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.
Follow Robert L. Borosage on Twitter: www.twitter.com/borosage
Rep. Barbara Lee: Afghanistan War Review Conclusions Misguided
If you have a cold room and a hot room, and you open the door,
the hot room will get colder and the cold room will get warmer.
If we indeed want to maintain global economy, then we will face these
temperature gradients for decades to come, until the living standards
and wages find a new global equilibrium.
And looking at China and India, we still have a way to go, in the direction
of cooler temperatures. The only solution (insulation in the form of tariffs)
would throw the global economy into a thermal shock as well, so we are
stuck between the rock and the hard place.
1. US corporations have vested interest in sending US jobs elsewhere
2. Profits resulting from such operations are not shared
It is as simple as that.
Until these 2 questions are addressed,
there will be no meaningful recovery.
What hogwash!
Then you tell someone else over and over not to drink and drive, yet they do, they crash and die.
The issue is how do you know drinking and driving is bad or wrong if nothing ever happens to you, it happens to others.
To me the problem with the Gov. Save, with the bale outs and such, many people do not understand what was happening and was in full motion to happen. Now people sit back and say you said there was going to be a big Resetion, banks failing etc. now things dont look so bad. So you can wonder if President Obama was blowing smoke and giving something special to Corp. but you have to ask your self, two years ago what if more banks had failed, if there wasnt a bale out for the car manufactures? there would be millions more people unemployed, even more foreclosures. Go ahead and bock at our president, but I am not going to drink and drive, and be thankful for what they did do and how far we have come in two years.
But we mustn’t blame the greedy for doing exactly what the system expects them to do. If anything we must turn attention squarely on our self. You see you cannot support or advocate for material self-interest being the engine of economic activity and at the same time be appalled when those in positions of authority exercise their power in a materially self-interested fashion. What’s in it for me means what ever I do is for Me, not for We.
Perhaps each of us should question whether it is in our collective—that’s the We-- best interest to sustain such a system by continuing to support and cooperate with it or take action to change it. (see www.forprogressnotgrowth.com/econome/ )
In a global economy, ruthless pursuit of profits will lead to severe
imbalances. Some adult discussion is in order.
While trying to discover the mechanism of optimal balance between
stimulating economic environment and social responsibility,
we should try to avoid the pitfalls of Soviet style economy.
Ideological extremes, in general, lead to bad solutions.
the ignorance about the economy here is staggering. the problerm is not outsourcing, effiecencies, unions, the deficit, or any of the other hogwash we hear about. there is only one reason for the economic meltdown: lack of money (credit). the restriction of the money supply by the FED and the banks is solely responsible. no money, no demand. it is a rationing of the worse kind to redistribute wealth and power.
The Fed just started a $600 billion money party. There was a trillion dollar stimulus a year and half ago and now another $850 billion semi-stimulus provision agreed to by our President. There is plenty of cash out there. Moreover, corporate profits are at record levels, NOW. And corporate cash on balance sheets are at record levels as well. There is more cold cash at banks today than ever!
The problem with economy is actually very straight forward, despite the abundance of ignorance being screamed to the public. The housing market is in the toilet, hence low real estate values, which impact the balance sheets of nearly all our banks. So they tighten credit to regular folks including small businesses. (Big and medium sized businesses don't need bank money.) Housing will not improve until unemployment improves. People can't pay mortgages with just unemployment or less.
Now, business could expand and hire folks and probably will start to do so soon, just because they can. Profit growth is their god. But situation with housing and our President has generally caused them to pause, question legitimacy of recovery and prospects for our economies future. So he's busy letting the foxes into the chicken shack (?). So that they may feel comfortable about their prospects going forward.
What I would prefer is that the President kick business and republicans in the butt and make them do the right things.
It takes real conviction.
The Fed has been printing like crazy.
Look at the Fed balance sheet and pay attention
to September 2008. See that explosion?
Also bear in mind that debasing the currency (which is what the Fed is doing)
will eventually hit the poor and middle class pretty hard in inflated prices.
The rich have their assets safely stashed in gold and emerging markets.
The Fed should let the market rediscover the sustainable levels
rather than trying to reinflate the whole market back to insane valuations.
In other words the rich get richer, the poor do even worse. Looking at a chart of the amount of cash printed since WWII it shows only a small blip when they printed extra "Millennium cash" in 2000. But that late 2008 spike is a darn near vertical spike that dwarfs anything previous!
This is true. What has happened to America is we've all been sold down the sewer. It's not just Obama who continues to sell out America (but seriously, is there anything left - doesn't China and India own it all now), it's many prior Pres. who slept with corporations.