Posts Tagged ‘corporations’

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Special mention

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AETNA

The Affordable Care Act, aka Obamacare, was always a three-legged stool tottering on two fragile legs: healthy competition among healthcare insurance companies and the ability of each insurance company to make healthy profits.

In its $37 billion bid to take over Humana, Aetna (one of the five largest insurance companies in the United States) decided to lower the level of competition. And in order to safeguard both its profits (which increased 38 percent in the final quarter of 2015) and its takeover of Humana (in a game of chicken with the Justice Department), Aetna has announced its decision to “reduce its individual public exchange participation from 778 to 242 counties for the 2017 plan year.”

Aetna’s basic complaint (in addition to its beef with the administration over the Humana merger) is that too many Americans suffer from poor health and thus need too much health care. Or, in its own language:

Providing affordable, high-quality health care options to consumers is not possible without a balanced risk pool. Fifty-five percent of our individual on-exchange membership is new in 2016, and in the second quarter we saw individuals in need of high-cost care represent an even larger share of our on-exchange population. This population dynamic, coupled with the current inadequate risk adjustment mechanism, results in substantial upward pressure on premiums and creates significant sustainability concerns.

Clearly, Aetna (not to mention the other healthcare insurance companies) wants both healthy people (who are much cheaper to insure) and healthy profits (which will increase if it is allowed to acquire Humana).

The problem of Obamacare—as against a single-payer plan or, even more, a single-provider plan—is it can’t guarantee both. And when push comes to shove, for companies like Aetna, the decision to continue healthy profits wins out over coverage of unhealthy people.

fredgraph

We’re been through this before (e.g., here and here). But no matter. Let’s take it up again.

Even as the overwhelming evidence is U.S. corporate taxes have been decreasing and workers’ wages have also been falling (both, in the chart at top of the post, as a percentage of gross domestic income), there are still those who try to convince us corporate taxes should be lowered still further—and workers are the ones who will benefit.

Really?!

I know. It goes against all logic (and, as it turns out, the empirical evidence). But, according to Kevin Hassett and Aparna Mathur of the American Enterprise Institute, lowering corporate taxes is the only real cure for wage stagnation among American workers.

They’re right about wage stagnation (although they miss the declining share of national income going to workers). But lowering corporate taxes is not going to solve that problem. Raising workers’ wages will.

I wrote above that it was against all logic. Actually, it is consistent with the logic of neoclassical economics, which goes as follows: capital moves to or stays in lower tax zones (states or countries), which boosts the productivity of workers (who are not as mobile), which in turn leads to higher wages (since the presumption is workers are paid according to their productivity). And, on the reverse side, if corporate taxes go up (as some, like me, have argued they should), corporations will shift the burden of the tax to workers, who will then be paid less.

The holes in the logic are, to use the current vernacular, HUUGE. Where corporations decide to realize their profits may shift according to tax rates but that doesn’t mean capital itself moves to those zones. Even if capital moves, it can often replace workers (or leading to the hiring of other, lower-waged workers). And, even if workers become more productive, they’re not necessarily paid more.

And then there’s the evidence—or lack thereof. As Kimberly Clausing explains, “a review of the prior empirical work in this area fails to reveal persuasive empirical evidence of adverse effects on labor.” And that’s because of globalization itself:

First, if corporations are mere intermediaries in global capital markets in which a wide assortment of investors with different tax treatments invest, tax policy changes could affect the ownership and financing patterns of assets more than they affect the aggregate level of investment in different countries. Second, since multinational firms have become increasingly adept at separating the reporting of income from the true location of the underlying economic activities, international tax avoidance itself comes with a silver lining. Mobile firms move profits without needing to substantially alter the underlying investments, whereas immobile firms do not respond like the open-economy actors of modern corporate tax incidence models. In both cases, workers in high-tax countries are relatively insulated from adverse wage effects due to capital reallocation toward low-tax countries.

So, if the logic is faulty and the empirical evidence questionable, what’s left? Merely one more attempt to lower the tax burden on corporations—and thus put private profits even more out of the reach of public claims on those profits.

I keep finding myself reminding relatives and friends that, when it comes to the pronouncements of mainstream economists (like Greg Mankiw) and presidential candidates (of which we’re now down to two, at least in terms of major political parties), there’s another America out there, which many of us only dimly view.

But every once in a while, we get a sense of what is going on, often through good reporting (in addition to, as Bill Moyers suggests, short stories, novels, and plays by working-class writers).

One example is the remarkable—and bone-chilling—article by Shane Bauer for Mother Jones. Back in 2014, Bauer went undercover at a private, for-private prison in Louisiana, working as a guard. Conditions at the prison were extraordinarily bad, for inmates and guards alike. Four months later he was found out, when a Mother Jones videographer was arrested while gathering footage nearby. The resulting essay is 35,000-word opus accompanied by a six-part video series (of which the first is at the top of this post). Basically, it’s a story of how the corporate search for profits led to a lack of resources in the cell blocks Bauer patrolled, while low wages created a constant turnover among employees. Inmates lived in overcrowded squalor and were routinely denied health care for serious psychological and physical sickness. And prison officials and guards resorted to the use of arbitrary force in the absence of of proper staffing and facilities.

Here’s a short excerpt (from chapter 3):

The walk is eerily quiet. Crows caw, fog hangs low over the basketball courts. The prison is locked down. Programs have been canceled. With the exception of kitchen workers, none of the inmates can leave their dorms. Usually, lockdowns occur when there are major disturbances, but today, with some officers out for the holidays, guards say there just aren’t enough people to run the prison. (CCA says Winn was never put on lockdown due to staffing shortages.) The unit manager tells me to shadow one of the two floor officers, a burly white Marine veteran. His name is Jefferson, and as we walk the floor an inmate asks him what the lockdown is about. “You know half of the fucking people don’t want to work here,” Jefferson tells him. “We so short-staffed and shit, so most of the gates ain’t got officers.” He sighs dramatically. (CCA claims to have “no knowledge” of gates going unmanned at Winn.)

“It’s messed up,” the prisoner says.

“Man, it’s so fucked up it’s pitiful,” Jefferson replies. “The first thing the warden asked me [was] what would boost morale around here. The first two words out of my mouth: pay raise.” He takes a gulp of coffee from his travel mug.

“They do need to give y’all a pay raise,” the prisoner says.

It’s a story, in other words, of contemporary America—not just of private prisons (although it is an indictment of the growth of for-private incarceration), but also of the frustrations associated with the military-like occupation of U.S. streets (with an understanding of what that means for both the occupiers and the occupied).

The second article appeared in Tuesday’s New York Times, on the uneven recovery in Las Vegas, the epicenter of the housing crisis. The story is very different, about middle-class people who couldn’t be more different from inmates and prison guards, who are suffering from being underwater on their mortgages and struggling to negotiate a sale to avoid foreclosure.

But I was struck by two similarities—of people imprisoned in their homes (because they can’t get out from under their high mortgage payments) and of the violence (real or perceived) of their once-prosperous housing developments. Consider the story of Michael Hutchings who, with his wife and their children, still lives in their 10-year-old dream home.

A Marine veteran, Mr. Hutchings is now a block captain for the neighborhood association near Sunrise Mountain, 10 miles east of the Strip. Like many residents of the scattered American cities where violent crime is rising, he got so concerned that he installed iron gates and 12 security cameras to watch over his 1-year-old son, Maxim, and 3-year-old daughter, Natalia, as they play. When he takes them to the park, he goes armed.

The inmates and guards of the Winn Correctional Center and the Las Vegas homeowners who still have not experienced a recovery from the crash of 2007-08 are, in their different ways, prisoners of the American Dream.

fredgraph (2)

One thing is clear in the current conjuncture: corporate investment in capital equipment is declining, and it’s dragging overall economic growth and labor productivity down with it.

In the second quarter of 2016, the U.S. economy grew at an annual rate of only 1.2 percent, which caught business commentators and Wall Street analysts by surprise. They expected something closer to 2.6 percent. And while consumer spending continued to increase (at at rate of 4.2 percent in the second quarter), business investment fell (at a 2.2 percent pace), and companies ran down inventories for the fifth consecutive quarter.

So,  what’s going on?

Given the centrality of business investment to capitalist growth, you’d think the business press would have a cogent, carefully elaborated analysis of why it’s declining during the current recovery.

Well, they don’t. All they can do is invoke their usual hand-waving gesture, “political uncertainty,” as the underlying cause. Political uncertainty is blamed for the slowdown in mergers and acquisitions and for sputtering business investment.

Most CEOs will be risk-averse and conservative with their balance sheets until they see signs of a growth rebound, even though they’re sitting atop piles of cash and the cost of capital is at all-time lows. They will also hold off investing until they have a better sense of the future tax and regulatory burdens they are likely to face next year.

Yes, there is a high degree of political uncertainty (in the United States, the United Kingdom, and elsewhere). But that doesn’t explain corporate behavior, especially their investment decisions.

One can just as easily reverse the argument: Political realities have to respond to corporate decisions (especially when growth is slowing). And the slowing of economic growth itself is a consequence of the corporate decisions to curtail private nonresidential fixed investment.

The alternative explanation is that corporations are responding quite certainly to their own market signals. First, they’re choosing to substitute labor for capital, given depressed wage growth around the globe.

“Instead of buying an expensive piece of machinery, businesses are hiring really cheap workers they can fire whenever they want,” said Megan Greene, chief economist at Manulife Asset Management.

And they’re reacting to the decline in their own index of success and failure, the corporate profit rate (which, as one can see in the chart of the top of the post, has been falling during the last two years).

m&a

It’s not that corporations are doing nothing: they are engaged in massive mergers and acquisitions (just not at the same pace of 2015) and they’re using the profits they’ve accumulated since the recovery began to increase dividends, buy back stock, and reward their top managers.

So, is capital on strike? The Wall Street Journal suggests it is: “The investment plunge is a signal that business is on strike.”

And, given the way the economy is currently organized, the rest of us are forced to endure the consequences of capital’s decision to do whatever is necessary to restore its profitability.

greed

It is interesting that, on the surface (but, as I explain below, only on the surface), neither major political party on either side of the pond seems to be making the claim they’re the “party of business.” Not the Conservative and Labor Parties in the United Kingdom, or the Republican and Democratic Parties in the United States.

Here’s Chris Dillow on the situation across the pond:

What I mean is that back then, the Tories were emphatically on the side of business, exemplified by Thatcher’s union-bashing and talk of “management’s right to manage”. In the 90s Labour – first under John Smith and then under Blair – devoted immense effort to trying to get business onside via the prawn cocktail offensive.

Elections then were won and lost by chasing the business vote.

Things have changed. In taking the UK out of the EU against the wishes of most major companies, the Tories can no longer claim to be the party of business. And Theresa May’s talk of getting “tough on irresponsible behaviour in big business” and of “unscrupulous bosses” suggests little desire to become so.

You might think this presents Labour with an open goal. It would be easy to present policies such as a national investment bank, more infrastructure spending and anti-austerity as being pro-business.

But there seems little desire to do this.

Something similar is going on in the United States. Neither major party political candidates embraced business during the nominating campaigns or their conventions.

In fact, in his acceptance speech, Donald Trump lambasted big business for supporting his opponent:

Big business, elite media and major donors are lining up behind the campaign of my opponent because they know she will keep our rigged system in place. They are throwing money at her because they have total control over everything she does. She is their puppet, and they pull the strings.

While, last Thursday, Hillary Clinton vowed to overturn Citizens United and challenge key corporate decisions:

That’s why we need to appoint Supreme Court justices who will get money out of politics and expand voting rights, not restrict them. And if necessary we’ll pass a constitutional amendment to overturn Citizens United!

I believe American corporations that have gotten so much from our country should be just as patriotic in return. Many of them are. But too many aren’t. It’s wrong to take tax breaks with one hand and give out pink slips with the other.

Both parties, it seems, are trying to court voters who are fed up with business as usual.

But, as I see it, that’s only what’s happening on the surface. None of the four parties is making a claim to be the “party of business” because, below the surface, all four are the parties of business.

What I mean by that is that the common sense of all four parties is the promise to promote faster economic growth and create more jobs and, in the absence of alternatives (such as direct government employment or worker-owned enterprises), that means creating a business-friendly economic and social environment.

Now, the parties may differ about how to create such an environment (e.g., in the United States, lowering individual and corporate income taxes versus using nonprofit foundation contacts to arrange business investments). But they agree on the goal: it’s up to the government to create the conditions for private corporations to use their profits to foster economic growth and job creation.

The result is that, in the current climate—with flat or falling incomes and grotesque levels of inequality—none of the parties wants to openly declare itself the “party of business.” But, they don’t have to, because they are already—all four of them—the parties of business.

Trotman

Bob Trotman, “Business as Usual” (2009)

Is anyone else struck by the contradiction between what is actually going on in the world and the fact that, for those in charge, it’s just business as usual?

Consider, for example, the decision to drop the charges against the three remaining officers facing trial in connection with the April 2015 death in policy custody of Freddie Gray. In fact, according to Mapping Police Violence, “only 10 of the 102 cases in 2015 where an unarmed black person was killed by police resulted in officer(s) being charged with a crime, and only 2 of these deaths (Matthew Ajibade and Eric Harris) resulted in convictions of officers involved.” Charles Blow, for one, is appropriately “incandescent with rage”:

Bill Clinton, who I found more beguiling than many, apparently, took the stage and shifted the burden of dismantling oppression from the shoulders of the oppressors to the shoulders of the oppressed, saying: “If you’re a young African-American disillusioned and afraid, we saw in Dallas how great our police officers can be. Help us build a future where nobody is afraid to walk outside, including the people that wear blue to protect our future.”

How are the people without the power, the people against whom the power is being exercised, supposed to alter the perversion of that power if the abusers are not held accountable?

I am exhausted. I am repulsed. I am over all the circular dialogue. But I don’t know precisely where that leaves me other than in a hurt and festering place. America is edging ever closer to telling people like me that the eye of justice isn’t blind but jaundiced, and I say back to America, that is incredibly dangerous.

And during that same convention, as broad swathes of Americans continue to suffer from the Wall Street-engineered crash of 2007-08 (not just, as Barack Obama put it, “pockets of America that never recovered from factory closures”), hordes of financial industry executives (as well as drug companies, health insurers, and others) descended on Philadelphia.

While protesters marched in the streets and blocked traffic, Democratic donors congregated in a few reserved hotels and shuttled between private receptions with A-list elected officials. If the talk onstage at the Wells Fargo Center was about reducing inequality and breaking down barriers, downtown Philadelphia evoked the world as it still often is: a stratified society with privilege and access determined by wealth.

In fact, as Thomas Frank warns, Donald Trump might end up stealing the voters Hillary Clinton and the Democratic Party are taking for granted.

Let’s see: trade agreements, outreach to hawks, “bipartisanship”, Wall Street. All that’s missing is a “Grand Bargain” otherwise it’s the exact same game plan as last time, and the time before that, and the time before that. Democrats seem to be endlessly beguiled by the prospect of campaign of national unity, a coming-together of all the quality people and all the affluent people and all the right-thinking, credentialed, high-achieving people. The middle class is crumbling, the country is seething with anger, and Hillary Clinton wants to chair a meeting of the executive committee of the righteous.

When Democrats sold out their own rank and file in the past it constituted betrayal, but at least it sometimes got them elected. Specifically, the strategy succeeded back in the 1990s when Republicans were market purists and working people truly had “nowhere else to go”. As our modern Clintonists of 2016 move instinctively to dismiss the concerns of working people, however, they should keep this in mind: those people may have finally found somewhere else to go.

Meanwhile, the European Union is disintegrating and the euro zone continues to impose Draconian austerity measures. As Joseph Stiglitz explains in a recent interview, banks and corporate interests generally have been the only beneficiaries.

Q. In your telling, Germany has imposed austerity across Europe out of faith in a discredited economic idea, the notion that if policy makers concentrate solely on preventing budget deficits and inflation, the markets can be counted on to deliver prosperity. A lot of your book is devoted to demolishing this idea. Does the German elite still really believe in this philosophy, or is something else at play?

A. I’ve visited Germany often, and I’m shocked about how strong the belief is in this view that has been totally discredited elsewhere.

But the policies are mixed together with interests. When the Greek crisis broke out in 2010, what was really at risk were German and to some extent French banks. And there was an enormous bailout that was called a bailout of Greece but was really a bailout of German and French banks. Most of the money went to Greece and then right away went back to Germany and France. . .

Q. You argue that some European leaders secretly welcomed mass unemployment as a means of adjusting to the crisis because this was the only way they could see to spur investment — lowering wages. The strictures of the euro took other options off the table: Crisis countries could not let their currency fall or lower interest rates or expand government spending. Was unemployment really embraced as a fix?

A. They wanted to break the back of workers. Their view was that workers needed to accept a wage cut and we are going to change the bargaining rules to make it more difficult for them to resist. And if we need to add on a little dose of unemployment, well, that’s unfortunate.

Q. Doesn’t that goal predate the crisis?

A. It’s very clear that the euro was a neo-liberal project in its construction. Employers like low wages. They have broken the back of the unions in many of the countries of Europe. They would view that as a great achievement.

However ironically, it has fallen to the Boston Consulting Group [ht: sm] to sound the alarm about attempting to conduct business as usual:

Societies in the United States and Europe are being fundamentally challenged in ways we have not seen for decades—with nationalistic rhetoric and agendas from the far right and a deep distrust of business, globalization, and technology from the far left. Many worry that such a polarization of public opinion and policy making could introduce new risks and uncertainties that would deter investment (which is already far too low, judging by current interest rates) and undermine the basis for future prosperity.

Why this polarization? While there are many causes, and they vary from country to country, it reflects in large part widespread and growing dissatisfaction with entrenched economic and social inequality and greater personal uncertainty in a fast-changing global economy. It also reflects people’s mistrust of political and corporate elites, who are seen as the architects of this state of affairs. Economic inequality within our societies is a byproduct of the way we have managed the past three and a half decades of global economic integration. At the same time, technology—in particular, recent advances in robotics, machine intelligence, and distributed ledgers (blockchain)—could replace human labor in many areas, further compounding dislocation, inequality, and discontent.

Brexit was a watershed. The British vote to leave the European Union was motivated in large part by frustration with economic stagnation and inequality, and it has created fertile ground for nationalistic, anti-immigrant sentiment. The English West Midlands, the region with highest “leave” vote, has experienced stagnating median household incomes for nearly two decades.

The division between those who have captured the vast majority of the benefits from global integration and technological progress and those who haven’t runs between major cities and smaller communities, between young and old, and between people with different levels of education. And it’s not just Great Britain—70% of the US workforce has experienced no real wage increase in the past four decades. Similar patterns can be observed in Canada, Germany, and other European countries. Wealth concentration has also increased globally, with around 1% of people controlling 50% of the world’s assets.