The president kicked up his “corporate charm offensive,” meeting for hours with 20 CEOs yesterday. Characteristically, he started with an apology for not “finding the right balance” in addressing business. “We want to be boosters,” he said, because “when you do well, America does well.” The president and the business leaders talked about free trade, fiscal discipline, and relief from regulation. The White House let it be known the president was considering a speaking gig at the board meeting of the Chamber of Commerce, the right-wing corporate lobby that had accused him of waging a “general attack on our free enterprise system.”
You can’t fault the president for showing a little love to America’s corporate leaders, but there is one small problem here: The entire premise of the meeting is wrong. The reality is that the corporations are doing extraordinarily well — and America is in trouble. US corporations recorded the highest profits on record last quarter, while more than 20 million people were in need of full-time work, and poverty is at record heights. What is good for General Motors or General Electric or IBM is no longer necessarily good for America.
In fact, these executives and their companies are more part of the problem than part of the solution for this country. They’ve been making out like bandits, but Americans are less and less the beneficiaries of their success. As President Obama has stated, if we are to revive an America with a vibrant middle class and a widely shared prosperity, we need fundamental reforms to build a new foundation for growth and prosperity — an agenda the country needs and the CEOs he met with largely oppose. Consider:
Unsustainable Trade Deficits and Massive Job Loss to Offshoring.
America was running a trade deficit of more than $2 billion a day when the economy collapsed, borrowing that sum from abroad, largely from Chinese and Japanese bankers. We’ve been hemorrhaging manufacturing jobs for years. Now the big companies are offshoring information technology and back office jobs in large numbers. We’re running a growing deficit in high technology goods with China. The CEOs the president met with — from General Electric, IBM, Cisco, Intel , Boeing — have been at the front of this trend. As Andy Grove, the former head of Intel, warned, there are now fewer manufacturing jobs in the US computer business than there were when the first PC was assembled in 1975.
The president rightly made balancing our trade central to his economic agenda. That requires pressure on China, Germany, Japan and the surplus nations — not more trade accords that allow them to play by a different set of rules. And it requires making things in America once more, with companies committed to exporting goods, not jobs.
Yet, the CEOs the president met with have fought hard against reforms that would end tax breaks companies collect for moving jobs abroad. They champion trade accords that have helped disembowel manufacturing in this country. They support lobbies like the Chamber and Business Roundtable that oppose bold industrial initiatives that might help American manufacturing revive. Their increasing ability to run up profits while moving jobs abroad and using the threat of doing so to lower wages at home undermines America’s prospects.
Gilded Age Inequality and a Declining Middle Class
In the five years before the financial collapse, when the economy was growing, the wealthiest 1 percent of Americans captured a staggering 2/3 of all income growth. Household income for the typical family actually lost ground over the course of the decade. Corporate and Wall Street executive compensation practices allowed the top executives to capture excessive rewards, while workers were facing lay-offs, wage and benefit cutbacks, and greater insecurity.
The CEOs the president met with are perfect examples. Kenneth Chennault, the CEO and Chairman of American Express, pocketed $17.3 million during 2009 when the economy tanked, about 542 times what the average worker makes. Jeffrey Immelt, Chair and CEO of General Electric, took home about $9.8 million, 308 times a worker’s pay. Paul S. Otellini, the CEO of Intel, was paid about $14.5 million, making more in a day than the average worker in a year.
A prosperous middle class economy cannot survive if the wealthiest are capturing this proportion of the rewards. In the US, we’ve never done much redistribution through taxes. The only successful strategy — the core of the post-World War II economy that built America’s middle class — has been a strong labor movement in a full-employment or near-full-employment economy. When labor was 35 percent of the private workforce, it not only lifted the wages of its members, but its wage and benefit packages set a standard that non-union employers had to respond to. And a strong labor movement provided an internal check on executive excess. A full employment economy lifts the demand for labor, making it easier for workers to make wage demands, as demonstrated most recently in the dot.com economy of Clinton’s last years. Reforms are also needed to limit current executive compensation schemes, which hide the full cost of pay packages through stock options, give perverse short-term incentives that have little to do with relative performance, and rely on board compensation committees that are controlled by executives.
Needless to say, the CEOs that the president met with are unlikely trumpets for these reforms. Business lobbies warned that labor law reform would bring down Armageddon on the administration. Curbing excessive executive pay meets fierce resistance. But it is hard to imagine how we rebuild a broad middle class unless workers can once again capture a fair share of the productivity increases that they help to generate and executives are limited in how much they can plunder the companies that they head.
Financial Speculation and Soaring Insecurity
40 percent of American households have experienced unemployment, foreclosure, underwater homes or mortgage arrears in the financial collapse. Americans lost some $11 trillion in savings and home values, dashing retirement plans. At the height of the Bush economy, Wall Street was capturing fully 40 percent of corporate profits, as the housing bubble built on a tsunami of financial speculation. UBS and General Electric, whose CEOs met with the president, were among the financial institutions bailed out by the Federal Reserve and the Treasury.
This bubble-bust Wall Street economy was a product of deregulation, the growth of a shadow banking system, and the spread of leveraged speculation with other people’s money. President Obama was right when he said Wall Street needs to be smaller and engaged more in real investment than in speculation. But the president’s cautious reforms engendered a multimillion-dollar lobby reaction from Wall Street. The banks were rescued but not reformed, the casino has reopened, and Wall Street’s back to paying record levels of million dollar bonuses. The pervasive fraud and abuse revealed in the housing bubble has resulting in shockingly few prosecutions.
The economy can’t work well without major reforms that curb financial speculation and make banking boring again. That requires tighter control on leverage and activities, curbs on banker’s compensation schemes, and, as even the IMF now supports, taxes on banks — including a financial transaction tax that would dampen computer-driven speculation. Needless to say, America’s financial barons and their lobbies will oppose these reforms fiercely.
Top End Tax Cuts and a Collapsing Infrastructure
America is literally falling apart. Collapsing bridges, exploding water mains, crumbling levees are a deadly clear and present danger. Children go to schools that are dangerous to their health. Our declining infrastructure is also costly economically, with outmoded transport, crowded highways, slow and inadequate broadband impeding our ability to compete. As President Obama has suggested, we need to make significant investments in building a 21st-century infrastructure, in education and training, in research and development as a foundation for a revived American economy.
In theory, the business lobby supports these investments. But they also lobby hard for top end and corporate tax cuts, and for spending cuts that makes it impossible to finance them. A fruitful conversation with the CEOs might have focused on whether they would commit real resources in a drive to increase investment in areas vital to our future. Instead, reports are that the president promised to move directly from the egregious top-end tax cuts in December to cutting spending and reducing deficits in January. If the wealthiest Americans, like those around the table with the president, are going to continue to pay a lower effective tax rate than their secretaries — as Warren Buffett has noted — then America will continue to starve investments in the areas vital to our future.
Regressive Tax Reforms and Record Poverty
More than 43 million Americans are in poverty, the highest number since they began keeping records. More than 42 million are on food stamps. Millions of homeowners are still facing foreclosure and loss of their homes. Mass unemployment continues, with more than 20 million Americans in need of full-time work. An entire generation of urban kids is essentially being written off, sentenced to crowded schools, broken families, dangerous streets, and joblessness. This is the tinder for social explosion.
Yet, programs for the poor will be on the chopping block from conservatives when the new Congress convenes. The politicians that the CEOs supported will be adding to, not subtracting from, the burdens of the “least of these.” For there to be a serious effort to address poverty, to promise a fair start for every child, to provide the core elements of a real hand up that offers them the opportunity for a good education, a decent job, an affordable home and hope, we’ll need costly new priorities that will have to be pursued largely without significant corporate support.
Corporate Power and Corrupted Democracy
Corporate lobbies and corporate money are corrupting our politics. Over the last two years, we’ve witnessed graphic scenes in how powerful and entrenched corporate lobbies could fend off common sense reforms in health care, energy, finance and trade. The decision of the conservative Supreme Court gang of five in Citizen’s United, overturning settled precedent to declare that corporations had the same free speech rights as people and could spend unlimited amounts in independent expenditure campaigns to influence elections, contributed to the flood of corporate money that helped to bring Republicans the majority in the House.
Washington can’t work as an instrument of common purpose so long as corporate lobbies dominate the backrooms and corporate money dominates elections. Hundreds of billions of subsidies are now wasted on entrenched corporate complexes — the military industrial complex, the drug and health care complex, the agribusiness and Big Oil complexes. Needless to say, the Obama CEOs aren’t about to cut back their lobbying unilaterally and oppose bitterly any restrictions on their political activity. Yet, no reform agenda can survive unless the corporate hold on Washington is challenged.
This list can go on. Talking with CEOs makes much sense. Finding areas of agreement — perhaps around infrastructure investment, education, R&D — is useful. (It remains bizarre that corporate America so vociferously opposes single-payer health care that would remove from their balance sheets a major expense that harms their ability to compete). Making an alliance with the small businesses and national companies that actually want to prosper in America might be possible.
But the president should not use his “bully pulpit” to teach the wrong lesson. America can’t succeed without prosperous companies, but global corporations now are prospering while America fails. They stand in the way of reforms vital to our economy and society. If Obama is at peace with America’s corporate barons, he isn’t doing his job. Embracing their agenda isn’t “moving to the center,” it is abandoning the fundamental reforms this country desperately needs.