Week of June 27

     Check out the following, if you want a history lesson on what’s happening to workers worldwide. The “Barbarians at the Gate” are now everywhere, and competing with each other in a mad rush to cash out the value that true capitalism has created over the decades.

     The firms described below aren’t capitalists who build strong economies; they’re barbarians, who use money – mostly other peoples’ – to rape, pillage and burn the industries that other people built. The losers: the workers, who were the ones who created the wealth to begin with.

From The Wall Street Journal, June 30, 2005.

Among Germans,
Foreign Buyouts
Heighten Angst

American, British Takeovers
Stir Workers' Resistance
To Economic Overhaul

HEMER, Germany – The hardball methods of American and British buyout firms are intensifying an angry German backlash against free-market capitalism. At the core of the fight is an urgent question: What is the best remedy for the deep funk in Europe's largest economy?

The clash is playing out here at the headquarters of Grohe Water Technology AG. Grohe's faucets and showers adorn upscale hotels and residences around the world. Their impressive quality and long guarantees allow Grohe to charge premium prices.

Long family-owned, the company was sold in 1999 to British investors who loaded it with debt to finance the buyout. The British retained Grohe's management, however, and were reluctant to shut plants or shift the bulk of production to Asia and other low-wage areas, as most of the manufacturer's competitors have done.

Then last year, Texas Pacific Group and Credit Suisse First Boston bought the company and piled on even more debt. Their plans to slash jobs in Germany and make bathroom fixtures in cheap-labor countries sparked worker protests and put Grohe at the center of a national controversy over the influence of Anglo-American-style capitalism.

"The Americans built up our economy after the war, and now they're breaking it up," says Rene Klem, a lacquerer at Grohe who fears for his job. In April, Franz Müntefering, head of the ruling Social Democratic Party, blamed foreign investment firms for destroying German companies and jobs. "They stay anonymous, have no face, fall upon companies like swarms of locusts, strip them bare and move on," he told the mass-circulation newspaper Bild. A party document attacking "market radicalism" named 11 mostly American firms, including Kohlberg Kravis Roberts & Co. and Goldman Sachs Group as examples of the "locusts."

Cases like Grohe are fueling hostility to economic changes here at a time when some economists and foreign investors say the world's third-largest economy needs freer markets to end its stagnation. "Germany has low growth and high unemployment because it has many structural inefficiencies and is tied to an old manufacturing base," says Stephen Peel, a Texas Pacific partner based in London. "Unfortunately, the medicine is unpleasant in the short term."…

Hostility against free markets has swept much of Western Europe, contributing to the failure last month of the European Union's proposed constitution. Critics said the constitution would promote unfettered American-style capitalism and undermine Europe's cherished social protections….

But increasingly, ordinary Germans blame the economic problems on business owners and managers pursuing profit at the expense of the German dream of a more humane capitalism….

"Grohe is a prime example of what [Social Democratic party chief] Müntefering was talking about," says Mr. Schulze. "We make 20% margins, but that's still not good enough. If this becomes the rule, then you can shut down corporate Germany. How are people supposed to persuade their kids that if you work hard and do a good job, you will succeed?"

     Key statement: “"The Americans built up our economy after the war, and now they're breaking it up." That’s the story of what’s been happening ever since the 1980s. Prior to the 1980s, our ancestors build strong businesses and corporations, and created an economy that benefited everyone, including workers.

     Since then, the barbarians have figured out how to eviscerate those same businesses and corporations – just to enrich themselves, and to create a new world aristocracy.

     If you ever doubted that multinational corporations are in total control of our economy, just read the following;

From The Wall Street Journal, June 29, 2005.

States Pay Steep Price
To Attract Industry

Local Taxpayers, Small Businesses Bear
The Burden, Say a Growing Chorus of Critics

RALEIGH, N.C. – Worried about job losses in the textile and furniture industries, North Carolina officials went all out in persuading Dell Inc. to build a plant in the Winston-Salem area.

But the state's victory over rival Virginia came at a high price: $280 million in state and local incentives. Critics say the subsidies amount to corporate welfare that puts local taxpayers and small businesses at a disadvantage. Last week a nonprofit think tank funded by local conservative groups sued the state, challenging parts of the package as unconstitutional.

"People are starting to see through the façade," says Robert Orr, a retired state Supreme Court justice who runs the North Carolina Institute for Constitutional Law, which filed the suit. "Incentives are geared toward literally a handful of large, very wealthy and very powerful corporations at the expense of the other businesses."

Critics have also taken aim at incentive programs in other states, including Minnesota, Nebraska, Ohio and Wisconsin. And they are preparing challenges in at least another four states, says Peter Enrich, a law professor at Northeastern University in Boston and a leader in the anti-incentive movement. He declined to identify the states….

People who oppose the Voinovich effort say that granting tax concessions to corporations unfairly shifts the burden of funding services such as schools and roads to individual taxpayers and small businesses. Greg Leroy, director of Good Jobs First, a nonprofit economic-development research organization in Washington, says the biggest breaks are awarded disproportionately to the wealthiest multinational companies.

In the case of Dell, the computer company threatened to move its planned $100 million facility offshore if state officials didn't waive corporate income taxes. When North Carolina balked, Kip Thompson, a Dell vice president, told the state commerce secretary: "If a state like N.C. can't get this, I'm worried for our country – there’s a certain amount of patriotism here," according to copies of handwritten notes released by the state….

     Key statement: “In the case of Dell, the computer company threatened to move its planned $100 million facility offshore if state officials didn't waive corporate income taxes.”

     Just as corporations are threatening unions and work groups that they must give up wage and working condition concessions, or they’ll leave the country – they are now threatening states.

     The gloves are off and totally transparent: the only thing corporate executives and their investors care about is their own wealth. Not only do they not care about working-class Americans, they don’t even care about the long-term health of our country. As the Dell Vice-president said, "If a state like N.C. can't get this [give us huge tax breaks], I'm worried for our country – there’s a certain amount of patriotism here." Yeah, right.

     Remember how we were promised that globalization would create more jobs in the U.S.? Well, it seems to have done just that, if you consider jobs flipping hamburgers or picking strawberries.

     But if you consider a job as one that pays a decent wage, forget it. Those are all going overseas, as corporations find that they simply can’t be competitive unless they use the slave labor in other countries.

From The Wall Street Journal, June 28, 2005.

Lear to Cut Up to 7,700 Jobs,
Expand Production Overseas

Slumping Car Sales Force
Automotive-Parts Supplier
To Restructure Operations

Lear Corp. said it plans to eliminate up to 7,700 jobs, or about 5% to 7% of its world-wide work force, and close or consolidate 20 factories in North America and Western Europe as it struggles with slumping sales among U.S. auto makers.

Lear, a maker of automotive interiors and seats, also said it plans to expand production in countries with cheap labor….

Lear said it will speed efforts to expand manufacturing operations in countries where labor and other costs are cheaper than in the U.S. and Western Europe. Lear already has operations in Mexico, Honduras, the Philippines, India, Thailand, China and in Eastern European countries. A Lear spokesman said the company has made a decision to accelerate efforts to move its "total footprint of where we make things to the lowest-cost areas." Most of the losses will be factory jobs, but the spokesman said Lear will cut engineering and administrative positions as well….

     Globalization is a deliberately created disaster for working Americans. It’s the best tactic ever devised for destroying labor unions and the power of workers to negotiate for higher wages.

     Corporate America, through their Republican and conservative Democrat stooges in Washington, now have all the power and workers have none.

     Evidence continues to mount that outsourcing of our industries to China – to take advantage of the huge buying power of its multi-millions – is turning out to be a disaster.

From The Wall Street Journal, June 27, 2005.

Big Dragon, No Fire?
China's Might Masks
Falling Profitability

HONG KONG – From offshore, with Chinese attempts to acquire ever-bigger corporate targets making daily headlines, Asia's largest dragon looks suddenly both wealthy and powerful. That view became more entrenched last week when Chinese oil company Cnooc Ltd. offered to acquire U.S. energy company Unocal Corp. for $18.5 billion.

Seen from within, China doesn't look quite as invincible. An increasing number of economists in China believe such acquisitions are needed not so much to flex China's muscle but to help defend against a looming problem: declining profitability. Indeed, it is precisely the lack of profitability and other economic distortions at home that are contributing to China's quest for opportunities abroad.

"China is running out of profits," says Jim Walker, chief economist of Credit Lyonnais Securities Asia in Hong Kong. He blames the pincerlike effect of rising input prices and wages as well as a reluctance to raise output prices for fear of losing market share and customers….

A survey from CLSA found that nearly half of China's companies reported rising input prices in April – but only 18% planned to increase output prices at all. By the end of last year, 14 out of 23 categories of companies listed on domestic Chinese exchanges reported falling profits. Meanwhile, manufacturing capacity continues to expand: By the end of the year, China will have the capacity to churn out six million cars for a market that is half that size.

In addition, property accounts for an expanding portion of economic activity across China, according to Mr. Walker. Harbin, a city in northeast China, seems as unlikely a candidate to spawn a property bubble as a Rust Belt city. Yet ask locals to name the richest people in town, and the list will always start with property developers….

How exactly the government finesses its economic management has implications for the rest of the world. If it doesn't apply enough of a brake, the overinvestment continues. If too harsh, domestic demand will dry up further and even more of China's productive energies will have to be taken up by a world that is already having trouble absorbing its output.

     Key statement: “even more of China's productive energies will have to be taken up by a world that is already having trouble absorbing its output.” Just as happened in 1929, overproduction by some of the cheapest labor countries in the world is leading to overcapacity. Since all the money is going to the top 20% of the world’s citizens, and especially the top 1%, poorly-paid consumers throughout the world lack the purchasing power even to buy the products they need.

     And when the crunch happens, even more corporations will leave our country to Third World countries in order to survive in this lowest-labor-cost madness.

     Remember the argument that trade with other countries will decrease the likelihood that it will help prevent war?

     Forget it. At best, it’s a tossup. And as far as Communist China is concerned, I wouldn’t be very optimistic.

From The Wall Street Journal, June 27, 2005.

Is China's Rapid Economic Development Good for U.S.?

Chinese oil company Cnooc Ltd.'s takeover bid for Unocal Corp. has brought into sharp relief two opposing American views on China's rapid economic development.

Many in Congress and the Pentagon think it may hasten an inevitable clash between the U.S. and China for economic and political leadership in the world. Many businessmen and academics, however, think China's growing wealth and international economic ties will make it more democratic and a force for global stability. Both have history on their side.

Brad DeLong, an economic historian at the University of California at Berkeley, sees a useful parallel in Britain's policy toward the emerging industrial colossus of the United States in the 19th century.

As late as the 1840s, he notes, the U.S. and Britain – then the world's sole superpower – came close to war over territorial disputes in the Pacific Northwest and the lucrative fur trade there. But in subsequent decades Britain chose to accommodate, rather than suppress, the U.S. By 1900, the notion of conflict was widely regarded "as silly, simply because the trade and economic connections were so tight and the political systems so compatible," Mr. DeLong said.

Similarly, he argues the world will be safer if the Chinese in time see the U.S. as having aided, rather than hampered, their economic development.

History, though, also offers counterexamples. Germany was catching up to Britain at the same time as was the U.S. but that relationship ended in war. Similarly, Japan was more open to imports and foreign investment before World War II than after, yet its rapid industrialization, especially later under a nationalist military government, ultimately made it a more formidable adversary of the U.S.

"There is no deterministic relation" between economic advance and war or peace, said Charles Maier, a Harvard University historian. Katherine Barbieri, a political scientist at the University of South Carolina, has found that countries that trade more with each other are actually more likely to fight, in part because deeper relationships generate more things to fight about. "Trade generates wealth but...certain countries may take that wealth and direct it to military purposes," she said. "We're giving China the power to build a very strong military."…

Some of the more alarming views of China's intentions will be laid out in a Pentagon assessment of China's military, which is expected to come out next week after a long delay and heated internal debate. Defense officials indicate that the report hasn't been notably toned down through the interagency vetting process, and will still contain a list of potential conflict scenarios that some in the White House and the State Department had hoped to strip out….

     Key statement: "We're giving China the power to build a very strong military." And China is doing that very thing, as recently reported in the general press.

     Will the U.S. be flattened by a Flatter World? Yes, of course, if we follow false prophets like Thomas Friedman.

From Fortune, June 27, 2005.

CHINA RISING

Will the U.S. Be Flattened by a Flatter World?

By Rik Kirkland

Inside Beijing's Diaoyutai State Guesthouse on a fine May morning at the FORTUNE Global Forum—somewhere between a breakout session on regional power shifts and a panel on technological innovation—I had my eureka moment. "China," I scribbled on a notepad, "is what the U.S. economy might look like if it were run by a consortium of folks from McKinsey, Goldman Sachs, and the CIA."

Sure, they'd get plenty wrong, but more often than not they'd get it right. The proof was all around us: in the capital's skyscrapers and software parks; in our discussions ("China needs to make enterprises, not universities, the center of innovation because they'll respond better to the market," said Minister of Science and Technology Xu Guanhua); and, of course, in the numbers. Of all the dazzling stats China has posted, the most impressive is this: In 20 years it has lifted some 400 million of its 1.3 billion people out of grinding $1-a-day poverty.

But it's not just China, as the several hundred CEOs gathered for the conference were reminded. One of the liveliest sessions featured Indian business leaders whose firms are thriving as low-cost sources of services and information technology. These corporate successes, plus government reforms, have spurred India's once lumbering economy onto a rapid growth path and given many of its one billion citizens a new swagger. "Today the average Indian feels, 'Man, we can take on the world,'" said Prannoy Roy, head of India's NDTV. Yes, these guys get it too.

Which raises a big, fat question for U.S. officials, business leaders, and citizens: Do we get it? Helpfully, there's a flotilla of new books in the stores claiming to answer the question. While they aim at different targets, all share a sense of urgency that major changes in attitudes and policies are essential if the U.S. is going to cope with the era of China, India, and the Internet.

The flagship, both in physical heft and intellectual throw weight, is New York Times columnist Thomas Friedman's The World Is Flat: A Brief History of the 21st Century….

Friedman compares this moment to the wake-up call America received in 1957 when the Soviet Union launched Sputnik. But while "the main objective in that era was building a strong state," he writes, "the main objective in this era is building strong individuals."

To do that, Friedman advocates changes ranging from making pensions and health insurance portable (vs. tying them to an employer), to some form of wage insurance (to ease the job dislocations many will face), to new subsidies for tertiary education (upgrading human capital is critical in a flat world), to more good old-fashioned parenting (as in, Hey, kid, put down that video controller and crack a book!).

      The world is getting crazier, and Thomas Friedman isn’t helping. In fact, he’s become the new guru of globalization, with a phony pacifier to distract American voters from the main issue: global investors have sold out global workers for profit.

     And now it’s a race to the bottom for American workers, as they approach the wages and working conditions of the most brutalized workers in the world.

     If you want a detailed discussion of the absurdity of Friedman’s “solutions,” check out the file Friedman’s globalized world isn’t flat; it’s a mountain.

     If you already aren’t convinced about Friedman’s dangerously misleading solutions, consider the following:

From Business Week, June 27, 2005.

China: Too Many Factories?

If the economy slows, overcapacity could crunch profits in China

Any day now, German chemical giant BASF and its partner China Petroleum & Chemical Corp. will fire up a new, $2.9 billion petrochemical complex. The 220-hectare facility along a stretch of the Yangtze River outside Nanjing, built by 15,000-plus Chinese workers and contractors from 22 countries, can turn out 600,000 metric tons a year of ethylene, a base material used to make a variety of plastic products.

By yearend two other plants – one built in Shanghai by Sinopec and Britain's BP, the other in Guangdong Province, courtesy of CNOOC and Royal Dutch/Shell Group – will kick in an additional 1.7 million tons of capacity. All told, China's ethylene output could rise by 36% this year from 2004 levels.

Now consider this: Six additional ethylene crackers, as they're known in industry jargon, are expected to win government approval and come online by 2010. China's ethylene capacity is expected to grow by 22% annually through 2009, while domestic demand will climb by just under 13%, figures Qu Guangdong, a Beijing analyst with chemical industry researcher SRI Consulting. Already the excess capacity has helped whack global ethylene prices by 50%, to about $600 per ton, since September.

Qu thinks that for emerging petromajors such as Sinopec and CNOOC, it's a matter of having too much cash. "They have the money, and they want to spend," he says, "and they don't really care about the international markets." A Sinopec spokesman says the company is not worried about overcapacity in ethylene….

But what if China downshifts? Most economists foresee mainland growth slowing to a more sustainable 8.5% or so in the next couple of years. At the start of 2004, China appeared to be in real danger of overheating and contracting severely, which would have been a disaster, since the country needs to grow at least 7% annually to create enough jobs for new workers….

In the cutthroat auto sector it's even worse. Profit growth there slowed to 4% from January through the end of April, vs. 9% in the same period of the previous year, because of aggressive price-cutting, according to the China Association of Automobile Manufacturers. The industry is running at only about 70% capacity, according to Automotive Resources Asia Ltd., an auto consultancy.

Then there's steel. The government is forecasting that the country's steel production will soon exceed domestic demand: Total capacity is expected to surge 43% by 2010, according to government numbers….

Semiconductors are likely to be hit, too. Just as the industry is showing signs of matching supply with demand after a nasty glut and plunging prices last year, China is heading for a massive buildup in chip-fabrication plants, albeit lower-end ones. The nation is already home to 35 silicon-wafer plants, and 22 new ones are expected to be in place by the end of 2008, according to the trade group Semiconductor Equipment & Materials International….

     So, China is developing an overcapacity for producing chemicals, plastics, autos, steel, semiconductors, and just about everything that can be produced or manufactured.

     Their workers make less than one-tenth of what American workers make, and their engineers and scientists make less than one-third of what Americans make.

     And we’re supposed to compete with them (and India) by “building strong individuals”? How utterly, unbelievably absurd.

     And to think that so-called smart people are buying this garbage. The rich and powerful of our country have done such a complete job of trashing the only realistic solution – protection of our way of life – that it isn’t even considered any more.

     Serious warning: if you don’t have a strong stomach, don’t read the following.

From Business Week, June 27, 2005.

Lobbyists Are Gushing Over This Energy Bill

…After two attempts, Congress appears ready to move a major energy bill, and industry and lawmakers are piling on. The bill's authors have included a slew of sweeteners to reward narrow slices of the energy industry. These targeted receipts are usually located in the districts and home states of powerful leaders – or of wavering lawmakers whose votes are needed. Business lobbyists, who haven't had a significant energy bill to carry pet projects since 1992, are positively giddy.

But some of the breaks may be too over-the-top even for Congress. The House version, for example, includes about $2 billion to help producers of gasoline additive MTBE. The argument: The feds required MTBE or other oxygenators to help gasoline burn more cleanly until it was discovered that the chemical was contaminating groundwater; now they should help producers switch to making different additives. House Majority Leader Tom DeLay (R-Tex.) wants to go further by protecting MTBE makers from liability. The fight over the additive killed the bill in 2003, and Senate Energy Committee Chairman Pete V. Domenici (R-N.M.) says he doesn't want any MTBE provisions in this year's bill. Grouses Senator Richard J. Durbin (D-Ill.): "The House bill is just a gusher of giveaways to the oil patch."…

The House bill establishes a consortium to dole out up to $2 billion over 10 years for oil-drilling research. The most likely candidate to handle the money: The Research Partnership to Secure Energy for America, a nonprofit in DeLay's home town of Sugar Land, Tex. That group shares members and office space with the Texas Energy Center, whose executives have made contributions to DeLay's campaign.

Even when Congress isn't doling out dollars, it's changing rules to help industry. If the Environmental Protection Agency rejects refineries' permits to operate in certain areas, the House bill would let them appeal to the Energy Secretary – a friendlier judge, critics say. Another clause would let natural gas drillers use "hydraulic fracturing" to crack open coal beds – sometimes injecting diesel fuel directly into the ground – without having to worry about the Safe Drinking Water Act. Halliburton Co. is among the companies employing the method….

     As long as Republicans control the Congress, expect the rape of the American public by major corporations to continue.

Week of June 20

      Read the following for the typical Business Week spin. It’s again bashing Germany and France as “anti-capitalist,” just because they are concerned about “jobs and social justice” for workers.

     In other words the “left” wants to preserve the gains for workers that were made from the 1930s to the 1980s, and before the era of globalization destroyed working-class standards of living.

From Business Week, June 20, 2005.

A Specter Is Haunting Europe: The Left

The Left in Europe is flexing its muscles. Anti-capitalist, anti-globalization activists played a key role in defeating referendums on the European Union constitution in France on May 29 and the Netherlands on June 1. Relentless sniping from left-wingers in Germany's Social Democratic Party helped drive Chancellor Gerhard Schröder to call for elections this fall, a year ahead of time…. The main action is in Germany and France. In Germany, former Social Democrat Chairman Oskar Lafontaine, who campaigned in France against the EU constitution, is likely to lead a new left-wing party, provisionally called the Electoral Alternative for Jobs & Social Justice. It will field candidates and press Schröder to swerve left. The party says it's getting a huge response. "Our fax never stops running," exults Murat Cakir, a governing board member of the party, which wants to raise taxes on the rich and open the spigots of government spending….

A strong protest party could make life hard for Christian Democrat Angela Merkel, who is favored to unseat Schröder in the early elections. Initially, Merkel would have lots of leeway to push through cuts in social welfare benefits. But labor-oriented left-wingers such as Michael Sommer, president of the German Confederation of Labor Unions, have vowed "house-to-house combat" if a new government restricts collective bargaining rights. The model may be Italy, where the unions are well practiced at getting what they want….

Ironically, the far left's hostility to EU expansion and reform is shared by Europe's far right. Both extremes helped defeat the EU constitution in France and the Netherlands. The nightmare scenario is that left-wing and right-wing populism weaken the center, ushering in volatility that hasn't been seen in decades. Since World War II the center has held in Europe. But the pressures of globalization are shaking the traditional power balance.

     An encouraging sign: even the “right-wing populists” now see the looming disaster that globalization is creating by destroying the living – and spending—standards of their middle- and working-class citizens.

     Let’s hope that it won’t be too long before America’s right-wing discovers the same thing. But don’t hold your breath.

     Here’s just one more sign of how the U.S. is transferring its economic and, ultimately, political power over to China.

From Business Week, June 20, 2005.

Napoleon Of China's Oil Patch

Third-ranked CNOOC has become China's boldest energy player

Chinese oil company CNOOC Ltd. may be coming back for more. After months of on-again, off-again talk about buying Unocal Corp., CNOOC on June 7 said that it is still interested in a deal, potentially derailing Chevron Corp.'s $16.4 billion bid for the U.S. oil producer.

If successful, such a deal would be the biggest overseas acquisition ever by a Chinese company – and would further establish CNOOC as the most ambitious Chinese player in the oil patch. CNOOC is "ahead of the curve in China," says Scott Roberts, director of Cambridge Energy Research Associates in Beijing. "And they are willing to think big."

Lately, CNOOC has certainly been seizing lots of opportunities. Since May, 2004, the company has completed three big transactions giving it access to oil and gas from the waters off Australia and Indonesia to the dry oil sands of Alberta, Canada. Such deals helped boost revenues by 30% last year, to $6.7 billion, while net profits jumped 40%, to $1.95 billion….

There's good reason to believe that bullish prediction. China is sucking up energy faster than any country on earth, and that's not likely to change anytime soon as foreign investment continues to pour in and Chinese consumers boost their spending by 10% or more annually….

CNOOC is also positioning itself as China's leading player in natural gas…. CNOOC Ltd. in December expanded its stake in Australia's rich North West Shelf gas project to just over 5%. And it's negotiating to buy into the Gorgon LNG project off Australia, which is owned by Chevron, Shell, and ExxonMobil. Meanwhile, CNOOC has become one of the biggest players in Indonesia's offshore gas fields, and in April it purchased a 17% stake in Calgary-based MEG Energy Corp., giving it access to an estimated 2 billion barrels of reserves in the oil sands of western Canada….

     So, “China is sucking up energy faster than any country on earth.” That’s where the industry is going, and that’s where the next world’s power is growing. What a great think Republicans and conservative Democrats have done by their globalization strategies – which were originally designed simply to destroy working-class wages.

     And here’s yet another example of the incredibly callous attitudes of corporate America, the Fed, and conservative economists generally.

     When corporate profits and investors’ incomes explode – that’s just capitalism. But when workers start to make more money and share in our country’s prosperity, conservatives scream “wage inflation,” and encourage the Fed to stop it by raising the prime interest rate.

From Business Week, June 20, 2005.

U.S.: Weak Payrolls Mask A Tightening Job Market

How companies handle rising labor costs will affect future inflation

The labor markets have always been the mother lode of information about trends in economic growth, inflation, and Federal Reserve policy….

So what are the labor markets really saying about the economy? On balance, the data show more signs that labor markets are tightening than loosening, and those signals go beyond the declining jobless rate….

In addition, workers' sense of job insecurity appears to be lessening a bit…. [The] so-called quit rate rose to 12.3% of the labor force in May, the highest level in almost four years. In the past, Fed Chairman Alan Greenspan has looked at the quit rate to gauge how confident consumers feel about job prospects.

The degree to which labor markets are tightening will likely be the most crucial factor in future interest-rate decisions by the Fed, because of what tight job markets imply for future inflation….

In a strong economy, with tight labor markets, this leaves businesses with two options: lift prices to compensate, or watch profit margins get squeezed….

     For a more extensive discussion of how our conservative government deliberately keeps working-class wages from going up, see: The Class Warfarer’s scapegoat: “Wage Inflation”.

     For a lesson on how to defend the wealthy and powerful by re-writing history, see the following.

From Forbes, June 20, 2005.

Washington's Knucklehead Economics

By Steve Forbes, Editor-in-Chief

Why isn't the stock market – at least the nontech portion of it – reaching new highs? Corporate profits continue to advance. Productivity is impressive. Consumer incomes are strong. Federal government revenues are growing rapidly – the deficit will come in below estimates. The villain: the ominous drumbeat of protectionism….

Doesn't anyone in authority remember that the notorious Smoot-Hawley Tariff of 1929-30 precipitated the Great Depression by slapping prohibitive taxes on hundreds of imports, thereby setting off a devastating global trade war?…

…contrary to popular "wisdom," our China trade--in fact, all of our trade – is making us stronger. A significant part of this trade is made up of U.S. companies importing parts and pieces – usually from facilities that are wholly or partially American owned – that make up products sold in the U.S., such as the Apple iPod. Trade with China enables our high-tech companies to stay on the cutting edge of innovation by focusing more resources on design and new breakthrough products….

     Notice how Forbes refers to the “Smoot-Hawley Tariff of 1929-30”? Clever. It actually was passed in 1930 – after the stock market crash of 1929.

     The depression wasn’t caused by protectionism. Protectionism followed the cause of the depression, as countries worldwide discovered that they had to protect their societies from ruthless exploitation by investors. The depression was caused by the greed of the wealthy and powerful of the 1920s who took too much of the money and left middle- and low-income citizens with not enough money to buy the world’s products.

     THEN the depression hit, as unsold products – that people needed but didn’t have enough money to buy – sat on the store shelves.

     So, where does Barron’s advise American investors to put the money they got from the Republican tax cuts – “so they could create jobs”?

     India, of course. And in the process they further destroy our economy – and American jobs – even further than globalization already has.

From Barron’s, June 20, 2005.

India's Nimble Elephant

Even in the golden age of American capitalism, there was never a corporate empire like the one that the Tata-family interests control in India. The Tata Group holds the equivalent of Ford Motor, U.S. Steel, General Electric, IBM, AT&T, Macy's, A&P and General Foods – when each was approaching its heyday of growth and opportunity….

Tata Sons (pronounced Tah-Tah) is a private company with some 91 businesses and annual revenues of $14 billion. Its shares are held by a variety of Tata family trusts and philanthropies. Ratan Tata, the family patriarch, has said he is considering a public offering of a small part of Tata Sons.

It would raise capital for the conglomerate, increase the value of the charities and trusts and make the Tata Group a brighter light in the eyes of investors.

In the meantime, U.S. investors can join the ride at Tata through the American depositary receipts of its publicly traded units. Some of these, especially the ADRs of Tata's automotive and telecom units, could be attractive plays on India's burgeoning economy….

     Note that a major beneficiary of India’s booming economy is one family of aristocrats. By giving India much of our industry, and jobs, we’re not creating a great future middle class and the elimination of poverty in India – we’re simply giving their wealthy and powerful much of the wealth that American working-class citizens formerly held.

     And of course, American investors and top corporate executives are becoming a new class of aristocrats as well, becoming partners in “India’s burgeoning economy.”

     Abandoning and betraying America has never been so profitable.

     If you ever doubted that we have an absolute idiot for president, read the following.

From The Wall Street Journal, June 20, 2005.

Bush Faces Heat Over Global Warming

As Political Pressure Grows
From Key Allies, Administration
Could Be Forced to Act

President Bush is facing new pressure from key allies – both abroad and in his own Republican Party – for tougher action on global warming. While the White House remains opposed to new regulations, the shifting politics of the issue could force Mr. Bush to move further this summer on curbing greenhouse gases….

James Connaughton, chairman of the White House Council on Environmental Quality, declined to say whether Mr. Bush would veto an energy bill… saying it "goes right to the heart of our competitiveness " by forcing all sectors of the economy to achieve efficiencies equally…

…the Bush administration is attempting to recast its message on climate change by emphasizing that it, too, favors some regulatory solutions but wants to tailor them to the economic sectors that need them.

     The whole world – even a few Congressional Republicans who are now proposing corrective legislation (weak though it is) – know that global warming is real and could eventually destroy our planet.

     Still, idiot Bush still is willing to risk our ultimate survival in order to pay off his financial supporters in the petroleum, coal and utility industries. In his view, they are too costly, and they are not economic sectors that “need” environmental controls.

Week of June 13

     Here’s just one more example of the terrible disaster globalization is creating for the U.S.

     China now has “the world's fastest-growing economy.” And why? It isn’t because it has cheap labor, because it always has had cheap labor. For the real reason, read below.

From The Wall Street Journal, June 17, 2005.

Bank of America
To Pay $2.5 Billion
For China Foothold

Bank of America Corp., moving to make one of the largest single foreign investments to date in China's fast-changing banking sector, said it has reached a deal to buy a 9% stake in China Construction Bank for $2.5 billion….

The agreement, representing the bank's first big dive into the world's fastest-growing economy, is expected to be signed today in Beijing by Bank of America Chairman Kenneth Lewis and China Construction Bank Chairman Guo Shuqing. The companies announced the transaction in a news release last night….

     China is the fastest growing economy – and emerging as the future’s greatest military and political power – because Republicans and conservative Democrats decided to pass legislation that would enrich their supporters by literally giving China our industries.

     By allowing American corporations to shift manufacturing to Third World countries – without any penalties (tariffs, quotas, etc.) – they were able to take advantage of lower wages, and, more importantly, to destroy the wages of working-class wages in this country.

     For a more complete discussion of this issue, check out International Free Trade: it's not "globalizataion."

     The aristocrats of the world have won. They’ve totally defeated workers and small business owners who don’t benefit from globalization. Now, it’s even affecting the so-called free market of Europe.

      “Free market” is defined as a market that is ruthlessly controlled by international corporations, and one in which workers have almost no political power to defend their standards of living.

From The Wall Street Journal, June 13, 2005.

With Italy in the Doldrums,
Many Point Fingers at the Euro

CAPOLONA, Italy – Rossano Soldini, the 60-year-old head of a family-owned shoe factory in this tiny Tuscan town, is getting creamed by Chinese imports.

But Mr. Soldini isn't only blaming China. He also wants to give Europe's common currency the boot.

Like other shoe manufacturers across Italy, Mr. Soldini says the euro's sharp rise against the dollar inflated the price of the shoes he ships to the U.S. and left him defenseless against Asian rivals. Italian shoe production dropped almost 8% last year, the fourth straight year of declines. In 2004, Italy imported more shoes than it exported for the first time.

In the past, Italy would devalue its old currency, the lira, to help businesspeople claw back to competitiveness against other countries. But since Rome gave up control of currency policy to join the euro in 1999, Mr. Soldini, who also heads the National Association of Italian Shoe Manufacturers, has watched his fortunes slide. Having the euro has been like "wearing handcuffs," he says, adding: "Without a doubt, I'm nostalgic for the lira. Europe is not listening to us."…

In Italy, an anti-euro backlash is ricocheting up and down the peninsula as the country sinks deeper into a recession. Consumers, businesspeople and some politicians now bemoan a currency they claim has left them poorer and less competitive….

The euro-bashing isn't confined to Italy. A poll for Stern magazine this month found that 56% of Germans want the mark back.

The mounting dissatisfaction is another blow to the authority of the EU. The 25-member union was pitched into confusion two weeks ago by the rejection by French and Dutch voters of a proposed new constitution for the union. Underpinning those votes and the grousing over the euro are deep anxieties about slow growth, high unemployment and the future of Europe's generous welfare states….

The euro has brought big benefits for companies trading across European borders by eliminating currency swings and foreign-exchange fees. It created huge, unified capital markets akin to the U.S.'s, which have helped many European companies raise capital. Returning to a weaker currency would mean returning to higher interest rates….

Now, the only way Italy can compete is to cut prices. The only way it can cut prices is to cut costs. But the opposite is happening. Inefficiencies in Italy's cartel-pocked economy have caused prices of everything from electricity to zucchini to shoot up faster than elsewhere in the euro zone.

Unions began demanding higher wages to offset lost spending power. Companies had to grant raises that outstripped any gains in worker output. Adjusted for productivity, Italian labor costs have risen 17% since the euro came in, while German labor costs have risen only 1%, according to Barclays Capital. Italian productivity grew just 0.5% a year in the past decade, compared with 1.6% in Germany, and 2.4% in the U.S., according to the Organization for Economic Cooperation and Development….

     Key statements: “The euro has brought big benefits for companies trading across European borders,” and “Now, the only way Italy can compete is to cut prices. The only way it can cut prices is to cut costs.”

     Meaning: International corporations can pit workers against each other, and the only way workers can retain jobs is to accept lower wages. This is what the sanctimonious hypocrites who support the modern concept of globalzation call “cutting costs.”

     Two articles in the same issue of the Journal go together. Can you figure out how?

From The Wall Street Journal, June 13, 2005.

'Phantom' Accounts for CEOs Draw Scrutiny

Rich retirement savings plans for top executives – which often rely on "phantom accounts" that don't actually contain money – are generating controversy once again.

Last week, the board of MassMutual Financial Group fired Chairman and Chief Executive Robert J. O'Connell, accusing him in part of improperly inflating the value of his special executive retirement account by tens of millions of dollars….

In recent years, such supplemental savings plans for executives, commonly called "deferred compensation plans," have become a breeding ground for creative ways to jack up executive compensation, sometimes secretly….

A key feature of the arrangements is that they depend on hypothetical, or phantom, accounts. Unlike a 401(k), in which employees defer some of their pay into an actual trust, with actual dollars that belongs to them, there's no money in a deferred compensation account.

Rather, when executives defer their compensation, the employer simply postpones paying them; the money remains in the company's coffers. Because the money hasn't passed into the executives' hands, they haven't "received" it for tax purposes, and owe no taxes on it….

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The Hottest Vacation-Home Markets

Second homes are sizzling. We tell you where – and why.

A year and a half ago, David Krahn had never been to the Jersey shore – but he plunked down almost a million dollars to buy a house there anyway.

Why? The Philadelphia utilities analyst had heard home prices along the shore were booming….

The townhouse appreciated so quickly – local brokers say they can easily get $1.5 million for it today –that Mr. Krahn is about to buy another, bigger place nearby. That house costs $1.875 million, but he hopes it, too, will be a gold mine….

The phenomenal real-estate boom of the past five years is sweeping through the vacation-home market. Lured by relatively low interest rates and the promise of big resale value, investors and regular vacationers alike are snapping up second homes – or, in some cases, third or fourth homes. And though rising interest rates could cool things off, the juggernaut shows few signs of stopping for now, even in upscale areas….

     Our tax laws that greatly favor the very rich and powerful – and at the direct expense of workers – are allowing them to buy up real estate with a wild abandon. What do you think these CEOs will do with all that free money?

     More than ever, real estate is one of the biggest creators of extreme wealth – and extreme poverty – as rich investors buy up homes and land, and drive up the prices of each, along with the rents that accompany them.

     For an extended discussion of the zerosum nature of wealth – and how real estate creates wealth and poverty – see Wealth is a Zerosum Game.

     As you read the two excerpts below, remember that the people behind these new economic trends are the ones you read about above: those who are buying their third and fourth homes – and don’t give a tinker’s damn about anybody else.

     The articles are from the same issue of Business Week, and demonstrate how far the wealthy and powerful are willing to go through, to further enrich themselves at the direct expense of all those who actually work for a living.

From Business Week, June 13, 2005.

Sinkhole!

How public pension promises are draining state and city budgets

…[The] daily struggle to provide vital community services while meeting retirement promises mirrors the battle playing out across Michigan and the entire country. It's not just school districts that are being squeezed.

State and local governments, hard hit by the economic downturn of 2001, find themselves in a financial bind. While sharp anti-tax sentiment constrains revenue and governments face new outlays for everything from homeland security to No Child Left Behind, there's a growing feeling that the retirement promises made to everyone from office workers and state patrols to firefighters and legislators may simply be unbearable….

If these costs aren't brought under control, rising taxes could prove unavoidable – and a competitive problem for the states in the worst shape as well as for the country. Stephen D'Arcy, a professor at the University of Illinois at Urbana-Champaign's College of Business who has studied public pensions, worries that if states like Illinois have to sharply hike taxes to pay for benefits earned decades ago, companies – and even citizens – could end up moving to states in better fiscal shape.

"You could see it turning into an economic desert in certain states," he warns. Combined with the national retirement issues surrounding Social Security, these plans contribute to a depressing outlook for U.S. competitiveness overall….

Taxes will keep going up and benefits will be cut for future public employees. Both are unpopular. The debate is just starting to be heard.

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The Fight Brewing Over Family Leave

Corporate America is angling to rewrite the rules for unpaid medical absences

Last year the Bush Administration kicked off a small war when it rewrote national overtime regulations. Now women and labor groups are gearing up for a new showdown as the Labor Dept. prepares rule changes for another cherished plank of workplace law, the 1993 Family & Medical Leave Act.

Companies are targeting two key changes: narrowing the definition of a serious medical condition that qualifies for unpaid leave and upping the minimum leave employees can take, now as little as an hour or even less. Employers say such measures would help curb what they claim is abuse by employees who use the law to miss work when they aren't really sick. The law "has worked fairly well, but we're concerned with employees who use it as an excuse for, say, chronic tardiness," says Michael J. Eastman, director of labor law policy at the U.S. Chamber of Commerce.

Outraged advocacy groups insist that such sweeping changes would all but gut the FMLA. Their biggest fear: a new definition of a serious medical condition, which could slash usage of the law in half, they assert. "We haven't seen evidence of widespread abuse; employers just want to dilute a law used by millions of Americans," charges Debra Ness, president of the National Partnership for Women & Families, a Washington (D.C.) group….

     The first article deals with public pensions, and the second with corporate practices that benefit workers. In both cases, the rich and powerful – taxpayers in the first instance, and investors and top corporate executives in the second – are doing everything they can to enrich themselves on the backs of those who made their wealth possible.

     As you read the following, remember that China is the country that we have literally given our manufacturing industry, and, increasingly, our advanced scientific activities.

     China is now using the production of wealth that used to reside in the U.S. to build up its military, to gain leverage over us in our political relations with other countries, and, in general, becoming the world’s dominant economic and military power.

From The Wall Street Journal, June 15, 2005.

Microsoft's Kowtow

"Where do you want to go today?"

That was Microsoft's slogan in the mid-1990s, one that evoked the unlimited possibilities inherent in the age of the Internet and the software revolution. The answer to that question today would be, "hopefully not where they discuss 'freedom,' 'democracy' and 'human rights,'" at least not if you expect to use Microsoft's new portal in China.

The software giant has just bowed to the Chinese government by banning these words. If you type them on Microsoft's new portal, a message appears telling you to try different ones. If this weren't insulting enough, the message actually says, according to news reports, "this item should not contain forbidden speech such as profanity. Please enter a different word for this item."

To be fair to Microsoft, it is not alone. Yahoo! and Google have also caved in to China. Google chose last year to omit sources the Chinese government does not like from its Google News China edition, saying that it didn't make sense to provide a link to sites that would probably be blank anyway….

     Key statement: “To be fair to Microsoft, it is not alone. Yahoo! and Google have also caved in to China.” And that’s only the beginning. Eventually, relative to China, we’ll be a third world nation.

     Unions are finally wising up. Possibly the biggest mistake they’ve made in the past is that they spent too much time and money increasing their own economic welfare and not enough bringing in more union members in more industries and businesses.

     As a result, they’ve lost the support of workers – and their political influence and support – who are jealous of the high incomes of the best-paid union workers.

From The Wall Street Journal, June 16, 2005.

Five Unions Move
Toward a Break
From AFL-CIO

WASHINGTON – In the latest sign of growing tensions in the labor movement, five of the AFL-CIO's largest unions formed their own coalition to focus on organizing, laying the groundwork for a break from the labor federation next month.

Leaders from the Laborers' International Union of North America, International Brotherhood of Teamsters, UNITE-HERE, United Food and Commercial Workers Union and the Service Employees International Union agreed on an agenda, constitution and bylaws, and said more emphasis must be placed on gaining members.

"The basic principle that brings us here today is that American workers cannot win a better life unless more workers belong to unions, unless those unions have the focus, strategy, and resources to unite workers in their industry and raise standards of pay, health care, pensions and working conditions," the presidents of the five unions said in a joint statement….

     Of course, the first goal of new union membership will be to change the political climate that created globalization, and, in effect, increased the labor supply to unlimited levels. And that increased labor supply includes the most brutalized workers in the world – who will be willing to accept any working conditions, just to have enough to survive.

     Here’s another sign that the world economy is unraveling, just as it did after 1929. The following article, while seemingly a hopeful sign, is really a desperate stab at some semblance of economic security for Mexico – and the U.S.

     There’s no way carmakers, even in low-labor-cost Mexico, can compete with a ruthless China.

From Business Week, June 13, 2005.

Mexico's Carmakers In A Ditch

Mexican auto plants are reeling from disastrous U.S. sales. Can they get rolling again?

Out in the middle of Mexico's searing Sonoran desert, Ford Motor Co.'s (F ) Hermosillo plant is humming. Clipboard-toting supervisors watch as assembly-line workers install final accessories on test-run production of the new Fusion model. On Aug. 1 the facility will start producing Ford Fusion, Mercury Milan, and Lincoln Zephyr midsize passenger cars, building up to a pace of 300,000 annually. It's one of Ford's most important vehicle launches of the year – an effort by the Dearborn (Mich.) auto maker to stem its loss of U.S. passenger-car sales to Asian and European rivals….

It's impressive – until you consider how much the industry has slipped from its peak. Reduced U.S. demand for Ford, General Motors, and VW models means exports of automobiles and light trucks from Mexico have dropped 31% since 2000, to 1.1 million….

What can Mexico do? Marc Scheinman, a Pace University expert on the Latin American auto industry, says the government may have to offer investment incentives to foreign auto makers and slash taxes on domestic car sales to stimulate the industry….

     If you want an example of wishful thinking, consider this: “investment incentives to foreign auto makers and slash taxes on domestic car sales to stimulate the industry” – as a way to compete with China.

Week of June 6

     Globalization’s ultimate goal is finally being realized: American corporations are in total control of working-class wages and working conditions.

     When Republicans and conservative Democrats expanded America’s labor supply to include the worst of the worst-treated workers in the world—American workers totally lost their bargaining power.

From The Wall Street Journal, June 10, 2005.

UAW Is Facing
Biggest Battles
In Two Decades

From the days when founding President Walter Reuther was beaten up by company toughs, to the dark days of the early 1980s, the United Auto Workers union has fought to secure workers at the Big Three auto makers some of the best wages and benefits afforded industrial employees anywhere.

Now, UAW President Ron Gettelfinger and other UAW leaders face the union's worst crisis since the late 1970s and early 1980s, when oil price shocks and a surge of Japanese cars forced thousands of layoffs at Detroit's Big Three, and drove Chrysler Corp. to seek a government bailout….

Despite substantial productivity gains at UAW-represented factories, and big improvements in the assembly quality of GM, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group vehicles, the UAW is again facing management demands to give back some of what it has won, particularly in health benefits, or risk even more job losses….

Workers in China earn an average of $1.96 an hour, compared with $36.55 for the average American auto worker, says automotive consultant John Hoffecker of AlixPartners, Southfield, Mich. Chinese car makers are gearing up for a major export push, he says, as their car-making capacity outstrips that nation's demand….

In 1982, the UAW agreed to concessions with GM. But after the agreement was officially ratified, GM disclosed a new, more-generous bonus plan for the company's top executives. "You can imagine how that played," Mr. Shaiken said. "So, when the UAW says, 'Let's figure out what else we can do,' that doesn't come out of thin air. There's a history behind that."

     So, after “the UAW agreed to concessions with GM…GM disclosed a new, more-generous bonus plan for the company's top executives.” Put that in the “what’s new” category. The U.S. is now officially an aristocracy.

     Of course, the UAW isn’t blameless in this story. Instead of constantly pressing for higher wages and benefits for their members, it should have fought for more union membership in other industries and businesses. They could also have lobbied for higher wages for teachers, nurses and others who are low on America’s financial totem pole.

     As it is, too many members of the public have no sympathy for workers making $36/hour—even though corporate CEOs make incomes in the multiple millions.

     Prediction: It’s only a matter of time. GM will become an investment banking company—and if it’s in manufacturing at all, it will be through contracts with other companies in China or India, where the cheapest labor can be found.

     The only salvation for its investors will be found in GM’s total exit from manufacturing, and using their remaining funds to, in effect, be a new hedge fund—speculating in the world manufacturing, and other, markets.

From The Wall Street Journal, June 8, 2005.

GM Plans to Cut 25,000 Jobs
By '08 in Restructuring

Analysts, Unions Question
Whether Moves Will Work;
A Steady Work-Force Decline

General Motors Corp., struggling with high costs and declining sales, unveiled plans to cut its North American work force by about 25,000 workers by 2008 as part of a broader restructuring, but the plan drew mixed reviews from analysts and investors and skepticism from the company's biggest union….

Reaction from the United Auto Workers, the large union that represents most GM manufacturing workers in North America, came late yesterday in a statement from its vice president and top GM negotiator, Richard Shoemaker. He said the union "is not convinced that GM can simply shrink its way out of its current problems. What's needed is an intense focus on rebuilding GM's U.S. market share, and the way to get there is by offering the right product mix of vehicles with world-class design and quality….

     I’ve always been a union supporter. But the union’s contention that “What's needed is an intense focus on rebuilding GM's U.S. market share, and the way to get there is by offering the right product mix of vehicles with world-class design and quality”—just won’t work.

     Companies in China and elsewhere are already planning the right mix of vehicles with world-class design and quality, and they can get three times the engineers and scientists to do it, for the same wages American engineers and scientists make.

     And after they design their cars, workers making one-tenth as much as American workers will produce them. There is no way GM can compete with these disadvantages.

     Face it. Globalization is a disaster for our country. Right now, it’s just a disaster for those who work for a living, but, eventually, it’s going to get to everyone (social disruption, unsolvable national economic problems, etc.).

     And think of it. Before globalization, GM was the largest employer in the U.S., and its workers were among the highest paid. It was truly a model to emulate.

     Since globalizataion, WalMart has become the biggest employer today and its workers are among the lowest paid—and it’s now the model for how investors and top corporate executives can become wealthy by treating employees as merely expenses to be minimized.

     Globalization is destroying our economy, but that’s only half of our problems. Our horrendous war with Iraq is also contributing to the destruction of our economy, as well as our standing in the world.

From The Wall Street Journal, June 8, 2005.

Congress Seeks Spending Balance

As spending bills advance in Congress, Republicans are struggling to balance high-profile science and environmental demands at home against the mounting costs of U.S. commitments overseas.

President Bush's ambitious foreign-aid budget is certain to be squeezed in coming weeks, and both the House and Senate are trimming at the edges of the Pentagon's 2006 budget request as lawmakers look for more money for domestic programs.

But the cost of the Iraq and Afghanistan wars was dramatized again yesterday, when the House Appropriations Committee approved a revised $408 billion military budget that includes more than $45.2 billion in contingency funds to pay for operations after Oct. 1….

     Forget any attempts to save our environment. Forget trying to solve our country’s most important domestic problems. We’re now imperialists—and that’s a very costly role to maintain.

     For years now, the pharmaceutical industry has been one of the most profitable in our economy. Despite this, the greedy clowns in charge of our drug corporations wanted still more profits, even to the point of violating the law.

     In the example below, their skullduggery involved cheating the American taxpayer—by overcharging public health programs.

From The Wall Street Journal, June 7, 2005.

Cases, Fines Soar
In Fraud Probes
Of Drug Pricing

Drive May Net $1 Billion
From Firms Overcharging
Public Health Programs

Months before a new law kicks in that will dramatically escalate government spending on drugs, state and federal prosecutors are investigating 150 cases that involve alleged pricing fraud by some of the world's largest drug makers and could produce more than $1 billion in criminal fines and civil penalties this year.

The cases are part of an expanding industrywide investigation of drug pricing that has produced scores of lawsuits currently under seal in courts around the country. They are focused on allegations that drug companies cheat state and federal health-care programs by inflating prices, offering undisclosed rebates to distributors or marketing drugs for unapproved uses, according to lawyers and officials involved in these cases.

A half-dozen major drug makers have already paid fines and penalties to settle charges in the past two years. At least three more – Serono Inc., Abbott Laboratories Inc. and King Pharmaceuticals Inc. – are expected to face similar allegations and possible criminal fines or civil penalties this year….

The recent surge in cases reflects increasing scrutiny of drug makers' pricing practices and a sharp rise in federal and state prosecutions of health-care fraud. Prescription drugs represent an ever-larger share of the nation's health bill, and the federal government is preparing for a huge increase in spending when the new Medicare drug benefit goes into effect in January….

Peter Keisler, who oversees the Justice Department's civil-fraud unit, said that "the most frequent defendant in fraud cases today is in health care" and that the industry now accounts for "the lion's share of fraud, both in number of cases and dollar amounts – and those numbers are going up."…

The scope of the investigation and the cooperation involved suggests that what had appeared to be scattered moves in the past few years has coalesced into a broad concerted effort. State and federal fraud cases have already netted $2.4 billion from drug firms – including Bayer Corp., Pfizer Inc. and Schering-Plough Corp. – that were alleged to have overcharged state or federally backed health-care programs, according to an estimate by Taxpayers Against Fraud, a nonprofit advocacy group. James Moorman, the group's director, said the cases publicly acknowledged to date are "just the tip of the iceberg."…

     Note that this is a brief excerpt of a very long article that went into great detail about the nefarious behaviors of our drug corporations. Also note that this is an industry-wide problem, and not limited to just a few fly-by-night corporations.

     No wonder our healthcare delivery system is broken. Those in charge of it have absolutely no moral standards whatsoever, especially the ethical standard of utility.

     For a better understanding the ethical standard of utility, see The Basis of Morality is Crucial to Good Government—Or, Why Our Founders Separated Church & State, and UTILITY: Our Abandoned Moral Standard.

     Chalk up another victory for Republicans and conservative Democrats. The previous upward mobility of poor and working-class Americans is being systematically destroyed—and all to benefit investors and the established wealthy, and their descendants.

     Technology improvements, productivity improvements, and outsourcing were all sold to American voters as positive ways the standards of living for all Americans would be improved.

     That should be true, but it isn’t if the government doesn’t protect the interests of the poor and powerless against the greed of the rich and powerful. It’s especially bad when Republicans go one step further and not only not protect the interests of the poor and powerless—but actually do everything to exacerbate the injustices of society.

From The Wall Street Journal, June 6, 2005.

Promotion Track
Fades for Those
Starting at Bottom

Decline of In-House Training,
Rise of Outsourcing Leave
More Stuck in Menial Jobs

NEW YORK – Unwed, unemployed and saddled with three young sons, Valerie Beatty hit bottom in 1989 when she was 25 years old. The daughter of a middle-class Harlem family, Ms. Beatty recalls she abandoned hope of what she calls "bettering myself."

Too broke to pay tuition at Bronx Community College, she dropped out and scraped by on food stamps, baby-sitting jobs and whatever cash her boys' father gave her to buy school clothes. "I had my kids," she shrugs, "and that was about it."

Then her life began to turn around, thanks to a cleaner's job she landed in 1992 with the Metropolitan Transportation Authority, a state agency that runs New York City's buses and subways. The job paid only $18,000 a year but put her on a track for training and promotions. Within a decade, she advanced from cleaner to subway motor inspector. Today she makes $50,000 a year and lives in a tidy ranch home on Long Island. Now 41, she ticks off her next goals: seeing her sons graduate from college, building a retirement home and opening a restaurant.

But the train that Ms. Beatty and many other black New Yorkers rode into the middle class is slowing down. The MTA was once full of jobs like motor inspector or turnstile repairman –jobs that a person with limited education could jump to with some training.

As in the corporate world, many of those jobs have disappeared, often because technology upgrades mean fewer people are needed….

Outsourcing and aggressive outside hiring have made many enterprises more efficient and profitable. But these trends raise the risk of workers in low-wage jobs getting trapped there. Annette Bernhardt, a sociologist at New York University Law School, studied the salaries of thousands of workers over nearly 40 years.

She found that 12% of workers who started in the labor market in the late 1960s and early 1970s remained stuck in low-wage jobs 10 to 15 years into their careers. But for workers who entered the labor market in the 1980s and early 1990s, that percentage had more than doubled, to 28%….

     The key to understanding this excerpt of a very long article—is the last paragraph. It’s the statement that summarizes the effects of the Republican economic policies.

     It’s a very long and complicated story about how Republicans have created this result, and the explanations of how they have been able to pull it off are to be found throughout this website.

     The following is an excerpt of a very long article and is presented simply as yet another example of why we need government regulation and oversight in the affairs that affect our society.

From The Wall Street Journal, June 6, 2005.

Goldman Faces New Tensions
In Trading, Serving Hedge Funds

Salesmen Both Advised Clients
Of Firm and Influenced
Its Own Bets on Market
Word of a Stock Sale Leaks

LONDON – One day two years ago, as Goldman Sachs Group was readying a sale of millions of shares held by German industrial giant Siemens AG's pension arm, the stock started falling, suggesting that word of the deal had leaked. Early word of it would have given an investor valuable information that the stock was about to face downward pressure.

When Goldman investigated, it found that a managing director in its London office had tipped off an important hedge-fund client of the firm. While it didn't appear the tip had caused the stock's fall, Goldman fired the managing director.

The incident opened a window on new tensions inside investment banks as their business models shift. When stock markets are flush, as in the 1990s, big securities firms like Goldman rake in cash by underwriting numerous new stock offerings for corporate clients and collecting commissions from stock investors. The bursting of the stock-market bubble in 2000 hurt both of those traditional mainstays.

Goldman and its rivals have since looked increasingly to other activities that could still offer rich profits….

     Key statement: “Goldman and its rivals have since looked increasingly to other activities that could still offer rich profits.” That just about says it all. Count on it: if it makes money—and isn’t quiet illegal yet—Goldman and its rivals will do it, no matter what harm is done to American citizens.

     Here’s another in the endless series of articles that illustrates how our federal government deliberately pursues policies to keep wages of workers from going up, no matter how high corporate profits are, or how much the stock market goes up. Also note how the Journal always considers it good news whan "wage inflation remains in check." Meaning: Workers aren't benefiting from the improvements in our economy – yet. And when they do, it'll be time for the Fed to raise the prime interest rate.

From The Wall Street Journal, June 6, 2005.

Jobs Report Is Unlikely to Sway Fed

Weak U.S. Payroll Growth
Isn't Expected to Spell End
Of Interest-Rate Increases

WASHINGTON – Last month's weak jobs growth underscores the fitful nature of the economic expansion but isn't likely to deter the Federal Reserve from continuing to raise interest rates – for now.

While the Fed is likely to press ahead with another in a series of small rate increases on June 30, the weak jobs report provides ammunition to market participants who think the Fed should halt its rate increases after the June meeting until the U.S. economy shows signs of firming….

Jared Bernstein, an economist at Economic Policy Institute, a Washington think tank, said the "pattern suggests that a convincingly strong labor-market recovery has yet to take hold."

Meanwhile, wage inflation remains in check. The slack remaining in the job market continues to hold back the rate of hourly wage growth among blue-collar and nonmanagerial workers. Hourly wages rose 0.2% in May, and 2.6% in the past year, the Labor Department reported….

     For a more extensive discussion of how our conservative government deliberately keeps working-class wages from going up, see: The Class Warfarer’s scapegoat: “Wage Inflation”.

     Remember how we were promised that globalization would benefit our country and our economy because it would open the world market to America’s manufacturers? Just thinking about all those millions of Chinese customers makes the mouths of American corporate executives water.

     Read the following two articles, from two separate publications, to see what a bald-faced lie conservatives have foisted off onto the American public. What is happening to the auto industry will be repeated throughout our entire economy.

From Barron’s, June 6, 2005.

Chinese Auto Makers' Great Leap Forward

"Made in China” may be stamped on the wares of your local auto showroom in not too many months. Leading the way are two eccentric entrepreneurs, Malcolm Bricklin, creator of the ill-fated Yugo, and David Shelburg, a colorful Arizona-based dealer. But more conventional auto makers are likely to follow.

This month, Honda Motor (ticker: HMC) begins exporting the Honda Jazz from China to Germany, and expects to sell some 10,000 in the first year. Honda hasn't said when it plans to export to the U.S., but DaimlerChrysler's China chief created a hullabaloo at April's Shanghai Motor Show by saying he's looking at manufacturing subcompacts in China for export to North America. "We've retracted that statement," snaps a Chrysler spokesman in Auburn Hills, Mich. "I can unequivocally tell you there are no plans to export any Chinese vehicles to the U.S."

Perhaps not immediately. But even as China's auto industry suffers from anemic volume and surging overcapacity, the pressure is on to ramp production. Consider that, according to J.P. Morgan estimates, sales of domestically manufactured cars totaled 2.33 million last year, versus total capacity of 3.8 million….

Chinese-made Corollas and Camrys from Toyota (TM) may not be far behind. Such plans are likely to cause tremors in Detroit's factories, and also in the American plants run by Japanese and Korean manufacturers….

"In three-to-five years, the export issue will be material to the investment case for Chinese auto stocks," says Jack Cheng, auto specialist at Boshi Fund Management in Shenzhen. Cheng believes that valuations have bottomed and earnings are recovering. But for now, it will be tough for profitability to snap back to last year's levels….

Whatever the prospects, some fund managers are finding value in Chinese auto shares….

From Business Week, June 6, 2005.

Here Come Chinese Cars

Detroit isn't looking in its rearview mirror — yet

Audacious, gutsy, and maybe a little nutty – how else to describe the push by New York auto entrepreneur Malcolm Bricklin and China's Chery Automobile Co. President Yin Tongyao to import and sell 250,000 mainland-made sport utilities, sedans, and sports coupes in the U.S. starting in 2007?

After all, Chery produced only 80,000 cars in all of 2004, has near-zero brand recognition outside China, and has been sued by General Motors Corp.'s South Korean unit for allegedly ripping off the design for its best-selling QQ minicars in China — a charge Chery denies….

Big Three execs did take notice, however, when Honda Motor Corp. announced plans to export compact cars from China to Europe starting in June. Honda already sells about 200,000 locally built vehicles in China a year, ranging from Accord sedans to Odyssey SUVs. In April, with local partners, it began production at a new assembly plant in Guangzhou that will eventually build and export 50,000 Fit compacts a year to be sold in Europe as the Jazz. Honda won't say if it plans to send China-built cars to the U.S., but it hasn't ruled out exporting other models from China eventually.

In the global auto industry, Chery and Honda are on opposite ends of the spectrum. But they do share this: Both are betting big that the Chinese auto industry is entering a new phase that will see a shift from manufacturing only for the fast-growing local market to become an export base for the rest of the world, too….

Autos from China could provide more lower-cost competition for the Big Three at a time when GM and Ford Motor Co. are already reeling. That could cost them, along with Chrysler, more market share and prod them to move more of their own production offshore….

The Chinese government is putting its heft behind the export push – subsidizing the export drive of such local players as Chery and giving the likes of Honda big incentives….

Honda says in-house quality tests show that the China-made Accord is actually superior to the one made in the U.S. If those quality gains hold and a far bigger market drives down costs, China could start throwing its heft around the global auto market in a big way. Look out, Detroit.

     We’re in the process of giving our auto industry to other countries like China—and already the Chinese have bought all the cars they can afford, and China is in a state of “surging overcapacity.”

     Not only are the sales of cars made by American corporations slowing to a standstill in China (that "great market"), we’ve taught China how to make cars as well as we do (“the China-made Accord is actually superior to the one made in the U.S.”) —at one-tenth the labor cost—and China will now be exporting cars to the U.S.

     Of course, “General Motors Corp.'s South Korean unit [is suing Chery} for allegedly ripping off the design for its best-selling QQ minicars in China.” Which leads to the question, “What the hell did American corporations expect from China?

     How incredibly, undeniably, unbelievably stupid. And we’re doing it to all our labor-intensive industries.

     How in the world are American workers who don’t inherit fortunes, or don’t have an advanced education, or win a lottery, going to survive in this kind of economy?

     And how will our country be able to effectively deal politically with a powerful China that has taken-over our most significant sources of true wealth creation?

     Our private petroleum corporations have, and are doing, such a horrible job—it’s hard to imagine that government bureaucrats could to as poorly. Isn’t it possible that they should be considered as a regulated utilities?

From Business Week, June 6, 2005.

A Dry Well For Job Seekers

Is America's oil industry jeopardizing its long-term future by cutting jobs amid record profits? Some experts worry that Big Oil won't have the people it needs to ramp up output to meet steadily rising energy demand. In an April report, CEO Arthur Smith of energy research firm John S. Herold says: "Unless oil and gas companies take drastic steps to reverse the brain drain of the energy industry, a severe personnel crunch is preordained." Geologists could become particularly scarce.

A brain drain is well under way. At just under 200,000 jobs, U.S. employment in oil and gas extraction and petroleum refining is half what it was in the early 1980s, according to the Bureau of Labor Statistics….

All told, oil and gas companies cut U.S. jobs by 0.6% and worldwide jobs by 5% in 2004, despite record profits, says Standard & Poor's Compustat unit. Doesn't sound as if they're geared for growth.

     Face it. American corporate executives care only about increasing their own wealth and have absolutely no concern for the welfare of our country. They don’t plan for the future, they price gouge the public, and they lobby Congress to give them endless tax breaks.

     If the major oil corporations don’t demonstrate that they can behave like responsible people with at least minimal moral standards—it’s beyond time to declare the entire industry as regulated utilities.

Week of May 30

     The Republican Congress and the Bush Administration are well on their way to achieving their goal of creating an aristocracy. Here’s the latest analysis of one of their favorite programs to give huge tax advantages to the wealthy—under the guise of “helping workers.”

From The Wall Street Journal, June 2, 2005.

Older Workers Fail to Make Use
Of Catch-Up Retirement Savings

…Since Congress introduced a provision as part of the 2001 tax overhaul allowing individuals age 50 and older to sock away more of their pretax money in their company 401(k) plans, only a fraction of those eligible are taking advantage of that offer, according to a new study to be released today by the Vanguard Group, the Valley Forge, Pa., investment titan….

For the most part, workers with high incomes were more likely to set aside more of their savings. In 2004, those with more than $50,000 in household incomes were 3.5 times as likely to make catch-up contributions as those with incomes of less than $50,000. Those with household incomes of $150,000 or more were more than six times as likely….

     Although every worker whose company allows participation in a 401(k) plan can take advantage of tax protected income—the poor ones making under $50,000 can’t afford to. Of course, this legislation was never intended to benefit the poor. The true beneficiaries are, and were always intended to be, America’s higher paid “workers” (meaning: executives making over $50,000, and, especially, over $150,000).

     Because our real estate laws deliberately favor people with money, at the direct expense of people without money, real estate is one of the greatest creators of wealth—and of poverty.

     Right now, we seem to be at the pinnacle of one of the greediest periods in our nation’s history, and no one seems concerned about its effects on the bottom 40% of Americans who don’t own any real estate, even a home of their own. Not only that, we’re also creating a situation in which even the least sophisticated owners of real estate may shortly find themselves destitute.

     And if you’re looking for the straw that will break the camel’s back (our economy), you just might find it below.

From Fortune, May 30, 2005.

REAL ESTATE FRENZY

Riding the Boom

They snap up real estate, flip it, then chase the next hot market.They’re the new day traders—and they’re dancing on the edge of a volcano….

[Real estate investor] Tahmassebian begins his inspection. "See this wood?" he says, gesturing to the slatted frame of the unfinished house. "This wood made money for me! I don’t own it—but I own the rights. I put a 10% deposit down, I haven’t even made a mortgage payment yet, and it’s already gone up $45,000. What a country!"…

This summer the Learning Channel will air a show about people flipping real estate in San Diego, hosted by a woman who has bought and sold more than 40 properties in the past seven years.

And the appreciation! Surely you’ve heard, because real estate profits are the kind of thing that no one—your neighbor, your boss, yourself—can seem to shut up about. Since 2000 the median sales price of a single-family home has jumped 77% in New York City, 92% in Miami, and 105% in San Diego. "Nationally, all levels of real estate activity are at all-time highs," says economist Mark Zandi at Economy.com.…

Of all the phenomena that the boom has wrought, perhaps the most telling is the return of speculators like Tahmassebian. Speculators are creatures who emerge every decade or so to exploit the hot business cycle of the moment—those whose aim is to ride the wave to its highest point and then, with miraculous skill and timing, get out before it crashes on all the greater fools beneath….

"It’s like any game. It’s the guys who get in early and in the middle that make money," says John (he declines to give his last name), a chiropractor who is on hand with his girlfriend, a nurse in a white tank top and hot-pink lipstick who’s also in the market. He has bought three other investment condos in the area already this year. "It’s the guys at the end who are left holding the bag."…

     As these speculators buy dozens of homes, they are taken off the market and drive up the prices for everyone else. And those who don’t participate, or are late in joining the madness, are shortly going to find themselves much poorer than they were before.

     For an extended discussion of how real estate creates wealth—and poverty—see Wealth is a Zerosum Game.

     The following two commentaries explain a lot about how Republicans and conservative Democrats choose to remain totally blind to the inequities they have built into our economy. Not only that, they even want to continue to build upon the inequities, and make them worse.

     The first one explains the main reason Social Security is in trouble (and it’s a reason Republicans and conservative Democrats don’t want to face): working-class wages have been stagnating, while those in the higher echelons of our society are becoming incredibly rich.

     The second is an editorial by right-wing crackpot Glenn Hubbard, who was once Chairman of Bush’s Council of Economic Advisers. Naturally, he wants to eliminate taxes on “dividends, capital gains, and interest,” the main sources of income for the very rich. And what’s left to tax: consumption, which hits the poor and those in the middly the hardest.

From Business Week, May 30, 2005.

ECONOMICS/Commentary

Why The Greenspan Fix Didn't Work

Slower-than-expected wage growth and soaring inequality have wreaked havoc

By Aaron Bernstein

One of the more puzzling questions about the debate over Social Security is why we're even having it again. After all, everyone thought the problem had been fixed in 1983 by the commission headed by Alan Greenspan, who went on to become chairman of the Federal Reserve Board….

A new study sheds light on what happened since 1983 to bring back the shortfall, which is projected to be $4 trillion over the next 75 years. Two major economic shifts occurred that Greenspan's commission didn't anticipate: The growth of average U.S. wages slowed, and income inequality soared. Together these trends explain 75% of the reemergence of Social Security's long-term deficit, according to a paper by L. Josh Bivens of the Economic Policy Institute in Washington.

The upshot: Democrats and Republicans alike may be trying to solve the wrong problem. Rather than focusing on how many workers will be around to support retired boomers, some experts think the logical response is to recapture the revenue lost as rising inequality lifted a greater share of aggregate U.S. wages out of the reach of the 12.4% Social Security payroll tax….

No one can blame Greenspan for not anticipating the return of inequality to levels not seen since the Great Depression. Still, his commission's fix barely lasted a year. By 1984, Social Security had slipped back into deficit, where it has remained ever since. What happened? The program's cash intake has been caught in a crunch caused by the interaction of slower average wage growth and heightened income inequality, says Bivens….

"No one anticipated this in 1983," says SSA Chief Actuary Stephen C. Goss, who worked with the Greenspan commission as a young staffer in the actuary's office. Goss says that while his office sees the rise in inequality slowing a decade from now, the long-run trend isn't likely to ever reverse….

A look back at the Greenspan commission shows that Social Security's problems are economic, not demographic. From this standpoint, private accounts that cut benefits for middle-class Americans don't address the real issue. In debating how to fix the system, we first need to understand what's broken.

--------------------------------------------------------

ECONOMIC VIEWPOINT

Tax Reform's Key? Stop Hammering Investors

My plan for fundamental change would tax all income only once

By Glenn Hubbard

… Recent studies by Alan Auerbach of the University of California at Berkeley and others suggest that fundamental reform -- changing to a broad-based income or consumption levy that taxes income only once -- could yield annual household income gains of 9%. A panel appointed by the White House is working on fundamental changes. And a host of real-world concerns -- from the alternative minimum tax (AMT) to the complexity and inefficiency of the corporate income tax to looming sunsets of present laws -- is sure to keep reform front and center on the political stage….

Much of the gain from reform comes from reducing the code's bias against saving and investment, which slows capital formation and wage growth. Any plan – whether aiming for a broad tax on income or consumption – should remove taxes on dividends, capital gains, and interest….

     The contention that “No one can blame Greenspan for not anticipating the return of inequality to levels not seen since the Great Depression,” is absurd. Greenspan has always deliberately pursued economic policies to keep “wage inflation” from occurring. (For a more extensive discussion of this subject, see: The Class Warfarer’s scapegoat: “Wage Inflation”.)

     And Hubbard’s contention that taxing “saving and investment, [would slow] capital formation and wage growth,” is simply flat-out wrong. Some of the strongest periods of capital formation and wage growth were in periods of our highest taxes, from 1932 to the 1980s.

      The outsourcing madness continues. Just why do you think that investors are now putting so much of their money in India and China? It’s simple. That’s where the future is, because that’s where the industries and the jobs are.

From Barron’s, May 30, 2005.

India Tech Bulls Snap Up Infosys ADRs

Prospects for India’s information-technology giants suddenly looked brighter last week, as their shares jumped and Infosys Technologies' second issue of American depositary receipts (ticker: INFY) was wildly oversubscribed.

The earlier-than-expected recovery in stock prices indicates that investors believe that the March- quarter softness for the Indian companies was just a blip, and that they'll beat full-year estimates by a wide margin….

Nasscom, India's software services trade association, forecasts 2008 industry revenues at $50 billion, up from $16 billion currently, as more foreigners outsource software writing, accounting and the like….

     Think of it. People used to invest in this country, because we were the country of growth and opportunity—for everyone. No more. We’re a country for investors who use the world to pit workers against each other in the race to the bottom in wages and working conditions.

     It’s déjà vu all over again. Countries around the world are again discovering that there’s a limit to the extent to which they can sacrifice their workers on the alter of a “free trade” based on worker brutalization.

     Just as the greedy and materialistic created the world economic disaster of the 1920s—which led to the depression, and to the resulting protectionism—today’s modern barbarians are doing the same.

     And when the world economy crashes, Republicans will blame the protectionism, not the greed and materialism that caused it, for the resulting miseries.

From Barron’s, May 30, 2005.

Showdown With China

The current game of chicken between the U.S. and China over international trade threatens to make chicken salad of the global economy. This summer the U.S. Senate and House of Representatives will consider bills that would slap huge tariffs on imports from China if the Chinese refuse to allow their currency to "float," or trade freely, as the currencies of member nations of the World Trading Organization must….

China ensures its goods sell here for less, and that American goods fetch more overseas. Moreover, smaller Asian nations peg their currencies to the buck in order to compete with China, which leads U.S. manufacturers to lose out in markets at home and abroad. The currency imbalance is a major reason the U.S. trade deficit with China has nearly doubled to $162 billion since 2001….

     Not only are we losing industries and jobs to China, we’re strengthening its role as a powerful political force in the world. (The Chinese government owns 60% of its industries.)

     My, my, the sanctimonious outrage: Arthur Anderson’s illegal and despicable behaviors—shredding documents and helping major corporations screw the public, among others—wasn’t so bad after all. The court decision against them was flawed because “…jurors used too loose a standard of culpability against the once-venerable accounting firm.”

From The Wall Street Journal, June 1, 2005.

Andersen Decision
Is Bittersweet
For Ex-Workers

When former Arthur Andersen LLP senior manager Bill Strathmann heard that the Supreme Court had overturned Andersen's criminal conviction yesterday, he immediately relayed the news to his wife, father, brother and friends. On an email chain including 17 former Andersen partners and employees from Andersen's old Tysons Corner, Va., office, terms like "three years too late," "vindication" and "unbelievable" were sprinkled throughout….

In chat rooms, Web logs and emails yesterday, many former employees voiced similar opinions about the Supreme Court's unanimous decision to overturn the 2002 criminal conviction of Andersen tied to its botched audits of Enron Corp. The court ruled that jurors used too loose a standard of culpability against the once-venerable accounting firm….

The accounting debacles at Enron and WorldCom Inc., another Andersen client, have permanently etched a negative perception of the firm in many people's minds. Among the most vivid images: Workers in Andersen's Houston office shredding tons of documents connected to long-valuable client Enron; or, months later, the news of WorldCom's collapse into bankruptcy from an $11 billion accounting fraud, the nation's largest….

In some ways, "a stigma has been lifted," said Marc Andersen, a former Andersen partner who organized a 1,000-person rally in Washington in 2002 to protest the Justice Department indictment….

"Clearly the firm failed," said Barry Melancon, president of the American Institute of Certified Public Accountants, which filed a friend-of-the-court brief on behalf of Andersen. The vindication is only that "the firm as a whole is not guilty in this situation."

     Mr. Melancon’s comment was the most accurate: "Clearly the firm failed." And, although not the whole firm was guilty—it was clearly rotten at the top, and that’s what counts.

     Speaking of being rotten at the top, how about one of our most prestigious financial corporations, Citigroup.

From The Wall Street Journal, June 1, 2005.

Citigroup to Pay $208 Million
To Settle Fraud Accusations

Pact Relates to SEC Charge
That Transfer-Agent Moves
Were at Expense of Funds

Citigroup Inc. agreed to pay $208 million to settle Securities and Exchange Commission fraud charges related to its mutual-fund operations, removing an additional regulatory cloud hanging over the company.

The settlement relates to its 1999 decision to set up an internal transfer agent to service its Smith Barney family of mutual funds. The SEC order accused Citigroup of "placing its interest in making a profit ahead of the interests of the mutual funds it serves."

The agreement extends a string of regulatory settlements struck by Citigroup over the past couple of years, as Chief Executive Charles Prince moves to clean up after a variety of scandals….

     When you read reports like this, remember that you’re seeing only the corporate practices that were exposed to the public. What their executives are still doing beyond public scrutiny is largely unknown.

     Here’s another in the endless series of bad news about our healthcare system.

From The Wall Street Journal, May 31, 2005.

Seeking Insurance,
Individuals Face
Many Obstacles

Past Ailments Can Disqualify
People or Raise Prices;

John Craig, a 46-year-old software consultant in Orem, Utah, plays racquetball twice a week, doesn't smoke or drink and isn't overweight. But when he tried to get an individual health-insurance policy three years ago, he was rejected.

The insurance company cited sinus infections and depression, two conditions that Mr. Craig felt were well under control. The sinus infections stopped when he quit eating wheat in 1992, and medication has kept depression at bay for years. Frustrated, he ended up pursuing coverage through various state programs. For people with health problems in the private market, he says, "if you have a job with health coverage, then you get health coverage. If you don't, you're simply out of luck."

Mr. Craig has gotten an unwelcome education in the vagaries of individual insurance—the private option of last resort for many of the roughly 60 million Americans who don't get health insurance from their jobs or the government. About 17 million people, or 10% of Americans under age 65, buy individual policies in a market that even proponents agree has a big problem: Sick people often can't get insurance, or if they can, it's prohibitively expensive….

PacifiCare, based in Cypress, Calif., says it approves individual policies for about 70% of applicants without restrictions and to an additional 10%-20% with restrictions -- such as a refusal to cover an existing health problem for a certain period of time. The rest of the applicants are denied coverage. If too many sick people were insured without restriction, premiums would be higher for everyone and healthy people might stop buying coverage, says Mr. Bowlus. "That's the tradeoff," he says.

     Want to know the real reason our healthcare system is broken? It’s because of the greed of our modern American aristocrats, who have no moral standards when it comes to their relationships with their customers.

     For example, Howard G. Phanstiel, Chairman and CEO of PacifiCare Health Systems Inc. raked in $10,594,156 in total compensation including stock option grants in 2003. He has another $47,080,450 in unexercised stock options from previous years.

     If you look up the incomes of the CEOs throughout the healthcare industry—pharmaceuticals, HMOs, medical practice groups, etc.—you will find the same kinds of compensations. And remember, their own outrageous incomes are merely small indices of the huge amounts of money they are getting for their shareholders. And the sum total (CEO and top executive incomes, investor profits) represents the extent to which they are all royally screwing the public.

     It’s well beyond time to un-privatize our health industry. The greedy “free market” barbarians have destroyed it. Their definition of a free market is one that is ruthlessly controlled by huge corporations and their Republican representatives in Congress and the White House.

     We’re living in an era of exploding profits for corporations, a rising stock market and a skyrocketing real estate market. We’re also seeing record skullduggery among corporate executives, and wages that are still well below inflation over the past 20 years.

     So, who does Bush appoint to head the SEC? Someone who is “business-friendly,” who opposes government regulation of corporate executives’ behaviors, and who opposes class-action suits that are brought by those who are victimized by corporate skullduggery.

From The Wall Street Journal, June 3, 2005.

Cox's Nomination to Run SEC
Signals a Regulatory Shift

Business-Friendly Californian
Fought Class-Action Suits…

In naming Rep. Christopher Cox as the new chairman of the Securities and Exchange Commission, President Bush is picking a business-friendly champion of free enterprise who worked in the Reagan White House. The California Republican has supported legislation making it harder for investors to file securities-fraud suits and opposed stricter rules on expensing stock options and merger accounting.

vHis arrival promises to bring a shift in the SEC's approach to its crucial role in regulating businesses and markets. It comes in the wake of an unprecedented crackdown on corporate fraud over the past 2½ years. The scandals at Enron Corp., WorldCom Inc. and other companies prompted stiffer penalties, stricter accounting rules and a wave of enforcement actions by state and federal regulators.

Now the regulatory terrain could be changing. "He's someone who, if he is confirmed, portends a major shift in the direction of the SEC," said Joel Seligman, dean of Washington University law school and an SEC historian.

Mr. Cox's appointment is a victory for the business lobby, led by institutions like the U.S. Chamber of Commerce, which has been arguing that it needs relief from what it considers to be heavy-handed securities regulation….

     So, what kind of future is this appointment likely to yield? More of the same. More scandals, more inequality in wealth and income between rich and poor, and a delay in facing our country’s most pressing problems.

     It would be hard to pick someone who would be worse for the average working American..

     If you want to know how our government deliberately pursues policies to keep working-class wages from going up, read the Wall Street Journal’s advice for investors. Don’t read their editorials or listen to members of their staff on radio or TV. The following two articles appeared in the same issue of the Journal.

From The Wall Street Journal, June 3, 2005.

Working Theory

…Given the difficulty forecasters have had with gauging employment growth, the jobs report is a bit of a crapshoot. Most economists are huddled around an average estimate of a 185,000 payroll gain…..

Although a weak number might not provoke much reaction in the bond market, it could make for a big move—higher—in the stock market, where investors have lately been far more excited by the prospect of the Fed putting rates on hold than they are worried about the economy weakening.

--------------------------------------------------------

Labor-Cost Jump Raises
Concerns About Inflation

Labor costs are increasing more rapidly than initial government estimates suggested, raising the specter of increased inflationary pressures….

Labor costs "already had started to drift higher," said Michael Moran, economist at Daiwa Securities America Inc., "but the new figures show considerably more pressure than previously estimated."

He said labor's share of the nation's economic pie has been unusually low lately, and could be returning to normal levels. Although faster wage growth is raising concerns about price increases, it also will give U.S. consumers the wherewithal to keep spending….

Federal Reserve officials keep close tabs on unit labor costs. As the costs of production increase, companies tend to push their prices higher in an effort to protect profit margins. The Fed lately has viewed signs of incipient inflation with a wary eye, and has lifted its federal-funds rate to 3% from a 46-year low of 1% over the past year.

"This is seriously bad news for the Fed—costs appear to be spiraling rapidly—and it strongly argues for substantially higher interest rates," Ian Shepherdson, chief U.S. economist at High Frequency Economics of Valhalla, N.Y., wrote to clients….

     If you don’t understand the implications of these articles, and what these articles are really saying, see: The Class Warfarer’s scapegoat: “Wage Inflation”.

Week of May 23

     The following article neatly summarizes the two opposing economic philosophies of globalization advocates and globalization critics.

     Which side are you on? Mr. Nichols or Mr. Cole?

     Are you a selfish, greedy conservative who believes in aristocracy and has absolutely no concern for the rights and welfare of workers—and their communities?

     Or are you a liberal who believes in the ethical standards of rights, justice and utility?

      (For a better understanding of the ethical standards of rights, justice and utility, check out the file: Utility: Our Abandoned Moral Standard .)

From The Wall Street Journal, May 27, 2005.

Once Close-Knit, Sock Industry
Splits Over Trade Restrictions

As Bush Curbs China Imports,
Mr. Nichols Sees Betrayal;
Mr. Cole's Mill Stays Open
'Head Buried in the Sand'

MOUNT AIRY, N.C. – From an unassuming whitewashed building here, Warren Nichols runs one of the largest sock companies in the world. His Renfro Corp. churns out more than a million pairs a day, with more than 4,500 workers spread from North Carolina to Mexico and Turkey. Later this year, he plans to add China to his production empire.

But the Shanghai operation won't ship as many socks back home as Mr. Nichols had originally planned because of an import curb the Bush administration slapped on Chinese socks. Making him more bitter: A fellow member of the once-clubby American sock-making fraternity, Charles Cole of Alabama Footwear Inc., led the campaign for the restrictions.

"You're either for a global economy or you're an isolationist – take your pick," says Mr. Nichols, who believes the Bush move "betrayed us." Mr. Cole responds that "there needs to be an equalizer" to help Americans compete with China. "I could move to Honduras," he says. "That would give me a job. But how about the 76 people who work here at this mill?"

The rift between Messrs. Nichols and Cole is a microcosm of how trade and globalization can ripple through, and then rip apart, an industry. Several industry associations have split between outsourcing multinationals and the little suppliers whose work is being outsourced.

The socks war pits big businesses against small ones and profit-driven executives against those also focused on preserving their hometowns. It also offers a window into the rise of anti-China sentiment in Washington, where some politicians are calling for trade curbs and pressuring Beijing to let its currency rise against the dollar. Adding to the sock restrictions, the Bush administration has moved in recent days to restrict imports on a range of Chinese-made products from cotton yarn to underwear.

Mr. Nichols, 67 years old, and Mr. Cole, 58, are both native sons of Southern mill towns. But from similar roots, the two have traveled along different paths.

Mr. Nichols, who is partial to dressy business-casual clothes from Brooks Brothers, runs Renfro from one of a long row of neatly appointed offices in the company's executive suite. He traveled to China 20 years ago to study sock-making there, and spent three months at Harvard Business School in a midcareer program.

Renfro started out as a small, family-run firm in 1921. Mr. Nichols joined the company in 1959 and his appointment as chief executive in 1990 signaled the company's move away from family control, although it remains closely held today. Renfro socks are sold under brand names including Fruit of the Loom and Odor-Eaters.

Renfro's headquarters in Mount Airy, the hometown of actor Andy Griffith, has become the nerve center of a global business, but relatively few socks are made here. Last year, Renfro eliminated 280 jobs at its lone Mount Airy plant, a big block building on the banks of the Ararat River. The layoffs resulted in part from expansion in Mexico.

Mr. Nichols describes having "mixed emotions" at the loss. "I have sentiment for the American people," he says, but "essentially, I'm looking out for our business and our shareholders."

Mr. Cole, usually dressed in a golf shirt, khakis and tennis shoes, works out of a cluttered office within earshot of the factory floor. It's decorated with a large, framed print celebrating the 1992 national football championship of his alma mater, the University of Alabama, along with tiny bulldozer models from his days running a strip mine.

He started Alabama Footwear 23 years ago in Fort Payne, Ala., with $250,000, putting up his small house as part of the collateral for a loan. He still owns the company. Unlike some of the bigger companies in North Carolina, the Alabama sock industry chiefly consists of 75 small and midsize mills that effectively work as a kind of cooperative. The mills specialize in white athletic socks, many sold as house brands at retailers such as Wal-Mart Stores Inc., Target Corp. and J.C. Penney Co., Mr. Cole says.

Mr. Cole's company does knitting work, turning yarn into socks. Others act as "finishers," preparing products for retailers by dying, folding and packaging them. If one firm moves to China, it's not only hurting its own employees, it's also hurting the other companies in the network.

Mr. Cole bristles at the suggestion that companies seeking trade limits have failed to adapt to a changing world. He notes that Alabama Footwear has spent more than $4.5 million on equipment upgrades over the past five years. That includes 130 Italian-made machines that automatically turn spools of yarn into knitted socks, untouched by workers. After installing these and other machines, Mr. Cole gradually scaled back his work force to 76 from 105.

For most of its history, the Charlotte, N.C.-based Hosiery Association was able to represent both big companies and small. That was true even through the 1990s, when larger firms steered the group toward an embrace of free trade. Sock makers didn't fight in 1994 when the U.S. and other major trading nations agreed to phase out textile trade quotas over 10 years.

The Hosiery Association's consensus began to fray in 2000 over legislation to allow duty-free entry of textiles from the Caribbean. Renfro, with a plant in Honduras at the time, wanted to make sure the initiative included socks. The Hosiery Association agreed and hired lobbyists to pursue the issue.

At Alabama Footwear, Mr. Cole says he hadn't paid much attention to the association's position on trade until then. He feared Caribbean imports could hurt companies like his that don't have overseas plants. In Fort Payne, which welcomes visitors with signs declaring itself the "Sock Capital of the World," he spread the word among fellow sock makers. At a monthly meeting of the Hosiery Association's Alabama chapter, Mr. Cole stood before his colleagues in a back dining room of the local Western Sizzlin' steakhouse and explained how the national association's free-trade push conflicted with Alabama's interests.

"We intend to get that changed," he remembers telling about 50 sock makers. He organized a campaign to write letters to Congress and had 4,000 envelopes delivered from Fort Payne mill workers to Washington. He personally piloted fellow Alabama sock makers to Washington aboard his six-passenger Cessna to make the case.

Meetings of the full Hosiery Association grew more bitter. Some Fort Payne factory owners politicked to force out veteran association president Sid Smith, who had pushed for free trade, according to one Fort Payne sock maker. In the summer of 2001 Mr. Smith announced plans to retire, though he says it wasn't related to the pressure. His last board meeting as president was in October 2001. At that meeting, the board overturned the association's free-trade positions, deciding not to take any trade stance. The group later formed a committee, headed by Mr. Cole, to lobby on behalf of the smaller firms that focus on U.S. production.

The shift on trade left the association deeply divided. Prior to the meeting, Mr. Nichols had tried to convince other sock makers they couldn't stop trade liberalization. "Look guys, it's coming," he says he told them. Mr. Nichols "just felt like the rest of us had our head buried in the sand if we thought we could do anything about global outsourcing," Mr. Cole says. When the time came to renew Renfro's membership in the Hosiery Association for 2002, Mr. Nichols chose not to.

Congress ended up deciding in late 2002 to give socks from the Caribbean limited duty-free benefits – a victory for Mr. Nichols. But bigger fights loomed. As the old trade controls continued to be phased out and China ramped up production, the U.S. market share for American sock makers fell to 31.4% in 2004 from 64% in 2001, according to Hosiery Association data.

That trend and more efficient machines have caused employment at sock mills in and around Fort Payne to drop to 4,400 from about 7,000 three years ago, according to the local economic development authority.

In 2003, Mr. Cole started lobbying for a new law that would require the packaging of all socks sold in the U.S. to carry a prominent country-of-origin notice. Every label would have to say, for example, "Made in U.S.A." or "Made in China" in lettering as large as the lettering showing the size of the socks. Renfro was upset about the cost of ensuring its world-wide plants complied with the rule.

Mr. Cole also decided to seek outright limits on sock imports from China. While the U.S. had agreed to lift all quotas by the end of 2004, it retained the authority to impose annual "safeguards" for up to three years to protect against a flood of Chinese imports. In early 2003, Mr. Cole began meeting with lobbyists and government officials to get such safeguards put in place. He worked in particular to woo Jim Leonard, the Commerce Department's lead official on textile policy and the head of a government interagency group that rules on safeguard petitions.

In September of that year, Mr. Leonard visited Fort Payne, meeting with mill workers and executives over two days. On his first night in town, Mr. Cole set up a dinner at the old DeKalb Theater, catered by the Western Sizzlin'. Mr. Leonard remembers his name was on the marquee, along with "letters about a foot high" reading SOS. That stood for Save Our Socks. During the dinner, Mr. Leonard spoke of the steps the Bush administration was taking to promote trade.

The next day, Mr. Leonard toured several mills. He was impressed that mill owners were installing new machines and workers were trying to get more productive. "They're doing the right kinds of things," he says. "They're trying to be as competitive as possible, so they can survive." Mr. Leonard says the Bush administration also heard the views of companies on the other side of the trade issue.

In June 2004, a petition was filed on behalf of the Hosiery Association committee Mr. Cole chaired, requesting limits on imports from China of cotton, wool and man-made fiber socks. A few weeks later, the administration agreed to consider the petition. It had up to 90 days to make a final decision – putting the deadline right before the Nov. 2 presidential election.

On Oct. 22, the Bush administration approved the petition for a one-year limit on sock imports from China. Then on Nov. 19 Congress passed a trade bill that included the labeling mandate. Mr. Bush