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14.
Corporations
Should Run Our Country?
Only
Republicans and conservative Democrats can read The Wall Street Journal, Forbes, Fortune, Barron’s, or Business Week and conclude that
corporate bureaucrats are better stewards of our country than are
government bureaucrats.
Actually,
they’re probably just pretending that they believe in such an absurd
notion. After all, it is only by discrediting government that they can
convince voters to turn control of our country over to corporate
executives and their supporters.
The
reason Republicans and conservative Democrats are comfortable with fraud,
greed, and a callous disregard for the public interest—that corporations
demonstrate daily—is that they are the primary beneficiaries of these
behaviors. They are the
corporations, and they make sure that they and their CEOs and top
executives always make money, even from the disasters that result from
their actions.
By
destroying the public’s confidence in government, they have created a
free-for-all, everyone-for-himself economy—an economy in which the rich,
powerful and organized can take advantage of the poor, unorganized and
uneducated.
Go
back and read Newt Gingrich’s explanation that, to do what he
wanted, government first had to be completely discredited—ethically,
programmatically, managerially, philosophically. Imagine how incredibly
easy that would be to do if the descendants of Newt were able to cite
government actions that were as bad or as numerous as the corporate
actions publicized daily in the conservative financial
press.
First,
consider just a few of some of the more noteworthy ones. Each of the
following paragraphs contains excerpts of a separate article from a
conservative financial publication:
“The
problem is chronic.… [I]t takes more than a year for the full impact of
a decline in raw-milk prices to reach consumers. And the dairy industry
has become a frequent target for antitrust investigations. Economists
and Wall Street analysts say grocers, who generate about 6% of their
sales from dairy products, are taking advantage of lower raw-milk costs
to sweeten their bottom lines.”1
“Houston
Securities Firms Sold Risky ‘Toxic Waste’ for Wall Street Giants
…Without the Houston firms’ success in dumping toxic derivatives on
unwitting investors, Wall Street never would have had other, safer
mortgage securities to peddle to sophisticated
buyers.”2
“Investigations
of misleading sales tactics rock the insurance industry.… Why the
temptation to cloak whole life insurance products as savings plans?
Consumers respond better to such offers, but whole-life policies can be
far more profitable for agents and companies…. Agents can get a
first-year commission of 55%, or $550 on a $1,000 premium, for a
whole-life policy. Selling a $1,000 annuity gets them 2%, or
$20.”3
“‘Upcoding’—the
practice of upgrading the seriousness of a medical malady by filing
Medicare bills…that will carry the highest price—appears to be endemic
in the industry.… But David Friend, a health-care consultant with Watson
Wyatt in Boston, focuses on the abuses: ‘Oh, I grant you, there are
shades of gray, but when hospitals cross the line, they know it,’ he
says. That they devote so much energy to beating the system is ‘a
pathetic commentary on our times,’ he says. ‘These guys should be
figuring out how to better treat patients in their hospitals.’”4
“The
problem [child labor] was highlighted last week when the government
announced civil fines against six Texas farming companies. In a routine
sweep, agents found children as young as six years old picking onions in
the Rio Grande Valley.”5
“The
Agriculture Department temporarily shut down some or all operations at
34 meat and poultry plants during the first three months of this year,
after inspectors found the food contaminated by feces or the plants
operating in dirty or unsafe conditions.”6
“These
people…have never gotten much individual notice for their roles [in the
S&L disaster]. They were midlevel figures, some of the thousands of
ordinary people—lawyers, consultants, regulators, congressional
staffers, state officials, investment bankers—who helped create the
crisis, often by calculating their own self-interest first.… Their tales
suggest that while some of those caught up in the event were crooked or
incompetent, many more were people who simply took a narrow view of
their responsibilities in return for hefty fees or powerful jobs.”7
“More
Companies Are Paying Lavishly To Tee Off with Golf Greats …For one-day
outings, prominent players on the PGA Tour, and LPGA Tour commonly
command fees of $25,000.
Many charge more…Justin Leonard [$50,000].”8
“High-Risk
Lenders Land with a Thud …Liberal loans and lax accounting lead to
widespread losses.… The
financial carnage is piling up.… First, the pack of companies throwing
money at high-risk car buyers ran into a wall. Now, home-equity lenders
are getting clobbered…. ‘I’ve never seen anything like the collapse of
an industry this quickly,’ laments George C. Evans, a 40-year finance
veteran.”9
Some
corporate CEOs are paid too much because of “interlocking directorates.”
“It turns out that when an executive of company A serves on the board of
company B, and when an executive of company B serves on the board of
company A, the CEOs of both reap a special benefit.… With those in
charge of fully 123 of the very largest publicly traded companies
blessed in this way, the virus of crony capitalism seems to have
infected some of those stocks we love to hold.”10
Mergers
of investment companies “should create efficiencies of scale and lower
costs for everyone involved. [Some analysts] say just the opposite could
be true—at least for the average fund investors. Merger savings rarely
get passed along to the small investor. Instead, fund consolidation
could ultimately boost fees as a few powerful distributors increasingly
control access to investors, and thus charge fund firms more to list
their wares with them.”11
Nationwide,
unscrupulous life-insurance agents have persuaded existing policyholders
to roll their proceeds into unnecessary new policies…. “‘It’s not
plausible for the companies to say it’s just a bad apple. They create a
climate for this sort of thing,’ says Joseph Belth, editor of the
Insurance Forum newsletter. He contends that ‘what goes on in the
life-insurance business is a national scandal.’”12
Scam
artists were able to take “Some big firms for millions by playing on
[their] eagerness to do deals.… LBOs were good targets because swindlers
didn’t have to put up much money of their own but, once having acquired
a company, could easily convert corporate assets, such as inventory,
accounts receivable and real estate, into cash. And most victims, after
being taken, were too embarrassed to admit
it.”13
“A
lot of preapproved credit card offers are coming back to haunt the
issuers.… A record 1.1 million Americans filed for personal bankruptcy
last year, up 29% from 1995.… The credit card industry is reaping the
bitter harvest from the easy-credit solicitations it
sowed.”14
“This
shadowy retail tactic—called a stocklift or buyback [paying retailers to
take competitors’ goods off a chain’s shelves]—is spreading. Makers of
everything from party napkins to bicycle chains are lifting truckloads
of competitors’ products everywhere from Kmarts to Revco drugstores.…
‘Buybacks are a necessary evil in gaining market share,’ says Michael
Brooks…. Companies are generally reluctant to discuss stocklifting. When
pressed, they frequently point fingers at one
another.”15
“Exxon’s
Restructuring in the Past Is Blamed For Recent Accidents …‘Today the
system is overworked and undermanned,’ contends William Randol, a former
Exxon employee who now is a Wall Street oil analyst…. Then there was the
March 24 wreck of the Exxon Valdez, whose captain is accused of drinking
on the job. That debacle, dumping some 240,000 barrels of crude into
pristine Alaskan waters, has so far cost almost $3 billion to clean
up.”16
“In
fact, lending to the little guy—via credit cards, home-equity lines,
on-the-spot furniture loans and other installment plans—has become far
more profitable than nearly any other banking activity.… Still, it is
clear that these lenders’ profits depend, at least in part, on the
ignorance of their customers, who care more about the size of monthly
payments than interest rates.”17
“Alyeska
Record Shows How Big Oil Neglected Alaskan Environment …Over the years,
Alyeska has gradually and quietly scrapped many safeguards and never
even built others that it told Congress it planned.… ‘Based on my
experience with Alyeska,’ says James Woodie, who has been both Coast
Guard commander for the port of Valdez and an Alyeska marine
superintendent, ‘the only surprise is that disaster didn’t strike
sooner.’”18
These
brief examples were selected because they represent what has happened, or
is happening, within entire industries or segments of our society: savings
and loan, dairy and supermarket, life insurance, financial securities,
mutual funds, health maintenance, CEO compensation, consumer credit,
retail sales, oil production, and the environment. Some were recent and
some were classics in our corporate history, but all illustrate the
diverse and pervasive nature of corporate-inspired
disasters.
An
entire book, or encyclopedia, could consist of a listing of individual
corporate disasters that resulted from incredible ambition, greed,
incompetence, fraud, and outright thievery well beyond anything we find in
government. The following is a minuscule sample of what could be
presented:
A
railroad merger that caused “one of the largest railroad-service
breakdowns in history,” which “forced hundreds of…customers—from
chemical suppliers to grain sellers—to curtail production, lose sales or
pay for other means of transportation, with a total cost to the nation’s
economy of an estimated $1 billion so far.”19
Four
months after the above news report, a pair of University of North Texas
economists estimated that this same merger had cost U.S. companies $2
billion.20
When
an investment bank bought a major corporation, it “drew off millions,
loaded [the corporation] with debt, then quietly bowed out.”
The corporate stock traded as low as 33 cents on the dollar, and a
series of layoffs cost thousands of workers their jobs. The investment
bank made more than $120 million in fees and another $56 million in a
special dividend.21
Five
companies and “numerous executives” pleaded guilty to roles in a
price-fixing cartel.22
A
major drug chain encouraged its pharmacists “to tack 50 cents or more
onto the price of each bottle of pain pills, antibiotics or other
treatment purchased with a no-refill prescription.”23
“Even
for Wall Street, the greedy excess was shocking,” when a computer
company took an aftertax charge of $675 million to pay its CEO and two
other executives at the company. Before the charge, the company earned
$194.2 million; after the charge, it lost $480.8 million.24
“In
one of the largest legal settlements involving a Big Five accounting
firm, [a major accounting firm] agreed to pay $185 million to settle
claims it committed fraud and gave incompetent advice in the
bankruptcy-court reorganization of [another
corporation].”25
A
medical equipment manufacturing unit “evidently marked cracked [heart
valve] parts as repaired when they hadn’t been.… Interviews with
former…workers and examination of internal… documents indicate that
manufacturing records for many valves were falsified. Critical work on
these valves—work recorded as having been done—apparently never
was.”26
“Today,
less than three years after the merger was announced, [the company]
itself is in need of therapy. Its market value has plunged by more than
$1 billion, to less than $750 million…and continues to post big losses.…
This is a lesson in shoddy corporate governance and how it can really
infect an entire organization.”27
“In
March, [the company] and its top two executives pleaded guilty to
defrauding some 10,000 customers by puffing up the value of their homes
with misleading appraisals.… ‘The fraud permeated the company from top
to bottom,’ says Ross M. Gaffney, head of the FBI’s Miami white-collar
crime unit. ‘It was not just a few sales guys defrauding
people.’”28
A
mining company’s stock surged, split 2-for-1 and hit $18 in 1987. “But
then the mine leaked cyanide into Colorado’s rivers and streams. [The
company] abandoned the mine in 1992, leaving the Environmental
Protection Agency to repair the toxic damage. The estimated cleanup
bill: $148 million.”29
“The
fall of [company] is a cautionary tale of incompetence and greed. It
demonstrates how directors and managers with the best of credentials,
and their high-powered advisers, can’t always be counted on to guard the
interests of shareholders.”30
“Prompted
by a growing number of consumer complaints, the [California Department
of Consumer Affairs] conducted a yearlong undercover investigation of
billing practices at 33 [auto repair] centers from Los Angeles to
Sacramento. It found that its agents were overcharged nearly 90% of the
time, by an average of $223. The department said [the company] pressured
repairmen to over-charge by setting punitive sales
quotas.”31
“A
state court judge in Boise, Idaho, upheld a $9.5 million
punitive-damages award against [automobile insurance company], saying
the insurer knew its refusal to pay a woman’s medical claim was based at
least partly on a ‘completely bogus’ outside medical review…. ‘All of
the insurance companies in the country are selling the concept of
independent medical reviews, and some may be frauds,’ added Eugene
Anderson.”32
Federal
prosecutors say companies conspired “to rig prices and squelch
competition in the international market for graphite electrodes, an
essential component in electric-arc furnaces used to produce
steel.”33
“The
State’s top insurance official, Neil D. Levin, described a company…out
of control: Its financial reports couldn’t be trusted, its reserves
against future medical claims were inadequate, internal financial
controls were seriously deficient and management lacked the mettle
needed to turn things
around.”34
The
Tip of the Iceberg
Note
that these examples represent only a small fraction of similar reports
that regularly appear in The Wall
Street Journal, Forbes, Fortune, Barron’s, and Business Week. Although they paint
a dismal picture of the behaviors of many persons in the business world,
their significance probably doesn’t come close to the day-to-day
incompetence, fraud, and illegal behaviors that remain unreported—hidden
from public view.
Many
articles in these publications stress the effects of business behaviors on
investors; otherwise they probably wouldn’t be reported. Barron’s, Forbes, and Fortune, especially, seem to go out of their way not
to cover business events that negatively affect workers, consumers, the
environment, or the public at large. While The Wall Street Journal and Business Week are more
comprehensive in their coverage of news events, even they don’t deal with
much of the local business incompetence and dishonesty that are reported
in daily newspapers across the country.
Such
reports provide only an inkling of the billions upon billions of dollars
that the owners and managers of America’s businesses are extracting from
our economy—with absolutely no regard for their workers, the general
public, and often with no regard for their own investors. To put this in
perspective, note that the FBI estimates that burglary and robbery cost
the United States $3.8 billion a year. Certainly, that’s a lot of money,
but a relatively small figure compared to the costs of some of the more
egregious examples you just read about.
Also
note that these corporate misdeeds are not exclusive to little-known or
fly-by-night companies. Many are respected blue chip companies that are
operating in the relatively unregulated environment that conservatives
have created for our country.
In
other words, although the documented evidence of general incompetence and
malfeasance of corporate executives is enormous, it doesn’t come close to
describing how massive it really is.
So,
when conservatives claim that government is bad and that we should let
corporations freely run everything—check out the pages of their own
financial publications. As you read, think to yourself: “Would I want
these egomaniacs to be in charge of the Post Office, the Internal Revenue
Service, or our National Park Service?”
“Would
I want to turn over the responsibility for the environment, our health
care system, food handling, the testing of drugs, and so on—to these
corporate bureaucrats?”
And,
while we’re on this subject, just what have our newly discovered corporate
virtues of greed and materialism already done for worker safety, health
care, drug safety, and the costs of auto repair, homes, insurance, medical
prescriptions, banking, and on and on?
The
excessive enrichment, incompetence and dishonesty of top executives always
comes out of the hides of workers and the public in the form of lower
moral standards, higher prices, inconvenience, corporate bankruptcy or
significant financial loss, loss of jobs, low wages, poorer working
conditions—and, above all, loss of what should have been an ethical
business competition in the free marketplace.
This
is not to say that corporate disasters are always caused by incompetence
or dishonesty. Sometimes unpredictable events or simple bad luck play a
role. However, the same is true of government. Yet, count on it, any time
the government makes a mistake, conservative demagogues will rise in mass
to politicize the situation.
Unmanaged
competition can create conditions in which the lowest moral standards of
just one major corporation can become the norm for an entire industry. If
a single corporation reduces its costs by using child labor—others can’t
be competitive unless they also use child labor. If another company’s
sales persons use deceptive-but-legal sales practices—others will lose
market share unless they also use deceptive
practices.
From
the abuse of workers to the destruction of the environment—what’s legal
has become the minimum standard for corporate behavior. Even then, some of
our most prestigious corporations have proved that they are willing to
risk violating the law if it will benefit the bottom
line.
Probably
the most significant difference between corporate and government
bureaucrats is that government bureaucrats have the welfare of the general
public as their charter. Although—like their corporate brethren—some are
incompetent, dishonest, or unlucky, they have as their organizational goal
the betterment of society.
The
charter of corporate bureaucrats, on the other hand, is to do anything to
maximize profit, even if the net result is harm to workers, their
communities, or the society at large.
That’s
why the federal government must
set, and enforce, sensible minimum regulations for business
practices.