Trade, Yes. Bad Trade Deals, No!

by Stan Sorscher

My job depends on trade. I’m 100 percent in favor of trade.

By the same token, we can have good trade policies that raise living standards, or bad trade policies that deindustrialize our economy and distort social and political power relationships.

What people hear, when you say “trade deal.”

Two cases in point: the “Trans-Pacific Partnership” (TPP) and the “Trans-Atlantic Trade and Investment Partnership” (TTIP). Both are variations on NAFTA, a vigorously oversold agreement with Canada and Mexico.

Journalist William Greider explains the origin and intent of one particularly troubling feature of the NAFTA model. NAFTA’s legal process helps global companies enforce certain provisions in the agreement. In full jargon, it is called “investor-state dispute settlement,” or ISDS.

We understand how the US Constitution establishes our legal framework. The Constitution and Bill of Rights were specifically written to protect individuals from tyranny, and balance public interests with private interests. Our courts settle legal disputes by applying Constitutional principles.

NAFTA, as a legal framework, creates a parallel structure at the global level. However, NAFTA and similar deals have a very different design goal. They prioritize corporate investor rights, while pushing public interests to the side.

As the cynical catchphrase goes, under NAFTA, governments can do “whatever they want,” to protect the environment, labor rights, human rights, public health, prudent financial regulation, and internet freedom (for instance), as long as they pay corporations for any lost profit — including potential profit for activities that have not even occurred, yet!
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Free Riding On The Labor Movement

by Amy B. Dean 

Amy B. Dean

Amy B. Dean

We all benefit from what organized labor has accomplished .

American communities depend on collective action. Fire and police departments are great examples: They can function successfully because all of us pay in — not only those whose houses have burned down or been burglarized. 

These institutions work on the principle that the most effective way to protect individual interests is for all to contribute a little for the common benefit. When someone doesn’t contribute, everyone suffers. If someone didn’t want to chip in for firefighters or police officers but still expected the benefits of these collective protections, they would be considered freeloaders, and their behavior would be rightly vilified.

Yet when it comes to the labor movement, free-riding is exactly the response that conservatives are encouraging.

Throughout the country, Republicans have been pushing to expand “right to work” laws, which force unions to represent employees who do not pay to receive these benefits. It’s as if people were allowed to avoid paying in for firefighters yet the fire department were still required to serve them. Continue reading

A Labor Day Lesson on How Corporations Use Profits

by Harold Meyerson

meyersonharold2 

In corporations, it’s owner-take-all

Labor Day — that mocking reminder that this nation once honored workers — is upon us again, posing the nagging question of why the economy ceased to reward work. Was globalization the culprit? Technological change? Anyone seeking a more fundamental answer should pick up the September issue of the Harvard Business Review and check out William Lazonick’s seminal essay on U.S. corporations, “Profits Without Prosperity.”

Like Thomas Piketty, Lazonick, a professor at the University of Massachusetts at Lowell, is that rare economist who actually performs empirical research. What he has uncovered is a shift in corporate conduct that transformed the U.S. economy — for the worse. From the end of World War II through the late 1970s, he writes, major U.S. corporations retained most of their earnings and reinvested them in business expansions, new or improved technologies, worker training and pay increases. Beginning in the early ’80s, however, they have devoted a steadily higher share of their profits to shareholders.

How high? Lazonick looked at the 449 companies listed every year on the S&P 500 from 2003 to 2012. He found that they devoted 54 percent of their net earnings to buying back their stock on the open market — thereby reducing the number of outstanding shares, whose values rose accordingly. They devoted another 37 percent of those earnings to dividends. That’s a total of 91 percent of their profits that America’s leading corporations targeted to their shareholders, leaving a scant 9 percent for investments, research and development, expansions, cash reserves or, God forbid, raises.

As late as 1981, corporations directed a little less than half their profits to shareholders, but the shareholders’ share began rising in 1982, when Ronald Reagan’s Securities and Exchange Commission removed any limits on corporations’ ability to repurchase their own stock and when employers — emboldened by Reagan’s destruction of the federal air traffic controllers’ union — began large-scale union-busting. Buybacks really came into their own during the 1990s, when the pay of corporations’ chief executives became linked to the rise in the value of their company’s shares. From 2003 through 2012, the chief executives of the 10 companies that repurchased the most stock (totaling $859 billion in aggregate) received 58 percent of their pay in stock options or stock awards. For a CEO, getting your company to use its earnings to buy back its shares might reduce its capacity to research or expand, but it’s a sure-fire way to boost your own pay.

Exxon Mobil, for instance, devoted 83 percent of its net income to stock repurchases and dividends, and 73 percent of its CEO pay was stock-based. Cisco Systems devoted 121 percent of its net income to repurchases and dividends, and 92 percent of its CEO pay was stock-based.

About that 121 percent: With companies lavishing virtually all their net income on shareholders and executives, the way many of them cover their actual business expenses — their R&D, their expansion — is by taking on debt through the sale of corporate bonds. A number of companies, however — most prominently, IBM — borrow specifically to increase their payout to shareholders. And IBM is not alone. Friday’s Wall Street Journal reported that U.S. companies are currently incurring record levels of debt, much of which, the Journal noted, “is being used to refinance existing debt, being sent back to shareholders as dividend payments and share buybacks, or banked in the corporate treasury as executives consider how to potentially deploy funds as the economy expands.” Many of the companies that have spent the most on buybacks, Lazonick demonstrates, have also received taxpayer money to fund research they could otherwise afford to perform themselves.

What Lazonick has uncovered is the present-day American validation of Piketty’s central thesis that the rate of return on investment generally exceeds the rate of economic growth. Indeed, Lazonick has documented that wealth in the United States today comes chiefly from retarding businesses’ ability to invest in growth-engendering activity. The purpose of the modern U.S. corporation is to reward large investors and top executives with income that once was spent on expansion, research, training and employees. To restore a more socially beneficial purpose, Lazonick proposes scrapping the SEC rule that permitted rampant stock repurchases and requiring corporations to have employee and public representatives on their boards.

Lazonick’s article does nothing less than decode the Rosetta Stone of America’s economic decline. The reason only luxury and dollar stores are thriving, the reason German companies outcompete ours, the redistribution of income from workers to investors – it’s all here, in Lazonick’s numbers.

The lesson for Labor Day 2014 couldn’t be plainer: Unless we compel changes such as those Lazonick suggests to our model of capitalism, ours will remain a country for investors only, where work is a sucker’s game.

This article appeared on the Opinions Page of the August 26 issue of the Washington Post and is reposted with the permission of the author. Harold Meyerson is a Vice Chair of DSA. 

Why the Democrats Need to Take Sides in America’s Class–an excerpt

Harold Meyerson has an informative and insightful long-form essay up on The American Prospect.  It is, we think, an important analysis which should be widely read. The theme is “Straddling class divisions so last century. There’s a new base in town, and it includes a lot of people who used to be middle-class but aren’t anymore.” It is too long for a Talking Union post, so we present this excerpt.–Talking Union

by Harold Meyerson

Harold Meyerson

Harold Meyerson

This spring, a prominent Democratic pollster sent a memo to party leaders and Democratic elected officials advising them to speak and think differently. The nation’s economy had deteriorated so drastically, he cautioned, that they needed to abandon their references to the “middle class,” substituting for those hallowed words the phrase “working people.” “In today’s harsh economic reality,” he wrote, “many voters no longer identify as middle class.”

How many voters? In 2008, a Pew poll asked Americans to identify themselves by class. Fifty-three percent said they were middle-class; 25 percent said lower-class. When Pew asked the same question this January, it found that the number who’d called themselves middle-class had shrunk to 44 percent, while those who said they were of the lower class had grown from 25 percent to 40 percent.

Americans’ assessment of their place in the nation’s new economic order is depressingly accurate. Though most of the jobs lost in the 2007–2009 recession were in middle-income industries, the lion’s share of the jobs created in the half-decade since have been in such low-paying sectors as retail and restaurants. Median household income has declined in every year of the recovery. The share of the nation’s income going to wages and salaries, which for decades held steady at two-thirds, has in recent years descended to 58 percent—the lowest level since the government began its measurements. Continue reading

Atlantic City Workers Stunned As Casino Economy Begins to Crash

by Bruce Vail

Facing stiff competition from other states who have legalized gambling, Atlantic City casinos such as Trump Plaza (pictured) plan to close, laying off thousands of workers.   Doug Kerr / / Creative Commons

Facing stiff competition from other states who have legalized gambling, Atlantic City casinos such as Trump Plaza (pictured) plan to close, laying off thousands of workers. Doug Kerr / / Creative Commons

More than 1,000 workers at Atlantic City’s Trump Plaza received notices July 14 that the hotel-casino planned to close its doors in just 65 days, eliminating all of their jobs. The news was not unexpected, though that fact doesn’t make it any easier to handle for the workers whose livelihoods depend on a local gambling economy in danger of an historic crash.

“It’s not surprising. A lot of people knew that eventually a shakeout would come,” says James Karmel, an author, college professor and consultant who has studied Atlantic City closely. The city’s gambling industry “is just not sustainable in its current form,” he says, mainly because newer casinos in Pennsylvania, New York, Maryland and elsewhere are luring New Jersey’s gambling customers away. Total annual gaming revenue has crashed, Karmel says, from an all-time peak of $5.2 billion in 2006 to $2.9 billion last year.

Indeed, the Trump Plaza is not the first local casino to close due to the crash, nor is it expected to be the last. Early this year, the Atlantic Club Casino Hotel closed, resulting in the loss of 1,600 jobs. Caesars Entertainment Corporation-owned Showboat Atlantic City has already announced that it expects to close Aug. 31, eliminating the jobs of another 2,100 workers. And the Revel Casino Hotel, currently employing about 3,000 workers, is currently in bankruptcy court, and is said to be in danger of closing before the end of the year.

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Leveling the Playing Field for Worker Cooperatives

by Abby Scher

NYCworkercoop_reportA quiet revolution is rumbling through New York’s municipal offices as they retool to support the creation of worker cooperatives as a way to fight poverty. Spurred by the powerful example of immigrant-owned cleaning cooperatives and the longstanding example of Cooperative Home Care Associates in the Bronx – the largest worker cooperative in the country – progressive city council members are allying with a new network of worker cooperatives, community based organizations that incubated immigrant-owned co-ops and the influential Federation of Protestant Welfare Agencies to figure out how the city can encourage this still-tiny economic sector. Once fully in place, New York City will be a national leader in providing municipal support for these democratic enterprises.

The pace of change is dizzying. In January, the federation released a short report arguing that worker co-ops help improve traditionally low-wage jobs by channeling the enterprises’ profits directly to their worker members, improving their lives in tangible ways. Then in February, Councilwoman Maria del Carmen Arroyo, chairwoman of the Committee on Community Development, held a hearing which put staff from the city’s Small Business Services and Economic Development Agency in the hot seat about how they were promoting worker cooperatives. In their final budget agreement on June 19th, the mayor agreed to the City Council’s request for $1.2 million for training programs with the aim of incubating a minimum of 234 new jobs, 28 new worker co-ops and help another 20 existing worker cooperatives to grow.

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“People Make Up Our City”: Why Seattle’s $15 Minimum Wage Is a Sign of Things to Come

by Amy B. Dean

Activists at an April demonstration demanding a $15-per-hour minimum wage in Seattle  (15 Now Seattle)

Activists at an April demonstration demanding a $15-per-hour minimum wage in Seattle (15 Now Seattle)

For 100,000 working people in Seattle, a newly passed citywide minimum wage of $15 per hour will mean an increased standard of living – and recognition of their contributions to the local economy. “It’s going to help me and a lot of other people,” said Crystal Thompson, 33, a Dominos Pizza customer service representative who currently earns the city minimum wage of $9.32 per hour. “They [the corporations] have been making money off us. I’ve had the same job for five years and [am] still making minimum wage. I open and close the store. I pretty much run the store and do manager shifts and still get paid minimum wage.”

The basic argument behind these campaigns is that a person working full-time shouldn’t have to live in poverty, a precept that has been popularly accepted.

While Seattle is often associated with technology-driven firms such as Microsoft and Amazon, service workers like Thompson provide a critical backbone for the area economy – a trend that also holds nationally. Over the past 20 years, community and labor organizations have united in a living wage movement to raise the floor for these employees and to make sure that prosperity is widely shared throughout the economy. Even as efforts to increase the minimum wage nationally have encountered resistance in Congress, this movement has made great strides at the local and regional levels.

The Seattle victory – part of the national Fight for 15 drive – represents the latest landmark achievement for living wage advocates. The efforts to secure the win over past months, as well as ongoing efforts to protect it from state-level attacks, hold important lessons for the rest of the country.
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