This review of the conservative press was started on the week of June 2, 2003. In the brief time since then, note the number and diversity of articles that were published in America's most respected conservative financial publications.
In one way or another, they clearly demonstrate the hypocrisy of those conservatives who claim that:
So, grab your barf bag and read on!
(Note: the abstracts below are presented for purposes of criticism only. Because of copyright laws—and in the interests of brevity and readability—they are necessarily incomplete. Those who are interested in the investment or other implications of the articles should read the originals.)
Can you think of how the following two items in the same issue of the Journal are related?
From The Wall Street Journal, March 31, 2005.
American International Group Inc., the world's largest business insurance company, admitted to a broad range of improper accounting that could slash its net worth by $1.77 billion.
In an extraordinary confession, the 93,000-employee company with operations in 130 countries outlined transactions that "appear to have been structured for the sole or primary purpose of accomplishing a desired accounting result." It listed eight areas where a wide-ranging and still-continuing internal review has identified accounting problems or potential ones, and explicitly labeled as "improper" the treatment of a deal with a unit of Warren Buffett's Berkshire Hathaway Inc.
State and federal investigators probing AIG believe yesterday's statement doesn't cover the full extent of AIG's accounting missteps over the past decade, people familiar with the matter say….
Amid the wave of financial scandals that have toppled corporate executives in recent years, AIG's woes stand out. Unlike Enron, WorldCom and HealthSouth -- all highfliers that rose to prominence in the 1990s -- AIG has been a solid blue-chip for decades. Its stock is in the Dow Jones Industrial Average, and its longtime chief, Maurice R. "Hank" Greenberg, was a globe-trotting icon of American business….
HOUSTON—Pilots, mechanics and dispatchers at Continental Airlines approved tentative agreements to cut their pay and benefits, putting the company a few steps closer to slashing labor costs by $500 million a year and avoiding a cash crunch….
AIG Admits 'Improper' Accounting
Broad Range of Problems
Could Cut $1.77 Billion
Of Insurer's Net Worth
A Widening Criminal Probe
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Continental Nears
Labor Cost-Cut Goals
How are they related? They’re both the result of a totally corrupt corporate environment in which anything goes—as long as it profits investors and top corporate executives, and no matter what the disastrous effects are on workers, consumers, or the environment. Of course, the reason employees in the airline industry are taking pay, and standard of living, cuts, is because of decades of greedy actions of former top executives.
As investors and corporate executives become a new class of American aristocracy, working Americans and consumers get taken to the cleaners.
Not only is the “profit any way you can get it” philosophy leading to unethical and immoral behaviors, it is leading to actual violations of law. And reference to “the wave of financial scandals that have toppled corporate executives in recent years,” is the understatement of the year.
And these are the same hypocrites who claim that corporate executives are better managers—and are better for our country—than are “government bureaucrats.”
China, ladies and gentlemen, is the country that our Republicans and conservative Democrats in Congress and the White House have given our industries to.
Under the heading of “free international trade”—also known as “death of American worker incomes, in order to create a new American aristocracy”—we are making the most ruthless country today the world’s next superpower.
From The Wall Street Journal, March 29, 2005.
ADDIS ABABA, Ethiopia—When this east African country went to war against neighboring Eritrea in the late 1990s, the U.S. responded by evacuating its Peace Corps volunteers, scaling back military aid and issuing a security warning to U.S. citizens and companies.
The Chinese government had a different reaction. Beijing saw the war—and the reduced U.S. presence—as an opportunity to expand its influence. It dispatched even more diplomats, engineers, businessmen and teachers to Ethiopia. New aid grants soon rolled in, followed by bank credits for Chinese companies operating there.
Today, China's influence in Ethiopia is overwhelming. Its embassy is among the largest in the country and hosts more high-level visits than any Western mission. Chinese companies have become a dominant force, building highways and bridges, power stations, mobile-phone networks, schools and pharmaceutical plants. More recently, they have begun exploring for oil and building at least one Ethiopian military installation.
It's all part of Beijing's broad push into Africa. Aiming to secure access to the continent's vast natural resources, China is forging deep economic, political and military ties with most of Africa's 54 countries. There's more at stake than just fuel for an economic juggernaut, however, say senior Chinese officials, executives and Western diplomats. In Africa, as in many other parts of the developing world, China is redrawing geopolitical alliances in ways that help propel China's rise as a global superpower….
For the U.S., China's Africa initiative poses new challenges. Despite a landmark trade pact signed with Africa in 2000, U.S. influence has leveled off in many African countries and in some cases declined. Now, as Washington focuses its attention on the Middle East, it faces a formidable player in a region key to future U.S. economic and security interests….
Unlike the U.S., which bars U.S. companies from doing business with some outlaw regimes, Beijing expresses no qualms about dealing with the continent's most brutal and corrupt leaders. Instead, Chinese leaders prefer to view their relationship through a North-South prism, emphasizing the need for developing nations to band together against the industrialized West….
What's more, many Chinese companies operating in Africa are government-owned and less concerned with near-term profits. Indeed, by reaching out to African leaders who are shunned by Western nations, and throwing money at projects Western companies avoid, Chinese officials and businessmen say they are able to secure more business deals and build political influence at a far more rapid pace….
Says Girma Biru, Ethiopia's Minister of Trade: "China has become our most reliable partner and there is a lot we can learn from Beijing, not just in economics but politics as well."…
Staking a Claim
China Flexes Economic Muscle
Throughout Burgeoning AfricaBeijing Forges Deep Alliances
With War-Torn Nations,
Countering U.S. Influence
A Dam Gets Built on the Nile
This is a very brief excerpt of a massive article. Those who want to pursue the matter further—and scare themselves absolutely to death—should read the original.
The greed never ends. And the disconnect between ethical corporate practices and the compensation given to top level executives continues without shame.
From The Wall Street Journal, March 29, 2005.
Bank of America Corp., which has paid more than $1 billion during the past year in scandal-related settlements and penalties while absorbing a huge acquisition, paid its chairman and chief executive, Kenneth Lewis, a total of $19.3 million in compensation, according to a proxy filing with the Securities and Exchange Commission….
Bank of America has faced a series of regulatory and legal blowups. Last July the company became the first bank to settle a class-action suit alleging that some top U.S. financial institutions participated in a scheme with Enron Corp. executives to deceive shareholders.
Earlier this month Bank of America agreed to pay $460.5 million to settle a suit brought by investors of the former WorldCom Inc. who lost billions when the telecommunications company filed for bankruptcy protection in 2002 after an accounting scandal. The bank also agreed to pay $675 million to settle improper mutual-fund trading charges.
Bank of America Pays Its CEO
$19.3 Million Amid Penalties
There you have it folks. The only way we judge corporate executives is by how much money they make for their shareholders—not how they made it or who they screwed in the process.
The following article doesn’t even discuss the most important aspect of our “becoming a nation of financiers.” It’s emphasis is on the fact that corporations are getting out of manufacturing and into pure finance—like credit cards, mortgages, finance fees, etc.
Unfortunately, it doesn’t mention the most important way in which major corporations are becoming, in effect, investment bankers. They do it by getting out of manufacturing, and contracting out to others the actual production of products and services. They’re taking the easier and faster route to extreme wealth: pit suppliers against each other—from all parts of the world—in a bidding war that is based on paying workers the least, and on having the worst working conditions.
From Business Week, March 28, 2005.
America is no longer a nation of manufacturers. But it isn't quite a health-care or even a tech economy, either. Instead, America is quietly and quickly becoming a nation of financiers.
Finance supplies 30% of all U.S. company profits, as of last Sept. 30, up from 21% a decade ago, according to federal government data. And some of those profits don't come from banks or other financial companies, but from manufacturers and retailers that rely on their financial activities for a big chunk of their earnings.
At Deere & Co., the farm-equipment company, finance produces nearly one-fourth of earnings. Retailer Target Corp. usually gets about 15% of its profits from its credit cards. And while General Motors Corp. is having trouble selling cars, its ditech.com mortgage business is going great guns. GM's financing operations earned $2.9 billion last year, while GM lost money on cars. If GM earns any money this year, it will again come from finance.
With finance dominating the corporate landscape, any threat to financial earnings has a magnified impact—and now several threats are gathering. Since the Federal Reserve started raising interest rates in June, finance businesses have paid higher short-term rates on the funds they use to make loans, but the rates they charge customers for longer-term loans haven't been rising nearly as fast. That's starting to squeeze profits.
What's more, lenders have been running more risks than ever as the competition for borrowers heats up, according to a report by Bridgewater Associates Inc., which manages $92 million in investments. So more defaults may be on the horizon….
Of course, it's possible that none of these scenarios will turn into painful reality. Perhaps stronger demand from borrowers will lift long-term rates and spreads. Perhaps the recent buildup of cash on corporate balance sheets will offset losses from defaults. In an economy that increasingly revolves around finance, however, the triple threat is certainly unsettling.
Corporate America's New Achilles' Heel
Overreliance on profits from finance units may be setting companies up for a fall
Key statement: “America is no longer a nation of manufacturers.” How sad. That’s always been the route to success and a better live for low- and middle-income Americans. We’re now a country that is totally geared to benefit the inheritors of wealth—at the direct expense of those who work for a living.
Who knows what’s the truth behind news items like the one below? Greed, corporate politics, and the total disregard for the welfare of employees and the general public all seem intertwined. Previous stars of the corporation are charged with willful skullduggery.
Were they actually miscreants—or were they simply caught by the authorities for doing what they knew they were expected to do to the real powers-that-be in the corporation?
Again, it seems that another of our widely-acclaimed success stories in modern corporate America is beginning to unravel.
From The Wall Street Journal, March 28, 2005.
Wal-Mart Stores Inc. forced its former vice chairman and one-time No. 2 executive, Thomas M. Coughlin, to resign from its board following an investigation into fraudulent expense accounts and invoices and misuse of company-owned gift cards….
Mr. Coughlin's ouster comes as Wal-Mart faces mounting legal and public-relations challenges. Wal-Mart is already scrambling to explain its latest public black eye to its employees. Tomorrow, according to the company, Wal-Mart President and Chief Executive Lee Scott plans to tell company employees in an internal telecast that "If you see something or someone asks you to do something that you know is wrong—whether that is a buddy or a supervisor or Lee Scott—you must have the courage to say 'no.' We all have to do this, no matter our role or position within the company."
The six-week internal investigation also led the company to fire three employees, including a company officer, the company said. The terminated employees included Rob Hey, who was a vice president of store operations, according to people familiar with the matter….
Mr. Coughlin's abrupt departure is the latest in a series of controversies surrounding Wal-Mart. Last summer, a federal-court judge ruled that a gender-discrimination lawsuit against the company could proceed as a class action encompassing possibly 1.6 million women. The company is appealing. In just the last several weeks, Wal-Mart paid a fine to settle federal allegations that underage workers were allowed to operate dangerous machinery. And it recently paid $11 million to settle a federal investigation regarding its use of undocumented workers in floor-cleaning crews.
At the same time, Wal-Mart is increasingly battling critics who accuse the company of paying low wages and benefits while killing off smaller businesses. It recently launched a high-profile image campaign to refute its critics….
Another question the company anticipated: "Why does this stuff keep happening? Is there something wrong with Wal-Mart?" To that Wal-Mart corporate affairs offered this response: " ... [T]his demonstrates once again the strength of the Wal-Mart culture. Our standards of integrity apply to everyone, with no exceptions."…
As recently as the late 1990s, Mr. Coughlin was considered a possible contender to succeed David Glass as Wal-Mart's CEO. But Mr. Scott, a logistics whiz with relatively little merchandise experience, ultimately won out. Although the two publicly made light of their supposed rivalry, people close to the company say Mr. Coughlin was bitter that he lost the top job….
Mr. Coughlin remained a company icon, familiar to rank-and-file store workers and executives alike. He had worked in almost every division of the company, from head of human resources to chief operating officer of Sam's Club. Mr. Coughlin was seen as a keeper of the Wal-Mart culture, a merchant above all else who evoked company founder Sam Walton….
Still, others question what effect losing a merchandising and store-operations mastermind such as Mr. Coughlin will have on a company that is seeking to make its stores more efficient….
Wal-Mart Forces a Director's Exit
Ex-Vice Chairman Coughlin
Quits After Expense Probe;
CEO Plans to Address Staff
The joke of the day: "If you see something or someone asks you to do something that you know is wrong—whether that is a buddy or a supervisor or Lee Scott—you must have the courage to say 'no.' We all have to do this, no matter our role or position within the company." Sheer sanctimonious hypocrisy. Everyone knows that people who do this in today’s corporate environment always lose.
And today’s euphemism: “a company that is seeking to make its stores more efficient.” Translation: a company that does everything to reduce costs—no matter how unfair or brutal to employees, suppliers, and their more ethical competitors.
The sanctimonious hypocrites are gearing up for battle. They’re making the globalization issue pro- or anti-Hispanic versus what it really is: wealthy investors versus people who actually work for a living.
From Business Week, March 28, 2005.
In the three years since Congress handed the White House carte blanche to negotiate free-trade deals, lawmakers from both parties have rubber-stamped a handful of minor pacts. But the Central American Free Trade Agreement (cafta), scheduled for Apr. 6 hearings, promises to be a bitter battle as both parties maneuver to appeal to Hispanic voters.
Democrats and their labor allies are closing ranks against CAFTA as harmful to workers in the U.S. and Central America. Meanwhile, the Administration is ready to paint Democratic foes of the pact as anti-Hispanic. "You have six struggling democracies trying to do the right thing," says Christopher A. Padilla, an assistant U.S. trade representative whose grandfather emigrated from Guatemala. "How is a vote against that going to look [to U.S. Latinos]?"…
To promote the deal, ambassadors and other officials from Central America are rushing in. Their message: "We are your neighbors, and we are poor, and it's not a good idea to keep your neighbors poor," says Carlos Sequeira, Nicaragua's chief CAFTA negotiator. "The critical question is, 'Do you want to lose jobs to your neighbors or to China?"'
Opponents such as Representative Xavier Becerra (D-Calif.), a second-generation Mexican-American who has voted for free-trade pacts during his 12 years in Congress, argues that CAFTA "will set off a race to the bottom." Like other pro-trade Dems and Latino activists, Becerra says CAFTA will not require Central American governments to protect workers or ban child labor. What's more, foes say CAFTA could devastate the region's farm economies with a flood of U.S. corn and rice….
This Trade Pact Won't Sail Through Expect a bruising CAFTA debate as both parties try to score points with Latinos
The drive of the wealthy and powerful to become more wealthy and powerful never ends. Utilizing child labor and taking ruthless advantage of impoverished workers of the world are standard practices of today’s financial conservatives.
When is the American public going to wake up? Again, sanctimonious hypocrisy reigns supreme in our Congress, and this time the stakes are our environmental survival.
From Business Week, March 28, 2005.
By John Carey with Chris Palmeri in Los Angeles and Wendy Zellner in Dallas
Gasoline prices have climbed above $2 per gallon, crude is hitting record highs—reaching $56 a barrel on Mar. 16—and OPEC is pumping more to keep America's oil pain from increasing even more. So it's small wonder that in Washington, panicky pols are suddenly talking the talk on energy policy….
Forget red-state and blue-state America. Now many lawmakers see the energy crunch in shades of green. Indeed, who could possibly be against less-polluting school buses, a more reliable electricity grid, and incentives for solar and wind power—all packaged alongside traditional GOP ideas for increasing oil and gas output?...
Even the White House, which once dismissed conservation as little more than "a sign of personal virtue," is now getting in on the act. In a mid-March speech, President George W. Bush said that America needed a strategy that "must promote conservation" as well as diversifying and updating the country's energy sources. Of course, that too remains high on the Administration's agenda: On Mar. 16 the Senate voted to open up the Arctic National Wildlife Refuge (ANWR) to drilling, though the battle is far from over.
Does this mean Washington is getting serious about a bold plan? Not really….
Even if a measure does pass, it won't do much to impose a rational energy regime on a fuel-guzzling nation. "I don't want to say there's nothing in it, but there's not a lot that really makes a difference," says Obie O'Brien, director of government affairs at Apache Corp., a Houston oil and gas producer. Sure, it's a great idea to provide incentives for everything from renewable fuels to natural gas supplies, but "the bill does not make an honest attempt to solve the long-term issues everyone is concerned about: energy security, climate change, and creating new technologies," says one key Hill staffer….
Today, the main driving force for a national energy policy is the high price of oil, says Joseph Romm, a former Energy Dept. official. "But in the long term, it will be global warming."
That's why the U.S. needs an energy plan—one that goes beyond the compromises and pork-trading that Congress will resort to in Energy Bill, Act III….
If Washington had courage, it could simply slap a slowly rising tax on emissions of carbon. In one bold move, that would make fossil fuels gradually more expensive, smoothing out price swings and spurring the development and adoption of everything from efficient cars to green power. It could even be good for the economy, if the revenues were returned to companies in the form of reduced payroll taxes or research and development funds for new technologies.
Of course, that idea is politically untenable in today's Washington. So instead, expect Congress and the White House to fight endlessly over sideshow issues like farmer-friendly ethanol or drilling in the ANWR while another opportunity to make a real difference is lost. We can do better.
COMMENTARY
Energizing Energy
The U.S. urgently needs to tap new sources-and conserve old ones
So, “Even the White House, which once dismissed conservation as little more than ‘a sign of personal virtue,’”—you mean they are pretending that they’ve improved their attitudes about the environment at the White House?
The U.S. now has 341 billionaires, including 69 that became billionaires in just this last year.
Consider: as of 1999 (I don’t know what the present figures would be, but I suspect that they would be worse) 20% of Americans had a net worth value of zero or less. That’s assets minus liabilities. In 1984 only 15% had a net worth value of zero or less. In 1969, the figure was only 10% who had a net worth value of zero or less.
And guess what. The top result is a direct result of the bottom result. The more the wealthy can destroy the wages, working conditions and living standards of workers—the richer they get, faster.
From Forbes, March 28, 2005.
The rich had a good year. The collective net worth of the 691 billionaires we could find is $2.2 trillion, up $300 billion from the combined worth of the 587 people listed last year. Every region saw gains. The world's richest moguls now hail from 45 countries, including, for the first time, Kazakhstan, Poland, Ukraine and even Iceland. The newcomers include 69 Americans and 38 Europeans….
Billion Dollar Babies
---------------------------------------------------------------
You’ll notice that every time Forbes publishes an article glorifying greed and materialism, it also carries an article in the same issue that justifies how the wealthy are getting that way. In this case, they are accusing the opponents of globalization—the biggest, single reason for the degeneration of wages for low- and middle-income Americans—as being the equivalent of racists.
From Forbes, March 28, 2005.
By Steven E. Landsburg
…Both major parties (and most of the minor ones) are infested with protectionist fellow travelers who would discriminate on the basis of national origin no less virulently than David Duke or any other overt racist would discriminate on the basis of skin color. But if racism is morally repugnant-and it is-then so is xenophobia, and for exactly the same reasons….
When General Motors hires an American in Detroit or a Mexican in Ciudad Juarez, the rest of us are not footing the bill. And that makes it none of our business. Nor should we want it to be. I hold this truth to be self-evident: It is just plain ugly to care more about total strangers in Detroit than about total strangers in Juarez. Of course we care most about the people closest to us-our families more than our friends and our friends more than our acquaintances. But once you start talking about total strangers, they all ought to be on pretty much the same footing.
You could say you care more about white strangers than black strangers because you've got more in common with whites. Does that make it okay to punish firms for hiring blacks? It's also worth mentioning that laws intended to "protect" Americans raise the price of goods that Americans buy. I won't dwell on this because it's already obvious to anyone with a dollop of economic literacy….
After all, if it's okay to enrich ourselves by denying foreigners the right to earn a living, why not enrich ourselves by invading peaceful countries and seizing their assets? Most of us don't think that's a good idea, and not just because it might backfire. We don't think it's a good idea because we believe human beings have human rights, whatever their color and wherever they live. Stealing assets is wrong, and so is stealing the right to earn a living, no matter where the victim was born.
On My Mind
Xenophobia and Politics
Why protectionism is a lot like racism.
For those interested in the science of demagoguery, this is a classic example of the technique called “inoculation.” If you are prejudiced against working-class Americans—and think that they are overpaid for what they do—you charge your opponents of being prejudiced against, well, whatever or whoever you can dream up. Thus, you, to some degree, inoculate yourself against the charge of prejudice.
For a more extensive discussion about the propaganda technique of inoculation, check out the file: The Republicans’ Most Important Propaganda Technique.
Sometimes an op-ed piece is so good, it’s impossible to abstract it. The following is just such an op-ed. And the fact that the editors of one of our most conservative financial publications saw fit to publish it suggests that it, indeed, deserves serious consideration.
From Barron’s, March 28, 2005.
By Stan D. Donnelly, CEO, Donnelly Custom Manufacturing in Alexandria, Minn.
HOW MANY TIMES HAVE YOU HEARD an economist say that he believes in free trade, because "if you produce what you're good at producing and another country produces what it's good at producing, both countries will be better off?" This distillation of David Ricardo is an economic article of faith, but it's a short-sighted policy for our country.
The free traders would have us believe that China is good at work that requires a content of manual labor. But is that so? The fact is that they aren't good at manual labor, they're just cheap. The economists are misusing Ricardo's theory of comparative advantage. China's cheap labor has nothing to do with China's manufacturing expertise, nor with any innate natural resource blessings. Instead it has everything to do with a bloated population starved for work. At a wage rate of less than 50 cents an hour, with no benefits or social protections of the sort that we have evolved, there is nothing free about this trade on either side of the ocean.
Free traders heartlessly assert that costs are costs, however they are derived. So ask them this: "If free trade means that a society is better off by sourcing its manufactures in low wage areas, regardless of the reasons why the wages are so low, what is wrong with trading with a nation who can offer the cheapest labor of all, slave labor? At those prices, wouldn't we be even more better off?"
The free traders would reply—with justifiable indignation—that such a thing would be immoral. Of course, they are right. Except that they now have admitted that costs are not just costs. Morality does have something to do with the equation after all. So let us ask the question again: "Is it moral (or even wise) to eliminate the manual-labor jobs of an evolved nation and disrupt its vital economic balance and social health?"
At its distilled essence, the wealth of a society is created by those people and corporations that make something from nothing. You've got to mine it, make it, or grow it. Manufacturing is directly about 20% of our economy; the other 80% depends on that wealth-generator. Some today scoff that our new "service economy" doesn't need this 20%. A caution: Even though your bones are only 20% of your body mass, without your skeleton, you're a puddle.
We must not fool ourselves that the bargains that we are seeing in China are any bargain at all. Nor should we fool ourselves that we can innovate and educate our way out of it. We already have a generation of millions that have flunked in our government schools. Whatever the reason is, they're here now, and more are on the way. What are we to do with them if their minds cannot be their salvation? What is wrong with letting their hands do the job instead?
Manufacturing today may be in much the same position as agriculture a century ago, when more than half of Americans worked on the land, making food. Today, it's about 3%. Most of that reduction was justifiably due to agricultural and mechanical innovation. But where did all those farmers go? They and their descendents were absorbed by a growing industrial economy that made things. So as farming went out, fortunately, new maker industries were coming in. The farmers and their descendants took up jobs that were in a known but unexpanded sector: Industry and manufacturing.
Interestingly and ominously, in the ensuing century Americans have not discovered any radically new methods to make things. Whether it's metal molecules or plastic polymers or a tree's timber, for all of the improvements and refinements we've made, we're still making things in essentially the same ways as we always have. But today, unlike in the days when the farmers left the fields, there are no new emerging and substantial maker-methods realistically in sight. So when their jobs are transferred to foreigners, where will our current makers go and what will they do?
This is the gamble at the heart of free trade policies: Free traders are betting with a blind faith that because in the past a burgeoning maker industry took up the slack during another maker-segment's contraction, a new one will somehow appear in this time of need and save the day. But 2.1 million manufacturing jobs have been lost in America in about three years.
What is the definition of a successful society? The business of business isn't everything. But it can effect everything. Can we honestly say that a society is successful that has driven its working-class folks' wages down to developing-nation levels? This is where we are heading. And we are all to blame. It is insidious.
Unemployment is not spiking up suddenly: The laid-off makers have generally taken lower wage service jobs. But as we enjoy those low China-made prices, like the slowly boiled frog, we do not feel the gathering danger. And while our leaders should see it, explain it, and lead us from temptation, the workers of America who are snapping up those China-made Wal-Mart prices are just as guilty. It's an awful circle that is slowly tightening into an unseen spiral.
Efficient and cost-effective organizations are forged on the crucible of good, hard competition. Competition is the mother of invention and the sister of efficiency—but 50 cents an hour above slave wages has nothing to do with either.
Redressing unfair competition is not new, un-American, or anti-capitalistic. Standard Oil and Ma Bell were predatory and Americans used the power of government to restrain them. Is the militaristic dictatorship in China something less?
There are two ways to deal with the problem. First, recognizing the inherently impossible nature of the United Nations, where all sovereign nations—including brutal dictatorships like China—are considered legitimate, we must form a free-trade union of only the truly democratic nations.
And for those outside of that union who wish to do business with us, we need to create a simple and transparent tariff system that is adjustable. It would be like a golf handicap system. As you get better, your handicap goes down. What's par for the course? Here in the United States shooting par includes paid holidays and vacations, OSHA and EPA regulations, worker compensation and unemployment state-mandated insurances, hefty business, personal, and property taxes, 14.5% social security tax, time and a half over 40 hours per week, and a $5.15 minimum hourly wage. That's par for the course in America. And on our course, China should have a 36 handicap and accompanying duty. But as China develops, then, like an improving golfer, its handicap will drop. This is a handicap-tariff system that is fair, flexible, and feasible.
We are living in a lull. At present, the former makers are taking lower wage jobs, which is only masking the coming unemployment and disposable earnings problems. In time, people will be unable to afford even those cheap Asian prices Wal-Mart offers, and when that day arrives, so will the whirlwind.
This free trade is not free: Sooner or later, it will cost us dearly.
Homeland Insecurity
The price of free trade is mounting, says this manufacturer
Re-read the last two paragraphs. They’re prophetic.
The following op-ed can easily be abstracted. It’s so full of nonsense and repetitious propaganda, you’ll immediately recognize its absurdities.
From Barron’s, March 28, 2005.
By Thomas G. Donlan
POVERTY ISN'T WHAT IT USED TO BE, for which all Americans should be thankful. The 12.5% of Americans who were officially designated as poor in 2003 lived better than the poor people of 20 years ago or 50 years ago or 100 years ago. Economists who analyze poverty issues call this the "income elasticity of the poverty line."
By any title, what it means is that somebody has remembered to ask, "Compared to what?"
Since the wealth of the nation rises continually, if not consistently, and since scientists, engineers and manufacturers are continually providing more and better goods, the average standard of living of Americans rises accordingly. Americans whose standard of living does not rise will fall further into poverty compared to the average. And those whose standard of living rises with the average will still be poor by any reasonable comparison, even though they have more stuff.
Two centuries ago, even George Washington did not have central heating. A hundred years ago, the indoor toilet, the electric light and the telephone were found only in a few homes that could afford to install them. These conveniences became middle-class necessities and eventually commonplace items in every American home, even the poorest.
Today's poor also have a better social safety net. Dust Bowl refugees had next to nothing when their farms stopped producing and little in the way of charity to fall back on. Unemployed factory workers may have had more resources, such as shoes and overcoats, but they had more expenses too. Life on "relief," or in one of the tent cities called Hoovervilles, seems shocking today because all of us, including the poor, have come so far….
Those who say that the widening income gap is bad news rarely acknowledge the improving general standard of living. They deny that "a rising tide lifts all the boats" and they think that "trickle-down economics" is a curse rather than a blessing….
It all fits together. If upper-income people have more of their own money available to do more saving and investing, all Americans will keep getting richer. The economy will keep on increasing wages faster than prices and the nation will continue to be able to afford to raise the poverty line.
EDITORIAL COMMENTARY
Rising Expectations
Even the poverty line goes up as national wealth increases
The Donlan’s of the world choose to remain willfully blind to the fact that we are a nation of incredible wealth, yet the poor and middle class are finding it increasingly more difficult to get reasonable health care, reasonable rents, etc. And, at the same time, the wealthy are buying up—and raising the cost of—everything in sight, from land and buildings to medical care and advanced education.
They also choose to ignore that it’s the explosion in technology and productivity that has benefited our country’s poor and middle class, not the economic system that is heavily biased in favor of investors and the wealthy, and against those who actually work for a living.
For an extended discussion of the zerosum nature of wealth, see Wealth is a Zerosum Game.
Our rapacious financial wheelers and dealers—the ones who buy and sell corporations, and conduct mergers and acquisitions, and divestitures with abandon—frequently justify their actions on the basis of lower-level inefficiencies. Corporations have grown too fat, employees are too complacent, even “spoiled,” and there are too many duplications of effort, and so on.
To some extent that may be true. But what about the greedy barbarians at the top of our American corporations? The following two excerpts were in the same issue of the Journal.
From The Wall Street Journal, April 1, 2005.
Morgan Stanley Chief Executive Philip Purcell and his new top deputies yesterday intensified their defense against calls for his ouster, seeking support from top Morgan Stanley executives and the Wall Street firm's largest shareholders.
Mr. Purcell and the deputies scheduled a trip to Boston today to visit money managers to defend his record and make the case for this week's management shake-up. His co-presidents sought to gain signatures for a letter of support from members of the firm's management committee and a few other top executives, though they said late yesterday that a letter is just one possible way they may respond….
The public attacks against Mr. Purcell, led by former President Robert Scott, ex-Chairman Parker Gilbert and six other alumni, who yesterday aired their grievances against the Morgan Stanley CEO in a full-page ad in The Wall Street Journal, have stoked a sense of crisis within the firm that the Purcell team is attempting to quell. The ad warned of a possible additional "loss of talent" after this week's management shake-up, which led to the departure of key executives….
NEW YORK—Tyco International Ltd.'s former lead outside auditor testified he was aware of two special bonuses totaling millions of dollars paid to former top executives L. Dennis Kozlowski and Mark H. Swartz, but never specifically told Tyco's board the men received them….
Prosecutors have alleged that Mr. Kozlowski, Tyco's former chief executive, and Mr. Swartz, its former chief financial officer, improperly granted themselves millions of dollars in compensation without proper authorization.
However, Mr. Scalzo said the audit firm's job wasn't to determine whether the compensation was properly approved, but rather to determine that it was properly recorded on the company's books and records. As Tyco's former top auditor, Mr. Scalzo is considered a key witness in the case….
Morgan Stanley CEO,
Deputies Mount DefenseSupport of Major Shareholders,
Top Officers Is Sought Amid
Calls for Purcell's Ouster by Alumni
---------------------------------------------------------------
Tyco Ex-Auditor
Testifies on Bonuses
I’m not quite sure why I still put things like these in this website. They are so common, they hardly need to be mentioned. Still, it helps to remind ourselves that the problems at the top of our corporations are much worse than the problems in their middle and bottom.
But the ones at the top have become a new economic aristocracy—with corresponding incomes and social status—while those in the middle and bottom are making all the sacrifices, in income and standard of living.
When the ultra-conservative Wall Street Journal publishes articles like the two below, you know without a doubt that our American corporate culture is getting meaner and less ethical. Executives on the fast track to extreme wealth obviously don’t consider work on the job—at least, by lower-level employees—as a legitimate part of life.
Workers are not supposed to have decent working conditions, because they are just like machines—to be used up and discarded at will.
From The Wall Street Journal, March 25, 2005.
By Carol Hymowitz
Whatever number you hit yesterday, make it higher today, no matter how much you must cut to get there. Dozens of readers who responded to my recent column, "When Meeting Targets Becomes the Strategy," say that's what they're being ordered to do.
The flood of reaction I received included letters in which readers complained about far greater pressure to meet targets than I described, and letters that offered innovative analysis of the problem, as well as some solutions.
Roger S. King, a risk consultant for Lloyds TSB Bank's Wholesale and International Division wrote from Key Biscayne, Fla.: "In over 30 years as a banker, I have seen the toll that the relentless pressure to turn in ever better quarterly and annual numbers has ... on business and personal ethics, too." The former risk-management director at Lloyds added: "It is getting increasingly difficult to find true long-term plans, meaningful budgets and committed employees. Planning seems more directed at making Wall Street happy, with budgets becoming increasingly unattainable."
Anthony Juliano, who started his career in sales at 3M 20 years ago and then worked at Imation, a 3M spinoff, lost his job last year after the company posted weak earnings. "Many positions were either eliminated or centralized at corporate" headquarters, he wrote. "I was replaced by someone without the relationships I had developed over the years, who will have a very difficult time hitting their numbers. What corporate America loses sight of is the short-term gain [from trimming] sales and administrative costs is quickly gobbled up by lost revenue."
A manager in the public sector in Texas wrote, "I'm watching this happen in my wife's company. She made President's Club last year for being 220% above quota and her whole team did well and was recognized as tops in the company. Their reward: The VP raised their overall quota by 65% this year, an impossible target. Teams in adjacent areas that did not do nearly as well had their quotas raised 15%. Her whole team is out looking for new jobs and is very discouraged. For my wife, it means she will not make as much this year, and in fact will have a hard time even making quota."
Meanwhile, a manager at a big global bank recently quit his job in Texas after observing how the pressure to hit targets under a new manager had backfired. "The pressure worked at first with increased sales, but now the territory, which used to be the top for our company, is one of the worst in the country," he wrote. "I left because it was tiresome seeing my co-workers getting beat on day in and day out about the number of checking accounts they had opened. When I left it wasn't because of poor performance -- my numbers were in the top 1% of all reps in the country. ... I was on pace to make over $250,000." But, he added, "the environment they created made it a miserable place to work because teamwork had eroded along with morale."
Keith Johnson, chief legal counsel at the state of Wisconsin Investment Board, believes "investors need to hear more of this. I have worked in the investment management industry for over 20 years and fear this could be the Achilles' heel of the U.S. economy," he wrote.
But many American companies are in copycat mode, exacerbating the problem. "One extended implication of Gresham's Law [that in a free-trading environment, "bad" currency tends to drive "good" currency out of circulation] may be that "bad" practices ... to the extent that they are successful even in the short term ... will inevitably drive the better practices out of existence," wrote Hank Rodgers, a trial-court consultant in Orange County, Calif. "In a competitive environment, if one chooses to 'just do it,' so will others, and eventually everyone will be forced to do the same in order to survive.
Others fear companies are suffering from a diet that verges on anorexia or worse. Cecily Franklin, now a piano teacher in Pittsburgh and formerly a manager at Consolidated Natural Gas and a vice president at Mellon Bank, wrote, "It is only possible, or safe, to lose weight slowly. ... There comes a point when the goal is to STOP losing weight and work on maintaining it."
She noted that "it would be possible, though dangerous, to turn weight loss into a pure numbers game. By amputating an arm, one would clearly see numerical results, but one would also suddenly find it more difficult to do almost everything. And if a new 'stretch' goal arises, then another and another body part may need to be removed in order to replicate—notice I didn't say sustain—those results. In the end, one would lose the capacity to function altogether."
Exhorting CEOs to stand up to investors, though, won't be enough to solve the problem, readers said. "The problem is compounded by an increasingly footloose executive class with ever shorter tenures," wrote Michael Fine, a Washington attorney and a principal of NXG Global, a consulting company....
IN THE LEAD
Readers Share Tales
Of Jobs Where Strategy
Became Meeting Target
---------------------------------------------------------------
From The Wall Street Journal, March 24, 2005.
By Sue Shellenbarger
Amid the uproar about top executives cooking the books, another ethical meltdown has gone largely unnoticed.
Rank-and-file employees are lying more often at work, by some measures. Employees calling in sick have hit a five-year high, and three-fifths of those who do so aren't sick at all, but are tending to personal needs or just feel entitled to a day off, says a 2004 survey of 305 employers by CCH Inc. In a separate survey last year of 1,316 workers by Kronos Inc., a labor-management and consulting concern, more than one-third of workers admit to having lied about their need for sick days.
Groups that track federal family-leave use say more employees are stretching the reasons for taking time off, even claiming that a common cold warrants a medical leave….
One factor may be stresses brought on by accelerating corporate change. There is evidence that misconduct increases in companies where mergers, acquisitions and restructurings are under way….
Almost all of us are dishonest at work at one time or another, of course. Among more than 30 readers I asked about eight common workplace sins—from lying about one's reasons for missing work to stretching expense accounts—one-third wrote back to confess to at least one….
It's easy to blame top executives for creating the kind of environment that fosters dishonesty. One New York headhunting firm is run by "people slimier than the bottom of a bottle of Wesson," says a former employee, a finance director. Amid a lack of strong policies and an abundance of bad examples at the top, "everything from regularly calling in 'sick' to stretching revenue forecasts was acceptable….
Some employees, of course, simply harbor a larcenous sense of entitlement. Phyllis Hartman, a consultant with PGHR Consulting, Pittsburgh, who has worked with many clients on family-leave issues, says she has seen an increasing sense of entitlement among employees over the law's 12-year existence, with a growing number taking time off for minor illnesses or questionable family needs….
What if the truth will do so much career damage that a face-saving lie seems better? A Newport Beach, Calif., human-resource director says her boss is so demanding that she lies to protect family time, fabricating work-related reasons for missing staff meetings, taking time off or refusing business trips.
"Am I proud of it? No," she writes in an e-mail. "But it helps my VP maintain the illusion that everyone is as dedicated—that is, as much of a workaholic—as he is."… ."
WORK & FAMILY
How and Why We Lie at the Office:
From Pilfered Pens to Padded Accounts
A key statement above: "But it helps my VP maintain the illusion that everyone is as dedicated—that is, as much of a workaholic—as he is." Our anal-retentive top corporate executives who work 60 hours a week expect lower-level employees to do the same, or if it is illegal to make them do it, to at least require them to work harder to make up for it.
What they fail to appreciate is that not everyone wants to sacrifice their life and health—and the welfare of their families, to become a member of America’s new aristocracy. And even if they did put in those kinds of hours or effort—they’re still lower-level employees whose incomes will never match their productivity. It’s power, not productivity, that determines who gets what in modern corporate America.
And, of course, “It's easy to blame top executives for creating the kind of environment that fosters dishonesty.” And employees do “feel a sense of entitlement” when they have been treated ruthlessly. It’s long been known that there is a direct relationship between employee theft and the quality of work life.
Obviously, the quality of work life for many (most?) of those who actually work for a living in America is lousy, and getting worse daily.
The following is a brief excerpt—for purposes of criticism only—of a huge, massive article. Those who truly want to understand the utter disaster that globalization is becoming for the U.S. should read the original.
A key statement below is that globalization is causing a rethinking of the structure of the modern corporation. I’ve already explained in books and on this website what this new structure is intended to look like, and who it is really supposed to benefit. What’s your guess?
From Business Week, March 21, 2005.
…When Western corporations began selling their factories and farming out manufacturing in the '80s and '90s to boost efficiency and focus their energies, most insisted all the important research and development would remain in-house.
But that pledge is now passé. Today, the likes of Dell, Motorola, and Philips are buying complete designs of some digital devices from Asian developers, tweaking them to their own specifications, and slapping on their own brand names. It's not just cell phones. Asian contract manufacturers and independent design houses have become forces in nearly every tech device, from laptops and high-definition TVs to MP3 music players and digital cameras….
While the electronics sector is furthest down this road, the search for offshore help with innovation is spreading to nearly every corner of the economy. On Feb. 8, Boeing Co. said it is working with India's HCL Technologies to co-develop software for everything from the navigation systems and landing gear to the cockpit controls for its upcoming 7E7 Dreamliner jet. Pharmaceutical giants such as GlaxoSmithKline and Eli Lilly are teaming up with Asian biotech research companies in a bid to cut the average $500 million cost of bringing a new drug to market. And Procter & Gamble Co. says it wants half of its new product ideas to be generated from outside by 2010, compared with 20% now….
After spending years squeezing costs out of the factory floor, back office, and warehouse, CEOs are asking tough questions about their once-cloistered R&D operations: … How many of those pricey engineers are really creating game-changing products or technology breakthroughs?
The result is a rethinking of the structure of the modern corporation. What, specifically, has to be done in-house anymore?
The downside of getting the balance wrong, however, can be steep. Start with the danger of fostering new competitors. Motorola hired Taiwan's BenQ Corp. to design and manufacture millions of mobile phones. But then BenQ began selling phones last year in the prized China market under its own brand….
Countries such as India and China, where wages remain low and new engineering graduates are abundant, likely will continue to be the biggest gainers in tech employment and become increasingly important suppliers of intellectual property….
Companies also worry about the message they send investors. Outsourcing manufacturing, tech support, and back-office work makes clear financial sense. But ownership of design strikes close to the heart of a corporation's intrinsic value. If a company depends on outsiders for design, investors might ask, how much intellectual property does it really own, and how much of the profit from a hit product flows back into its own coffers, rather than being paid out in licensing fees?...
Who will ultimately profit most from the outsourcing of innovation isn't clear. The early evidence suggests that today's Western titans can remain leaders by orchestrating global innovation networks. Yet if they lose their technology edge and their touch with customers, they could be tomorrow's great shrinking conglomerates….
Outsourcing Innovation
First came manufacturing. Now companies are farming out R&D to cut costs and get new products to market faster. Are they going too far?
It should now be obvious to everyone. The planned organizational structure of the future will consist of wealthy investors in the U.S. and their production units in other countries. This will enable the established wealthy and powerful to pit workers—at all levels—against each other in a race to the bottom. The countries that provide the fewest protections of workers, and their incomes and working conditions, will be the ones that get the jobs.
And the U.S., at present, doesn’t fit that category.
Here’s the classic defense of those who want to destroy Social Security—under the guise of trying to save it.
From Business Week, March 21, 2005.
By Glenn Hubbard
…The national conversation over Social Security is already shifting to compromise, focusing on raising the cap on wages subject to the payroll tax and proposing "add-on" instead of "carved-out" personal accounts.
Raising the payroll tax cap is a bad idea. Proposals that suggest increasing the taxable wage base from $90,000 to, say, $150,000 would impose a 12.4% increase on the marginal tax rates of millions of Americans. These higher rates would offset the gains from President Bush's reductions in marginal income tax rates. A payroll tax hike would discourage work and entrepreneurship and would hamper job creation….
Putting Social Security on a viable long-term financial footing could be better accomplished by slowing the rate of increases in Social Security benefits….
Benefits in the future must be increased more slowly than wages or the system's solvency cannot be restored. If we don't increase payroll taxes, solvency can be restored only by shifting from wage indexing to something else, such as price indexing….
Economic Viewpoint
Social Security: Beware Of Hasty Compromises
"Add-on" accounts are a good idea, but not higher payroll taxes
Key statement: “Putting Social Security on a viable long-term financial footing could be better accomplished by slowing the rate of increases in Social Security benefits.” In other words, even that 20% of American retirees who rely totally on Social Security for their retirement income will see their inadequate benefits cut even further.
And the reason: So our wealthiest citizens won’t have their taxes increased.
The argument that a “payroll tax hike would discourage work and entrepreneurship and would hamper job creation”—simply doesn’t hold water and is contradictory to our entire history of taxation. People with money will always invest it in job creation enterprises, because that’s how you get richer in this county.
The following excerpt explains the real reason behind most outsourcing. Corporations can knowingly violate labor laws by contracting jobs out to companies that will do their dirty work for them.
In this case, Wal-Mart has deniability (“it was the contractor that violated the laws, not us”), yet they reap all the advantages of law violation. Fortunately, the Fed didn’t buy their argument.
From The Wall Street Journal, March 21, 2005.
Wal-Mart Stores Inc. agreed Friday to pay $11 million to settle a federal investigation into allegations it knowingly hired floor-cleaning contractors who employed undocumented workers.
The government won't pursue any criminal charges against Wal-Mart or any of the Bentonville, Ark., company's employees, according to a statement from the Department of Homeland Security and the Justice Department. The 12 companies that furnished the workers to Wal-Mart pleaded guilty to criminal immigration charges and agreed to forfeit $4 million to the government, according to the statement.
Though Wal-Mart says company executives didn't know illegal workers were scrubbing its floors, the company agreed to the settlement because it said it should have had better safeguards in place to ensure its contractors were hiring legally eligible workers….
"They didn't pay $11 million for nothing," says James L. Lindsey, attorney for the plaintiffs. "It is a telling sum that shows where they stood with regard to the criminal investigation."
Wal-Mart Settles Immigration Case
Retailer to Pay $11 Million,
Establish Greater Controls
On Contractor Agreements
Of course, the advantage of outsourcing isn’t just that “reputable” corporations can violate the law in relative safety. They can also violate the standards of worker rights and justice—in ways that are contemptible, but legal—by contracting with employers who have no reputation to protect and who are willing to brutalize their own employees.
To understand how the least-principled corporation, like Wal-Mart—rather than the federal government—will establish the minimum wage for an area, see the file Working conditions, wages still deteriorating.
As you read the following two articles from the same issue of Barron’s, remember that they are intended for readers who are among our country’s most sophisticated investors. Even with all this advice, they are finding financial planning for retirement to be a formidable task.
And they’re the same people who want our government to privatize some of our Social Security funds, and put the planning of their retirement into the hands of unsophisticated workers, many of whom don’t know the difference between a stock and a convertible bond.
From Barron’s, March 21, 2005.
By Robin Goldwyn Blumenthal
Is a little income for retirement too much to ask? Just a few years ago, the yields on bonds were in the high single digits or above, making it a cinch to fund long days on the golf course and frequent trips to the grandkids. Nowadays, though, you're lucky to find a dependable, income-generating investment that beats the 3% inflation rate after taxes. Taxable 10-year bonds are yielding little more than 4%, and the dividend yield on the Standard & Poor's 500 index stands at just 1.8%. That'll barely cover beer for the beach….
What follows is a guide to the new landscape of income investing for retirement. It's not as easy to navigate as the old terrain, but it's not without rewards, either. Make the right decisions and you just might end up with a splendid retirement and income to spare.
For most folks, dividend stocks probably are the best bets. That's especially so in the wake of the Jobs and Growth Tax Relief Reconciliation Act of 2003, which has cut the tax rate on qualified dividend income to 15% from as high as 35%. Though the cut expires in 2008, President Bush is pushing to make it permanent and has a good chance of succeeding….
One of the most intriguing prospects may be debt issued by Asian, South American and other emerging-market countries. These securities, as measured by the J.P. Morgan MB Global Index, yield about 3.3 percentage points over Treasuries. That's about the same as corporate debt, and credit ratings have improved dramatically as countries have worked to make their economies more structurally sound….
Certainly, the hunt for income can still be worth the effort. Says Arnott: "Someone who pays as much attention to their investment portfolio as they do to buying their next car will be able to do 2% better than their neighbor." These days, that ain't half bad.
By Karen Hube
…So what happens when high science meets retirement planning? If used properly, it vastly improves your ability to create a reliable retirement plan. But many advisers familiar with the tool urge caution. "Everyone is expecting it and demanding it, but even financial planners don't necessarily know how to use it properly or how to explain the results to their clients," says Harold Evensky, a financial adviser at Evensky & Katz in Coral Gables, Fla….
For most people, a 50% chance of success is not good enough—when the downside is going broke. "They want some level of comfort that under negative scenarios [for financial markets], they can still live comfortably," asserts Cordaro.
That's where a Monte Carlo analysis can help. You or an adviser preprogram the calculator with a range of returns that seem likely for each of your asset classes over, say, 25 years. The calculator then runs through thousands of scenarios within those parameters, with different levels of returns for each year. For example, stocks might experience a loss of 5% one year and gain of 10% the next, leaving you worse off than an average gain of 2.5% in each year. Based on how each of the many scenarios would affect your investments, the calculator ultimately determines the odds of meeting your income goals….
Income to Spare
---------------------------------------------------------------
Wheel of Fortune
The rise of "Monte Carlo" retirement calculators
Key statement above: “a 50% chance of success is not good enough—when the downside is going broke.” And here Barron’s is talking about rich people with advisors and calculators. What are the implications of those who have few funds to begin with, and who certainly don’t have advisors?
Note that the above excerpts are for purposes of critique only, and those who are interested in the investment implications of these extensive articles should read the originals.
One of the mysteries of the century is why Jack Welch is considered by some to be a role model for American corporate executives.
His “brilliance” consists almost solely of his barbaric attitude toward workers, even his own. How much managerial talent does it take to destroy one’s own unions and workers, and their standard of living, simply to cut costs. He even required GE suppliers do the same—or risk losing GE’s business.
Surely, within the next few years, Americans will wake up to the fact that Welch not only sold out his own workers—by pitting them against impoverished foreign workers—he paved the way for the destruction of our economy.
From The Wall Street Journal, March 23, 2005.
NEW DELHI—In September 1989, Jack Welch, then General Electric Co.'s chairman, flew to India for a sales call. He hoped to sell products like airplane engines and plastics to the Indian government.
But during a breakfast meeting with top government advisers, it was Mr. Welch who got pitched. "We want to sell you software," Sam Pitroda, chief technology adviser to the late Indian Premier Rajiv Gandhi, told a surprised Mr. Welch. Mr. Pitroda explained that India needed business for its emerging high-tech sector.
"If I kiss your cheek, what do I get in return?" the GE chairman replied, according to two men who were present.
Fifteen years later, the answer is clear: the global outsourcing revolution….
Publicly, GE has been reluctant to take credit for its singular role. Shipping white-collar jobs overseas has proved controversial in the U.S. Demoralized American workers have had to train their foreign replacements….
GE's taste for cost-cutting came as a shock to Wipro executives such as 48-year-old Ramesh Emani, who helped manage the software partnership. He says GE soon began playing one Indian software firm against another to drive down costs, demanding constant productivity gains. "GE was very brutal," says Mr. Emani, who now heads a Wipro unit developing software for automobiles and cellphones….
Other companies such as American Express Co. and British Airways PLC had already moved some back-office operations to India. But with Mr. Welch's enthusiastic support, GE eventually went much further, shifting thousands of jobs and untold dollars in operational expenses to India. Savings on backroom operations alone amount to about $300 million a year….
Mr. Andrews says he realized that India's 100 million English speakers offered an almost limitless pool of inexpensive, educated labor for such tasks. "We started to think, we can do this for the rest of the world," says Pramod Bhasin, 53, a former GE Capital executive who helped create Gecis and serves as its chief executive….
In India's Outsourcing Boom,
GE Played a Starring RoleEarly Investments Helped Fuel
Tech and Service Sectors;
A Cheap Source of Talent
"If I kiss your cheek, what do I get in return?" That statement alone is almost enough to understand Welch’s devotion to greed—even if it would eventually destroy our American economy.
Here’s another example of the ratcheting effect of globalization. Mexico profited at first, it is now seeing how it feels to lose its industries. Although the news seems to be good at first, a careful reading of the following creates a different impression.
From The Wall Street Journal, March 22, 2005.
Mexico's maquiladora industry, considered an indicator of U.S. manufacturing strength, witnessed a significant hiring turnaround in 2004, as employment increased for the first time since 2000, according to a new report from the El Paso branch of the Federal Reserve Bank of Dallas….
According to Roberto Coronado, the El Paso bank's assistant economist, maquiladora output rose at an even faster rate in 2004, up 10% from a year earlier to produce $19 billion in foreign exchange for Mexico, surpassing contributions from oil exports or remittances from Mexicans working abroad.
Nonetheless, he said maquiladora employment remains short of peak levels near the end of 2000, when 1.3 million people worked in the sector.
Another caution comes from the type of employment that is growing fastest along the border. Among the sector's big labor gainers were so-called "service" maquiladoras, operations that do everything from sorting supermarket coupons to repairing home appliances returned to retailers under warranty by U.S. consumers.
That indicates Mexico is still losing ground to Asia in the competition for light-assembly jobs….
Maquiladoras Resumed
Hiring Growth in 2004
American corporations’ pursuit of profit and cost reduction will inevitably lead to the abandonment of any country that fails to keep its wages low enough to be competitive with the cheapest labor markets in the world.
Unfortunately, most people who read the news item below will conclude, as The Wall Street Journal intends, that immigration doesn’t harm our poorest workers—because the unemployment rate hasn’t gone up.
But that’s not the main issue. The problem with immigration is that it increases the labor supply, which means that employers don’t have to raise wages to get workers. In fact, increasing the labor supply—in all its forms—is they way our government makes sure that our poorest paid workers are always below or around the poverty line.
From The Wall Street Journal, March 24, 2005.
More proof of the integration of the North American labor market comes courtesy of a new report from the Pew Hispanic Center, which says the nation's illegal alien population rose to more than 10 million last year, a 23% increase since 2000.
The news here isn't that the numbers are growing. So long as the U.S. economy is creating opportunities for that supply of poor, low-skilled workers south of the border—more than half of the growth is attributable to Mexico—the influx will continue apace.
What the study helps illustrate is how well we've absorbed these newcomers, contrary to restrictionists' claims that immigrants "steal" jobs and are otherwise bad for the nation's economic health. The U.S. has maintained a relatively low unemployment rate since the last recession, even as immigration has grown….
At the very least, Mr. Passel's study gives lie to the claim that immigrants are somehow displacing American workers and fettering our economy.
Jobs and Immigrants
Want a lesson in demagoguery? Consider this statement: “restrictionists' claims that immigrants "steal" jobs and are otherwise bad for the nation's economic health.” The Journal never evaluates the nation’s economic health on the basis of the adequacy of workers’ wages—which at the present time is deplorable.
The Journal’s only concern is that investors and business owners are getting richer—and on that basis, the economy has, indeed, absorbed very high levels of immigration.
It’s all basic economics, right? We’re paying through the nose for gas because the price for a barrel of oil has gone up, and the cost must be passed on to consumers. It’s not because of price gouging by our fine petroleum corporations.
The following is a classic example of the unrestrained greed of America’s corporations and their investors—regardless of what’s in the public interest.
From The Wall Street Journal, March 18, 2005.
The surge in oil prices over the past year is generating an immense cascade of cash that is flooding the coffers of oil companies, raising pressure on their bosses to pursue acquisitions, further boost spending on production or give more of the gains to shareholders….
Moreover, though the cash windfall is large—Exxon Mobil Corp., the world's biggest oil company, ended 2004 with $23.1 billion in cash on hand, more than double its hoard from a year earlier—plans at most oil companies assume prices will drop from today's highs.
But some shareholders say they should get a big share of that windfall—perhaps with a special dividend like the one Microsoft Corp. paid investors last year, worth $32.6 billion. With the tax rate on dividends at 15%, and the possibility that could rise in the future, Frederick Leuffer, an oil analyst at Bear Stearns, says a special payment this year is preferable to incremental boosts over several years….
Exxon's not alone in seeing its hoard of cash—that is, the amount of money left over after paying all expenses, from capital projects to taxes—grow as oil prices climb higher. At Royal Dutch/Shell Group, cash on hand rose to $8.5 billion in 2004, from $2 billion a year earlier. ChevronTexaco's cash jumped to $9.3 billion from $4.3 billion….
The cash windfall goes well beyond the industry giants. Burlington Resources Inc., a Houston-based independent, reported last month that it had $2.18 billion in cash and cash equivalents at the end of 2004, nearly triple the amount it had a year earlier….
Oil Companies Reap
Cash Windfall
From Price Surge
Investors Say Big Stockpiles
Can Help Pump Up Returns;
Exxon's $23.1 Billion Hoard
Think of it. National guardsmen are giving up their good-paying jobs to fight in Iraq, and some of their dependants at home are going into bankruptcy because of it. Workers who have lost their jobs because of globalization are also going into bankruptcy.
Halliburton has been charged with fraud for overcharging the U.S. taxpayers for the gas they provided to our military, and the Exxons of the world are doing everything they can to become incredibly rich by taking ruthless advantage of the situation.
And as the American consumer becomes poorer by paying high prices for gas, the petroleum corporations blame increasing oil prices for the high prices they are charging. They don’t mention, of course, that they are making outrageous profits from the process.
They’re so commonplace today, I sometimes wonder why I even bother to include items like the one below.
From The Wall Street Journal, March 18, 2005.
BIRMINGHAM, Ala.—A former HealthSouth Corp. finance chief lashed out at prosecutors and the defense but stuck by his claim that company founder Richard M. Scrushy was in on a massive earnings overstatement.
Under cross-examination for a second day, former Chief Financial Officer Tadd McVay grew testy as James Parkman III, Mr. Scrushy's lead attorney, suggested he was lying about Mr. Scrushy's involvement in the $2.7 billion accounting fraud in order to gain favor with prosecutors….
Mr. Scrushy faces 58 criminal counts and the equivalent of a life sentence if convicted on all charges.
HealthSouth Witness Is Unswayed
Just another in an endless series of articles about corporate greed and corruption.
A disturbing thought: Bernard Ebbers “aw shucks” defense may actually be valid. Fact is, many (most) of today’s corporate CEOs are egomaniacs who are able to con their boards of directors simply by creating an image of being a true leader.
Today’s corporate environment has become so corrupt, it’s getting almost impossible to distinguish between the true leaders and the “destructive achievers.”
From The Wall Street Journal, March 16, 2005.
The conviction of Bernard J. Ebbers could be a blow to other chief executives who are facing fraud trials and claiming they were left in the dark.
The former chief executive of WorldCom Inc., who was found guilty of fraud and conspiracy charges yesterday by a federal jury in New York, built what prosecutors called his "Aw, shucks" defense on the claim that he was an accounting ignoramus who knew nothing of the massive fraud that took place on his watch. But jurors said that they bought the argument of prosecutors that the CEO had to be aware of the fraud.
That could be worrisome for executives facing their own federal fraud cases, like Richard Scrushy and Kenneth Lay. Mr. Scrushy is the fired CEO of HealthSouth Corp. who is on trial now in Birmingham, Ala., while Mr. Lay, the former chairman and chief executive of Enron Corp., is scheduled to go on trial in January in a Houston federal court. Both have portrayed themselves as well-meaning executives heading complicated operations who were duped by malicious underlings.
"This verdict is devastating for any other CEO or senior executive who intends to use the defense that 'I did not know,' " said Jacob Frenkel, a former enforcement attorney for the Securities and Exchange Commission who is now in private practice in Rockville, Md. Mr. Ebbers's conviction, he said, "is a missile blowing that defense out of the sky."… ….
Verdict Is Warning to Other CEOs
Of the Risks of Pleading Ignorance
To better understand the differences between true leaders and Destructive Achievers, check out the file on Proactive vs. Reactive Management. The book it's based on is actually about corporations, but on this site the principles are applied primarily to American politics.
Two articles in the same issue of Business Week illustrate the changed values of our society—in favor of the rich and powerful, and against working-class Americans.
While corporations are “the most optimistic in years,” our highest paid factory workers are seeing their jobs destroyed.
Let’s face it. Republicans control Congress and the White House, the class war is over, and the rich and powerful have won.
From Business Week, March 14, 2005.
…Evidence of a corporate renaissance is growing. Chief executives are the most optimistic in years. And why shouldn't they be? Demand continues to grow strongly. Many companies are enjoying increased pricing power. And financial resources are abundant: Internally, profits and cash flow remain strong, and externally, credit markets offer cheap long-term financing, while lending terms and conditions at banks are the easiest in years….
Perhaps the best news for 2005, though, stems from the historically tight correlation between capital spending and hiring. It should not be surprising that hiring picked up substantially last year as companies began to expand. Strong business outlays imply a continuation of job growth in 2005 that will generate a healthy pace of income to help support consumer spending….
But the real story is in wages and salaries, which make up nearly three-fifths of total earnings. In January, basic wage income grew 5.8% from the previous year, the largest yearly gain in four years and twice the rate of inflation….
If economic growth continues to surprise on the high side of expectations, it will have important consequences. First, it would mean that the economy is using up whatever slack exists in production capacity and the labor pool at a faster rate than expected. Second, strong growth would bolster gains in pricing power already evident in many industries. And third, it would give the Fed far less leeway to move interest rates up at its recent leisurely pace.
There is no doubt that the animal spirits of Corporate America are stirring unlike any time since the go-go years of the late 1990s. That optimism will boost the economy's performance this year. But the Fed will be watching closely to make sure that this new ebullience doesn't allow inflation to spiral out of control.
Back in 1999, General Motors Corp.'s plan to spin off the Delphi parts division looked like an all-around great idea. By carving out its components business, GM reckoned to shed nearly 43,000 union workers and trim supply costs. To make Delphi attractive to investors, the auto giant blessed it with a clean balance sheet and billions of dollars in contracts. If Delphi could cut costs and win sales from other carmakers, executives figured, it would prosper.
That expansive vision proved short-lived….
Delphi's 185,000-strong global workforce includes some 25,000 UAW members in the U.S., while Visteon employs 18,000 UAW members….
The suppliers' current contracts make it tough to grow at home. Big Three purchasing agents use the threat of low-priced Mexican and Asian parts to get lower cost contracts. And in the U.S., Japanese and Korean auto makers simply won't buy parts from union plants….
U.S.: Optimistic Businesses Are Revving Up For Growth
Companies should face less uncertainty and more demand this year
---------------------------------------------------------------
A Wrench For Parts Suppliers
Labor and legacy pension costs from GM and Ford are hurting Delphi and Visteon
ASIAN THREAT
Imagine! The “basic wage income grew 5.8%” for workers, after decades of stagnation, and they’re not coming remotely close to the wages factory workers made 20 years ago, relative to inflation. And, of course, the wages of CEOs continue to explode beyond reason.
Sure, our growing economy will create more jobs, but the pay will be lousy—relative to the pay of America’s top 20%—and the cost of life’s most necessary items (housing, education, health care, etc.) will continue to go out of the reach of workers.
Also, be wary of that last sentence in the first article: “But the Fed will be watching closely to make sure that this new ebullience doesn't allow inflation to spiral out of control.” Of course, you know what that means: if wages start to go up too much, the Fed will raise the prime to slow down the economy. On the other hand, if corporate profits, CEO incomes, and the stock market go up—that’ll be just fine with the Fed.
For a more extensive discussion of this last issue, see: The Class Warfarer’s scapegoat: “Wage Inflation”.
The following is just another in the endless series of articles that describe Wall Street’s preoccupation with the possibility that working Americans may begin to share in the prosperity of our country.
The “goldilocks” economy is one in which corporate profits—and the incomes of the wealthy and powerful—continue to grow (the economy is not too cold), but the incomes of workers remain stagnant (the economy is not too hot).
From The Wall Street Journal, March 15, 2005.
By Justin Lahart
Some pundits have been talking about how the U.S. economy is in a new "Goldilocks" environment, where growth is not too hot, not too cold. But investors are wary that the bears could come home early.
The Labor Department's February employment report showed jobs growth that was ahead of economists' forecasts, but below what many traders had expected. Treasurys rose, pushing the yield on the 10-year note down to 4.32% from 4.39%. Stock-market participants sent the Dow Jones Industrial average up over 100 points.
The fervor faded as it became apparent that the Treasury market's apparent relief over the jobs report had more to do with speculative players rapidly exiting bets on a strong jobs report than it did with bond investors' penchant for buying. Last week, the 10-year's yield went above 4.5% for the first time since the summer and the Dow lost 166 points….….
AHEAD OF THE TAPE
Fairy Tales
As you read the above, remember that these are the same people who say we shouldn’t be envious of the wealth and incomes of the rich. Yet, they watch the incomes of workers like predatory hawks.
For a more extensive discussion of this subject, see: The Class Warfarer’s scapegoat: “Wage Inflation”.
The following is just one more example of the military-industrial complex doing its very best to enrich itself at our country’s expense. And all the while telling us that we should be willing to make sacrifices, both human and financial, to support this totally unnecessary war.
From The Wall Street Journal, March 15, 2005.
Pentagon auditors have questioned $108.4 million that Halliburton Co. billed the U.S. government to deliver fuel to Iraq as part of a no-bid contract to rebuild the country's oil infrastructure, heightening questions about the company's billions of dollars in expenditures to support the military effort.
The audit, completed in October but released only yesterday by congressional Democrats, faults Halliburton for failing to provide "adequate" justification for its expenditures….
The audit released yesterday examines only the fuel-shipment work Halliburton performed in 2003 and 2004. The Houston-based company charged $887.4 million for that work, but military auditors have identified $108.4 million in "questioned costs."…
Some of the charges were so inexplicable that auditors concluded there must be a gross mistake in billing. In one instance, Halliburton charged about $27.5 million to haul $82,000 of liquefied petroleum gas, a condensed form of propane widely used for cooking. Auditors called the charges "illogical" and asked that Kellogg Brown & Root "review its accounting data again" for improperly classified costs.
Auditors also faulted Halliburton for failing to renegotiate high prices it paid for fuel from the little-known Kuwaiti firm Altanmia. Halliburton has said it chose Altanmia because the company had the transportation resources to deliver fuel under very tight deadlines that could head off civil unrest as a result of fuel shortages. The auditors said Halliburton should have renegotiated prices after 30 to 90 days. The company's failure to do so resulted in a $62 million overcharge, auditors said, comparing the company's cost to similar work by another Pentagon agency a year later….….
U.S. Audit Questions Halliburton
On $108.4 Million in Iraq Work
Want the real reason there is so much support for the Bush Administration’s war with Iraq? Propaganda from the war profiteers has to be a major factor.
When The Wall Street Journal describes the Republican Congress and the Bush Administration “pro-business,” you gotta pay attention.
From The Wall Street Journal, March 15, 2005.
WASHINGTON—Republicans handed business two victories with progress on long-stalled class-action and bankruptcy bills. But advancing other pro-business items on the party's agenda won't be easy.
Though Republicans boast expanded majorities in Congress, priorities such as energy and asbestos legislation remain so contentious that overcoming Senate filibusters may be difficult. Making President Bush's capital-gains and dividend-tax cuts permanent stands at odds with some lawmakers' emphasis on deficit reduction. If those obstacles weren't enough, the attention that Mr. Bush's Social Security plan and judicial nominations will consume may reduce the time available for action….
To be sure, legislation represents only part of the business community's wish list in Republican-dominated Washington. Friendlier regulation by the Securities and Exchange Commission is also a priority, given complaints by the U.S. Chamber of Commerce and others that SEC Chairman William Donaldson has been too aggressive….
On Capitol Hill, Republican leaders plainly share Mr. Bush's goal of making the U.S. the "the best place in the world to do business." Republican senators are planning to hold a news conference within the next month with major U.S. business lobbies to unveil a catalog of priorities including extension of the capital-gains and dividend-tax cuts, permanent repeal of estate taxes, energy and asbestos legislation, an overhaul of medical-malpractice laws and reduced trade barriers with Central American and Caribbean nations.
Mr. Bush's plan for private Social Security accounts also is viewed by some Wall Street interests as a potential boon for business….
Pro-Business Agenda May Hit Hurdles
Republicans Battle the Clock as Well as
Democrats in Pushing Legislative Priorities
Almost every sentence in the above excerpt demonstrates that legislation that is pro-business is automatically anti-worker, anti-consumer, and anti-environment. On almost every issue, corporate profits are going to benefit—and workers, consumers, and the environment will suffer.
The disastrous effects of globalization continue to reveal themselves.
From The Wall Street Journal, March 14, 2005.
WASHINGTON—Booming demand for imported cars and electronics and a surge in textile imports from China helped to enlarge the trade deficit to $58.27 billion in January, a 4.5% jump from December and the second-largest deficit on record.
The widening gap between exports and imports of goods and services was fueled by a 1.9% rise in imports, which totaled $159.09 billion for the first month of 2005, the Commerce Department reported. The jump reflected demand for goods such as televisions, videocassette recorders, cookware and pleasure boats. Exports for the month were essentially flat at $100.83 billion despite the weakening dollar….
The January data added fuel to a debate over the pace of imports of textile and apparel products from China, which jumped 39% from December, the U.S. said. Overall, the trade deficit with China was $15.25 billion for the month, the largest gap with any single country and nearly 33% larger than in January 2004….
"The evidence is irrefutable," said Cass Johnson, president of the National Coalition of Textile Organizations, a manufacturers' trade group. "Now is the time for the government to act quickly and save our workers' jobs." Importers rebuffed the calls for new protection. Commerce Department officials are watching the trend, and discussions have begun about an "early warning" system to better track surges in imports from China….
In a speech Thursday, Federal Reserve Chairman Alan Greenspan suggested that a turnaround in the trade deficit is imminent.
January Trade Deficit Widened
To Second-Largest Level on Record
As usual, the beneficiaries of globalization are investors and top corporate executives, and at the direct expense of our general economy (the exploding deficit) and the welfare of workers (the loss of good jobs).
As you read the following two excerpts, remember that this is the industry that the Bush Administration wants to put in charge of managing a significant portion of the funds of Social Security retirees.
From The Wall Street Journal, March 17, 2005.
When investor Bruce Gimelson thought the brokerage TD Waterhouse had cheated him out of $70,883 by selling shares in his account without permission, he was forced to turn to Wall Street's homegrown justice system to try to get the money back.
He filed a securities arbitration claim with the New York Stock Exchange, which promises that two of the three members of its arbitration panel will come from the general public, not the securities industry. But Mr. Gimelson's lawyer was surprised when he found out that one of the "public" arbitrators on the panel was Laurie Zeligson, who worked as a lawyer at Citibank for a dozen years through 1998 and later represented the bank and a securities firm in private practice. The panel ruled against Mr. Gimelson, while denying Waterhouse's attempt to collect the $15,351 it said he owed.
Last year, Ms. Zeligson went to work for a Prudential Financial Inc. money-management unit but continued serving as a public arbitrator on a case that was already in motion, voting in favor of a securities firm in an NYSE employment-arbitration dispute. During her arbitration career, she voted in favor of Wall Street firms in all seven customer and employee cases she heard….
Investors have been complaining for years that the arbitration system is stacked in favor of Wall Street. But the debate has intensified in recent years amid a swell of new arbitration claims following the burst of the Internet bubble in 2000. Now, some members of Congress and state officials are starting to turn up the heat on the industry. And the self-regulatory bodies that run the arbitration forum have started tinkering with the system to make it appear more fair.
"Combine a public arbitrator who has a long association with Wall Street with an industry arbitrator who works on Wall Street and the investor is not being served," says William Galvin, the top securities regulator in Massachusetts. A subcommittee under the House Committee on Financial Services will hold public hearings on securities arbitration today….
The securities industry's brand of justice took off after a Supreme Court ruling in 1987 allowed brokers to require customers to waive their right to sue in court as a condition of opening a brokerage account. Today such clauses are standard, which is why investors' complaints usually end up in arbitration….
In practice, though, even some "public" arbitrators have ties to Wall Street. Even if an arbitrator previously worked as a Wall Street broker, the NASD classifies the person as public if he or she held the brokerage job for fewer than 20 years and has been out of the business for at least five years. The NASD also counts accountants and lawyers as public if they get less than 10% of their income from brokerage clients. The NYSE has its own rules, including some similar to the NASD's that leave the door open for former Wall Streeters to be classified as public….
Arbitrators, who typically make $400 a day, aren't required to justify their decisions….
J.P. Morgan Chase & Co., the last big holdout in a class-action lawsuit filed by investors of WorldCom Inc. against Wall Street securities firms, agreed to settle the case for $2 billion. The pact brings the total amount recovered in the case to just over $6 billion—a record for a securities class-action case—and takes the total firms have paid so far in major settlements for their alleged stock-bubble sins to more than $10 billion.
Wall Street is paying a huge and still-growing price as investors have lashed out against the firms that courted and helped finance highflying companies that later crashed. Enron Corp. had a peak market value of $70 billion before it collapsed in 2001. Fraudulent accounting at Italian dairy giant Parmalat SpA saddled the company with about $19 billion in debt. Many of those cases are still pending….
Investors, led by New York State Comptroller Alan Hevesi, accused investment banks of failing to adequately examine WorldCom's financial health when they sold $17 billion of its bonds in 2000 and 2001. Its collapse left investors with massive losses.
In addition to the WorldCom bond case, the scandals have included Wall Street analysts who issued biased research to win investment-banking business and mutual funds that allowed aggressive short-term trading at the expense of long-term "mom-and-pop" investors….
Rough Justice
Wall Street Panels
For Settling Fights
Draw Renewed Fire
'Public' Arbitrators May Have
Had Ties to Brokerages
---------------------------------------------------------------
J.P. Morgan to Pay $2 Billion
As Street's Bill for Bubble Soars
No matter what the details of Social Security privatization, if this group of clowns get to insert themselves—and their fees, commissions, hidden charges and false pretensions of expertise—between retirees and their money, watch out. Nothing good can result.
As you read the following, remember that these are the people who are the real beneficiaries of the tax cuts brought to us via Congressional Republicans and the Bush Administration.
But that’s not all the bad news. Also consider the implications for workers and consumers who are left after the businesses have huge chunks of money taken out of them by these greedy predators.
From Barron’s, March 14, 2005.
WITH THE DOW REACHING a 45-month high this month, the stock market has given investors a pretty good ride lately. But the profits spun by private buyout firms in the past year, make the market seem as if it's moving backwards.
Buyout shops, also known as private-equity firms, have long been viewed as the smart and patient money, willing to buy and retool companies over several years before reaping their returns.
But in the past year, the buyout industry has represented the easy and fast money, taking advantage of pliant capital markets to turn billions in quick winnings for themselves and their investors….
On the payoff side, private-equity players cashed out of enough investments to return a whopping $36 billion in net cash to their investors in the nine months through September. Though the investors are mainly pension funds and other institutions, wealthy individuals have also been getting in on the action, through their private banks and sometimes directly.
All told, private-equity firms as a group generated a 19.3% return to their limited partners in the year ended Sept. 30 (the latest numbers available), according to Cambridge Associates. That return is even more impressive considering it's the actual return enjoyed by investors—net of all fees, expenses and the typical 20% cut of profits that private-equity firms levy.
Yet even those numbers don't properly convey the rich supply of huge, quick profits booked by some of the larger, sharper players in the $800 billion private-equity industry. In the past year, it became almost commonplace for LBO firms to triple or quadruple their initial investments by buying, recapitalizing and selling companies in a matter of months….
When the LBO firms' 20% cut of the profits is factored in—a jackpot that flows right into the partners' pockets—it’s no surprise that the likes of Blackstone chief Stephen Schwarzman could afford the priciest apartment in Manhattan a few years back….
LBOs Are Back
Their returns are fat and fast — for now
No matter how you slice it, the more money these greedy people take out of the corporations, the less money is left for other things: Paying decent wages to workers, providing safe and reasonable working conditions, developing new or better products for consumers, or giving consumers a price break on the goods and services that they provide.
Not only are they becoming a new class of economic aristocracy, they are paying politicians to cut their taxes and to reduce government services to the very people who are victimized by their greed.
The following is a description of the classic Republican strategy of mislabeling the true intent of their bills in Congress. It turns out that the “American Jobs Creation Act” was simply a tax break for the wealthy and powerful—and a further disaster for American workers who lost their jobs.
Instead of using their tax breaks to expand employment in the U.S., corporations either invested in other countries where workers can be taken ruthless advantage of, or they simply continued their ongoing process of eliminating jobs (“reducing labor costs”).
From The Wall Street Journal, March 10, 2005.
There is more evidence that a tax break intended to boost U.S. jobs isn't getting the job done.
Consider several major companies that say they are considering bringing home hundreds of millions of dollars in foreign profits under a tax holiday that is part of the American Jobs Creation Act passed last year. These include National Semiconductor Corp., Sun Microsystems Inc. and Colgate-Palmolive Co.—all of which recently cut staff. These companies' example calls into question how effective "repatriation" will be in spurring new jobs, adding to already reported concerns about the wiggle room the law gives companies in how to spend the money.
National Semiconductor disclosed in January it may repatriate as much as $500 million in foreign earnings under the tax break. The same day, the company announced it would cut 550 jobs, or 6% of its work force, to cut costs and streamline operations.
Sun said in February that it could bring home as much as $1.1 billion in foreign profits. The company also said it had laid off 3,600 people -- about 10% of its work force—during the previous nine months as part of a plan to reduce costs and improve efficiency.
Colgate-Palmolive said in December that it expected to close about a third of its factories and eliminate about 12% of its work force-a total of about 4,400 job cuts—in a four-year restructuring plan. In February, the company disclosed it was considering bringing home $500 million in foreign profits….
"The bill as enacted does not have a close link between repatriation and some form of job creation," says Stephen E. Shay, a tax partner with the Boston law firm of Ropes & Gray. "It's best characterized as a fig-leaf relationship."
Mr. Shay adds that it is "not inconsistent with the law" for companies to cut jobs at the same time they are considering repatriating funds ostensibly meant to create jobs. They are just following the law as it is written, he says….
DuPont Photomasks Inc. is repatriating $24 million in foreign profits, some of which it is applying to a $30 million expansion of production capacity at its Round Rock, Texas, plant. But the company also announced in January that it would close its Kokomo, Ind., plant—eliminating 100 jobs, or about 6% of its work force—and said it is expanding capacity at a Singapore plant….
National Semiconductor's Mr. Weir, who used to work on Capitol Hill, says repatriating earnings should be seen simply as a tax break. Calling the law "the American Jobs Creation Act" was marketing, he says. "I would not trust the title of any law and what it really says."
Layoffs Seem to Conflict With Tax
Break Meant to Propel Job Growth
Key statement: “Calling the law 'the American Jobs Creation Act' was marketing.” How about “deliberately lying”?
How do you know when a Republican Congressman is lying? When he’s describing the intent of his latest legislation.
My, my. It seems that Wall Street is beginning to discover ethics. Don’t hold your breath.
From The Wall Street Journal, March 10, 2005.
Doctors have the millennia-old Hippocratic Oath. Pharmacists, mathematicians and even football coaches all have codes of ethics.
Not investment bankers.
Now, a few of the best-known names on Wall Street, along with some lawyers and academics, think it is time for these creators of mergers and stock offerings to explore the possibility of their own code. It would be the kind that, like the Hippocratic Oath, might be taught in schools, framed and hung on office walls and called upon when arriving at life's ethical crossroads….
Investment banking is a vexing area to police. Bankers sit in the crucible of the economy: doling out loans; hammering out contracts; and counseling companies on the sensitive topics of mergers and acquisitions, among other things.
It is in these areas that ethical lapses can occur, with bankers using confidential information from one client to benefit another, or failing to fully outline the drawbacks of a particular transaction to guarantee a big payday. Many on Wall Street say the vast majority of bankers are ethical ones, but nearly all will admit they can lose or win fees based on how far they are willing to go.
Given the million of dollars in profits that also can be personally earned from one or two banking transactions, the "pressure on behavior is sometimes too great to bear," writes Gerald Rosenfeld, chief executive officer of investment bank Rothschild North America, in the book….
"A code of ethics is always a public-relations ploy," says Michael Davis, senior fellow at the Center for Study of Ethics in the Profession at the Illinois Institute of Technology. "The question is whether it is only a public-relations ploy."…
Does Wall Street
Finally Need
An Ethics Code?Rohatyn, NYSE's Reed and Others
Make Case for Some Kind of Oath;
Critics See 'Public-Relations Ploy'
Key statement: “Given the million of dollars in profits that also can be personally earned from one or two banking transactions, the "pressure on behavior is sometimes too great to bear." Right. And given the number of Wall Streeters who have risked jail and violated the laws already on the books—one wonders how a code of ethics is going to change anything.
Of course, it probably couldn’t hurt.
Here’s further evidence of the pro-business, anti-consumer nature of our Republican dominated Congress. The recent bankruptcy legislation will simply reward the sloppy and greedy practices of American corporations, and put all the burdens on those victimized by the process.
From The Wall Street Journal, March 10, 2005.
The Senate moved closer yesterday to passage of a bankruptcy bill that has been characterized as landmark legislation mapping out a new creditor-friendly environment, yet much of the South has long operated under a system that resembles what the bill aims to establish nationwide….
Some economists and consumer advocates are concerned that Southern states have relatively higher rates of bankruptcy filings and that this could stem from the creditor-friendly system.
According to the American Bankruptcy Institute, one of every 72.8 households in the U.S. filed for bankruptcy protection during the 12-month period that ended in March 2004, but the rates varied sharply by region. Tennessee had the second-highest rate, with one household in every 38.7 filing for bankruptcy, and Georgia had one in every 42.4 households filing. Utah, with one in 36.5 households, has the highest bankruptcy rate of any state.
In contrast, filings are low in the Northeast and parts of the West and Midwest. One in 156.2 households filed for bankruptcy in Vermont, one in 144.3 in Massachusetts. Alaska had the lowest bankruptcy rate, at one filing for every 171.2 households.
There are several reasons for the large regional differences in bankruptcies. Economists say that a major reason is that incomes are generally lower and more volatile in the Southeast than in other parts of the country. Less income leaves families with smaller financial cushions to fall back on when problems arise. But income differences can't explain all of the gap.
Some bankruptcy economists theorize that there's an inverse relationship between strong consumer-protection laws and bankruptcy filings. In states where it's harder for lenders to get judgments against consumers, bankruptcies might be lower because lenders are pickier about who gets credit. In states that make it easy for creditors to repossess property, bankruptcies might be higher because more consumers are extended credit.
That, the economists say, might explain why many Southern states -- known for the creditor-friendly laws -- have higher bankruptcy rates. Alabama, Georgia and Tennessee provide a wide range of prejudgments, creditor remedies, attachments, garnishments and wage assignments with limited or no litigation, Mr. Gerdano says….
"We'll have more-aggressive small consumer companies lending to lower-middle-class householders," Mr. Zandi says. "So in the end we will have more bankruptcies because creditors will end up extending more credit."…
Creditor-Friendly South Offers
Preview of Bankruptcy Changes
It’s the same old story: take ruthless advantage of the poor and uneducated, and reward the greedy and manipulative in our society. And it’s all reported in The Wall Street Journal.
If you want to know which political party truly represents the interests of working-class Americans, just read The Wall Street Journal, one of the most avid supporters of the Bush Administration. When the Journal says that the Bush Administration is “pro-business,” you’d better believe it. (Of course, the antithesis of pro-business is anti-worker, anti-consumer and anti-environment.)
From The Wall Street Journal, March 9, 2005.
WASHINGTON – The Bush administration is expected to launch a push for business-friendly regulation, possibly including streamlined and more flexible pollution standards, chemical-handling rules, and workers' medical-leave protections.
The stated aim is to improve the overall climate for U.S. manufacturing, a sector hammered by recession and overseas competition during much of President Bush's first term.
But Gary Bass, executive director of OMB Watch, a pro-consumer group that monitors the White House Office of Management and Budget, called the effort a new assault on anticompetitive rules that amounts to rewarding Mr. Bush's political supporters in the business world….
The White House is expected to put forward a new priority list of regulations for agencies to rewrite or push through. Some changes would be relative tweaks, while others would be substantial. Changes would be made administratively with little or no input from Congress….
Much of the new initiative is expected to focus on industry-nominated changes. But an OMB official said yesterday only that the agency was finalizing plans to release its report on rules to be revisited. OMB will take into consideration the recommendations it received but "won't necessarily implement all these," the official said.
For example, a number of businesses and trade groups have suggested revisions to ease the burdens imposed by environmental standards, including rules defining what constitutes hazardous waste, as well as spill-prevention control and some toxic-release reporting requirements for businesses…Rules for handling toxic and hazardous materials—such as community right-to-know laws concerning presence of chemicals at local plants—also have drawn criticism.
White House to Launch Push
For Pro-Business Regulation
Translation: “more flexible pollution standards, chemical-handling rules, and workers' medical-leave protections” means industry is allowed more flexibility to pollute the land, air and water, and workers’ medical leave provisions will be reduced or removed.
And “community right-to-know laws concerning presence of chemicals at local plants,” will undoubtedly be eliminated, thus allowing corporations to pollute the environment and endanger the public in secret.
Another key statement: “The stated aim is to improve the overall climate for U.S. manufacturing, a sector hammered by recession and overseas competition during much of President Bush's first term.” Meaning: the disaster of globalization that is hurting even many American corporations will be minimized by saving costs related to protection of the environment, and of consumers’ and workers’ rights.
The bias of the Republicans in favor of the wealthy and powerful—and against the poor and powerless—is truly amazing. Two articles in the same issue of the Journal demonstrate it’s one-sided ideology, as is reflected in the recent bankruptcy legislation.
From The Wall Street Journal, March 9, 2005.
WASHINGTON – The Senate cleared the way for approval of a landmark bankruptcy bill after defeating a controversial amendment that had held up the legislation since the Clinton administration.
By a 53-46, near-party-line vote, senators rejected an amendment by Democrat Charles Schumer of New York designed to prevent antiabortion demonstrators from using bankruptcy protections to avoid court-imposed fines. With that obstacle to passage removed, the Senate moved toward a final vote on the bill as early as tonight….
House Republicans, eager to reduce the number of individuals filing for bankruptcy, said they would approve the Senate bill next month in order to send it to the White House this spring. That would be a significant victory for Mr. Bush, who has vowed to make the U.S. more business friendly in his second term, and for his allies in the business community….
Arguing that protesters at abortion clinics shouldn't be able to use bankruptcy laws as a shield from legal sanctions, Sen. Ted Kennedy (D., Mass.), likened opponents of the Schumer amendment to those who "stand with the radical elements of our society who want to roll back protections for a woman's right to chose."…
…Wealthy individuals will be less likely to feel the impact of the legislation. That is because the bill retains significant loopholes that could be used to shelter valuable assets from the bankruptcy process, such as exemptions for homes that protects them from being seized. The proposed new rules also retain a loophole that permits people to set up so-called "asset protection trusts," which are exempt from being used to pay off debts in a bankruptcy proceeding….
The changes, which come after eight years of failed attempts, represent one of the most-significant rewrites in decades. Supporters—credit unions, banks, and retailers—have sought the legislation to curb alleged abuses in the system….
The bill leaves in place a contentious exemption: Debtors can still own and retain expensive houses in certain states that protect the homes from a forced sale to pay debts….
The Senate, during debate on the bill, also rejected efforts to kill off the loophole that permits the wealthy to protect assets by opening special trust accounts in any of several states, including Alaska, Delaware, Rhode Island, Nevada and Utah. Doctors have been setting up these so-called asset-protection trusts for years to protect themselves from malpractice litigation. Now, executives are following suit, as a result of the latest round of corporate scandals and the passage of the Sarbanes-Oxley Act, which makes top executives and directors accountable for their company's financial results.
About 1,500 domestic asset-protection trusts holding more than $2 billion in assets were created between 1997 and 2003, according to an estimate by Wilmington Trust Co.
In addition, the bill increases the value to $1 million of retirement funds exempted from bankruptcy claims. The current law has complicated formulas to exempt pensions….
Defeat of Amendment
Clears Way for Passing
Bankruptcy Overhaul
---------------------------------------------------------------
The New Rules
Of BankruptcyOverhaul Is on Track to Clear Congress,
But Housing, Trust Exemptions Remain
So, middle-income people who become penniless because of a major illness, or loss of a good-paying job, will still have to pay their debts. However, if a bomber of an abortion clinic is fined, the bankruptcy laws won’t apply to him. Neither will the law apply to the wealthy convicted corporate criminals who shelter their wealth in selected states.
How one-sided and hypocritical can you get?
I never cease to be amazed at the callousness of conservative economists and politicians. The people who constantly preach to us that we should not be envious of the incomes of the rich are the very same people who watch the incomes of workers like predatory hawks.
The first three excerpts below are from the same issue of Barron’s, the fourth is from Business Week, and the fifth is from The Wall Street Journal. Notice the utterly cold analyses they make of status and living standards of the people in our country who actually work for a living.
As you read the following, remember that a “goldilocks” economy is one in which the unemployment rate is high enough so employers can find workers without having to raise wages, but low enough so that the drain on the economy (and taxes) is not excessive. In other words, and economy is just fine—not too hot and not too cold—if corporations are making huge profits, and not having to share them with workers through higher wages.
From Barron’s, March 7, 2005.
By GENE EPSTEIN
The official story released Friday by the Bureau of Labor Statistics showed nonfarm payroll employment rising by a seasonally adjusted 262,000 in February, while the jobless rate snapped back to a seasonally adjusted 5.4% from 5.2% the month before….
A more focused look reveals a job market that isn't quite as hot as the February report implies. But it ain't cold, either….
Call it the Goldilocks economy. Don't call it chopped liver.
By Michael Santoli
Rarely is an act of government met with the kind of near-unanimous approval that greeted Friday's employment report from the Labor Department.
The word that 262,000 jobs were added in February (for more on this, see Economic Beat in the main news section) provided the cause, or at least an excuse, for buying across virtually every asset class. Stocks got a 1% lift while bond prices advanced (dropping their yields)….
Indeed, the bond market's celebration of the payrolls report belies the notion that the 262,000 tally was a true upside surprise, never mind the formal consensus forecast of 225,000. Treasury traders were clearly positioned for a bigger number, and cheered its absence….
The advance in the stock indexes drove the Dow Jones Industrial Average and the Standard & Poor's 500 index to new 2005 highs and above the December peaks, levels that had capped the benchmarks until then….
For the week, the Dow gained 98 points to hit 10,940, its highest close since June 2001. The S&P 500 climbed 10, to 1222, a level last seen in July 2001….
The upbeat take on this pattern is that that temptress Goldilocks was favoring Wall Street again, with a cozy environment neither too hot nor cold….
By Jennifer Ablan
U.S. treasuries held firm Friday after the latest jobs report fell short of the market's high expectations, soothing concerns of more aggressive rate hikes by the Federal Reserve….
In the wake of the February employment data, federal-funds futures continued to forecast that the Federal Open Market Committee is virtually certain to boost its key overnight rate in quarter-point increments at its next three meetings through June, to 3¼% from 2½% currently….
The unemployment rate, meanwhile, ticked up to 5.4% from 5.2%, in part because the labor force rose by 153,000 following declines in the previous two months….
"Wage pressures remained weak," Wang notes, pointing out that private service wages fell outright by 0.1%...
"Even though companies are cash-rich, they still appear reluctant to hire," says Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson. "We should be adding many more jobs, especially at this stage in the economic recovery." She asserts that companies are loath to hire and expand their business because of such factors as the rising cost of health-care and pensions. The economy needs to add between 150,000 and 200,000 jobs a month just to keep up with population growth, Hurley adds….
ECONOMIC BEAT
Underlying Job Trends
A 5.5% unemployment rate is enviable
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THE TRADER
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CURRENT YIELD
Jobs and Bonds Gain
Fears fade of more aggressive Fed moves
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From Business Week, March 7, 2005.
Strong growth and low inflation have become ingrained in the way most analysts view the U.S. economy. This win-win combination was a hallmark of the late 1990s, and it has been true for the past two years. However, the ground is slowly shifting, and the forces that have held inflation down for so long are starting to move in the opposite direction….
Most important, labor markets are tightening, th
Is That A Whiff Of Inflation?
The forces that have held it back are starting to move in another direction