by Nyegosh Dube
An article in the Wall Street Journal caught my attention recently. Titled “Investment Falls Off a Cliff,” it describes a large-scale cutback in investments by American companies in recent months, which is happening “at the fastest pace since the recession.” The main reasons for this, according to the article, are the uncertainty surrounding the impending fiscal cliff and a reduction in overseas demand, especially from China and the Eurozone countries. While the second reason is a legitimate, objective factor, the first, which is the primary factor, is pretty discretionary, i.e. it is the result of subjectively-based decisions made by CEOs. But clearly, lots of CEOs are making similar decisions in response to the fiscal cliff situation. I mentioned overseas demand, but what about domestic demand? The WSJ gives a clear answer: “The slowdown in capital spending contrasts with a rebound in U.S. consumer spending and confidence, which has returned to a five-year high.” Domestic demand is quite robust, yet investment and hiring are dropping off. What gives?
What we’re seeing is corporate power at work. And these days when corporate power is at work, it means a lot of people remain out of work. A very visible example of corporate power today is the “Fix the Debt” coalition. On a recent NBC Nightly News broadcast, a CEO belonging to the group was quoted as saying there is “uncertainty hanging over the economy because business simply isn’t confident that Washington can govern… until that changes, people like me just aren’t hiring.” When CEOs speak of “uncertainty” and “confidence,” these are often code words signaling that business might hold back on investing and hiring because it hasn’t gotten the goodies it wants from the government in terms of policies and legislation.
Here’s the crux of the matter: CEOs, with their power to hire and lay off, can ensure that unemployment remains high until Washington reaches a deal that meets the conditions set by Corporate America. Some may call this blackmail, and its ultimate victims are American workers. Fix the Debt is lobbying for cuts to Social Security, Medicare and Medicaid benefits along with “pro-growth” tax breaks, especially the elimination of taxes on corporations’ overseas earnings, which would net the coalition’s members a windfall of $134 billion, according to a study recently released by Public Campaign, a watchdog group. The coalition includes a Who’s Who of corporate giants like GE, Microsoft, Goldman Sachs, Boeing, Verizon, Time Warner, Honeywell, and Dow Chemical. Sure, if the US does go over the fiscal cliff, aggregate demand will shrink as higher taxes and spending cuts kick in. But as another recent study points out, corporations are using the fiscal cliff mainly as a pretext to lobby for the same sort of things they’ve been pushing for in previous years.The corporate sector is sitting on piles of cash that it could easily use to increase investment and hiring. This in itself would boost aggregate demand – call it a private sector stimulus. As the two studies confirm, the members of Fix the Debt are definitely not strapped for funds. For starters, they can give their CEOs huge annual compensation packages running into tens of millions of dollars while in many cases not paying a dime in federal taxes and even getting hefty rebates. On top of that, the group has spent nearly $1 billion on lobbying over the last four years – 22 coalition companies have spent more on lobbying than on taxes. The $134 billion annual pay-off they hope to achieve with this lobbying would be enough to pay for 1.9 million elementary school teacher salaries – or 3 million private sector workers earning $20 an hour. And there’s more: the Fix the Debt CEOs calling for cuts to Social Security and Medicare have an average of $9.1 million in their retirement funds. The 54 who take part in their companies’ retirement programs are even better off, with an average of $12 million, which gives them a very comfy $65,000 a month. The average American retiree gets $1237 a month.
The continuing high unemployment rates are, of course, not just the result of a corporate conspiracy. They began with the crash of 2008-2009, which was the product of a volatile, bubble-prone, anti-social system of investment and finance. There was no need for a conspiracy. All that was needed was the “magic of the market,” unbridled greed, a regulatory framework that facilitated greed-driven casino capitalism, and spiraling consumer debt created in order to bridge the gap between stagnant incomes and growing productivity squeezed out of working people by companies. Still, one of the primary reasons unemployment continues to remain high and to drop so slowly is discretionary decisions by corporations exerting their power over the American people and their government.
Let’s face the facts: Major economic decisions in the United States are made by an unelected, unaccountable class of wealthy CEOs, owners, and investors pursuing corporate profits and personal wealth expansion – decisions that determine the allocation of resources, the distribution of income, the rates of growth and employment, price levels, the opening and closing of plants, and a variety of other things. The Fix the Debt coalition is a subset of this group. They wield tremendous power of a public nature, both in terms of business decisions that impact workers and communities and in terms of their influence over the political process. To avoid negative consequences, government economic policies must, to a considerable extent, align with this group’s interests. Corporate financing of election campaigns and lobbying of legislators elected by the people go a long way towards ensuring that this happens. In short, we have an undemocratic economy that warps our democratic political system.
Far more than the debt, we need to fix this unacceptable state of affairs! We can no longer have such a powerful undemocratic force running the economy. While retaining a mostly market-based economic system, we need to begin a transformation that will steadily diminish the stranglehold of this unelected corporate oligarchy over American society. As I’ve written before on this blog, one way we can do this is by creating a large countervailing democratic force that would be embedded across the corporate world, at least across the Fortune 500. Imagine if one-third of Honeywell, Dow Chemical, Boeing, Verizon, Microsoft and other big corporations were owned by a Citizens Investment Fund that had seats on their boards and steered them to make socially responsible business decisions that respected worker, consumer, and citizen interests. Maintaining a low rate of unemployment would be a top priority for the CIF. Also, the Fund would keep executive pay within reasonable bounds while ensuring decent pay scales for those lower down the ladder, perhaps by setting maximum pay ratios.
The CIF would be a nationwide, socially owned,decentralized, democratically-controlled institutional investor that would actively exercise its ownership rights. The Fund would acquire its stake in these 500 corporations through abolition of corporate taxes on them. In other words, taxation would be exchanged for equity. (The federal corporate tax on large U.S. firms is 35%, although many of them actually pay far less.) Besides steering companies to serve the public interest, the CIF would invest the earnings from its share ownership in ways that are beneficial to communities and working people. At the same time, it would be desirable to give employees their own stake in these companies, maybe through annual allocation of shares to workers’ funds equal to, let’s say, 15% of profits – until the workers’ stake equals the CIF’s in each of the companies, or at least until their combined stake reaches 51%. In addition, employees should have a significant voice in management, independent of their ownership stake.
But whatever path we choose, we have to tackle the core problem: the power of corporate capital and the gross inequality of income and wealth that it both generates and reflects. In the final analysis, that’s the only way we can put an end to de facto blackmail by corporations, and move towards a fairer, more democratic economy where companies still make a profit through production of quality goods and services and through innovation, but act in line with the interests of working people and society.
Nyegosh Dube, an American citizen who lives in Poland, is currently developing a project that looks at existing examples of economic democracy in Europe and elsewhere as potential building blocks for a democratic economy. For over a decade, he worked for the European foundation sector – coordinating a project on legal reform, editing a journal, and writing for a sectoral publication. He has degrees in economics and political science from Yale and Columbia universities.