those who work for them.

     Employment may stay the same or even go up a little—but the quality of life is significantly reduced for those who are at the bottom of the food chain and are powerless to defend themselves.

     Score another victory for Republicans and conservative Democrats who believe that an economic system should benefit primarily the winners—and the devil take the hind most.

Excerpt is from The Wall Street Journal, December 4.
The New Stresses Of
Chinese Society Shape a Girl's Life

At 10, Bella Juggles Exams,
Piano Lessons, Swimming
And Her Parents' Anxieties

… Now that reforms have dismantled this system of collective endeavor, Chinese parents are pushing their children to treat every aspect of life as a competition to better prepare for a world—unlike the one in which they grew up—that doesn't have a safety net….

"When we were young, after we got home from school, we would just play," says Zhou Jiliang, Bella's 36-year-old father. "For her, you can count the amount of time in a year that she plays in hours, not days." Mr. Zhou, an engineer at a state-owned steel company, often assigns Bella additional homework. That's on top of her regular homework, outside classes in essay-writing, math and English, and a daily hour of piano practice. "It's not that we want to be brutal to her," he says. "It's that China, this environment, doesn't let you not do it."

Bella's life in most ways is better than anything her parents could have experienced, and the opportunities she has are available only to the urban middle class. She attends the elite Yangpu Primary School, a four-year-old institution that charges $1,500 annually in tuition and other fees and rejects 80% of the applicants.

She speaks some English ("Men like to smoke and drink beer, wine and whiskey," she observed in English one evening on the way to her piano lesson.) and knows her way around the family computer. She has her own bedroom in the family's 650-square-foot apartment, something unheard of in her parents' generation. The family bought a larger apartment two years ago but squeezes into the old one because it is closer to Bella's school….

     Now that we’ve given most of our manufacturing industry to China—and we’re in the process of giving all our other jobs that don’t absolutely have to be done in this country to India and elsewhere—China, India and other fine civilized countries are now setting the living standards for the world.

     In other words, Republicans and conservative Democrats like what’s happening in the world economy because we now must:

  • Forget childhood. Since winners take all, and losers get a life of drudgery, preparation for the competition must start at birth.

  • Forget safety nets. That doesn’t fit in with the Republican belief in aristocracy (wealth, education and political power should be inherited) or meritocracy (those whose parents finance an excellent education for their kids should succeed; those of poor parents should remain poor). And, Voilà,

  • Wealthy, educated citizens of the world have great lives—consuming the world’s resources with abandon—while the peasants service their every need.

     What a great economy the Republicans and conservative Democrats have given us.

     Sometimes I wonder why I bother. The endless reports of greed, conspicuous spending, and corruption among America’s corporate elite are so numerous, it seems almost pointless to keep criticizing.

     Almost pointless. But not quite. Because there is a constant political battle in which Republicans constantly tell us that corporate executives are better stewards of our society than are government bureaucrats. Anyone who objectively reads our five most prestigious conservative financial publications knows that that’s simply not true.

     If it weren’t for our democratic government, we’d now have a full-blown corporate aristocracy, with people being born into wealth and power and others being born into poverty and servitude. (We’re not there yet, but if Republicans and conservative Democrats have their way, we’ll be there shortly.)

From The Wall Street Journal, December 5.
Indictment Alleges
Westar's Former CEO
Sought to Loot Firm

David C. Wittig, the formerly highflying investment banker and chief executive of Westar Energy Inc., was indicted by a federal grand jury for conspiracy, fraud and other criminal charges.

Mr. Wittig, 48 years old, and Douglas T. Lake, 53, Mr. Wittig's former top deputy, "sought to systematically loot Westar of money and assets," according to the 40-count indictment by a federal grand jury in Topeka, Kan. The indictment also charges Messrs. Wittig and Lake with forcing out independent members of the board and monitoring employee phone calls to find out if staffers were speaking to the media or regulators….

Mr. Wittig, a former star deal maker at Salomon Brothers, famously bragged about his salary on the cover of Fortune magazine in 1986 and subsequently became CEO of Westar in 1998….Mr. Wittig earned more than $25 million in his seven years at the company and bought the largest home in Topeka…

After some success, Westar's merger-deal frenzy began to falter. The company's stock price fell from $44 to $9 and the company came under increasing pressure from shareholders and regulators.

Mr. Wittig was forced to resign in November 2002, after he was subpoenaed on separate charges that he conspired with a local banker to conceal a loan payment. He was convicted of those charges this past summer, though Mr. Wittig is seeking a new trial….

     Remember, Republicans don’t believe in democratic (small d) government and are doing everything they can to destroy it. People like Wittig are the Republican’s heroes, although Wittig went so far in his insatiable greed that he got caught.

     There are many out there who are almost as bad, but are too smart to get caught—and it is the Republican dismantling of government (deregulation) that has allowed them to succeed.

Week of November 24

     The spinners are coming! The spinners are coming! Arm yourself, because they’re masters of the classic logical fallacy of "Post Hoc, Ergo Propter Hoc.” (“After this, therefore because of this.” )

     Recent news items clearly indicate that we’re headed for a worldwide global recession, possibly even a depression. Just as happened in the 1920s, most of the profit from the world economy has been going to the top 20%—with the bottom 20% losing pace with inflation, and the middle 60% somewhere in between.

     The rich have already bought most of what they need, and they’re now using their money to invest in those parts of the world where workers are most brutalized. This has resulted in “overproduction,” although that’s not really the problem. The problem, as was true in the early 1930s, is that too many people don’t have the money to buy the products and services they need.

     Countries worldwide are now trying to salvage some semblance of relief for the struggling bottom 80% of citizens who are victims of globalization. Obviously, this means that they must reverse the trend that caused the original problem, by reinstituting reasonable trade restrictions that previously protected the interests of workers.

     Naturally, conservative propagandists are seeing the same danger signs throughout the world, and are already laying the blame on others for their own skullduggery. The ones who caused the fundamental problem—via globalization—are shifting the blame to the restoration of the “protectionism” (of working-class incomes) that they previously destroyed.

     For example, consider Gary Shilling’s warning to investors that their gravy train may be coming to an end:

From FORBES, November 24.

Financial Strategy

The Protectionist Threat

By A. Gary Shilling

Free trade is hard to find. There are U.S. steel tariffs, European crop-import curbs and Chinese currency supports. That's scary. Does anyone recall the 1930s?

… As restructuring and automation abound, employment losses appear not just cyclical but permanent. So politicians find it easy to succumb to cries for protectionism from both management and labor. Foreigners don't vote in U.S. elections. A recent poll found that 54% of Americans believe that when multinationals produce abroad they export U.S. jobs.

Protectionist actions here and elsewhere are mushrooming….

The protectionist impulse in the U.S. used to come from blue-collar employees—first textile, then steel- and autoworkers. Now computer programmers and Wall Street researchers are seeing their jobs exported to India. Displaced American professionals can end up bagging groceries….

Let's hope that policymakers recall what protectionism and deflation did to the world economy in the 1930s….

Watch out for creeping—nay, galloping!—protectionism. Regardless of intentions, it's ultimately the enemy of jobs, the economy, profits and stocks.

     Do you “recall the 1930s”? Republicans and conservative Democrats certainly do, and they remember how they successfully blamed the Smoot-Hawley and similar tariffs as causes of the depression. It’s hard to tell if they are deliberate liars and hypocrites, or whether they are just plain stupid.

     The stock market crash occurred in 1929. The Smoot-Hawley act was passed on June 17, 1930. It was the result of the horrible economic policies of the 1920s, that shifted most of the wealth from workers to investors—just as has been happening from 1976 to the present.

     In both periods of history, the damage to the economy was already done. Protectionism was simply the last stage of cycle, which goes like this:

  • By eliminating all protections of workers from brutalized foreign workers, create an economic boom that rewards rich investors at the expense of workers.

  • Invest money overseas which lowers labor costs in the U.S. and increases corporate profits and investor’s incomes.

  • Suck the workers in the U.S. dry as long as you can, until they run out of money.

  • Then the inevitable happens. Economies begin to crash, and people can’t afford rent, food, medical care, education, etc.

  • Countries worldwide then realize, again, that they’ve been conned by the rich and powerful, and try to reverse the disastrous trend, too late, through tariffs.

  • Result: a recession or depression—and the right-wing-crackpots of the world blame the last stage of the cycle, “protectionism” for the results of their own insatiable greed.

     Of course, what got us out of the depression of the ’30s were the progressive policies of Roosevelt, which included, among many other things, reasonable protections of U.S. workers from unbridled foreign competition. And that’s exactly what can get us out of the next recession or depression.

     The following brief excerpts are from four extensive articles in FORTUNE’s “SPECIAL REPORT ON THE U.S. ECONOMY.”

     How Fortune editors can publish such articles—and still support the Bush Administration’s economic policies—should be a subject of a Ph.D. dissertation on the symptoms of insanity.

     Go figure:

  • We are exporting our best-paying jobs outside the country, and thus losing a significant part of our tax base. Not only will workers make less money and pay less taxes, many of them will place almost insurmountable burdens on social services.

  • We’re cutting taxes on the wealthy—the ones who are profiting from the sacrifices forced on workers.

  • We’re permanently losing our manufacturing jobs for reasons both good (productivity improvements) and bad (outsourcing purely to cut the cost of, and incomes of, American workers).

  • And we’re creating a massive federal debt that will likely ruin us.

The following four excerpts are from FORTUNE, November 24.

If Things Are So Good, Why Do We Feel So Bad?

Besides the threat of terrorism and the long, hard slog in Iraq, the biggest worry for most of us is jobs.

...Bolstered by dazzling productivity growth, America will continue to be a manufacturing powerhouse; we'll just need fewer and fewer American factory workers

Once, we white-collar types at least felt insulated from foreign competition. No longer. Just as China in the past decade became the world's workshop, India in this decade is becoming the world's back office. Cheap bandwidth and the Internet allow companies to tap a vast market of English-speaking, educated workers happy to take jobs in software, accounting, consulting, and other services for 10% to 20% of what an American employee would charge…

Morgan Stanley economist Stephen Roach believes the migration of millions of service jobs is "a new source of joblessness that could well be the defining macro event of our times." Will that necessarily translate into higher U.S. unemployment? No, says Intel chairman Andy Grove: "I think it just exerts strong downward pressure on wages for years to come."…

Politicians from both parties have yet to even acknowledge the staggering bill that must eventually be paid through future tax increases and benefit cuts….

Where Your Job Is Going

A visit to Bangalore, India, a city where tech is hot, the drinks are cold, work is plentiful, and the salaries are a lot lower than yours.

…After years of wondering what all those fiber-optic cables laid around the earth at massive expense in the late 1990s would ever be good for, we finally have an answer: They're good for enabling call-center workers in Bangalore or Delhi to sound as if they're next door to everyone. Broadband's killer app, it turns out, is India.

It's not just about call centers. In Bangalore some 110,000 people are employed writing software, designing chips, running computer systems, reading MRIs, processing mortgages, preparing tax forms, and doing other essential work for U.S., European, Japanese, and even Chinese companies. Intel, Cisco, Oracle, Philips, and GE are among the multinationals with significant R&D facilities there. AOL, Accenture, and Ernst & Young have big operations in town too. Scores more Western corporations outsource work to Indian companies like Bangalore-based IT services firms Infosys and Wipro….

The attraction of the Indian knowledge workers who get those jobs is that they're paid 10% to 20% of what Americans would expect for similar work—and in many cases they do it better. That has stoked understandable alarm in the U.S. Together with China's rise in manufacturing, it is bringing protectionists out of the woodwork. It is also causing even those of a less reactionary bent to wonder just what it is that Americans will do for a living now that even knowledge work can easily be sent overseas….

Indian call-center workers may make a lot less money than Americans (salaries start at about $2,000 a year), but they make a lot more money than fresh-out-of-college Indians who aren't computer geniuses have ever made before….

The $44 Trillion Abyss

The baby-boomers are about to retire, and it's going to cost us—big. Here's what the government doesn't want you to know.

Last fall Paul O'Neill, then Secretary of the Treasury, wanted a simple answer to a thorny question: How prepared was the nation today to pay all its future bills? Two government experts worked for months to calculate the answer. Their findings, which shocked even them, were never published—the Bush administration made sure of that.

The reason for the silence was that by the time the two researchers had completed their study, O'Neill had been thrown out of the Treasury and replaced by the more politically astute John Snow. No savvy administration power player would dare point out, right in the middle of tax-cut season, that there was a huge hole in the country's finances—a $44 trillion hole.

That's the kind of Washington tactic that makes Larry Kotlikoff angry. So angry, in fact, that the normally composed and carefully spoken academic starts ranting about a government conspiracy to keep us all in the dark. He even refers to this particular episode as "the great Treasury cover-up." And once you start Kotlikoff on the subject, it's hard to stop him. "I hate politicians," he says, without pausing for breath. "These people are so focused on the next election, they don't care about the next generation. The thing that really turns my stomach is that they have the opportunity to do good, and they know they're doing bad, and it's okay. It's immoral."…

It's clear nobody can solve a $44 trillion-sized problem overnight. Yet in Washington, generational accounting is as popular as a skunk at a garden party. The real question is, Do we continue an Eyes Wide Shut fiscal policy or—and this is a huge "or"—admit there's something really big and ugly staring us in the face?

Will 'Made in USA' Fade Away?

Yes, we'll still have factories, and great ones too. We just might not have many factory workers. Why those jobs are never coming back.

...the fact is that American factories are producing more than they ever have, even the steel and automobile manufacturers that were consigned to extinction decades ago. The problem for American workers is that factories are experiencing huge gains in productivity—companies now need far fewer employees to churn out all those cars and steel slabs and machine tools.

For all the talk of how technology has revolutionized the white-collar office with e-mail and the Internet and PDAs, it's in the blue-collar sector where high-tech has dramatically altered the landscape....

     Those of us who lived through the 1950s, ’60, and ’70s remember the predictions of the explosion of productivity improvements that we are seeing today. We also remember the problems we were anticipating.

     With so few workers needed to produce all the food and material goods the world needed, what was going to happen to those millions of persons without jobs and decent incomes—even the ones with good educations? Possible answers:

  • much shorter work weeks and hours, more vacation time (eventually, six months?)

  • the creation of jobs to clean up the environment or improve it

  • much more professionally supervised recreational opportunities, and

  • more and better personal services.

     Of course, in the world of the future, all who worked the necessary hours would receive compensation adequate for one income-earner to support a family of four.

     Then, the Republicans and conservative Democrats came into power, and talk of all such nonsense came to end. Now, all the benefits of productivity improvement go to the wealthy and powerful in this and other countries—and workers everywhere be-damned.

     So far, it’s been a great economy for the wealthy and powerful, whose greed is insatiable, and who choose to ignore the lessons of history. Much worse times are coming, even for them.

     For those who know how to decipher the code words, two editorials in Business Week describe the anti-worker philosophy of our conservatively controlled Federal government.

     In order to fulfill the desires of the rich and powerful, the Fed encourages economic growth as long as it increases corporate profits—but discourages growth as soon as workers begin to benefit (thus causing “wage inflation.”)

     For a detailed analysis of how this strategy works (which is under the control of Republican and conservative Democrat politicians), see the file The Class Warfarer’s Scapegoat: “Wage Inflation”.

Both of the following excerpts are from Business Week, November 24.

Commentary: Why Greenspan Will Just Let It Ride

By Rich Miller

He'll wait till there's less economic slack to raise rates

The economy is cooking. Business spending is rising and the job market has turned up. The pickup in growth, in the U.S. and abroad, has sent commodity prices soaring and fanned fears of a resurgence of inflation….

Fed Chairman Alan Greenspan and his cohorts believe they can take their time before raising rates. Despite investors' skepticism, Fed insiders believe the U.S. is in a unique period where inflation is so low—and the economy still boasts so much slack—that they can relax and let things rip. "In these circumstances," Greenspan said on Nov. 6, "monetary policy is able to be more patient."

BECAUSE OF EXCESS CAPACITY and elevated unemployment—what economists call the output gap—plenty of slack still remains in the economy. According to output-gap theorists, the recession of '01 and the slow recovery since have left the economy some 2% smaller than it would have been had it stayed on its long-term growth trend. Until that growth deficit disappears, the theory goes, inflation pressures will be muted….

Economic Trends

Is Inflation Set To Surge?

By Gene Koretz

The Fed could be in for a nasty surprise

…(Economist Martin) believes the economic risks have now shifted decisively in the direction of inflation. The return of payroll job growth, he argues, indicates that the expansion is finally on a sure footing and likely to post above-trend growth over the next year. And close analysis reveals that prices of most consumer goods and services actually have been trending higher for some time….

The U.S. economy, of course, could deflect these inflationary pressures if productivity continues to surge higher. But like many others, Barnes believes that productivity growth is bound to slow as hiring accelerates. "The real question," he says, "is not whether inflation will rise, but whether it does so gradually or with surprising vigor."

      “The economy is cooking.” Meaning: corporations are making good profits.

     But “the job market has turned up,” and “The pickup in growth… has sent commodity prices soaring and fanned fears of a resurgence of inflation.” Meaning: WARNING SIGN—the economy may be cooking so much that wages may start to go up.

      “Fed insiders believe the U.S. is in a unique period where inflation is so low—and the economy still boasts so much slack—that they can relax and let things rip.” Meaning: they have workers in such a bind, that even a “cooking” economy isn’t likely to make wages go up significantly. So conservatives can relax and enjoy the economic boom without fear.

      “…the economic risks have now shifted decisively in the direction of inflation. The return of payroll job growth, he argues, indicates that the expansion is finally on a sure footing and likely to post above-trend growth over the next year.” Meaning: as more workers get jobs, wages tend to go up. Therefore, the Fed should raise the prime interest rate to cool off the economy before it happens.

     So far, the “jobless recovery” is going exactly according to plan.

     The following three excerpts from articles in a single issue of The Wall Street Journal illustrate why this is the best possible short term economic climate for investors.

From The Wall Street Journal, November 26.

Company Profits Soared
By 30% in 3rd Quarter

Biggest Gain in Two Decades Came as GDP
Is Revised Up; Red-Hot Pace Seen Cooling

The economic recovery has picked up momentum, boosting the bottom lines of a wide range of U.S. corporations.

The Commerce Department reported that profits at American companies rose 30% in the third quarter, compared with a year earlier. That was the largest year-over-year growth in profits in 19 years and was enough to lift the annual pace of profits above $1 trillion for the first time in history….

For many companies, the combination of faster economic growth (which spurs revenue gains) and rapid productivity improvement (which helps contain costs) translates to stronger profits. Better profits, in turn, are expected to give business executives added confidence to hire more workers and invest more aggressively in new projects….

"No matter how you slice it, this was a terrific quarter," said Chuck Hill, director of research at Boston-based Thomson First Call, which tracks corporate earnings….


Why Investors Should Put up to 30%
Of Their Portfolio in Foreign Funds

By Jonathan Clements

…Despite the weak performance, I would invest 5% of your stock portfolio in an emerging-market stock fund. As the population in Europe, U.S. and Japan ages, the burden of producing the world's goods will fall on the developing world, with its younger population. That should mean rapid growth for developing countries and hence healthy returns for emerging-market funds….


Following Orders

By Jesse Eisinger

Weekly jobless claims come out Wednesday, pushed up from their normal Thursday schedule; the jobs news has been better than expected for weeks….

Even though the economy grew a stunning 8.2% in the third quarter, manufacturing companies aren't voicing enthusiasm about the economy, according to John Lonski of Moody's. Moody's analysts, after all, hear first-hand from companies, when it judges their debt….

Mr. Lonski says, "The very good news in economic activity for the most part has not extended to manufacturers. At best, there's been an end to the deterioration."

The sector is much less important for the economy than it used to be, of course. We're a service economy. The economy can grow and produce jobs even as the manufacturing sector loses jobs, if that rate of job loss is relatively muted.

     Great! Profits are booming and the stock market is skyrocketing. What a wonderful world—for investors.

     The bad news: the reason profits are exploding is because corporate income is going up, but wages aren’t (except for the top executives). It’s a lousy deal for workers and it will ultimately destroy our economy—to the detriment of everyone, even wealthy investors.

     Reason: We’re losing our manufacturing industry, which is the poor person’s key to a decent income. The loss of manufacturing jobs depresses wages for all categories of working-class Americans. Most of the jobs being created in the service industry don’t allow one person to support a family of four.

     Almost all of the benefits of the economy are going to the rich, and they are being advised to invest it overseas, because “…the burden of producing the world's goods will fall on the developing world, with its younger population. That should mean rapid growth for developing countries and hence healthy returns for emerging-market funds.”

     We’re repeating 1929 all over again.

Week of November 17

     Same old story, with a new twist that further explains why globalization is a disaster for everyone who works for a living.

From The Wall Street Journal, November 17.

Romanians Become
Latest Tech Rivals
For Off-Shore Jobs

BUCHAREST—Rent-a-Coder is one of several Internet sites where the world's computer programmers bid to do free-lance software jobs, mostly for American and European companies eager to "off-shore" a small project at low wages. It's no surprise that the nation that's home to most of these eager-for-work programmers is India, now famed in the U.S. for its Bangalore help desks….

While every Romanian programmer with a broadband connection has opportunities that were unimaginable just 10 years ago, there is no quick ticket to Easy Street where there is global competition….

In truth, a relatively small number of programmers here have high-enough ratings to be picky about jobs. Getting to that stage, says Mr. Ionescu, "is a matter of finding a niche," of having some specialization that an entry-level Indian or Russian programmer doesn't have.

American high-tech workers not long ago believed the same thing, confident that their training would give them a permanent leg up on the rest of the world.

In Romania, they know all about the off-shore controversy in the U.S. The Bucharest programmers I met were surprisingly empathetic about the manner in which their modest recent gains are coming at someone else's expense. Says Ionut Ianasi, a 22-year old Bucharest programmer, "If it were happening to me, I'd be angry too."

     The new twist to this story really isn’t new, it’s just that the Journal more clearly explains what we already know: Those who really understand globalization—like the Bucharest programmers—know that their prosperity is at the cost of Americans who lost their jobs, and the Americans who now face lower wages because of the increased competition.

     What the Bucharest programmers have yet to experience is the loss of their own jobs after others in still lower-wage countries gain the training to compete with them. Who will give them the training? Corporate America. They’ve been doing it throughout our history and there is no reason for them to change.

     American corporations have absolutely no commitment to workers anywhere. The only thing that counts is profit, and they maximize profit by increasing the labor supply any way they can. Even if it means going to countries where workers have absolutely no protections.

Week of November 10

     Chalk up one more news item from the conservative press that proves the hypocrisy of those who defend what has become known as “globalization.” (Check out International Free Trade; It’s NOT “Globalization”.)

     Anyone who says that destroying American jobs is good—because workers in poor countries will benefit—should read the original of the abstract reproduced below.

     And bear in mind that articles with exactly the same message have been published regularly, ever since the early 1980s.

From The Wall Street Journal, November 13.

Behind China's Export Boom,
Heated Battle Among Factories

As Wal-Mart, Others Demand
Lowest Prices, Managers
Scramble to Slash Costs

SHAJING, China—Under the corrugated-metal roofs of Ching Hai Electric Works Co., hundreds of workers toil in six plants to meet orders for millions of small appliances. Inside one factory, ex-farmers bend over a clanging conveyer belt where they turn squid-shaped hunks of steel and wiring into electric fans. The fans cost about $4 wholesale and eventually will retail in the U.S. for $15 to $40 through such online stores as

This is the kind of picture U.S. politicians might conjure up when tapping the hot-button issue of American jobs lost to the flood of Chinese exports. But China's smaller manufacturers themselves face brutal new competition right at home.

China, one of the world's busiest factory floors, increasingly suffers from a production glut, and the big overseas retailers such as Wal-Mart Stores Inc. that soak up China's exports have been quick to capitalize. They're demanding rock-bottom prices and forcing factory bosses to cut costs any way they can in order to remain in contention for export orders. The average wholesale price for Ching Hai's fans, juicers and toasters has tumbled to $4 from $7 a decade ago, according to company executives.

It's the survival of the cheapest. At Ching Hai, manager David Liu has cut his labor force in half, to 1,500 workers, even while maintaining the same level of orders. The company's starting salary of about $32 a month is some 40% less than the local minimum wage. Many workers put in 18-hour days with minimal training and constant pressure to boost output. Despite the cost cutting, Mr. Liu says Ching Hai is just barely profitable, although he declines to provide any figures….

The relentless cost cutting raises questions about how much pressure retailers should exert in places where unemployment and weak labor laws are problems. Ching Hai, which has a high rate of accidents mostly involving fingers severed by machinery, has been investigated by the local labor bureau for possible violations….

Buyers are moving aggressively to play one factory against another. "As things get more competitive, the pressure that comes along with that, yeah, we try to take advantage of it," says Gary Meyers, a vice president in global procurement at Wal-Mart….

…fields of rice and litchi trees gave way to white-tiled factories and a haze that hung over them. Migrant workers from other provinces, employed at Shajing's many factories, would come to outnumber town residents 10-to-1….

Ching Hai employees say they are sometimes asked to work as long as 18 hours. Though the city's minimum wage is about $56 a month, Ching Hai starts new recruits at that low $32 level and promises subsidies for food and lodging to make up the difference….

The competition is making it harder to improve conditions for Chinese factory workers. As abuses come to light, many multinationals are enforcing codes of conduct for suppliers. Among Wal-Mart's "Standards for Suppliers" are demands that factories comply with local laws for wages and work hours. Wal-Mart also forbids forced labor and child labor, and promotes proper training, safety and clean restrooms.

But many low-cost factories in China ignore such codes, and many government officials enforce them haphazardly. Chinese labor experts say officials worry that enforcing standards would increase costs, deter investment and undermine local economic development….

"Everybody is here trying to make money," Mr. Liu says in the shadows of his showroom, where the lights are shut off at lunchtime to save money. "I just never thought it would be so hard."

     How often do you read about Wal-Mart—and a total disregard to fundamental human rights—in the same context? It’s damn near automatic.

     Study the following sentence. It’s a classic and always accompanies the willful violation of moral standards. “Among Wal-Mart's ‘Standards for Suppliers’ are demands that factories comply with local laws for wages and work hours. Wal-Mart also forbids forced labor and child labor, and promotes proper training, safety and clean restrooms.”

     This technique is as old as the hills:

  • Proclaim high moral standards,

  • “Forbid” unsavory practices, then

  • Turn over your work to those who you know will give you what you want—by not following the rules you’ve set.

     It’s just like the CEOs who promote subordinates who have no moral standards, knowing that they will cut costs and maximize profits—even illegally—and the CEO can remain blameless.

     Anyone who doubts that the corporate climate in the U.S. is morally bankrupt should read every issue of the Wall Street Journal.

     Only government regulations protect the health and physical well-being of all Americans, and the incomes and working conditions of our working-class citizens.

     Never count on the moral standards of corporate executives to do it.

From The Wall Street Journal, November 12.

Costs of Trucking Seen Rising
Under New U.S. Safety Rules

Drivers' Shorter Work Day,
Aimed at Relieving Fatigue,
Could Hurt Retailers, Others

The first major changes in truck-driver work hours since 1939 are expected to reduce highway fatalities, but also contribute to the biggest increase in trucking rates in two decades.

The little-noticed changes, mandated under new federal safety rules that take effect in January, are designed to reduce fatigue among truck drivers, a major cause of accidents. The new rules increase the time that truck drivers must set aside to rest in each 24-hour period to 10 hours from eight hours, and the total time a driver can be on duty will fall to 14 hours from 15 hours….

Wal-Mart Stores Inc., which unsuccessfully opposed the new rules, believes the more stringent 14-hour rule will reduce its drivers' daily work time by 6% on average and cause it to add 275 new drivers and 300 new trucks to handle the same amount of cargo. The giant retailer expects the changes to cost it $24 million just for the additional trucks. "The rule will impose serious costs on society, not only on motor carriers but on shippers and receivers as well," the company said in a regulatory filing….

The federal agency says it is training inspectors to enforce the new rules. Large trucking companies say they will fully abide by the new regulations. However, industry experts say many drivers already fail to keep accurate accounts of their time in log books, and the new rules aren't expected to change that….

The new rules could push the industry to become more efficient, especially the speedier handling of trucks at loading docks. These docks have become a source of massive inefficiency, often holding up trucks and drivers for hours. Under the old rules, drivers didn't count these delays as time on duty. And trucking companies had little incentive to push for changes, because most long-haul truck drivers get paid by the mile and aren't compensated when they aren't driving….

     As usual, corporate profits and the incomes of investors and top executives are more important than public safety and employee working conditions.

     It’s almost axiomatic: if Wal-Mart opposes legislation—you automatically know it will be good for America.

     Incidentally, a very similar situation caused the formation of the Teamsters Union to begin with. People were paid only for the time they loaded trucks. When Congress passed a law that required employers to pay employees for the total time they spent at work, they employers “hired” workers when a truck came in, and “fired” them when the truck left.

     And people wonder why workers need unions.

     Most people think that “fuzzy-headed liberals” are the main supporters of immigration. Not true! Virtually all conservative financial publications support unlimited immigration—because, of course, immigration depresses wages.

An editorial from The Wall Street Journal, November 12.

Viva Work Visas

One reason we support an open immigration policy is because the best laid plans of the border restrictionists never achieve what they claim they will.

The employer sanctions bill of 1986 didn't stop illegal immigration but merely added a burden to businesses and created a black market in false identification documents….

As long as higher wage jobs exist in the U.S., Mexicans (and others) will migrate here to fill those jobs and feed their families and dreams.

Short of doing things that would offend American values—such as threatening to shoot border crossers—we can't stop immigrants from coming. Those conservatives who fret about "illegals" ought to favor some kind of work-visa program that gives these strivers the option of working here legally….

      “… conservatives who fret about "illegals" ought to favor some kind of work-visa program that gives these strivers the option of working here legally….” This statement should be extended to: “,…which will help depress the wages for those in our society who most need a wage increase.”

     A medal should be given to every American consumer who respects the law and believes in being honest in dealings with corporations. Because corporations certainly have no feelings of responsibility to treat consumers honestly.

From The Wall Street Journal, November 12.

What Part of 'Cancel'
Don't You Understand?

Regulators Crack Down on Internet Providers,
Phone Companies That Make It Hard to Quit

…From AOL to EchoStar, a growing number of U.S. companies are coming under fire from regulators who claim they are deliberately thwarting customers' efforts to cancel their service contracts.

The regulators are targeting a range of tactics used to keep people from dropping cellphone plans, magazine subscriptions and satellite TV services. The methods under scrutiny include billing customers for service after they quit, and levying hefty contract-cancellation fees on departing customers….

To stem defections, companies are doing everything in their power to lock in customers. Until recently, for instance, MCI routinely required customers to show a death certificate when canceling phone or Internet service for a deceased relative, though it loosened the policy last month. Many companies have also retrained phone reps who handle cancellation calls to try to "save" customers who phone in to quit….

To slow … departures, AOL customer reps were offered incentives to win back customers who phoned to cancel. The pressure, combined with a lack of management oversight, may have meant the reps listed some customers who called to cancel as "saves," according to the FTC. As a result, the customers continued to receive bills even though they had canceled….

Overbilling problems are a growing concern as more customers pay their bills through automatic debit arrangements in a wide range of industries. The payment option lets companies withdraw funds directly from customers' bank accounts and credit cards each month. That access means companies may be able to continue to withdraw money, even after a service is canceled. "Once they get your credit-card number, you're stuck," says Ohio Attorney General Jim Petro….

      “Companies may be able to continue to withdraw money, even after a service is canceled. "Once they get your credit-card number, you're stuck," says Ohio Attorney General Jim Petro.” Shouldn’t that be considered illegal? And how many customers will even overlook the excessive charges?

     It’s a new world out there. Corporations who have no moral standards lecture consumers about being honest in their dealings with them. (E.g. not copying music online.)

     Finally, some good news. A manufacturing company is making a profit right here in the U.S. But how long can it continue?

From The Wall Street Journal, November 10.

Unglamorous Axle
Maker Is Good as Gold

American Axle & Manufacturing Holdings Inc. produces some of the auto industry's most unglamorous hardware, including axles and drive shafts. Its biggest factory is a union shop in the heart of Detroit. Its primary customers are Detroit's cost-slashing Big Three auto makers.

With that profile, American Axle might look like a sitting duck for competition from China. But the company and its co-founder, chairman and chief executive officer, Richard E. Dauch, are making money, and gearing up to grow.

American Axle is forecasting a 10% increase in profit for 2004. In 4 p.m. composite trading on the New York Stock Exchange Friday, the company's shares stood at $35.71, close to a 52-week high and double the $17-a-share initial public offering price in January 1999. At a time when many U.S. manufacturers are cutting jobs, American Axle has expanded its work force by 60% since 1994. Its productivity has more than doubled during the same time by one measure….

To keep Wall Street on his side, Mr. Dauch (chairman and chief executive officer, Richard E. Dauch) must prove that a unionized U.S. manufacturer can thrive over the long haul in the face of global competition and relentless pricing pressure from the big auto makers….

Another challenge for American Axle will be to sustain the edge the company has in quality and product technology over competitors in lower-wage countries. United Auto Workers-represented hourly workers at American Axle's U.S. plants earn $22 to $25 an hour straight time. Including benefits, that goes up to about $43 an hour. But inside American Axle's Detroit plant, a red, white and blue banner proclaims, "Low Cost Country."

Mr. Dauch says American Axle is a low-cost producer, despite its pay scale, because its workers are more productive, and build better-quality products than competitors in low-wage countries….

     First of all, note that a single instance of an American manufacturer paying decent wages and being successful in the U.S.—is worthy of a news item in The Wall Street Journal.

     In all likelihood, American Axel will be successful—until a competitor duplicates in China what it’s doing in the U.S. Our machismo attitude that “American workers can compete with anyone in the world” has proved to be false. When wage rates in other countries are 10% or less than in the U.S., there’s no way American workers can be competitive over the long haul.

     In the present political environment, any manufacturing success we have in the U.S. will be brief, and will be limited to products where other countries have yet to learn of our new productivity technologies and methods.

     Long term, the countries that get industry are those that can keep their workers from making decent incomes.

     If American Axel remains successful, and others can duplicate their success over the long haul in the U.S.—fantastic! But that’s certainly not the trend, and it’ll be a pleasant surprise if it happens.

     As long as investors and top corporate executives have all the power, the U.S. will continue exporting jobs, and workers worldwide will see their quality of life deteriorate.

     More great news about a booming Republican economy. Corporate profits are exploding, jobs are still shifting from good-paying manufacturing jobs to the poor-paying service industries, and wages will only keep up with inflation—under the best of circumstances.

From The Wall Street Journal, November 10.

Retailers' Present for Job Market
On Mend: More Holiday Hiring

Two years after the battered U.S. economy began climbing out of recession, it's finally generating new jobs, a trend that is likely to get a boost soon from preholiday hiring by retailers….

The latest increases in national employment weren't large by historical standards—in the 1990s, payroll gains of more than 300,000 a month were common. Moreover, economists say monthly increases of more than 150,000 will be needed in the months ahead to continue bringing down the unemployment rate as discouraged workers who previously dropped out of the labor force begin hunting for jobs again. In all, about 2.4 million jobs have been lost nationwide since the recession began in March 2001….

Wal-Mart Stores Inc., the nation's largest retailer, says it is expecting the holiday season to be "a bit stronger" than last year and will staff accordingly, although it declined to give firm numbers. Consumer electronics chain Best Buy Co. says it will increase store staffing by 32% on average for the shopping season, up from a seasonal increase of 30% last year. Sears, Roebuck & Co. says it plans to hire 30,000 to 35,000 holiday workers, down slightly from previous years, despite recently improved sales. That's because Sears recently remodeled its stores to make some departments self-service, trimming labor costs….

While the retail hiring plans and last week's positive economic news indicate the economy is improving, analysts cautioned that the recent spate of job growth isn't yet uniform across the economy and hardly certain to continue. The manufacturing payroll decline in October, for instance, at 24,000, was the smallest drop since November 2000. Nevertheless, the steady decline in manufacturing jobs has been a weight on the economy since the sector began to contract after the technology-driven stock-market rally of the 1990s ended in 2000.

     We’re still losing manufacturing jobs. And, of course, what’s missing in this Journal article is that even the few new manufacturing jobs coming on stream are paying less than the manufacturing jobs we are losing. That’s what happens when you “increase the labor supply,” which the Republicans are masters at doing.

     Not to worry. Greed is still alive and well in corporate America—even at the expense of its shareholders. (And a good argument for why options should be expensed in the corporation’s financial reports.)

From Barron’s, November 10.

Living Large

Adobe's lush option grants pit insiders against public shareholders

ADOBE SYSTEMS… software's popularity has made (it) a financial and investment success. The company's gross margins routinely top 90%, while pretax operating margins are about 30%. Reflecting its growth, Adobe shares have more than quadrupled, to 45, in the past five years.

But Adobe also dramatizes one of the biggest problems in technology investing today: Large grants of stock options to employees penalize public shareholders, and force companies to devote large portions of their cash flow to share repurchases, to offset the dilutive effect of options issuance. Adobe, and nearly all other tech companies, resist including options expense in their income statements, despite the economic impact on profits.

Another potentially bothersome issue for Adobe investors is the low stock ownership by top executives. Adobe's chief executive, Bruce Chizen, owned less than 2,000 shares earlier this year, but had options to buy more than 1.7 million shares. He and other Adobe executives have received generous options grants in recent years, but most quickly sold nearly all the shares acquired through the exercise of vested options. In effect, they have treated options like cash compensation.

From 2000 through 2002, Adobe issued options on more than 20% of its 240 million shares outstanding. Most big companies limit their annual option grants to 2% or less of their outstanding shares.

Many technology executives argue that options cost their companies nothing. But in Adobe's case, that isn't true. In the past three years Adobe received $288 million in option-related proceeds, as option-holders exercised the right to buy shares at below-market prices. But the company spent $830 million, or more than 50% of its cash flow, to buy back stock on the open market to offset shares issued in relation to options grants. Moreover, if Adobe's option grants had been more restrained, the company presumably would have had more money to pay a higher dividend, make acquisitions or meaningfully reduce its outstanding shares….

     This is a very brief excerpt of a very long article. Investors who are interested in the subject or who own Adobe shares should read the original article.

     Senior management’s isolation from lower-level executives and employees has to be one of the major causes of corporate demise. The following excerpt presents sound, but incomplete, advice for modern managers:

From The Wall Street Journal, November 11.

Reverse Mentoring Programs
Can Bridge Generational Gaps

When consulting firm Deloitte & Touche LLP instituted a reverse-mentoring program in 2001, 48-year-old Jim Wall, its national managing director for human resources, found himself tapping the wisdom of a 26-year-old associate consultant….

For his part, Mr. Wall says private tutoring helped him expand his Internet proficiency and get a better handle on the daily torrent of e-mail. He even got constructive criticism on his own management style. The relationship continues. "It turns into a mutual mentoring," he says….

Today, there is a growing belief that reverse mentoring can also help bridge other gaps among generations. In addition to imparting technical know-how, younger staffers are frequently asked to help solve conflicts that crop up when generational attitudes clash….

Here are tips to help ensure that a reverse-mentoring program is effective:

  • Make mentoring a two-way street….

  • Set objectives….

  • Treat each other with respect….

  • Consider generational differences….

     All these “tips” are good ones, but the most important has been left out: If the ethical standards of the top executives are deficient, none of the rest counts.

     If greed and self-interest are the top exec’s most dominant motivators—vs. providing a genuine product or service at the lowest cost to consumers—there is no way it will not poison the work environment. (Check out: The Destructive Achiever in the Proactive vs. Reactive file.)

Week of November 3

     The U.S. once had the best economic and social system the world has ever known. Never before had such a large proportion of a population realized a good quality of life—in which work was appropriately rewarded and which valued fairness and justice for everyone.

     Have we totally destroyed that economy, and that fair and just society? Just look at what passes for “good news” in today’s conservative press.

From The Wall Street Journal, November 7.

Behind Surging Productivity:
The Service Sector Delivers

Firms Once Thought Immune
To Boosting Worker Output
Are Now Big Part of Trend

…Once confined to the computer sector and a few technologically savvy companies, productivity gains have spread into the nation's vast service sector, from airports to pet stores and package deliverers. Moreover, companies now are reaping the benefits of not just their technology investments in the 1990s but of organizational changes that made the technology work for them….

The Labor Department reported Thursday that the productivity of the nation's labor force—defined as output per hour worked by the average U.S. worker in the nonfarm business sector—rose at a breathtaking annual rate of 8.1% during the third quarter, following a 7% growth rate in the second quarter….

Strong productivity growth means companies are producing more with less, which helps to explain why millions have been locked out of the job market even as the economy recovers. This recovery is the only one in postwar history that has gone so long—at least 23 months—without producing a sustained rise in employment….

Despite the near-term pain of a weak job market, most economists agree that rising productivity serves as the bedrock for living standards in the long run. The faster productivity grows, the faster the economy can grow without creating inflation. Faster economic growth means more-rapid growth in real household incomes over time. Higher incomes, of course, allow consumers to buy higher-quality products—including fancier homes and cars—and pay for services that enhance their lives. Eventually, as demand and economic growth accelerate, economists expect companies to start hiring again to keep up with a faster pace of output….

(This) would also allow Fed policy makers to keep interest rates lower for longer because productivity growth holds down inflation. When a company can produce more widgets with fewer workers, it is able to hold down its costs and boost its profit margin, diminishing the incentive to raise prices….

There are important reasons for caution about the latest productivity gains in the service sector. It is notoriously hard to measure output and the number of hours worked in the service sector. Some economists, such as Morgan Stanley's Stephen Roach, argue that workers in the service sector aren't more productive, they are simply working longer hours that don't get counted in official statistics….


  • "Productivity gains have spread into the nation's vast service sector." Meaning: Since Republicans and conservative Democrats have sent our manufacturing jobs overseas, working-class Americans have had to settle for poorer-paying service jobs.

  • “Companies now are reaping the benefits…” Meaning: corporate profits are going up, investors and top corporate execs are getting much richer.

  • “Productivity of the nation's labor force—defined as output per hour worked by the average U.S. worker in the nonfarm business sector—rose at a breathtaking annual rate of 8.1% during the third quarter.” Meaning: Workers are working much harder because they’ve been threatened by their employers with job loss (high unemployment = “there are many out there who want your job”).

  • “Rising productivity serves as the bedrock for living standards in the long run.” This should be true for everyone, but today it’s true only for investors and corporate executives. They want all the benefits for their own greedy selves and don’t want to share with anyone—even with those who made the productivity improvements. Instead of sharing the benefits of productivity, they fire workers and make those remaining work harder. Accounting for inflation, wages today are lower than they were in 1973.

  • “Faster economic growth means more-rapid growth in real household incomes over time.” Simply not true for the bottom half of the U.S. If household incomes for working-class Americans even start to go up, Republicans and conservative Democrats in Congress will take steps to stop it, calling it “wage inflation.” Increased productivity does NOT cause incomes to go up. It’s all a matter of power, and investors and corporate executives have all the power and workers have none.

  • “Fed policy makers (will be able to) keep interest rates lower for longer because productivity growth holds down inflation.” True. Of course, productivity growth wouldn’t hold down inflation if it were shared with workers in the form of higher wages and better working conditions. As it stands now, the only income-increases the Fed will allow are those of investors and corporate executives.

  • “Workers in the service sector aren't more productive, they are simply working longer hours that don't get counted in official statistics.” Welcome to the truest statement in the entire article.

      How can the editors of The Wall Street Journal possibly support our war in Iraq, and still publish on their news pages the insurmountable realities we face in that distant country?

From The Wall Street Journal, November 5.

To Find Peace
In Sunni Triangle,
Talk to the Sheiks

Col. Mirabile Woos Tribes,
Like British Before Him;
Now, His Cup Runs Over

…Befriending and cajoling the local chieftains is a tested way of ruling this part of Iraq. It's how the Ottoman and British occupiers kept peace, and it's how Saddam Hussein operated, too, often freeing political prisoners at the request of powerful Sunni tribes and rewarding chieftains with cash and gleaming limousines.

The sheiks here in Anbar can be unsavory characters. Many owe their fortunes to smuggling with Syria and Saudi Arabia, as well as to outright extortion and thievery. Bolstering their power goes against the grain of the occupation government's longer-term effort to transform Iraq into a showcase of Western-style democracy and civil society….

When Col. Mirabile's (American Lt. Col. Hector Mirabile) men rolled in from forward bases in Jordan, they knew nothing of Iraq's intricate patchwork of tribal alliances and old feuds, he says. To make up for this lack of intelligence, Col. Mirabile has been reading up on the British colonial experience and how British spies and bureaucrats a century ago cultivated the ancestors of some of the people he is dealing with today. He still finds it tough going. "I meet with a sheik every day," Col. Mirabile says, "But we still haven't gotten a handle on who is a real sheik and who isn't."…

"Since 'Lawrence of Arabia,' not a damn thing here has changed—the same infighting, the same political quarrels. The only change is that now they have cars instead of camels," the colonel said with a sigh. "And the only thing they really care about is their own profit margin."…

Back at the base, Col. Mirabile was glad that his favor to Sheik Hamed is paying off, one night at a time. "Keep your friends close," the colonel said with a smile, "but keep your enemies real close." ….

      Possibly someone should remind the Bush Administration that the reason the U.S. supported Saddam in the first place is that he was the only deemed powerful and ruthless enough to gain control over these warring factions. Now who are we going to appoint as Iraq’s next dictator?

      In addition, of course, are these considerations:

  • Al-Qaida was not active in Iraq until we "won" the war there. Now it's a magnet for terrorists.

  • For all practical purposes, we've abandoned Afghanistan and chosen to ignore the problems in Pakistan -- the real centers for harboring and encouraging terrorists. And this doesn't include other obvious problems like Korea, the Philippines, Colombia, and on and on, throughout our troubled world.

  • From all accounts, we've under-funded our obvious first line of homeland security: local police, fire departments, border patrols, accident and emergency units, and so on.

  • Last, but not least, we've overextended ourselves financially to the point where we are endangering our future ability to meet the real terrorist threats when they emerge -- right here at home.

      The next time someone wants to debate whether or not invading Iraq was morally right—or what will happen to Iraq if we get out as soon as possible—someone should point out that that's not the issue.

      The issue is: What is the best use of our human and financial resources for our homeland security? It's definitely not to bankrupt ourselves in a low priority cause. Even if it were possible to make Iraq a model of the ideal democratic secular/Moslem country, we don't have enough resources to do it, and still meet our obligations to our own citizens.

      If a deliberate lie about special interest legislation is immoral to the point of criminality, the Bush Administration and the Republican Congress should go to jail.

      Read the following excerpt, and then wait to see how the Republicans will describe their legislation to the American voter. If recent history is any guide, you’ll see absolutely no resemblance between their spin and the actual legislation.

From The Wall Street Journal, November 5.

Two Big Tax-Free Savings Plans
To Get New Push by White House

WASHINGTON—The Bush administration is crafting a sweeping election-year proposal to boost individual savings through two new tax-exempt accounts, which together would allow family members each to sock away as much as $15,000 a year, say people familiar with the plan….

The accounts would affect a broad swath of taxpayers but would be a special boon to the wealthy, who now are barred from some federal tax-exempt plans but would benefit from the new ones….

With Congress controlled by the president's party, the plan stands a decent chance of passage in 2004 as the follow-on to two rounds of tax-cut packages the Bush administration pushed through Congress over some Democratic opposition….

But the plan is sure to bring a hail of criticism from Democrats, who will argue it will add billions to government deficits for decades to come and do little to increase retirement savings among lower and moderate income workers who need it most. Less than 4% of workers who make $40,000 to $80,000 contributed the maximum amount to their IRAs in 1997, the latest year available.

Critics at the liberal Tax Policy Center in Washington estimated that last year's version of the proposal would end up costing the government $90 billion a year within 25 years as people begin to withdraw their tax-free funds. In the short term, the O'Neill version of the proposal was structured so that it would be revenue neutral over the initial 10-year period. But the additional tax breaks the administration now is considering as part of the package could cost $50 billion in that time….

      Somehow, responsible reporters in the American news media must make the American voter aware of the massive income and wealth redistribution—from the poor-and-middle-class to the rich—that the Republicans have brought about for the past 20 years.

     And the fact that they have deliberately lied about their true objectives for this same period could make an excellent documentary.

      As if it we needed it, Holman W. Jenkins, Jr.’s editorial in The Wall Street Journal removes any doubt that a major objective of the Republican tax cuts is to cut government services that benefit the poor and middle-class.

From The Wall Street Journal, November 5.

Republicans Learn to Love
(Well, Like) the Deficit

What Republicans have understood … is that the only effective long-term form of fiscal discipline is tax cuts.

Republicans have become the Party of Tax Cuts: that is, the party that lets you keep your own money, the party that protects the private sector from being smothered by big government. In a more sophisticated audience's eyes, it means a second thing: the party that restrains the growth of government by keeping it on the only fiscal leash that works—a.k.a., the deficit, which maintains a constant tension between forgoing new spending or borrowing to pay for it.

Admittedly, this involves Republicans in a certain amount of self-duplicity (We don't mean this in a bad way; every party has to keep its big tent together.) Not only do Republicans take as given that Congress will spend every dime it can tax and then every dime it can borrow, until it runs up against its effective credit limit. Republicans also accept that they will behave exactly like Democrats in this matter.

The deficit has become the Repubocrat/Demolican equivalent of using adhesive tape as a diet aid. It's not subtle. It doesn't demonstrate a high degree of willpower or self-control. But it works, sort of.

It also has put the Democrats in the interesting position of worrying about the deficit all the time since it's now the primary obstacle to their spending ambitions. That's why the only live debate between the two parties anymore on economic management concerns tax policy aimed at a narrow subset of wealthy voters—a popularity contest that, ahem, almost always redounds to the proponent of tax cuts….

This rough-and-ready formula for keeping the fiscal house, if not in order, at least from collapsing, will surely be tested by the baby boomers. The yield curve already suggests the bond market is wondering where exactly the money will come from to keep 77 million spoiled and creaky rock-'n-rollers surfeited with prescription drugs, a pleasing retirement lifestyle and whatever else their geezy hearts desire….

      Of course, Democrat “spending ambitions” are time-tested stimulants to the economy, the correction of the capitalist system’s deficiencies, and necessary government services—from disease control and disaster relief—to education for all citizens and environmental protection. All of which, Republicans oppose.

      Mr. Jenkins, Jr. apparently believes that “a pleasing retirement lifestyle and whatever else their geezy hearts desire,” is something only for rich Republicans and conservative Democrats, not “77 million spoiled and creaky rock-'n-rollers.” Of course, the way things are going, the figure is more likely to be the bottom 80% of Americans who won’t have a decent retirement, not just a mere 77 million.

     The giant sucking sound continues, with it’s usual hypocrites defending it.

From The Wall Street Journal, November 3.

U.S. Furniture Makers Seek
Tariffs on Chinese Imports

A group of 28 U.S. furniture makers, fighting a surge in imports, asked the government to impose antidumping trade duties on Chinese-made bedroom furniture, alleging that the Chinese unfairly price their dressers, beds and nightstands….

Doug Bassett, vice president of sales at Vaughan-Bassett Furniture Co. in Galax, Va., and a spokesman for the companies, who call themselves the American Furniture Manufacturers Committee for Legal Trade, said Chinese furniture makers benefit from currency manipulation and government subsidies.

The American companies said that from 2000 to 2002, their sales fell 23% and operating income fell 75%. "It is no exaggeration to say that the imports from China have single-handedly forced the industry into a tailspin so swift and so deep that it may soon become irreversible," the companies wrote in their petition.

Chinese factory owners and their American importers say the low-cost furniture is simply a matter of taking a labor-intensive product—wooden furniture must be sawed, shaped, sanded, stained and finished—and building it with low-priced workers inside sprawling, modern factories that are more advanced than aging American ones….

Kevin O'Connor, the president of Legacy Classic Furniture, Greensboro, N.C., an importer, said the factory owners in China that he does business with are honest, and their employees are extremely hard working. "Without getting religious about the whole thing, is God an American? Did he decide that the only people who should have wealth and a good way a life are in the middle of the North American continent? ... In China, you ask these people to work 12-14 hours a day, six days a week, and they'll do it gladly, because they're trying to improve their plight in life.''…

     Oh my! The compassion of importer Kevin O’Connor’s concern about the welfare of hard-working Chinese is truly impressive. It would be even more impressive, of course, if he weren’t becoming incredibly rich himself—with very little effort and no hard work—from the process.

     And, incidentally, where is his concern for:

  • his fellow countrymen who are losing their businesses, because they didn’t want to abandon their communities and their workers to go overseas, and for

  • the American workers who lost their jobs, and for

  • the depressing effect all worker incomes—that the displaced workers will have on total job market?

     It’s all a matter of self-interest and economics folks. If the furniture industry were immune to globalization, its members wouldn’t be complaining. In fact, they would probably be great supporters of it—just like American investors, rich Republicans and conservative Democrats, and all those who profit from destroying American jobs.

     Globalization is just fine, no matter who else it hurts—and if it benefits you personally.

     Any working-class American who wonders who his friends and enemies are in today’s political environment—should regularly read The Wall Street Journal. The following excerpt almost says it all.

From The Wall Street Journal, November 3.

Employers Win Ergonomics Duel
By Achieving Delay in Guidelines

WASHINGTON—Employer groups have won another battle against ergonomics regulations, stalling and possibly killing an influential nonprofit group's effort to draft voluntary guidelines for preventing repetitive-motion injuries. Businesses feared the guidelines would become the foundation for a federal-government crackdown.

The business lobby also is fighting ergonomics rules in numerous states, including Washington, where voters will decide Tuesday whether to scotch tough new regulations in a business-backed ballot initiative. The initiative would kill rules requiring employers to proactively identify and reduce repetitive-motion hazards….

"To the extent that this contributes to the demise of [the guidelines], our clients are pleased," said Baruch Fellner, the Washington, D.C., industry lawyer who spearheaded the effort. "At the very least," added Randy Johnson, the U.S. Chamber of Commerce's labor vice president, the guidelines "will be put on ice for a very long time."

Under the Clinton administration, OSHA enacted mandatory ergonomics rules, but Congress killed them after President Bush took office.…

Business groups face an uphill battle in Tuesday's referendum in Washington, a generally left-leaning state with strong labor unions. …

     So, who looks out for the interests of workers? Could it be more obvious? It’s Unions and Democrats.

     And who does everything they can to destroy workers’ rights? Republicans and business lobbying groups, like the U.S. Chamber of Commerce.

      The following two excerpts expose the hidden agenda of America’s conservative economists and politicians. It’s classic: economies “grow” when corporate profits “are on a tear,” but economic growth is excessive when wages start to to up.

From Business Week, November 3.

Corporate Profits Are On A Tear

Results soared in the third quarter—and look to remain strong next year, too

…Although profits have been marching higher for the past five quarters, they're on a tear now. The reason: continued cost cutting coupled with ongoing productivity gains are enabling many companies to drop a bigger portion of every new sales dollar straight to the bottom line….

      Translation: companies are firing employees (“continued cost cutting coupled with ongoing productivity gains”), yet maintaining production—and thus getting “a bigger portion of every new sales dollar straight to the bottom line.”

From Business Week, November 3.

What Happened To Deflation?

The fears are gone-and whispers about future inflation have surfaced. But the pricing power that's emerging may be just what U.S. business needs

It's natural to expect price pressures to build as the economy recovers more strongly. In the past, that would have been a big concern because rising prices would be seen as a harbinger of a surge in inflation. But in today's high-productivity, low-inflation economy, a little extra pricing power may be just what U.S. businesses need. As demand rises and sellers gain clout, higher prices will boost profits—and encourage companies to expand and take on more workers. "A rebirth in pricing power is a plus for Corporate America and the economy," says Morgan Stanley (MWD ) economist Richard Berner.

Of course, there's always a risk that once it starts to pick up, inflation could spiral out of control. It takes 12 to 18 months for monetary policy to have its full effect, so while few, if any, economists foresee a big jump in inflation next year, some are worried that if the Fed waits too long to act, inflation could accelerate more than it expects….

In the new era of price stability, however, the Fed can be counted on to stop inflation before it skyrockets. That's why a rebirth of pricing power now is a welcome sign of an economy finally on the mend. ….

      Note that the rebirth of pricing power is of no concern to conservatives, because that money goes to investors and top corporate executives. They can retain their power to raise prices IF they can hire more workers without paying them more.

      However, “some are worried that if the Fed waits too long to act, inflation could accelerate more than it expects.” And when does the Fed wait too long to act? When wages of workers start to go up. As usual, an economy controlled by conservatives ALWAYS is designed to benefit investors and top corporate executives—not workers, except as is absolutely necessary.

      If it actually happens—wages going up—you’ll be amazed at the demands in the conservative press for the Fed to raise the prime interest rate. (See The Class Warfarer's Scapegoat: "WAGE INFLATION".)

     To appreciate why good news for investors and top corporate executives is bad news for workers, read the following excerpt.

From Business Week, November 3.

U.S.: The Virtuous Cycle Is Finally Kicking In

As the recovery takes hold, GDP growth may hit levels not seen since 2000

…After almost two years of recovery that felt more like recession, the economy is finally entering the virtuous cycle crucial to self-sustaining growth—that is, when increased demand triggers a pickup in output and jobs, generating more income and profits, which lifts demand even further….

U.S. manufacturers will have to share some of the new demand with importers, but the turnaround will nevertheless help stanch manufacturing job losses. That's one reason the job picture is improving: Simply halting the decline in factory jobs will boost overall monthly payroll gains substantially. For example, excluding September's factory-job losses, private-sector payrolls would have risen by 101,000. The new strength in demand will broaden the nascent job recovery….

     “excluding September's factory-job losses, private-sector payrolls would have risen by 101,000.” Translation: our country traded 101,00 good-paying manufacturing jobs for the same number of poor-paying service jobs in September alone. This one step in a continuing trend is great for investors and top corporate executives—and a disaster for those who work for a living.

     And because of our continued loss of manufacturing jobs—even if they are replaced by the same number of new manufacturing jobs—wage rates for them will be lower than they should be.

     Money talks much more persuasively than the public interest, especially to conservative Washington politicians.

From The Wall Street Journal, November 4.

How Unlikely Coalition Scuttled
Plan to Remake Electrical Grid

Regional Groups Unite to Keep Their Lines
From Coming Under Federal Jurisdiction

WASHINGTON—The Aug. 14 blackout showed that the nation's electricity system has drastic problems. But instead of getting a major overhaul, it's unlikely to get even a tune-up….

For more than a year, publicly and behind the scenes, an unlikely collection of corporate, regulatory and political allies from the Southeast and Northwest have fought to use the energy bill to derail the FERC plan. That plan would take grid authority away from utilities and state regulators and vest it with the federal government and regional authorities. So far, the coalition's campaign has been successful….

FERC Chairman Pat Wood III says the blackout showed how "balkanized" the grid is. He believes performance and accountability would be improved by having a few well-trained operators take over management of the grid, working under one set of national rules.

His opponents don't contest the idea that centralized control might lead to better national planning and a more coherent response to emergencies. But they say participation in any national plan should be voluntary. They say they don't want to cede control over their regions' electricity to distant bureaucrats who, they argue, don't have a good track record of managing crises….

In the Southeast, coalition members are trying to protect powerful investor-owned utilities. These utilities operate in retail markets in which they hold monopolies, making them among the most profitable in the nation….

Under the FERC plan, wholesale markets would be run uniformly, providing similar rules for all buyers and sellers, regardless of location, instead of the current patchwork of rules that makes it harder to book power shipments across multistate areas. Accountability and market surveillance would shift to Washington….

Another powerful player in the coalition is Southern Co., which operates monopoly utilities that serve four million customers in four states. Southern owns both generating plants and transmission lines. Under federal rules, utilities have to give other power suppliers access to their lines….

According to the Center for Responsive Politics, a nonprofit, nonpartisan research group, since 1989 Southern has been the second-largest utility contributor to members currently sitting on the House Energy and Commerce Committee, giving them $481,500. In the Senate, Sen. Richard Shelby, an Alabama Republican, has received the largest amount from Southern—$105,000. In the House, it is Rep. Charles Norwood, a Georgia Republican, who has received almost $59,000….

     Count on it. If money and special interest is pitted against public interest, Republicans will always go with the former.

     Why has the cost of healthcare gone out of sight? The following excerpt explains one of the key reasons.

From The Wall Street Journal, November 6.

Pay-as-You-Go M.D.:
The Doctor Is In,
But Insurance Is Out

Maverick Physicians Skip
Red Tape and Cut Charges

GREENEVILLE, Tenn.—After Aaron Smith's weight plunged and he began feeling thirsty all the time, several doctors balked at seeing him because he doesn't have health insurance. On the verge of heading to the emergency room, his mother saw a newspaper ad: "No health insurance? Try Patmos EmergiClinic."

The ad put the Smiths in contact with a small but growing corner of the medical world where insurance is viewed as the problem with, not the answer to, rising health-care costs. Frustrated by red tape, some maverick doctors have cut out the middlemen, allowing them to offer less-expensive service and a return to the days when nothing came between patients and their family doctor….

Dr. Berry jokes that visits to his office cost something "between an oil change and a brake job."

Similar cash-on-the-barrelhead clinics are sprouting across the country. Dr. Berry and others like him say they are demonstrating a way to lower costs and relieve pressure on emergency rooms that are crowded with people without insurance. Besides, more patients are digging deep into their pockets even if they have insurance, as premiums and co-payments rise….

     The whole insurance industry is getting rich off of healthcare: the investors, the top corporate executives and everyone associated with them—excepting, of course, their policyholders and the American taxpayer.

     Similar conclusions could be drawn about other major industries in the healthcare system: privatized hospitals (that formerly were not-for-profit), the pharmaceutical industry, the legal system, and every related for-profit group that has been contaminated by the modern virtue called greed.

     I suppose it’s too cynical to accuse the Bush Administration of going to war simply to reward its corporate supporters. But the following excerpt certainly demonstrates that, as long as we’re going to war, there’s no reason not to profit handsomely from it.

From The Wall Street Journal, November 6.

Army Engineers Weigh Ending
Halliburton Unit's Duties in Iraq

HOUSTON—The U.S. Army Corps of Engineers has started talks to end Halliburton Co.'s responsibility for importing fuel into Iraq for U.S. personnel, officials said, after criticism the program was costing too much.

The Corps has spent as much as $6 million a day importing gasoline and other fuel to Iraq through Halliburton subsidiary Kellogg Brown & Root, which won a no-bid contract for work there. Congressional Democrats Wednesday released a letter quoting Jeffrey Jones, the former director of the Defense Energy Support Center, as saying KBR's price of $2.65 a gallon was "extraordinarily high." The letter also questioned why the Army Corps didn't address the issue faster.

If the Corps had given the job to Mr. Jones's agency from the outset, "many millions of dollars could have been saved," Bush critics Reps. Henry Waxman (D., Calif.) and John Dingell (D., Mich.), said in their letter. Vice President Dick Cheney is a former Halliburton chief executive….

On Oct. 8, the Congressional Research Service had reported the Bush administration appeared to be preparing to pay "substantially above" the market price for fuel imported to Iraq. The General Accounting Office, the investigative arm of Congress, is expected to report on the issue in January.

Keith Ashdown, vice president of public policy for Taxpayers for Common Sense, said the problems with the fuel program illustrate the Pentagon's poor planning in Iraq. "The people to blame are the people at the Department of Defense and their contracting process," Mr. Ashdown said.

     The same old names keep popping up in the same context (war profiteering): Cheney, the Pentagon, the Bush Administration, and Halliburton.

Week of October 27

     It’s celebration time, because we may be in the beginning of a classic Republican economic boom: corporate profits are exploding, the stock market is surging, investors are getting seriously richer—and workers are still getting fired and wage increases are miniscule.

     Of course, as always, good news for workers may be coming. (The wealthy always profit first and biggest, and, if the boom lasts long enough, they may not be able to keep workers from benefiting indefinitely.)

From The Wall Street Journal, October 31.

Economy Turned In Its Best
Growth Rate In Nearly Two Decades

GDP Surged 7.2% in Quarter,
On Broad-Based Gains;
Bush Team Trumpets Data

The U.S. economy shot out of the doldrums to its best quarterly growth rate in nearly two decades, giving a potentially powerful political lift to President Bush despite chronic weakness in the job market.

The 7.2% annualized rise in gross domestic product in the third quarter was the strongest pace of growth since the first quarter of 1984 and the broadest-based gain in the economy in the three years since the stock-market-fueled boom years of the 1990s….

The darkest shadow over the economy now is unemployment, which remains above 6% of the labor force. Thursday's GDP number was also just a preliminary estimate by the Commerce Department and could be revised in a few months. Some economists questioned whether steady growth could continue once the short-term effects of pump-priming from tax cuts and low interest rates wear off. Moreover, critics of the tax cuts argue that their contribution to the latest burst of growth comes at a steep cost: mounting federal budget deficits….

The unemployment rate remains near a nine-year high, and even during the third-quarter boom, the economy shed 41,000 jobs.

Since Mr. Bush took office, businesses have slashed a whopping 2.7 million jobs, a record that—Democrats never tire of pointing out—is the worst for any president since Herbert Hoover presided over the Great Depression. Even under the most optimistic forecasts for the next year, the economy will likely end up having lost jobs during all of Mr. Bush's first term. "A jobless economic recovery is a little bit like going on a diet and gaining weight—what’s the point?" says Clark aide Chris Lehane….

Because businesses are operating more efficiently and getting more output out of each worker, rapid economic growth may not guarantee a better job market soon….

Executives are clearly seeing the benefits of growth in their bottom lines. Profits grew by 14% in the second quarter, compared with a year earlier, and Mr. Berner of Morgan Stanley estimates third-quarter profits jumped by more than 30% from a year earlier. That is based on the Commerce Department's broadest based measure of corporate profitability….

Wage gains, too, remain under some pressure. The Labor Department's Employment Cost Index report for the third quarter, also released Thursday, showed that wages and salaries were up just 2.9% over the previous year, well below the 4% pace registered at times during the late 1990s boom….

Most economists believe that, over time, interest rates will be higher—and growth lower—because of the sharp increase in expected government borrowing under Mr. Bush….

     It’s amazing how positive the headlines can be—and the comments of pundits on radio and TV—when there is so much bad news in the body of the story. Despite all the good news, workers are still losing their jobs and wages aren’t keeping up with inflation, and the sharp increase in government borrowing will have disastrous long-term effects on the economy.

     And this little gem of a comment has sinister implications that go well beyond the number of words used: “Because businesses are operating more efficiently and getting more output out of each worker, rapid economic growth may not guarantee a better job market soon.”

     Meaning: Corporations are putting a serious squeeze on their lower-level employees. Instead of sharing their productivity improvements and profits with them, they are firing them and making the remaining employees work harder—for less money.

     Scrooge lives, and he’s the modern Republican model of the ideal business person—or legislator.

     We’re smack dab in the middle of the age of greedy egomaniacs.

     As you read the following, ask yourself: who will get most of the benefits of the Bank of America and FleetBoston merger? Especially, what do you think is eventually going to happen to the FleetBoston workers, and to the communities in New England?

From The Wall Street Journal, October 28.

Bank of America
Bets on Consumer

Acquisition of FleetBoston
For $43 Billion Signals
Growing Industry Battle

…The Charlotte, N.C., banking company agreed to buy FleetBoston Financial Corp. in an all-stock transaction that would strengthen Bank of America's position as the nation's largest consumer bank in terms of deposits. The combined company would be the second-largest U.S. bank overall, with $933 billion in assets and a leading market share in every region of the country except the upper Midwest ….

Over a bottle of wine, Messrs. McQuade and Hance (Eugene McQuade, FleetBoston's president, and James H. Hance Jr., Bank of America's chief financial officer) hammered out the possible composition of the combined board and a stipulation that there be no layoffs in New England according to the person familiar with the talks.

Mr. McQuade also insisted on a big premium—far above a token 10% or 15% that would be typical in an acquisition—since FleetBoston had been reporting better financial results and its management expected its stock price to increase….

In 1999, Mr. Gifford (FleetBoston Chairman Charles Gifford) had negotiated safeguards for his job when, as chief executive of BankBoston Corp., he agreed to sell the bank to what was then Fleet Financial Group Inc., which was led by his rival, Terrence Murray….

In the current combination, Mr. Gifford has a "handshake" agreement with Mr. (Kenneth) Lewis (Bank of America counterpart) that Mr. Gifford will be chairman for the next two years, after which he is likely to retire, according to a person familiar with the arrangement….

     You can count on it: There are going to be massive layoffs, mostly in New England. It always happens that way. The top brass—“Mr. Gifford had negotiated safeguards for his job”—always make sure they make out like bandits. To protect their reputations as fine human beings, they also get assurances that their employees will be treated well. After all, there was the usual “stipulation that there be no layoffs in New England.”

     Of course, what’s actually going to happen to employees will follow historical precedent.

      Consider this: Bank of America...

  • ...Paid a “big premium—far above a token 10% or 15% that would be typical in an acquisition,” and will be under intense pressure to make it pay off. B of A stock went down 9% the first day Wall Street got news of the merger. This will lead to future...

  • ...“Changed economic conditions” which will make “unanticipated” cost reductions necessary. (Meaning: fire many of the workers and make the remaining people work harder). In addition...

  • ...Since the top executives are now mismanaging a much larger corporation, they will be deserving of a much higher income, which will...

  • ...Necessitate even more cost reductions and more productivity from the remaining employees. And of course...

  • ...Customers will get worse service as more banking functions are switched from humans to machines that answer phones—and put callers through endless menus. (In effect, cutting labor costs for the Bank and increasing the cost—in wasted time—to the customer.)

     And that, ladies and gentlemen, is the most favorable scenario. Even worse things will happen to workers when the rest of the banking industry tries to do the same thing, to regain their competitive position in the industry. (Corporations never pass cost savings on to workers in the form or shorter working hours, better working conditions, better benefits, etc. These things just keep getting worse.)

     The race to the bottom—for workers and consumers—will continue in the banking industry, as the fat cats get fatter.

     Is this a great country or what? Hospitals not only charge poor and uninsured patients more, when they can’t pay, they send them to jail. Of course, it’s not quite that simple, and it’s a typical example of our country’s usual approach to economic issues.

From The Wall Street Journal, October 30.

Hospitals Try Extreme Measures
To Collect Their Overdue Debts

Patients Who Skip Hearings
On Bills Are Arrested;
It's a 'Body Attachment'

CHAMPAIGN-URBANA, Ill.—Late one night in June 2000, a police cruiser pulled up to Marlin Bushman's house on a quiet, tree-lined street. While Mr. Bushman's wife and son stood by, an officer handcuffed the burly truck driver and took him away to jail. The charge: missing a court hearing about a $579 hospital bill….

Some hospitals now rank among America's most aggressive debt-collectors, as they put increasing pressure on poor and uninsured patients to pay their bills. Adding to the problem, as The Wall Street Journal has reported, hospitals generally charge uninsured patients far more than the discounted rates negotiated by health-maintenance organizations and other private insurers and government agencies.

Some also use one of the harshest and least-known collections tactics of all: seeking the arrest of no-show debtors. A review of court records and interviews with hospital trade groups, collections attorneys and consumer advocates shows that hospitals in several states, including Connecticut, Indiana, Kansas, Michigan and Oklahoma, have secured the arrest and even jailing of patients who miss court hearings on their debts….

The legal tactic of arresting a debtor who fails to appear for a court hearing—known in some areas as "body attachment"—is so extreme that some of the country's biggest commercial creditors say they never use it. For instance, Sears, Roebuck & Co. and Ford Motor Credit Co., the finance arm of Ford Motor Co., say they expressly prohibit their collections agents from asking judges to issue arrest warrants against no-show debtors….

The hospitals' pursuit of body attachments is surfacing at a time when many major U.S. medical centers are under fire for their billing and collections practices. In June, the American Hospital Association, the industry trade group, issued a memo urging its 4,800 members to examine their bill-collection practices and demand that their collections agencies and lawyers "treat your patients with dignity and respect."…

"You can't solve the issue of millions of uninsured by simply turning to hospitals whose financial conditions are quite fragile and say, 'You do it,' " says Howard Peters, senior vice president of the Illinois Hospital Association, a trade group representing more than 200 institutions, including Carle and Provena Covenant….

     The outrageous incomes of corporate investors and the top executives of our health-care corporations cause higher prices for everything—from drugs, to medical tests, to doctor fees, to insurance—ad infinitum. The rich, who also are making outrageous incomes, can afford to pay those high prices—because they inherited their money or are getting high prices from the goods and services they are providing society.

     The losers in this kind of society of auction markets are the people who have no pricing power for their goods and services—the poor, the uneducated, the unlucky, or in some way, the disadvantaged.

     Since they have few governmental protections, like the rich do, (patent and copyright laws, corporate subsidies, protections from union efforts, politicians on-the-take, and so on) all the inequities of society eventually trickle down the economic chain to the people with the least power to defend themselves.

     Just like the above, more egomaniacs reach for the gold by reducing costs—to everyone but themselves.

     Despite the horror stories of persons being denied necessary medical care by unskilled clerks vetoing doctor decisions—America’s new barbarians want to extend the practice, and even make it bigger.

From The Wall Street Journal, October 28.

Managed-Care Mergers:
No Quick Industry Cure-All

Anthem to Buy WellPoint; UnitedHealth,
Mid Atlantic Medical Services Set Deal

Is bigger better in the health-care industry?

That's what the executives of some of the country's top managed-care companies are trying to sell to the public in announcing a pair of big industry mergers. But while the moves might improve customer service over time, they aren't likely to bring relief anytime soon to the national problem of rising health-insurance premiums.

Anthem Inc. Monday announced it was buying WellPoint Health Networks Inc. for $16.4 billion, which would create the nation's largest managed-care company at 26 million members....

Anthem and UnitedHealth also say they hope to transform the way health insurers do business by reducing costs and improving monitoring through economies of scale…. By policing whether doctors prescribe the right medications and order the right tests for chronic conditions such as diabetes and heart disease, managed-care organizations can avoid the cost of treating more serious health complications down the road.

     And again, by making the new merger more profitable—by cutting services to patients, and cutting the incomes of doctors, nurses and support staff—these barbarians will demand higher incomes for themselves.

     And Republicans in the White House and Congress will insist that their income taxes be reduced, and will insure that their descendants will never have to work in their lifetimes—by eliminating estate taxes.

     This little-noticed story has much to tell us about what’s happening to our society. We’re steadily becoming a nation of investors—who have sold out our workers.

From The Wall Street Journal, October 27.

Motorola Sells
China Chip Plant
To Shanghai Firm

HONG KONG—Motorola Inc., reducing its exposure to volatile microchip manufacturing, jettisoned its biggest investment in China, a fabrication plant in Tianjin on which it had spent about $1 billion during the past three years….

Motorola has contemplated the Tianjin sale for months as part of what the U.S. company calls its "asset lite" strategy, developed because of the industry's woes during 2001. Motorola cut production at its chip plants and began to rely more heavily on contract manufacturers, which pay the multibillion-dollar costs of new chip plants with high-production volume spread among many customers….

     The “asset lite” strategy is a euphemism for “let’s abandon our American workers and communities and invest our money in other countries that can brutalize workers.”

     Of course, this strategy makes sense to those whose only interest is making profits. They feel absolutely no obligation, not only to their own workers, but to American citizens in the bottom 80% of the income and wealth scales.

     American corporations have found that they can make more money if they “rely more heavily on contract manufacturers.” Instead of accepting the real challenge of building and managing manufacturing plants themselves—they simply outsource the work into a ruthlessly competitive world market.

     Result: Investors and top corporate executives become incredibly rich, and those who don’t have enough money to invest are relegated to a world of work—in a primitive world with no moral standard of utility, or even of fairness and justice. (See Utility, Our forgotten Moral Standard.

     Great news for all of us! (Except for those who actually work, of course.)

     The following two articles from Barron’s almost say it all: The stock market is soaring, “leaving us all winners.” Of course, the part of the world that is getting all our jobs, Asia, is becoming our greatest source of wealth (for all us rich investors).

From Barron's, October 27.

Happy Trails

Stocks are heading higher, portfolio managers say

HAPPY DAYS ARE HERE AGAIN, give or take a few frightful stock-market sessions. After three years of losses, the major indexes are flying high, propelled by signs of a stronger economy, fatter corporate profits and a return of the animal spirits in certain familiar quarters. Year-to-date, the Dow Jones Industrial Average has risen 14.8%, the Standard & Poor's 500 index, 17%. And the Nasdaq Composite—so hot, it's cool—has shot up 39.6%, as investors rush to bet on a brighter future….

In addition to U.S. stocks, the Big Money managers increasingly favor Asian equities….

By a wide margin, the Big Money managers say the No. 1 issue in next year's race will be the state of the economy, with America's involvement in Iraq a distant No. 2. If the stock market performs as well as the managers expect, however, "It's the economy, stupid" could well be buried, leaving all of us winners.

Changing Places

Forecast sees China atop global economy by 2050, with India, Brazil and Russia up there, too

MOVE OVER, G-6. By mid-century, the economic firepower of Russia, China, India and Brazil could have you surrounded. A recent report by Goldman Sachs shows these four economies coming on so strong that together, they could soon outrank the combined might of the six economic superpowers of today: the U.S., Japan, Germany, France, Italy and the U.K.

"The implication is that the economic and financial power is going to shift away from us," says Dominic Wilson, a senior Goldman economist and one of the authors of the report, which sees the U.S. as No. 2 by the year 2050, sandwiched between China and No. 3 India….

For America, the news isn't all bad. Although the U.S. would cease to be the most dominant single force in the global economy, it would reap trade benefits from the new megapowers' hefty gains in spending on goods and services. Although these nations, particularly China, are often viewed mainly as competitors to the U.S., "probably more important in the long run is that these are economies that are going to be generating a substantial part of the world's demand growth," Wilson says.

     Our short-term concern for profits and wealth now for already-rich investors—even at the obvious expense to our entire economy and society—is truly astounding. “Russia, China, India and Brazil… these four economies coming on so strong that together, they could soon outrank the combined might of the six economic superpowers of today: the U.S., Japan, Germany, France, Italy and the U.K."

     How could it be otherwise? If we eagerly give them all our jobs that create true wealth, how can we maintain our vibrant society? (See Wealth does not equal Money) And what good—to our workers—is a “demand growth,” if all the suppliers of demand are in other countries?

     These two articles say it all. The editors of Barron’s are reporting a developing disaster, and they refuse to recognize it. There’s a corollary to “Power corrupts, and absolute power corrupts absolutely.” It’s “wealth corrupts, and incredible wealth corrupts voraciously—and blindly.”

     Some have made predictions along the lines of: because of technology and productivity improvements, by the year 2020, all the world’s manufacturing could be done by 10% of the world’s workers.

     Given the explosion of productivity improvement, coupled with America’s outsourcing of jobs, we’re in the middle of an unmitigated disaster for working-class Americans—as well as for workers throughout the world.

     And you just can’t have this kind of growing income and wealth disparity without severe consequences that will affect everyone.

     The blind who choose not to see. How can conservatives fail to acknowledge what’s before their own eyes. The following editorial and commentary were in the same issue of Business Week.

From Business Week, October 27.

A Turning Point For The Economy

As factory work flees to China, the U.S. needs fresh job creation

Suddenly, things are looking up. Corporate profits are surging, the stock market is levitating, confidence is returning—and even tax revenues are beginning to rise. With the economy going gangbusters, the unprecedented past two years of massive job losses in the face of rising economic growth is probably at an end. But a quick rebound in jobs should not be taken for granted, especially by those in the 2004 Presidential campaign. This time around, the U.S. is having not just cyclical joblessness but permanent job destruction.

People thrown out of work are taking substantially longer to find new work. Most of their old jobs are gone forever, and they will need to jump to different industries, perhaps entirely unrelated ones, to replace them. As demand picks up and companies lose their strong reluctance to hire, the economy will eventually generate many jobs. But millions who suffer from job destruction will require extra training and schooling to retrofit them into new careers….

What's different this time around? Sharply rising productivity and "offshoring" of factories to China. Past business cycles saw productivity fall as the recovery picked up and companies hired more people. This time, productivity growth actually accelerated, allowing corporations to accomplish more with fewer people, and boosting profits. Companies sent production offshore even as growth returned….

…there is a chance that job destruction overwhelms job creation. Rising productivity combined with outsourcing could spread from manufacturing to services, impairing jobs. Goldman Sachs predicts that up to six million service jobs could move offshore over the next decade.

It would be prudent for policymakers to start thinking about helping people find the education and training to start new careers. The tide is clearly rising. We should make sure that everyone gets into the boat.


From Business Week, October 27.

Commentary: Give This Employment Policy The Guillotine

France's 35-hour workweek has been a disaster—so why is it intact?

By John Rossant

French public officials can sometimes display a refreshing honesty. That was the case in early October, when Budget Minister Alain Lambert did the political equivalent of telling the emperor he had no clothes. Speaking to the French Parliament, Lambert expressed his real feelings about the country's four-year-old law reducing the workweek to 35 hours.

Not only has it been costing the French economy $17 billion a year, he said, but the law is also a key reason why France has underperformed so spectacularly over the past few years. "All French people think the 35-hour [week] is an economic mistake,"said Lambert….

France's 35-hour-week legislation, the main electoral plank of a center-left that stumbled back into power in 1997, swam against the tide of history. It minutely regulated the workplace just as other countries were deregulating it, and it decreased the number of working hours just as average working time in the industrialized world was inching up. Now the French work fewer hours than just about anyone in the developed world, and 24% less on average than workers in the U.S. The law also saddled businesses with competition-eroding extra costs: Productivity was dented by requiring employers to keep paying workers the same salaries while cutting their hours. Lambert is right: It's a lousy law. France should repeal it….

The 35-hour law sent a powerfully negative message that France was no longer interested in things like growth, prosperity, and dynamism. It was based on the misguided assumption that the amount of work was finite, sharing it would reduce unemployment….

…the extension of the 35-hour week to the public sector has led to a perceptible degradation in service. That's particularly true in France's once-vaunted health-care system: Doctors work 20% less, on average. Staff shortages in hospitals and nursing homes due to the 35-hour week was a key reason August's heat wave killed 14,000 in France….

     “We should make sure that everyone gets into the boat.” How stupid can you get. Our first objective is to keep the boat from sinking in the first place. Once it’s sunk, the game is over. There is no way America can magically retrain millions of ex-manufacturing workers into new high-tech jobs. And even if we could, even those jobs are being outsourced.

     “the U.S. needs fresh job creation.” Again, what good does that do? As soon as they are created, they go to India or China.

     “France's 35-hour workweek has been a disaster—so why is it intact?” France’s 35-hour workweek is intact because the French government made it the law. That’s the ONLY way society can protect itself from the greed and materialism of investors and top corporate executives.

     Investors and corporate executives will NEVER willingly share the increases in worker productivity with their own employees. Instead of sharing—they terminate, and then make the remaining employees work harder.

     Our own national laws are the ONLY reason American workers won the 40-hour workweek with time-and-a-half for overtime. If the U.S. and other countries had joined civilized France—and also made a 35-hour workweek the law—France wouldn’t have lost its industry. Of course, the issue is more complicated than that, but that’s the idea.

     Countries who brutalize their own workers get the industries. Civilized countries don’t.

     France is civilized, and because of it, may experience severe financial penalties. The U.S. is uncivilized in its treatment of workers, and because of it, our wealth and income gap is exploding—and will eventually destroy the best economy the world has ever known.

     Related to the above issue, this excerpt explains the results of previous bad political decisions: the underfunding of education in the U.S., coupled with the total disregard of the economic welfare of our middle-class citizens.

From Business Week, October 27.

Commentary: All The World's A Call Center

Outsourcing doesn't just save cash. It can lift quality

By Diane Brady

Outsourcing jobs is a touchy business. Executives would rather not talk about the job losses at home, preferring to focus on the cost savings. Here's another thing they don't like to talk about: those manning the phones at call centers overseas often provide better customer service than their American counterparts. That's especially true in India, now by far the most popular destination for offshore customer service jobs. An exec at one multinational gloats that everything from customer satisfaction to error rates are vastly better. "But we'll never talk about that for competitive reasons," he adds.

Why is that the case in India? For one thing, such workers are better educated than their U.S. counterparts. According to Elio Evangelista, a senior analyst at independent research firm Cutting Edge Information, virtually all Indian call-center workers have college degrees. By contrast, many of their American counterparts are high school grads. More education can be helpful as consumers increasingly need complex technical or financial information….

     Instead of using more tax money to enable America’s population to get an advanced education, we gave tax breaks to our richest investors—who, in turn, use that money to invest overseas where they can get college educated workers for one-third the cost of American high school grads.

     Of course, this means that middle-class Americans end up making less money, have less to pay in taxes, and our financially-starved educational system will continue to degenerate.

     And our new-age corporate barbarians will claim they are forced to go overseas because they can’t find adequately educated workers in the U.S.—which is exactly what they caused, and have wanted to do all along.

     Again, Barron’s is caught at cross-purposes. In attempting to inform its readers about the hazards and difficulties of planning for retirement, they are also making an excellent argument against privatizing Social Security.

From Barron's, October 27.

Retiring With Help

Pension investing should be simple

…People don't put enough money into defined-contribution plans, and they don't start to save soon enough, in part because they don't understand the process. The system has great potential, but in practice, it confuses the pants off the novice investor. That confusion gives many people an easy excuse to procrastinate, and that will leave them woefully short.

It's not the average investor's fault. Why does this process have to be so hard?...

Savings shortfalls show that average workers need direct advice, easier products or some other way to bridge their information gap, and they need real help early in their careers, before they completely ruin their ability to support themselves in retirement….

Most people don't understand wealth creation, but they might be able to understand a full-service option if it came with a plain-English description like: "This is for everybody who doesn't know what they're doing, and isn't afraid to admit it. We will try to get a steady 8% annual return….

The lawyers and marketing folks out there probably are cringing, but the question is very simple: Why can't a 401(k) benefit actually benefit the beneficiaries?...

The investment community and regulators need to make it easier for normal people to save money and invest it wisely.

     “Savings shortfalls show that average workers need direct advice, easier products or some other way to bridge their information gap, and they need real help early in their careers, before they completely ruin their ability to support themselves in retirement.” If the readers of Baron’s can completely ruin their retirement, how about the millions of workers who don’t read such publications?

     Actually, it’s a good article, and people who have 401 (k)s should probably read it. And it’s true that “The investment community and regulators need to make it easier for normal people to save money and invest it wisely.” But that’s not the purpose of Social Security.

     Social Security’s purpose is to provide rock-solid financial assistance to those in retirement—which includes “Most people (who) don't understand wealth creation.” And the ability or luck for most people to invest in the stock market is a wholly separate issue.

     About two decades late, unions and corporate executives may have found a way to stop the scandalous increases in executive pay.

From Forbes, October 27.

You Sure I Agreed to That?

Here's something you don't see every day: During the recent contract negotiations with the United Auto Workers union, senior management at partsmaker Visteon agreed to take a pay cut. A really big one, potentially….

To sell the two-tier deal to the union, Visteon agreed to something called "equivalence of sacrifice" when setting management compensation. In effect the union is saying, "If you're going to cut our throat, we're going to cut yours." Will it happen? It's a toss-up, says Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor,Mich.: "Maybe the union thinks this will slow down the wage cut."

The contract clearly states that top management should accept pay and benefit reductions "at least as large in percentage terms as those sustained by new hires." Delphi, the parts supplier spun off from General Motors, has agreed to the same principle in its contract.

Visteon Chief Executive Peter J. Pestillo and Delphi Chief Executive J.T. Battenberg III won't have to moonlight as cabdrivers. But they do stand to lose a lot of change if they're forced to swallow, say, a 30% pay cut. In 2002 Pestillo earned $4.1 million; Battenberg earned $6.9 million.

     Problem is, Pestillo and Battenberg won’t even feel a 30% pay cut if it happens. Our Republican-designed economy of the past 20 years has ensured aristocratic status for them and those in their class. The union workers, on the other hand, will suffer very real declines in their standards of living.

     Not only that, it's absurd to think that an equal percentage cut in income is fair, when the incomes of the union members have been tied to inflation for the past two decades, while the incomes of investors and top executives have been skyrocketing.

     Consider the following the next time you feel sorry for all the taxes that the rich have to pay.

From Forbes, October 27.

One Hand Giveth ...

Too many trustees of tax-exempt foundations seem to have trouble keeping their hands out of the cookie jar. One reason: No one is watching.

Do you need a fat tax break and have millions on hand? Here's a tip: Establish your own charitable foundation. If you need the money later, raid the foundation in the guise of drawing a salary as a trustee. It's perfectly legal, except for the most egregious, abusive cases.

Now the problem is drawing attention from Congress, watchdog groups and prosecutors, especially in California and New York. As William Josephson, an assistant attorney general in New York, puts it: "The donors in these private foundations can't distinguish between their own money and the foundation's money."…

Congress recently took a stab at the problem. The Charitable Giving Act of 2003, which the House passed inSeptember, raised the penalty on self-dealing from 5% to 25%, nixed first-class and business-class air travel and banned wealthy donors and family members from including more than $100,000 in administrative expenses as part of the required 5% charitable distribution. Problem is, the Secretary of the Treasury still has to define what "administrative expense" means. It looks like the charity game will go on for some time.

     Too bad workers don’t have the lawyers who can tell them how to establish charitable organizations. They’re the ones who actually need the tax breaks.

Week of October 20

     The squeeze continues on America’s remaining manufacturers.

From The Wall Street Journal, October 22.

Feeling the Squeeze

Beneath the cheering din over strong earnings, the struggles of the American manufacturing sector can be heard.

Toolmakers Stanley Works and Black & Decker and, after the close, furniture maker Furniture Brands all report Wednesday. There is lots of talk about the forces squeezing these companies; these guys live it.

Chinese furniture makers seem to be doing the same thing to American-made furniture as foreign competition did to textiles, toys and apparel. Last week, La-Z-Boy warned on earnings. Furniture makers are moving production overseas as quickly as they can, but it is unlikely they can close the pricing gap. Labor costs are such a large part of the business….

     You can talk all you want about how improvements in technology and productivity are costing Americans’ jobs. But nothing compares to our stupid trade policies that have created record trade deficits that cannot continue without severe economic consequences.

     Technological and productivity improvements should improve our quality of life. The jobs lost are recovered by the resulting growing and successful economy. Trade deficits, on the other hand, represent a fundamental loss of our ability to create wealth, as we export our wealth-creating facilities to other countries.

     Bear in mind that wealth consists of things—products and services—not money. All the “wealth” created in the U.S. by “globalization” is in the form of money in the hands of rich investors. (See "Wealth Isn't Money.")

     If you don’t believe that wealth is truly a zero-sum game, take note of what is happening to health care for those who don’t get a big enough share of the corporation’s profits.

From The Wall Street Journal, October 22.

Even at Giant Companies,
Many Lack Health Benefits

Cost of Employee Contributions,
Stricter Eligibility Criteria Keep
Low-Wage Workers Out of Plans

An increasing number of Americans lacking health insurance are turning up in unexpected places—the factories and offices of the country's major employers.

Large companies have long formed the bedrock of the U.S. system of employer-sponsored health insurance. A company with more than 1,000 employees is much more likely to provide health coverage than a business of fewer than 25 people—one reason many workers opt for jobs and the stability of benefits at the bigger employers. Nevertheless, between 1987 and 2001, the percentage of uninsured workers in large companies climbed to 11% from 7%, according to a new study from the Commonwealth Fund, a private research foundation.

Roughly one out of four people without health coverage in the U.S.—about 10 million—work part time or full time at companies with 500 or more workers, or are the dependents of these workers, the study's researchers say….

Employers don't often discriminate among different classes of workers when it comes to health benefits. But companies' lowest-wage earners have been hit hardest by the rising costs. According to the study, 46% of all low-income workers in large firms, those earning less than 200% of the Federal Poverty Level, go without insurance for at least part of the year. That includes part-time workers and new employees who may still be waiting to become eligible for a company's health plan. "The end result is that you can have people working side by side, some people with reasonably comprehensive benefits and those who don't have anything," adds Ms. Schoen….

At Wal-Mart Stores Inc., for instance, new hourly workers must wait six months to sign up for benefits, and part-timers—those who work fewer than 34 hours a week—can join the plan only after two years on the job. About 10% of Wal-Mart's work force doesn't have, or has opted not to take, insurance; about half are on the Wal-Mart plan, and the remaining 40% have insurance elsewhere….

     It’s amazing how often Wal-Mart is used as an example of deplorable employee practices—and as a model for modern corporations to follow.

     As usual, the investors in Wal-Mart and the top executives take most of the money when profits are divided up—and therefore can afford to pay for health insurance—while those at the bottom aren’t allowed to qualify for health care insurance, or don’t make enough money to participate in their own company’s plan.

     The following three articles from the same issue of Business Week summarize our country’s betrayal of its working-class Americans.

     If you can’t figure out why, key in on the second article that is remarkably frank—for a conservative financial publication—about the real issue involved: “This widening gap sets up a clash between the desires of the labor force and the investor class.” That’s what the new economy in the U.S. is all about, and the investor class has won with a vengeance.

     And some day, the investor class will wake up to the nightmare their own greed has created for itself.

From Business Week, October 20.

The Productivity Boom Is Just Warming Up

The American economy is beginning to pick up steam, with growth of annualized gross domestic product in the second quarter of 3.3% and a continuing boom in productivity. The evidence on productivity is particularly important since growth in technology and productivity are the most significant determinants of improvements in the standard of living….

The large spurt in technological progress during the past eight years is mainly due to a series of developments: rapid progress in computer capabilities, the explosive growth of the Internet, advances in cellular and other wireless technologies, the growth of fiber optics, advances in biotech, greater world competition for U.S. companies—which induced improvements in business efficiency—and myriad other smaller improvements in technology….

The recent speedup in productivity growth suggests that the IT revolution is progressing along similar lines. If so, prospects are excellent for long-term growth in output per worker at a rate of 3% per year or higher for perhaps decades. Income per worker could double in 25 years or less….

The relatively high unemployment rate and apparent decline in employment gets most of the media and political attention. But the most significant news from the past few years is the continuation and possible acceleration of the sizable productivity advance that began almost a decade ago.


U.S.: A Jobs Recovery, Yes. A Hiring Boom, No.

Intense cost pressures and weak pricing will keep payrolls from surging

It's about time. The news that the labor markets might finally be turning around certainly elicited sighs of relief from the millions of job seekers who have been unable to find work despite two years of so-called economic recovery….

But the next step in the job revival will be the most difficult. Hiring must now rise to a pace that will assure a self-sustaining economic expansion, where new jobs generate demand that encourages businesses to expand, creating even more hiring. On that front, the data are not yet so encouraging.

THAT'S BECAUSE STRUCTURAL changes within the labor markets will make it harder for job creation to pick up strongly, even if real gross domestic product grows at a solid clip. Companies face unusually intense cost pressures that were rare or nonexistent in prior upturns. Global competition, soaring health-care expenses, and the need to restore pension fund assets are eating away at profit margins at the same time that businesses have little pricing power in a low-inflation economy….

Economists at the Federal Reserve Bank of Kansas City examined how businesses rely on flexible labor inputs to align their payrolls with production. They say that temp workers, part-time employees, and work-time management have allowed companies to delay hiring full-time workers. They also note that a greater number of job losses in this business cycle are permanent….

In the long run, faster productivity growth is undeniably positive. But in the coming year, companies' continued reliance on efficiency will work against a rapid return to strong hiring….

ONE SURE THING is that companies will remain focused on reining in payroll costs. In the year ended in the second quarter, labor expenses grew 3.6%, almost equal to the 4% increase in revenues economywide, as measured by the dollar value of GDP….

…the success businesses have had in cutting payrolls and holding the line on wage gains means labor's share of national income continues to fall this year, as profits' share keeps rising. This widening gap sets up a clash between the desires of the labor force and the investor class. Workers want bigger pay raises and job seekers want to see more hiring. Investors want businesses to concentrate on pumping up the bottom line and lifting stock prices.

History has shown that both can be satisfied, but only if demand growth accelerates to a point that enables the economy to accommodate both its productivity trend and the desires of job seekers….


Italy: Trying To Ease The Pension Squeeze

Is Italy getting serious about pension reform? Prime Minister Silvio Berlusconi has made it the focal point of his 2004 budget, even taking the unusual move of going on national television to plead his case. Berlusconi appears ready to go head to head with the unions, but he also faces opposition within his coalition government, especially from the Northern League party.

Beginning in 2008, Berlusconi's plan would require all workers to amass 40 years of pension contributions, up from 35 years, with penalties for early retirement. From 2004 to 2007, as an inducement to delay retirement, the plan would pay workers eligible to retire under existing rules a bonus of 32.7% of their salary, equivalent to the contributions they and their employers would continue to pay into the system. Unions, which are receptive to the work incentives but opposed to a longer contribution period and penalties, have set an Oct. 24 strike date to protest the proposal….

     Key statements in these articles:

  • "The evidence on productivity is particularly important since growth in technology and productivity are the most significant determinants of improvements in the standard of living.” That should be a true statement, but, today, it’s only true for investors because they have all the power and workers have none. Investors and top corporate executives want ALL the benefits of productivity improvement for themselves, and don’t want to share ANY of it with workers.

  • “The large spurt in technological progress during the past eight years is mainly due to … rapid progress in computer capabilities, the explosive growth of the Internet, advances in cellular and other wireless technologies, the growth of fiber optics, advances in biotech, greater world competition for U.S. companies.” And all of this progress helps American corporations to abandon American communities and workers and go to other countries.

  • “Companies face unusually intense cost pressures that were rare or nonexistent in prior upturns. Global competition, soaring health-care expenses, and the need to restore pension fund assets are eating away at profit margins at the same time that businesses have little pricing power in a low-inflation economy.” Meaning: If investors and top corporate executives are to continue getting incredibly richer, they must continue the present practice of taking all the benefits of productivity for themselves. Forget health care and pension benefits for workers—more money for the top brass is all that counts.

  • “…temp workers, part-time employees, and work-time management have allowed companies to delay hiring full-time workers. … a greater number of job losses in this business cycle are permanent." Meaning: globalization is only the biggest cause of job loss and lower wages in the U.S. Corporations have discovered many other ways to cut working-class Americans out of sharing in the benefits of their own increased productivity.

  • “…the success businesses have had in cutting payrolls and holding the line on wage gains means labor's share of national income continues to fall this year, as profits' share keeps rising.” Meaning: investors and top corporate executives have won the class war with all those who actually work for a living.

  • “History has shown that both can be satisfied, but only if demand growth accelerates to a point that enables the economy to accommodate both its productivity trend and the desires of job seekers.” This is simply not true. The French Revolution, 1929 in our own country, and a myriad of examples demonstrate that the only thing that counts—in who gets what in an economy—is who has the power. Right now, investors and top corporate executives have all the power, and they’re in the process of destroying the greatest economy ever developed.

     The last key statement requires more extensive discussion: “Berlusconi appears ready to go head to head with the unions, but he also faces opposition within his coalition government, especially from the Northern League party.”

     This statement is a brief description of the philosophical discussion that is going on in every country: to what extent will the rich share the benefits of the economy with those who work for a living?

     Italy, along with some other European countries, decided to fulfill the promises made decades ago that their workers should share in the benefits of productivity and technology improvements. They continued to pass national legislation that provided for better benefits, better working conditions, and shorter working hours. Result: investors have abandoned these countries in favor of countries who were willing to brutalize their workers. Now those countries with high moral standards, in the ways they protect worker rights, are in economic trouble.

     The U.S. is in both camps. We have better working conditions than most other countries, but they are deteriorating. We’re in the process of joining countries such as Indonesia, China, Guatemala, etc. in the race to the bottom—with the rich getting incredibly richer, and middle and lower-class Americans working harder for less pay.

     And to think that 50 years ago we were predicting that we’d have 32-hour, 4-day work weeks—with five weeks vacation per year—by the year 2000, along with better health care and pension benefits.

     Those things didn’t happen, because of the greed of those who now have all the political power. It’s time for a change (see: A voter’s guide for taking back our government.).

     Barron’s presents two articles in the same issue that again demonstrate how even sophisticated investors can be taken by Wall Street. Since both abstracts are presented solely for the purposes of criticism, readers who are interested in their investment implications should read the entire articles.

From Barron's, October 20.


Securities arbitration cases are surging—and turning nasty

…Although stocks have rallied smartly this year, investor complaints are still piling up from the three-year bear market. Investors are on track to file a record 9,500 arbitration cases this year with the National Association of Securities Dealers, which handles the vast bulk of such proceedings. That's up nearly 25% from the filings of 2002 and nearly double the volume of five years ago.

Brokerage firms aren't taking this lying down. Arbitration experts say the firms are fighting back with tough tactics, such as filing more motions to dismiss cases, refusing to hand over account records and trying to overturn investors' victories. "All claims are being defended much more aggressively than pre-2000," says Atlanta-based investors' attorney J. Boyd Page.

The upshot: Investors aren't winning cases as frequently as they used to. Only 55% of the arbitration cases resolved by the NASD in the first eight months of this year resulted in awards to investors, down from 61% in 1999. The average award held even, at about $26,500….

"We didn't ask for all this legal complexity," says Stuart Kaswell, an attorney who represents brokerage firms is the former general counsel of the Securities Industry Association, Wall Street's main trade group. "But since the complainants' attorneys have foisted it on us, they have to expect tough tactics in return."

New York attorney John Lawrence Allen, who has represented investors for 20 years, begs to differ. "It's simply outrageous that brokerage companies have made arbitration more abusive and less equitable than court litigation," he says….

Even as the volume of cases has picked up, the basic nature of investors' complaints hasn't changed much over the years. The charges range from churning (excessive trading) to unsuitability (say, putting a conservative customer in an overly risky stock) to breach of fiduciary duty (a catch-all for such misdeeds as unauthorized trading or reliance on corrupt research)…. If all of this sounds rather nasty, that's because it is. Now more than ever, fighting on Wall Street is not for the faint of heart.


From Barron's, October 20.

Smells Like Momentum

Chasing yield can be a dangerous thing

IS A HERD MENTALITY TAKING HOLD in the corporate-bond markets? While there might be some juice left in investment-grade and high-yield corporates, some money managers think many bonds are being marked up as indiscriminately as they had been marked down last year….

For one thing, investors are not getting paid for the risk they are taking, particularly in the high-yield market, he says. The yield-to-worst—that is, the yield resulting from the most adverse set of circumstances from the investor's point of view—on the Lehman Brothers High-Yield Index stood at 8.43% at the end of September. This is the lowest monthly close since the firm started tracking the data in 1987….

That said, there's another worry with investors hunting for yield. FPA's Atteberry says the high-yield market is not "deep and liquid enough" to handle blocks of selling if that should occur.

"What happens if one of these companies stumble?" he says. "It's not hard for them to do that in this highly competitive environment. Who's going to be behind these investors if there is selling taking place?"…

     Even the sophisticated readers of Barron’s need to be warned about the pitfalls of Wall Street: not only can investors be taken in by the madness of the moment—and the sales ability of securities brokers—but when deliberate fraud occurs, the arbitration deck is stacked against them. (Incidentally, articles like this come out almost weekly in our most prestigious financial journals.)

     Face it. Wall Street is a crap-shoot in which greedy investment professionals have all the advantages, and the small investor is at the mercy of those who have absolutely no commitment to ethical behavior.

     Conclusion: Social Security—which is designed to be an iron-clad guarantee of a minimum amount of retirement funds for even the poorest worker—was never intended to be a speculative attempt to acquire wealth. The fund has never been broke, and would never become broke, if Republicans and conservative Democrats would remove the top contribution limits for our richest Americans.

     The following is just another article that demonstrates that the entire mutual-fund industry—undoubtedly with a few exceptions, like the Vanguard mutual fund—is fundamentally corrupt. (Mutual-fund investors who are interested in the full implications of this very long article should read the original.)

     In other words, this is another example of why Social Security should not be privatized.

From The Wall Street Journal, October 20.

For Staid Mutual-Fund Industry,
Growing Probe Signals Shake-Up

Investigators Find Indications
Of Widespread Abuses
Hurting Small Investors

The mutual-fund scandal is spreading, as it becomes clear that players throughout the $7 trillion industry could face scrutiny for improper practices that are turning out to be surprisingly common.

On Thursday, Massachusetts securities regulators signaled that they are investigating whether employees at three big mutual-fund companies—Fidelity Investments, Morgan Stanley and Franklin Resources Inc.—helped brokers get around prohibitions on short-term trading in their funds. The same day, state prosecutors in New York who have spearheaded a growing criminal investigation of the fund business, notched their first conviction of a mutual-fund executive: a former senior official with Fred Alger Management Inc., who pleaded guilty to obstructing the probe.

New York Attorney General Eliot Spitzer, having earlier forced changes in the way analysts at brokerage firms operate, now says he intends to use the mutual-fund investigation to clean up another part of the financial world that has favored large clients at the expense of smaller ones, including millions of workers and retirees….

The mutual-fund industry has wrestled with the pricing paradox for generations. In the 1930s, many mutual funds effectively had two prices: one that was public and another, more-up-to-date one that was made known hours before it was published to certain big investors. Those in the know could make quick profits because they knew where fund prices were headed….

     Key phrases in this article: “another part of the financial world that has favored large clients at the expense of smaller ones, including millions of workers and retirees,” and “Those in the know could make quick profits because they knew where fund prices were headed.” The ones who are benefiting from this system don’t sound like retired workers.

     Did you ever notice how very rich people can protect their work. Corporations can copyright their work or patent their inventions, and demand payment for what they did today for many years into the future.

     The following article excerpt is presented to emphasize the lack of similar protections for America’s workers.

From The Wall Street Journal, October 20.

Software Companies
Flex Real Muscle
In Search for Pirates

…The Business Software Alliance is a typical Washington trade group, one whose members include big software companies like Microsoft. The BSA does all the things that most D.C. lobby groups do, but also something every other group only dreams of: It can use policing powers to get its way.

The BSA has "power of attorney" to enforce the copyright claims of its members against companies using pirated software. If the BSA finds out your company is using more software than you have paid for, they can not only demand that you buy the programs, but also pay a penalty—technically, a settlement fee that is negotiated—as a reminder of the error of your ways….

     Interesting, isn’t it—that workers can work very hard for long hours to make their corporations successful, but they have no long-term vested interest in the results of their work.

     It’s as though they never existed and their work never happened. They contribute, they wear themselves out, and then they are summarily discarded. And the investors and top executives become members of America’s new aristocracy.

     This is not to say that inventors and writers shouldn’t have protections. It’s just that manual laborers should have protections also. (Social Security is one of those protections, but Republicans and conservative Democrats want to destroy it, or, at least, reduce its benefits.)

     Workers desperately need a group that has the power of the Business Software Alliance. A strong Labor Party? Or a political party of actual Democrats?

     The race to the bottom continues, as even those who have moral principles are forced to abandon the very same people who made them successful.

From The Wall Street Journal, October 21.

Toy Maker Survives
By Moving an Icon
From Ohio to China

Until three years ago, Larry Killgallon, president of Ohio Art Co., used to stroll from his office at One Toy Street in Bryan, Ohio, to the plant next door to chat with workers assembling the company's most famous toy, the Etch A Sketch.

Those workers are gone now, the assembly line closed, and much of its equipment installed in Chinese factories where the toy icon, along with Ohio Art's Betty Spaghetty doll, water gun and other toys are made. All that's left at the Ohio company are about 190 employees who work in executive and office jobs, or making metal lithography products for the photography and other industries.

Ending all U.S.-based toy production was a grueling decision for Mr. Killgallon and his brother William, company chairman and CEO. Some of the very same employees who made the first Etch A Sketch toys in 1960 were still there when the layoffs were announced in 2000. "They were like family," Larry Killgallon says. "It was a necessary financial decision we saw coming for some time, and we did it gradually, product by product. But that doesn't mean it's emotionally easy."…

But because Ohio Art is a big business in a small town (pop. 8,000), Mr. Killgallon must face the ramifications of moving his U.S. manufacturing overseas far more directly than most executives in his position. He used to run into his employees in church and at the grocery store, and tell them when he needed to rush out an order….

     A key statement helps explain why American corporations can callously abandon American communities and their workers: “Mr. Killgallon… used to run into his employees in church and at the grocery store, and tell them when he needed to rush out an order.” Mr. Killgallon apparently is one of the good guys who truly cares for his employees. He was close to them and identified with them, and turned to outsourcing as a last resort.

     Most of today’s corporate chieftains are remote people on high. They are “professional” managers who are only interested in profit and not in their own people—sometimes they aren’t even interested in their corporation’s product or service. And people who are remote from the people they lead develop absolutist and egocentric values: “I’m right because I’m at the top”; and “what’s in it for me?”

     That’s the type of corporate executive—and the type of enabling politicians—that gave us globalization, and the Killgallons were forced to follow, or be driven out of business.

     What a fine world Republicans and conservative Democrats have given us.

     For the past six months, the news of corruption on Wall Street illustrates how an entire industry can join a “race to the bottom” when it comes to moral and ethical standards. As a few players in the game make obscene profits by cutting ethical corners—even to the point of illegality—others feel forced, or justified, in doing the same.

From The Wall Street Journal, October 23.

Scrutiny of Mutual Funds Grows
As SEC Probes Deals With Brokers

Putting the nation's mutual-fund industry under even more intense scrutiny, the Securities and Exchange Commission is deepening its investigation into arrangements between fund companies and brokerage houses and whether those agreements improperly influence which funds brokers recommend to investors.

The investigation, which for months has been looking into fund-industry sales practices, is now examining whether some mutual-fund companies agreed to direct orders for stock-and-bond trading to brokerage houses that in turn agreed to promote sales of the fund company's products, according to people familiar with the probe….

After decades of operating relatively scandal-free, the industry has been rattled by almost daily revelations or allegations of wrongdoing related to how shares of the funds are traded. Separate investigations into these practices are being conducted by the SEC and New York Attorney General Eliot Spitzer. These probes seek to determine whether some big investors were allowed to buy and sell fund shares on favorable terms not available to other investors, who suffered financially as a result….

The latest SEC investigation "is one more example of what the trading scandal has revealed, which is that increasingly everything in the fund industry is favoring the manager at the expense of the shareholder, who is losing out because the fund may be paying too much in commissions," says Jack Bogle, founder of Vanguard Group, one of the country's biggest mutual-fund companies….

Brokers are supposed to base their advice on which investments are most appropriate for an investor….

     Two lessons:

  • Government regulations are absolutely necessary to protect the public interest in most (all?) areas of commerce. You can’t ever rely on corporate executives to act in the public interest, based solely on ethical or moral values. That’s true not only for individual corporations; it’s true for entire industries. In the mutual-fund industry, adherence to moral standards seems to be the exception and not the norm (apparently, the Vanguard Mutual Fund has remained relatively scandal-free).

  • Given the low moral standards of Wall Street, Social Security should obviously NOT be privatized. Putting retirement funds in the hands of these greedy clowns would be a disaster for unsophisticated investors—or even the sophisticated ones who are being forewarned by The Wall Street Journal in this article.

     (This brief excerpt was used for purposes of criticism only. Those interested in the implications for investing in mutual funds should read the entire article.)

     To understand the background of the following excerpt, check out the “Destructive Achiever” concept.

From The Wall Street Journal, October 24.

Immigration Raids Wal-Mart,
Rounding Up 300 Illegals

Federal officials rounded up more than 300 illegal workers at about 60 Wal-Mart Stores Inc. outlets nationwide early Thursday and raided a Wal-Mart manager's office at company headquarters as part of the government's efforts to crack down on businesses that use undocumented workers….

According to a study by the Pew Hispanic Center, in 2001 there were 5.3 million illegal workers, excluding agriculture, out of a total U.S. work force of 144 million. Besides farm jobs, which employ an estimated 1.2 million undocumented workers, meatpacking, poultry processing and janitorial work attract the greatest numbers of illegal immigrants….

Last year, Tyson Foods Inc., the nation's largest poultry company, was acquitted of federal charges that it smuggled immigrant workers into the country to staff its processing plants.

Federal officials also are trying to determine who at Wal-Mart may have known about the undocumented employees. The world's largest retailer is well-known for its intense focus on keeping expenses down. The office of a manager at the company's headquarters in Bentonville, Ark., was searched and officials carted off several boxes of documents….

"You have hard-working immigrants doing low-paying jobs that most Americans don't want," said Frank Sharry, executive director of the National Immigration Forum. "They're caught between bad immigration laws that provide no path to legal status and no guarantees of labor rights and employers who are in the position to take advantage of them."…

     “Federal officials also are trying to determine who at Wal-Mart may have known about the undocumented employees.” You can count on it. ALL the managers at Wall-Mart knew their contractors were using illegal immigrants. The only they could not know is if they were in a cave somewhere—with no human contacts.

     The only disagreement I have with this excerpt is with the opinion "You have hard-working immigrants doing low-paying jobs that most Americans don't want." That’s true, but only because of the very low wages and terrible working conditions that brutalized immigrants are willing to accept.

     If the jobs paid well and the workers were treated like human beings with rights—American citizens would be lining up at the doors for employment. But that’s not the world that Republican and conservative Democrat politicians have created for us.

Week of October 13

     Anyone who doubts the preoccupation of conservative economists and politicians about potential increases or decreases of working-class wages, should read our leading financial publications.

From The Wall Street Journal, October 16.


When 70,000-odd workers walk off the job, hope rises in investors' hearts.

And so perennially perverse Wall Street is watching the outcome of the labor battle between grocery clerks and three supermarket chains—Safeway Inc., Albertsons and Kroger—in California.

Supermarket stocks have held up well this week, even as the chains incurred strike costs. Investors are fantasizing that the chains will impose big wage and benefit cuts….

     Isn’t that great. We may be able to look forward to “big wage and benefit cuts” for a significant portion of our American citizens. All at a time when so many can’t afford health care, decent housing, or sending their kids to college.

     But then, again, who cares? The top 20% of Americans are doing just fine, thank you.

     There must be something inherently corrupting in those professions that are devoted to purely financial manipulations. Greed seems to be an overwhelming quality among the profession’s members, when their product is some form of money transfer.

From The Wall Street Journal, October 16.

NYSE to Punish
Five Specialists
In Trading Inquiry

Action on Improper Trades
Is Blow to Auction System;
SEC Probes Front-Running

The New York Stock Exchange has notified five large floor-trading firms that they will face disciplinary action for improper trading, including trading ahead of clients, that could have cost investors more than $100 million.

The development signals that the regulatory investigation into Big Board "specialist" firms is far more serious than previously believed. The five firms -- LaBranche & Co.; the Spear, Leeds & Kellogg specialist unit of Goldman Sachs Group Inc.; the Fleet Specialist unit of FleetBoston Financial Corp.; the Van Der Moolen Specialists USA unit of Van Der Moolen Holdings NV; and Bear Wagner Specialists, which is minority-owned by Bear Stearns Cos. -- have been told they engaged in, among other things, "interpositioning" or getting between a natural buyer and seller to pocket an improper profit.

Meanwhile, the Securities and Exchange Commission is examining whether the specialists engaged in "front-running," or another form of trading ahead of clients, people familiar with the matter said. Front-running is a serious offense that involves a trader acting on nonpublic information to trade ahead of customers lacking that knowledge….….

     Again, another argument against privatizing Social Security.

     After the endless series of articles in our most prestigious financial publications—such as the one below—surely America’s right-wing conservatives can no longer count on the magic of a free economy to give us fair and just markets.

From The Wall Street Journal, October 16.

Getting Skewered
By Shrimp Prices

Consumers Pay Top Dollar
Despite Growing Global Glut

To many, a shrimp cocktail (followed by sparkling wine) is the perfect start to a night on the town. Some see it as a cholesterol-filled delicacy too tempting to resist. But to others, it is a national scandal.

Over the past decade, the growth of international shrimp farming has boosted production of the shellfish and sent wholesale prices plunging. But supermarkets and restaurants, for the most part, aren't passing on their savings to consumers.

Grocery shoppers still pay anywhere from $5.99 to $10.99 a pound for typical medium-size uncooked white shrimp. Yet a grocer buying that same shrimp at the wholesale level shells out about $3 per pound, less than half of what it was paying three years ago, according to Urner Barry Publications Inc., which tracks seafood prices….

"It's just mind-boggling," says Eddie Gordon, president of the Southern Shrimp Alliance, which represents commercial shrimp fishermen. U.S. shrimpers are currently getting 1960s prices of about $2 per pound dockside, he says, adding, "I don't see 1960s prices on the menus."

The jumbo prices of shrimp underscore how increased competition doesn't always result in lower retail prices. Americans still view shrimp as a luxury item and are accustomed to paying a lot for it. And retailers and restaurants have little incentive to enlighten consumers….….

     From the dairy industry, to the shrimp industry, and to small farmers everywhere—the suppliers and consumers of the product get screwed, while all those in between, from the wholesalers to the merchants, make the profits.

     Here’s a brief review of the history of the class war with regard to the way society views criminality—vs. wholesome and virutous greed.

From The Wall Street Journal, October 15.



A Thirties Revelation:
Rich People Who Steal Are Criminals, Too

Before Edwin Sutherland, most criminologists believed that theft was a pathological reaction to poverty. But in 1939, Mr. Sutherland, a widely respected sociology professor at Indiana University, coined a new term: white-collar crime.

People of "respectability and high social status," Mr. Sutherland asserted, broke laws as often as members of the lower classes, but the government, media and public didn't think of them as criminals. Until scholars accepted that affluent and reputable people also steal, Mr. Sutherland argued, they would never truly understand the criminal mind….

Until the 20th century, a person who bilked the public without using force was rarely prosecuted. Caveat emptor -- buyer beware -- was the prevailing ethic. Or as one early-20th-century judge said, "We are not to indict one man for making a fool of another." The so-called robber barons of the 19th century, such as Daniel Drew, who literally invented the term "watered stock," didn't even get a slap on the wrist.

Then came the Sherman Antitrust Act (1890), the Federal Trade Commission (1914), the Securities and Exchange Commission (1934), and a host of other laws and regulations that attempted to set limits on what people can do in the name of profit. Yet, while white-collar infractions were deemed illegal, they still weren't necessarily criminal….

That helps explain why, in a single day recounted by Christopher Stone in his 1975 book, "Where the Law Ends," two cases being decided in a Georgia court ended so differently. In one case, an embezzler had stolen $4.6 million from a bank. In the other, three men had robbed a bank of about $14,000. The embezzler was sentenced to 10 years in jail; the robbers received 16 years each.

However they're punished, white-collar criminals are clearly different from other criminals because they usually have good salaries and hefty bank balances. The question of why a rich person steals has also been the subject of lively debate. One psychiatrist theorizes that such people have a "fantasy of omnipotence," and are guided by the "common business ideal of success at any price." Another sociologist has suggested that because many business people are ambitious, competitive and aggressive, they experience a feeling of tension that must be relieved somehow, sometimes by stealing.

Still another posits that business people face contradictory expectations: As a citizen, they're supposed to obey the law, but as an executive, they're supposed to resist the law whenever possible. C. Wright Mills blamed white-collar crime on "structured immorality," an impersonal corporate culture and a lack of personal responsibility among executives….

     Mills was dead-on right. White collar crime is "structured immorality," an impersonal corporate culture and a lack of personal responsibility among executives.

     Today’s corporate culture is dominated by a structured immorality. It allows top corporate executives to remain blameless, even though they deliberately create the conditions that cause illegal behaviors among their subordinates.

     All a CEO has to say to a subordinate is: “You must improve your profit picture, or I’ll get someone to replace you who can. And, by the way, observe all the laws.” The message to the subordinate is: “Do whatever you must to make me rich, and don’t get caught breaking any laws.”

     And that’s the way Enrons, Tycos, and WorldComs happen, as well and the rest of the corporate world that hasn’t yet been caught.

     Corporate America is beginning to recognize the monster that globalization has become, even to those who initially profited from it in the beginning.

From The Wall Street Journal, October 15.

Sales Squeeze in China

Consumer-Goods Companies
From Abroad Lose Ground
To Homegrown Competitors

…Selling consumer goods in China is getting harder, threatening to squeeze out all but the largest multinationals as foreign companies face brutal competition from Chinese rivals. Foreign executives now describe the mid-1990s as the golden days, when their products were novelties, consumers were impressionable and domestic competition was negligible.

"We wouldn't survive, if we were to start now with the kind of size we have," says Mr. Rasch, a fourth-generation fruit grower and the president of Great Lakes in China, which was spun off his family's Michigan-based Great Lakes Fruit & Produce.

Merrill Lynch issued a report earlier this year warning multinationals about a bumpier path to profitability as profit margins eroded in many sectors due to fierce competition. "It is the most competitive market I've seen in the world, full stop," says Georges Desvaux, a director at consultants McKinsey & Co. in Beijing….

China today may be the most perfectly efficient demonstration of capitalism in the world….

     “China today may be the most perfectly efficient demonstration of capitalism in the world.” Correct. But this needs to be added: Capitalism which is based on the brutalization of workers. And, at this point, China does it better than anyone else.

     Although the U.S. seems to be catching up—in the world’s race to the bottom for people who actually work for a living.

     A trio of articles in The Wall Street Journal describe the continuing decline in wages and working conditions for workers of the world.

     The first is an anemic attempt to describe ways displaced workers can find jobs in a terrible economy.

     After they created horrible conditions for working-class Americans, the Journal and its philosophical soul mates, now search the country for isolated examples of people who have survived in an unjust system.

From The Wall Street Journal, October 13.

Clues to the Cure For
Unemployment Begin to Emerge

One-Stop Career Centers
And Cash Incentives Yield
Successful Job Searches

…Sometimes, the system works.

A dynamic economy continually throws off workers as industries are made obsolete because of evolving technology, globalization or changing consumer tastes. It constantly creates new industries and jobs. But even in good times, the displaced workers often aren't the ones who find new job opportunities.

These are not good times. The U.S. economy is growing again, yet it has been unusually slow to add new jobs. The Bureau of Labor Statistics says new and expanding businesses added fewer jobs in the fourth quarter, 7.75 million, than in any quarter since 1995. Shrinking or shuttered businesses cut 70,000 more jobs than that. One in every five unemployed Americans has been out of work for more than six months. The result is an economic recovery that doesn't feel like one to many workers and increasing pressure on politicians to do something about "the jobless recovery."

There are some winners, such as Mr. Maynard. But there are plenty of losers….

Because that medicine is working so slowly, others seek to protect workers by blocking job-threatening advances in trade, technology or competition. But that strategy would arrest the very forces that have improved the lives of Americans over the past 50 years….

The plight of workers displaced by technology or trade isn't new. Nor is the urge to offer them a helping hand. In the 1950s, Americans were terrified that automation would result in unemployment. Congress held hearings and the Ford Foundation commissioned reports. Pennsylvania launched a training program for the unemployed in 1952. Seven years later Armour Meat Packing Co. agreed to put 14 cents for every 100 tons of meat shipped into an "automation fund" to pay for retraining….

     “The plight of workers displaced by technology or trade isn't new.” This is the new distraction from the real issues. The massive job losses in this country are not due to technology or productivity improvements. It’s simply the loss of jobs and industry to countries that are willing to brutalize workers.

     And the protectionist “strategy (that) would arrest the very forces that have improved the lives of Americans over the past 50 years,” is the very strategy that gave the U.S. a strong middle class. It was the creation of NAFTA and the WTO and unmanaged “free trade” that destroyed wages and working conditions for the past 20 years—and undid all the progress of the previous 30 years.


     There’s no end to corporate creativity when it comes to pitting workers of the world against each other. Now this:

From The Wall Street Journal, October 13.

Outsourcing Jobs,
Workers to India

A London-based travel agency has taken outsourcing to a new level, shipping both call-center jobs and the workers who perform them to India.

Begun with five young Finns who moved to New Dehli in July 2002, ebookers PLC is sending Europeans to answer phones and e-mails at a call center in India for wages that are roughly one-fourth what similar jobs fetch at home. Now ebookers' Indian subsidiary plans to expand and sell the idea as a service to other businesses….

Ebookers' program is also a possible road map for how multinational companies with operations in Continental Europe could move more jobs offshore, where language barriers have been an obstacle. English is widely spoken in India, the Philippines and other outsourcing centers. But the languages of small European countries aren't spoken in those lands, posing a built-in brake to moving work such as call centers abroad….

Ebookers markets the jobs as a way to see the world. But for these employees, the trek to India—once associated in the West with discovering one's inner self—means spending much of their time staring at a computer screen. Would-be flower children needn't apply. "You got some replies from hippie types," says Ms. Komulainen. "We didn't want those."…

     Conclusion: If there aren’t enough people in countries who can speak good English—well, just ship some of our own people over there who are desperate enough to work for one sixth of the wages.


     Try to think of at least two things that are screwed up in Martin Feldstein’s editorial:

From The Wall Street Journal, October 13.


There's No Such Thing
As a 'Jobless' Recovery


The recent rise in payroll employment provides hope that the long-awaited sustained growth of jobs has now begun. Although there was never any doubt that higher employment would eventually follow the increases in production and sales that started nearly two years ago, it is good to see it happening.

The current economic recovery has been characterized by a remarkably rapid rise in productivity—that is, in output per working hour. By using new technologies, firms have been able to produce the output that their customers demanded without hiring as many new workers as they would have at the same stage in a more traditional recovery. A recent study by the Department of Labor showed that the primary reason for the lack of job growth in the past two years has been an unusually low rate of new hiring in expanding businesses rather than an unusual number of layoffs by declining businesses.

     First, after the loss of massive numbers of high-paying jobs, there is little comfort in a lower unemployment rate if the new jobs include lower wages and miserable working conditions. And that’s exactly what’s happening—if all goes well, according to the Journal’s most optimistic hopes.

     Second, even if it is true that most of the job loss is due to productivity improvements, that doesn’t mean that more workers should have lost their jobs. Whatever happened to the promises to American workers—from the early 1950s to the mid-’70s—that productivity improvements would mean better working conditions, fewer working hours and more benefits for them?

     Instead of passing any of the benefits on to workers, the greedy bastards at the top—and their investor conspirators—decided to keep all the benefits for themselves. Result: instead of getting rewarded for their own contributions to productivity improvements, workers get fired, and the ones who are left work with less wages and worse working conditions.

     What a great world the Republicans and conservative Democrats have given Americans who work for a living.

     Even the readers of Business Week have to acknowledge the necessity of government regulation—as an absolutely necessary ingredient of a successful capitalist system.

From Business Week, October 13.


The Big Board: Crying Out for Regulation

The Grasso pay debacle means the SEC should supervise the NYSE

By Robert Kuttner

The New York Stock Exchange, disgraced by the latest scandal, is desperately trying to salvage its regulatory authority. Its much-anticipated report on its own corporate governance has been deferred, pending deeper reforms. This whole sorry affair, like the Enron /Arthur Andersen mess and the Wall Street stock-analyst scandal, cries out for government regulation.

I once debated a conservative who had mostly contempt for regulation. Was there any agency he liked? "The SEC," he finally replied. Why? Because financial markets offer so many opportunities for insiders to gain at the expense of investors, he admitted, that ordinary forms of market discipline are not adequate. Amen….

There is talk of more resignations at the NYSE, more disclosure, tougher standards for corporate boards, and of splitting the Big Board into a stock exchange and an independent regulatory arm. But the clubbiness that produced the Grasso debacle is entrenched in the history and culture of the institution. Even a reformed NYSE should not be writing rules for how corporations should be governed, how exchanges should be run, and how to limit specialist enrichment at investor expense. These urgent questions about the best way to govern capitalism prone to conflicts of interest should be addressed by Congress and enforced directly by the SEC.

     Given the corporate scandals of the past three years, it’s a wonder that anyone today seriously doubts the kind of conclusions that Kuttner makes here. pre>

     No doubt the editors of Fortune support the privatization of Social Security, despite their own news stories like the following:

From Fortune, October 13.

Partners in Crime

Long before it was a public scandal, the Enron scam was well known among Wall Street institutions. After all, they were making it possible.

Two years after Rick Walker wrote that e-mail (part of the documentation of Wall Street skullduggery), a handful of America's largest and most important financial institutions—not only J.P. Morgan but Citigroup and Merrill Lynch as well—no longer deny that they helped enable the Enron fraud. After first insisting they were victims of Enron, the three firms have more recently paid a total of $366 million in fines and promised internal reforms that would prevent them from doing the sort of deals they did with Enron. Just weeks ago three former Merrill bankers were indicted on criminal charges and escorted to court in handcuffs.

In addition, six firms—the big three plus Deutsche Bank, Barclays, and CIBC—have, bizarrely, even been sued by Enron. Under new post-bankruptcy management, the company alleges that the financial institutions conspired with former top Enron executives to cook the company's books, generating personal fortunes for the insiders and more than $500 million in revenues for the banks. The Enron estate is seeking billions of dollars in damages. A shareholder lawsuit led by feared plaintiffs attorney Bill Lerach is seeking additional billions from the banks.

And yet it's hard to escape the conclusion that the banks have gotten off easy so far. In retrospect, one of the most sordid aspects of the Enron scandal is the complicity of so many highly regarded Wall Street firms—a complicity that is stunningly documented in internal presentations and e-mails, many of which have never before been published. They show banks helping Enron mask debt as cash flow from operations and create phony profits at the end of a quarter.

They also show how almost all of them put money into Fastow's partnerships because of—not in spite of—their potential for abuse. Most of all, the documents show that the banks weren't merely enablers; they were truly Enron's partners in crime.

     With this track record, how can anyone today seriously suggest that America’s unsophisticated retirees place their funds in the hands of this industry?

     Social Security was never intended to be a retirement investment program; it was designed to be, and should always be, a guarantee of a minimum income for the rest of a person’s life, regardless of the vagaries of the stock market.

     Despite articles like the following in its own newspaper, you can count on the editorial writers for The Wall Street Journal to continue to oppose all kinds of government regulation—as a violation of the “free market” (for white collar thieves).

From The Wall Street Journal, October 17.

NYSE Specialist Probe
Moved at a Slow Pace

The investigation by the New York Stock Exchange into improper trading by five floor-trading firms, launched in November, muddled along for months before the Securities and Exchange Commission kicked it into high gear, raising questions about the quality of the Big Board's self-regulatory unit.

The push by the SEC quickly transformed a Big Board inquiry that until the summer had uncovered only minor infractions into an expanded and more serious probe in which the exchange's top five floor-trading operations, known as specialist firms, now are being told they will face disciplinary action for activities that could have cost investors more than $100 million….

The evolution of the specialist probe shows that "the NYSE can't be a terribly effective regulator of itself when it governs its own members," says Alan Bromberg, a securities law professor at Southern Methodist University in Dallas. Mr. Bromberg says an independent regulator would have likely been more eager to find wrongdoing much faster than the NYSE….

Week of October 6

     Finally! It's beginning to dawn on peoples' thick skulls. The new economy is a class war between wealthy investors and everyone who works for a living.

     No one who actually works for a living is immune (even those who "...long believed they were largely protected from foreign competition because of their advanced degrees, English language skills and the supposed necessity of dealing face-to-face with customers") to the entrenched power of conservative politicians who are closet aristocrats.

From The Wall Street Journal, October 10.

Skilled Workers Mount Opposition
To Free Trade, Swaying Politicians

A new anti-free-trade movement is emerging in the U.S., comprising highly skilled workers who once figured they would be big winners in the globalized economy but now see their white-collar jobs moving overseas in growing numbers….

The new free-trade opponents include design engineers, skilled machinists, information-technology experts, and chief executives of specialized manufacturing concerns, among others. They long believed they were largely protected from foreign competition because of their advanced degrees, English language skills and the supposed necessity of dealing face-to-face with customers. But now they worry their jobs are at risk.

At the focus of their ire are big U.S. companies that have shifted business to China and India, which are becoming increasingly successful at nabbing service, information technology and high-end manufacturing work that until recently have been the preserve of U.S. firms. Companies seeking to lower their costs have either moved operations abroad or have contracted with foreign companies to supply essential services….

Multinational companies counter that globalization brings benefits. A recent McKinsey study concluded that at least two-thirds of the economic benefit from sending jobs offshore flows back to the U.S. economy in the form of lower prices, expanding overseas markets for U.S. products, and fatter profits that U.S. companies can plow back into even more innovative businesses. "If the economy were stronger, there wouldn't be such a negative feeling" about the offshore work, says Dianna Farrell, director of McKinsey Global Institute….

Mr. (Fred) Tedesco (owner of Pa-Ted Spring Co. in Bristol, Conn.) says his company followed a strategy that he thought would preserve its market share. Pa-Ted invested heavily in the latest equipment and has moved into producing ever-more sophisticated products. Among these are tiny clamps made of an exotic alloy used to pinch off arteries in the human body. Still, his business is down 30% in the last two years as big customers relocate abroad and competition grows from ever-more-sophisticated Chinese manufacturers.

The anti-free-trade stance of these groups of professionals comes as a majority of Americans now say that free trade is not worth it because local jobs are lost, according to a recent Wall Street Journal/NBC News poll. The poll found that 54% believe that U.S. companies that send work overseas are giving away jobs….

Tens of thousands of U.S. tech jobs were lost when high-flying Internet companies crashed in the late 1990s, a major cause of the recession. Even though the economy is on the mend, the job market has remained sickly. White-collar worker groups believe that many of their jobs are lost for good. Furthermore, they argue declines will deepen as U.S. companies send more work abroad and replace Americans with lower-paid foreign workers on temporary visas who will later take the jobs to their home countries….

     As usual, the McKensey Global Institute tried to put a positive spin on all the bad news: in effect, "Everyone will benefit in the future." Nonsense. As is usually the case, investors benefit-big time-today, with only the promise to those who are making all the sacrifices that they'll benefit sometime in the future (which never arrives).

     The disruptions to communities and peoples' lives are too massive and too fundamental to ever be overcome by the same policies that were the original cause of it all.

     The insanity continues and the charade is almost over. Globalization is solely designed to destroy wages of the working-class citizens of the world, and no one can seriously pretend otherwise.

From The Wall Street Journal, October 9.

Plastic Bag Fight Pits
U.S. Makers V. U.S. Importers

When fierce overseas competition forced a Sonoco Products Co. plastic bag-making business to close its Santa Maria, Calif., plant last year, ending 100 jobs, the company went on the offensive.

Sonoco and four other U.S. makers of plastic shopping bags, used by grocery and department stories, charged that manufacturers in China, Thailand and Malaysia were violating U.S. antidumping laws by selling the bags in the U.S. below cost. In a petition to the International Trade Commission, the U.S. manufacturers, calling themselves the Polyethylene Retail Carrier Bag Committee, charged that the alleged dumping cost them $300 million a year in sales….

But the fight over products that cost as little as a penny apiece involves a surprising web of allies and adversaries, underscoring just how complex global trade has become.

The issue … highlights the difficulty in distinguishing between U.S. and foreign manufacturers: In the dispute, some U.S. producers are aligned against other U.S. companies that have turned to Asia for their own bag production. Two of the manufacturers crying foul are linked to foreign companies-one Canadian and one Taiwanese-while a third company relies on a Mexican business by the same name to serve as a distributor and supplier. Yet another company supporting the petition just opened a plant in China….

By most accounts, antidumping measures would wipe out the plastic-bag-making industry in China, Thailand and Malaysia. People opposed to penalties say that if those imports are stopped, plastic bags will simply come from somewhere else where labor is inexpensive. "I don't care what the petitioners say," William Perry, a lawyer for some Chinese exporters and U.S. importers, told commissioners, "these bags will never be produced in the United States."

     "…plastic bags will simply come from somewhere else where labor is inexpensive" and "these bags will never be produced in the United States." Of course. That's the whole idea. Not only have American workers lost their jobs, they have entered the labor market and depressed the wages of workers in jobs that cannot be exported to countries that brutalize their workers.

     That's the whole idea, and it always was. And it's all to benefit wealthy investors and corporate executives in the U.S.

     The greed continues among America's aristocracy.

From The Wall Street Journal, October 9.

The NYSE's Other Millionaires

Top Two Remaining Executives
Will Be Due for Retirement Pay
Totaling About $30 Million Each

The New York Stock Exchange's two top remaining executives have accumulated retirement pay totaling about $30 million apiece during their respective 30-year careers at the Big Board, according to people familiar with the matter.

The pay of the executives, Catherine Kinney and Robert Britz, the NYSE's co-chief operating officers, could cause a stir at the exchange, which has been roiled by last month's ouster of former New York Stock Exchange Chairman Dick Grasso after disclosures that he had accumulated retirement pay of nearly $190 million in his 36-year exchange career. A NYSE spokesman declined to comment….

NYSE traders and others have been forewarned by Mr. Reed that they wouldn't be happy when the figures are disclosed. "The whole thing is despicable," says NYSE seat owner Francis P. Maglio. "How do we get our honor back? How do we get our integrity back?" Mr. Maglio pressed Mr. Reed at the meeting to try to get the money returned to the exchange's coffers, arguing that the contracts should be voided because the directors who signed it had breached their fiduciary responsibility.

     It's sad when the outrage over excessive incomes of America's new aristocracy comes from the establishment itself-in this case from the NYSE membership. Where have the true journalists been for the past 25 years of excessive greed? The general public should have been outraged long ago, and it shouldn't have been allowed to go this long.

     Thank heavens for California. When the Republican controlled Federal Environmental Protection Agency yields to industry pressures, California designs environmental standards based on objective science. Because of its size and influence, it can affect the standards of an entire industry, even when the Federal EPA punts on an issue.

     California has been a major influence on good environmental standards for preventing air pollution, and now it may prevent the indiscriminant use of PBDEs—unless the new governor gets his way and disbands the California EPA.

From The Wall Street Journal, October 8.

As Flame Retardant Builds Up
In Humans, a Ban Is Debated

EPA, Industry Cite Lack of Proof PBDEs
Hurt People, But EU and California Act

BERKELEY, Calif.—Five years ago, Myrto Petreas started to investigate how much of a widely used flame retardant had worked its way up the food chain. The results alarmed her.

Dr. Petreas and a colleague examined tissue samples from harbor seals and women's breasts for traces of polybrominated diphenyl ethers, or PBDEs. Between 1989 and 1998, levels of the chemical in the seal samples had increased 100-fold. PBDE levels in the breast tissue were 10 to 40 times as high as those found in an earlier study in Sweden.

"They were so high we thought we made an error," says Dr. Petreas, a 53-year-old specialist in toxic pollutants with the California Environmental Protection Agency.

Dr. Petreas's research is on the forefront of a rapidly escalating debate over PBDEs. Their fire-retardant properties are believed to have saved thousands of lives, but PBDEs have been shown to be harmful to animals in laboratory tests. There's still no proof that they cause problems in humans. What is clear is that levels in humans are rapidly building up-apparently doubling every two to five years.

That gap between their potential harm and the lack of conclusive proof has created rifts between state and federal officials and even within the ranks of the U.S. Environmental Protection Agency. Not wanting to wait for federal action, California in August became the first state to ban two PBDE compounds that have been shown to accumulate in humans. The ban will take effect in 2008….

     Even the Wall Street Journal, in its news stories, recognizes the benefits of a proactive national government in protecting public safety.

From The Wall Street Journal, October 8.

New Rollover Test
Could Lead to Safer SUVs

Car Makers Already Making
Changes to Improve Stability

How likely is your SUV to roll over in traffic? After decades of research and bitter debate, the federal government unveiled a new test Tuesday that may provide the answer.

The test is the first to be based on a vehicle's actual performance, instead of a mathematical formula. It is expected to increase pressure on car makers to speed up technological changes that are intended to reduce rollover accidents.

Starting this year, the government will subject all vehicles to the new road test—a series of sharp maneuvers at high speeds. Consumers could start seeing the new ratings by year end, when the government will begin factoring the results of the test into its traditional rating system….

     This is a classic example of the failure of private industry to provide funds to test its products and to publicize the results to the public. It takes a responsible government, and public funds, to provide this service.

     The totally corrupt nature of America's military-industrial complex and their profiteers of war is again in evidence—this time as reported The Wall Street Journal.

From The Wall Street Journal, October 7.

Air Force Ex-Official Had Ties
To Boeing During Contract Talks

A former Air Force official who now works for Boeing Co. had several personal ties to the aerospace giant while she was negotiating on behalf of the government a controversial plan valued at over $20 billion to lease Boeing jetliners as airborne refueling tankers.

Darleen Druyun, during her tenure as deputy acquisitions chief for the Air Force, agreed to sell her Virginia home to a Boeing attorney working on the tanker-lease arrangement, according to information compiled by a conservative nonprofit research group in Washington. In addition, her daughter and her son-in-law were and still are employed by the Chicago-based company….

But these career shifts and their potential conflicts have grabbed more attention in recent years due to defense industry consolidation. Just this past May, Edward "Pete" Aldridge, the Pentagon's chief weapons buyer, joined Lockheed's board within weeks of retiring, even though he remains a key adviser to Defense Secretary Donald Rumsfeld on a major effort to overhaul how the military purchases weapons. A Lockheed spokesman said Mr. Aldridge isn't involved in day-to-day management of the company's programs….

The documents (detailing conflicts of interest) also highlight the close and tangled relationships that exist between former Pentagon and military officials and the handful of major defense contractors….

     No wonder there are so many supporters of war within the Bush Administration.

     Again, another example of the necessity of governmental regulations to keep an entire industry from ethically imploding.

From The Wall Street Journal, October 7.

Big Drug Wholesaler Fights
Charges of Fakes, Price Fixing

Authorities including the Food and Drug Administration and the Federal Bureau of Investigation are investigating what seems to be a rising tide of counterfeit drugs. While the amount of counterfeit drugs getting into the system remains small, its growth has officials concerned that the high price of many drugs makes them almost irresistible to counterfeiters.

Increasingly, these investigators are shining a light on the complex world of drug wholesalers, whose important role in getting drugs from manufacturers to pharmacies has largely been unregulated and invisible….

A triad of suits filed against AmerisourceBergen touches on some of the most sensitive aspects of the drug-distribution business: counterfeit drugs, recycled drugs and murky financial practices….

Secondary wholesalers, which provide an additional channel for drug sales and distribution, are considered by investigators to be the link in the distribution chain where counterfeits usually enter. Secondary wholesalers typically buy the bulk of their products from primary wholesalers. In cases where primary wholesalers need drugs on short notice, they sometimes turn to their secondary counterparts….

     One must wonder how The Wall Street Journal can consistently take editorial stands against governmental regulations, when its news stories daily report the need for them.

     The following long excerpt is only a portion of an extensive article in The Wall Street Journal. It tells the dirty little secret about the total absence of moral standards of those American corporations that deliberately seek out countries that will brutalize workers for them.

     While the American corporations maintain a sanctimonious righteousness, and a façade of deniability, they let the foreign militaries to do their dirty work of ruthless class war against the workers in their foreign operations.

     Articles like this have been appearing—even in America's most prestigious financial publications-for the past 25 years at least.

From The Wall Street Journal, October 6.

Colombian Killings Land
U.S. Company In American Court

Mining Concern Faces Suit
Over Right-Wing Attacks;

One evening in March 2001, a bus carrying Valmore Locarno and Victor Orcasita home from work at a Drummond Co. coal mine in La Loma, Colombia, was stopped by members of a right-wing paramilitary group. The armed men boarded the bus as it stood on a paved road cutting across the hot, open plains, eyewitnesses say in interviews. The fighters called for the pair, leaders of a union at the mine, and accused them of "having a problem with Drummond," eyewitnesses say. Then Messrs. Locarno and Orcasita were hauled off the bus, which Drummond had chartered.

Mr. Locarno, 38 years old, was shot immediately. Mr. Orcasita, 37, was found later by the side of the road, a bullet in his head and his teeth knocked out.

Seven months later, their successor at the union, Gustavo Soler, 36, was pulled off a public bus by paramilitary members who sought him out by name, according to both the union and the company. Farmers found his corpse two days later. He had been shot twice in the head.

No one has been arrested in the killings. A Colombian government spokesman says investigations have been delayed by the refusal of victims' families and union members to talk, because of their fear of reprisal.

What those relatives and the union have done is file a civil lawsuit against Drummond—not in Colombia, but in Birmingham, Ala. The suit accuses the mining company, which is based in that city, of supporting paramilitary fighters at its facilities, thereby making Drummond liable for the deaths.

The plaintiffs have invoked a once-obscure 1789 law, the Alien Tort Claims Act, or ATCA. Activists are using the law to try to police corporate behavior overseas. Among the other companies now fighting such suits: Unocal Corp., Exxon Mobil Corp. and Coca-Cola Co. The Drummond case could be among the first to come to trial, as soon as sometime next year.

Drummond, a family-owned company, denies any role or liability in the deaths of the union leaders. It says it has no ties to Colombia's right-wing paramilitary groups, which have fought a long war against leftist guerrillas.

Companies have said these sorts of suits don't belong in the U.S. It is impractical for American courts to resolve murky disputes from thousands of miles away, the opponents say. The Bush administration has intervened to seek dismissal of three ATCA cases, arguing that they could complicate U.S. foreign policy. It hasn't taken that step in the Drummond case….

Proponents of ATCA suits say the legal actions are sometimes the only way to hold U.S. corporations responsible for human-rights abuses overseas. "The judicial system [in Colombia] doesn't work," says Myles Frechette, the U.S. ambassador to that country for part of the Clinton administration. For that reason, the plaintiffs in the Drummond case didn't sue in Colombia, says Terry Collingsworth, their lead attorney.

Mr. Collingsworth heads the International Labor Rights Fund in Washington, which has filed eight ATCA suits in recent years. The United Steelworkers are helping with the Drummond case as part of a broader effort to stop union killings abroad. Mr. Collingsworth calls the Drummond suit "the cleanest case we have," in part because a wholly owned Drummond subsidiary based in the U.S. operates the Colombian mine. Other ATCA suits have been slowed by questions about the responsibility of U.S. companies for foreign subsidiaries….

The company, one of the biggest foreign investors in Colombia, has built barracks for the Colombian military at La Loma and near the port. More than 300 Colombian army troops are stationed at La Loma, where Drummond provides them subsidized food and fuel. The troops protect company facilities and screen employees, Drummond says….

The arrangement with the army is critical to the lawsuit. The union and relatives of the murdered activists say that regular army units routinely cooperate with paramilitary fighters, some of whom wear army uniforms and function at times as regular soldiers.

Juan Aquas, a former union official who worked at Drummond's port in Santa Marta, says in interviews that in 2000 and 2001, he saw paramilitary fighters eat in Drummond's cafeteria there and fill their vehicles at Drummond's gas tanks three or four times a week. He says these men wore army uniforms, but without the insignia indicating battalion membership. Mr. Aquas is now in hiding in Colombia….

     Even if direct orders were never given by the top executives of Drummond, there can be no doubt about their culpability.

     The insanity continues. The news gets more depressing every day.

From The Wall Street Journal, October 6.

Surviving the Onslaught

U.S. Companies Customize,
Rethink Strategies to Compete
With Products From Abroad

The Oxford expandable folder on your desk was assembled in Mexico. Your Papermate pencil is from Japan, and that blue-and-white J. Crew striped shirt was stitched in Mauritius. The pillowcase on your bed comes from India. Your dining-room table is from Italy; the tea candles on it are from Hong Kong. If you or your children have a Schwinn or Huffy bike, it probably came from China….

In the first half of this year, imports snagged nearly two out of every three dollars of the growth in manufacturing shipments over the same period in 2002, according to the Manufacturers Alliance, a research group based in Arlington, Va. "Although manufacturing supply recovered in late 2002 and in 2003, imports have taken most of the growth in the market," says Daniel Meckstroth, chief economist of the Manufacturers Alliance….

In these particularly hard-hit industries, imports have led to plant closings and bankruptcies. A sorry case in point: the collapse of Pillowtex Corp., the maker of such venerable household brands as Cannon and Fieldcrest sheets and towels.

To avoid such a fate, one strategy for domestic producers is to establish their products as superior to imported counterparts and thus worth a premium. Aside from quality, speedy delivery —facilitated by a company's proximity to its market—can be a powerful asset for a domestic manufacturer. In a 2001 survey, original-equipment manufacturers rated ability to meet delivery schedules the most important factor in selecting a contract manufacturer. Price ranked fifth.

Domestic companies also can differentiate themselves by offering custom-made products—a powerful inducement for consumers shopping for everything from computers to kitchen cabinets….

In some cases, the best strategy is to abdicate production and outsource it overseas or stateside to contract manufacturers. Opting out of manufacturing is most pronounced among high-tech firms like Lucent Technologies Inc., which has shifted from producing 70% of its own products to less than 30% in the past two years. Similarly, 3Com Corp. this month said it would outsource all production to Singapore and a contract manufacturer in Florida….

     There are many valid reasons to locate production in other countries, and this article mentioned a few of them-such as, proximity to the distribution center, offering custom-made products, and so on.

     But that's not the reason for most of the lost production in the U.S. Most of it was lost simply to take advantage of workers in other countries who work for miserable wages and under brutal working conditions.

     The following related article came out on the same day in the same issue.


From The Wall Street Journal, October 6.

Three Countries,
One Dishwasher

JACKSON, Tenn.—Maytag dishwashers have Chinese motors, Mexican wiring, and are put together in a sprawling American factory here.

Some refer to this three-tiered approach to manufacturing as a triad strategy. Maytag calls it trying to keep ahead of imports….

Over time, though, sharply lower labor and production costs in Asia have offset high freight costs, enabling some imported appliances to be sold in the U.S. at lower prices. China's Haier and South Korea's LG Electronics started out small with microwaves and minirefrigerators, but are moving to bigger appliances….

In some cases, after a careful review, Maytag decides it simply can't compete with imports. Profit margins on refrigerators with the freezer on top, rather than alongside or on the bottom, were so measly due to cheap imports that Maytag decided to quit making

them. Instead, next year it will pay Daewoo Electronics Corp. in Korea to produce those models and ship them to the U.S. to be sold under the Maytag name. That decision was linked to the anticipated closing of a sprawling two-million-square-foot refrigerator factory in Galesburg, Ill., where those models are made. That plant, shutting down in stages, is expected to close its doors for good late next year.

     The following is just another in an unlimited series of articles demonstrating why Social Security should never be privatized. The stock market is just too rigged in favor of wealthy investors—and is a landmine for most people.

From The Wall Street Journal, October 6.

Chasm on Drug Data
Punishes Small Investors

This summer, some investors in Schering-Plough Corp. got a little more information than others.

From mid-June through August, big investors with access to expensive, detailed industry databases were able to see Schering-Plough's share of prescriptions for hepatitis C medicines steadily sink amid competition from new drugs sold by Roche Holding AG.

Acting in part on that information, the investors pounded Schering-Plough's stock, which fell 20% as the broad market remained roughly flat….

While nobody did anything wrong in this case—the investors weren't acting on inside information and the company violated no disclosure rules—it highlights an information chasm in the drug business that essentially punishes smaller investors….

…for investors willing to pay tens of thousands of dollars a year, it is relatively easy to get a jump on the public data. IMS Health Inc. and NDCHealth Corp., the two biggest players in the drug-information business, use data culled from thousands of pharmacies nationwide to give subscribers day-by-day tallies of the number and sales value of prescriptions filled….

From Business Week, October 6.

U.S.: Corporate America Reaches Its Fighting Weight

Trim, flush, and productive, businesses are ready to answer growing demand

… companies are now fit and ready to roll. They have restored their financial health, rid themselves of unproductive assets and bloated inventories, boosted productivity and competitiveness, and increased their profitability. Given these strides—and a resurgence in demand—businesses are now willing and able to pull their weight in this recovery. Having Corporate America back in the game will ensure a strong and lasting upturn….

The surge in corporate cash partly reflects the payroll savings from layoffs….

Also, productivity gains have cut unit labor costs and boosted profit margins, even at a time of weak pricing power. And margins have benefited from the elimination of excess capacity, which has lowered fixed costs. Now, with sales accelerating, more revenue is going straight to the bottom line. An even stronger second leg of the profits recovery is shaping up for the second half of 2003….


Is Wal-Mart Too Powerful?

Low prices are great. But Wal-Mart's dominance creates problems—for suppliers, workers, communities, and even American culture

…Wal-Mart's seemingly simple and virtuous business model is fraught with complications and perverse consequences. To cite a particularly noteworthy one, this staunchly anti-union company, America's largest private employer, is widely blamed for the sorry state of retail wages in America. On average, Wal-Mart sales clerks—“associates” in company parlance—pulled in $8.23 an hour, or $13,861 a year, in 2001, according to documents filed in a lawsuit pending against the company. At the time, the federal poverty line for a family of three was $14,630.

Wal-Mart insists that it pays competitively, citing a privately commissioned survey that found that it "meets or exceeds" the total remuneration paid by rival retailers in 50 U.S. markets. "This is a good place to work," says Coleman H. Peterson, executive vice-president for personnel, citing an employee turnover rate that has fallen below 45% from 70% in 1999.

Critics counter that this is evidence not of improving morale but of a lack of employment alternatives in a slow-growth economy. "It's a ticking time bomb," says an executive at one big Wal-Mart supplier. "At some point, do the people stand up and revolt?" Indeed, the company now faces a revolt of sorts in the form of nearly 40 lawsuits charging it with forcing employees to work overtime without pay and a sex-discrimination case that could rank as the largest civil rights class action ever. On Sept. 24, a federal judge in California began considering a plaintiff's petition to include all women who have worked at Wal-Mart since late 1998—1.6 million all told—in a suit alleging that Wal-Mart systematically denies women equal pay and opportunities for promotion. Wal-Mart is vigorously contesting all of these suits….

Wal-Mart's philosophy doesn't cut any ice with Wilbur L. Ross Jr., a financier and steel tycoon who soon will close on the purchase of beleaguered textile manufacturer Burlington Industries Inc. Ross contends that Wal-Mart is costing Americans jobs "not only as a business strategy, but as a lobbying strategy"—that is, by using its influence in Washington to oppose import tariffs and quotas and promote free-trade pacts with Third World countries, including the Southeast Asian countries that supply Wal-Mart with denim. "Everybody is now scurrying around trying to find the lowest price points," Ross complains. "It's the Wal-Mart phenomenon."


Hate Your Job? Join the Club

The ranks of the discontented are swelling

…A new Conference Board survey, indicates that just 49% of Americans today are satisfied with their jobs—vs. 58% in 1995, the first time the survey was done. Only 20% are satisfied with their employer's promotion and bonus policies and just a third with their pay.

Job satisfaction fell most among prime-years workers aged 35 to 54. And it was down sharply among workers in the $50,000-plus income group—to 53% from 67% in 1995.

One source of grievance seems to be the ongoing efforts of employers to squeeze more work out of reduced staffs. Although this has resulted in big productivity gains, some economists fear that the discontent such efforts have fueled could well hurt productivity over the long run.

     The first article describes America’s conservatives’ economic ideal. These key phrases explain it all:

  • ”They have restored their financial health” (They’re making good profits)

  • By getting “rid themselves of unproductive assets” (like employees who have decent jobs.)

  • By boosting “productivity and competitiveness” (Making fewer employees produce more work)

  • In sum: “The surge in corporate cash partly reflects the payroll savings from layoffs… and “productivity gains have cut unit labor costs.” (Again, make huge profits from taking ruthless advantage of your working-class employees.)

     The Wall-Mart story describes the new model for corporate America: below poverty wages, rabid anti-union efforts, and ruthless treatment of suppliers. Through aggressive lobbying in Washington, they get conservative politicians to pursue globalization and various anti-worker legislation—solely to drive down wages worldwide, and to destroy any ability of employees to seek better jobs in the U.S. (And thus create “a lack of employment alternatives in a slow-growth economy.")

     The Conference Board survey summarizes what is happening to employees across the U.S. (“ongoing efforts of employers to squeeze more work out of reduced staffs”)

     Time for a regime change in our Federal Government.

     This year’s annual “400 richest people in America” issue of Forbes is just like its predecessors: a glorification of greed and a clear description of how excessive wealth among the few hurt the many.

All the following very brief (that’s all that’s needed) excerpts are from Forbes, October 6.

The Richest People In America

Good Deeds

There's no place like home. Especially if you own thousands of them. Real estate remains a solid investment, even in the flimsiest markets.

     Forbes listed the biggest players in home ownership as: Donald Bren—$4 billion, Donald Trump—$2.5 billion, Leona Helmsley—$2.2 billion, and Leonard Stern—$2.2 billion. And just think, these are only the biggest owners of homes in the U.S. There are literally millions of other lesser wealthy investors who are buying homes, cornering the home market, and driving up the costs of homes and rent for people who simply must have a place for their families to live. And all the while, of course, increasing the value of their investments (and rewarding their greed).

     The following is in the same vein, but covers raw land. This is another major cause of the increasing poverty of those who are being priced out of the real estate market.

     As the article accurately states: “Land, unlike microchips, is not being made anymore.” It’s a perfect one-liner that proves the zero-sum nature of wealth.

This Land Is My Land

Land, unlike microchips, is not being made anymore. So there's something to be said for accumulating it, if you have the means to do so. Collectively, the nation's ten largest landowners—two of them members of The Forbes 400—own 10.6 million acres, or one out of every 217 acres in the country. The dollar values shown represent the value only of their land, apart from buildings and other assets these landholders possess.

     Forbes listed: Ted Turner—$750 million, Archie (Red) Emmerson—$1 billion, Irving family—$400 million.


     Of course, the rich have their own trials and tribulations. The cost of luxurious living is going up. That’s not good news. It means that the rich will feel pressures to take even more ruthless advantage of working-class Americans.

     Forbes was so alarmed about the economic demands upon the wealthy, it devoted two articles to the subject.

The Cost of Being Rich

While the overall consumer price index climbed 2.1% over the last 12 months, Forbes' index of 42 luxury goods climbed an average 7.3%. Nautor Group's $2 million Swan 68 yacht is no longer being made. Its replacement, the two foot longer Swan 70, at $3.5 million, is 75% more expensive....

Billionaire Blues

Why living the high life is an expensive proposition.

Plutocracy buffs agree that there is no point in being on The Forbes 400 list unless you can act like it. But what the hoi polloi fail to realize is that being fabulously wealthy is an enormously expensive proposition. Contrary to the popular myth, if you suddenly woke up and found that you had inherited $1 billion, you could not simply live off the interest on your fortune; you could not simply live de vos rentes, as the French elegantly put it. If you're serious about living like a billionaire, about cutting an enviable figure, about making a serious impression, you're going to have to dig into your bankroll. Otherwise, you'll look like a pauper.

The most obvious expenses for the parvenu plutocrat are the Manhattan pied-à-terre (roughly $24 million for a two-story apartment with a rooftop pool, a garden complete with rooftop trees and your own private temple) and the summer home in the Hamptons ($20 million to $30 million, if you get a gifted architect like John Saladino to build a custom home for you). The private jet will set you back roughly $10 million, as will the rare pink diamonds from Harry Winston. Pink diamonds, as the staff at this aristocratic establishment explain, are the product of an "atomic anomaly." Getting used to shelling out for atomic anomalies is one of the crosses all new billionaires must learn to bear….

The single biggest expense in becoming a billionaire—and what the Great Unwashed consistently overlook—is the yacht. A 200-foot yacht designed by a firm like Feadship is going to run you about $75 million, right off the bat. The hidden expense here is the cost of maintaining an eight-person staff all year round….


     And how do the rich stay that way? Avoiding taxes—and paying taxes at a lower percentage rate than the average coal miner—is a major strategy.

Unrealized Riches

…Circumstantial evidence is that the very rich forfeit barely 1% of their net worth to the U.S. Treasury every year.

How do the superrich get away with paying so little? Not, evidently, from exotic tax shelters, but from a simple and long-standing rule of tax law that you don't have to pay taxes on unrealized gains. Start a company, watch its value grow, hold on to most of your shares, avoid dividends—that’s one way to accumulate a huge net worth without ever having to report your good fortune on a Form 1040.

The very rich, that is, do not get that way by clipping coupons. Their indicated cash return on assets—adjusted gross income per the IRS, divided by net worth per FORBES—averaged only 5.8% over the period from 1992 through 2000. After taxes the income-to-assets figure is a minuscule 3.6%. Yet during that same period the average net worth of a Forbes 400 member rose a compound annual 19%, from $752 million to $3 billion….

Collective Forbes 400 wealth as a percent of all personal wealth nationally rose from 1.6% in 1989 to 2.3% in 2001. The Fed notes: "There was an increase in concentration even in the top of that group."

     And these people have the nerve to complain about their high tax rates.


     And what does it all add up to?

The Richest People in America

…After two years of declining values, the rich finally got richer. On this, FORBES' 21st annual edition of The Forbes 400, the aggregate net worth of the nation's wealthiest 400 citizens leapt 10% in the past year, to $955 billion—just one Bill Gates away from $1 trillion.

     Nuff said.



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