FILE – In this Oct. 13, 2016 file photo, supporters of Republican presidential candidate Donald Trump cheer during a campaign rally in Cincinnati, Ohio. (AP Photo/John Minchillo, File)(Credit: AP)
On November 20, 2016, Les Leopold writes on Alternate and Salon:
Over the next two years 1,400 Carrier air conditioner workers will see their decent-paying jobs migrate to Mexico. This highly profitable Indiana facility, represented by United Steel Workers, will make even more money south of the border where workers earn less in one day than the Indiana employees make in one hour, according to the The New York Times. (A YouTube video of the heartbreaking plant closing announcement has nearly 4 million views.)
While Hillary Clinton remained silent on this impending catastrophe, Donald Trump turned this facility into the poster child for what’s wrong with U.S. trade policy. He pledged that if the plant moved, he would place a 35-percent tariff on all Carrier products imported from Mexico as well as a similar duty on the Mexican products of its parent company, United Technologies. Trump boasted he would make the company cry uncle: “I’ll get a call from the head of Carrier and he’ll say, Mr. President, we’ve decided to stay in the United States. That’s what’s going to happen, 100 percent.”
Carrier became the 100-percent battering ram Trump used to pound Hillary Clinton and her embrace of NAFTA and other trade deals. In doing so, Trump snatched the plant closing issue away from the Democrats, something the party apparatchiks didn’t recognize until the Trump votes poured in from the Rust Belt.
The Carrier case, however, was not just the usual media meme about Trump backing the less educated, white working class. In fact, the threatened Indianapolis plant is 50 percent African American. Women make up half the workforce on the assembly lines, and the facility also employs dozens of recent Burmese immigrants. Making this facility great again actually means coming to the aid of America’s increasingly diverse labor force.
But Trump is stumbling into something far more problematic than trade deals. At the heart of this story is the financial strip-mining of America organized and led by Wall Street.
Why does United Technology want to move to Mexico?
Let’s round up the usual suspects:
They can’t turn a decent profit using unionized American workers? No. Carrier is the most profitable division of United Technologies.
NAFTA cause this proposed move? Not likely. NAFTA is 22 years old, so unless United Technologies is the corporate Rip Van Winkle, they could have moved long ago.
New technologies make the destruction of decent paying manufacturing jobs inevitable? Not at all. In this factory transplant, they are redeploying the same technologies already in use, machine by machine.
So if profits, trade and automation are not the driving forces, what is?
The major pressure to shift jobs abroad comes from the big hedge funds and private equity investors that have one goal only — to siphon as much wealth as possible out of companies like United Technologies. High profits, low profits or no profits, they pressure company after company to squeeze their costs as much as possible so there is more money available for the company to buy back its own shares.
Why? Because stock buybacks immediately raise the share price and give the big hedge funds an instant windfall.
Before a 1982 SEC rule change — a major turning point in the disastrous deregulation of finance — massive stock buybacks were illegal because they were considered stock manipulation and a major cause of the 1929 crash. Now, Wall Street extracts billions from this destructive activity. It’s what drives runaway inequality. (For the definitive account see Professor William Lazonick’s “Profits Without Prosperity,” Harvard Business Review.)
CEOs cherish this process because they now derive the majority of their compensation through stock incentives. So by acting as Wall Street shills, they drive up the price of stock and become richer and richer themselves.
In 1970, before stock buybacks became the norm, the pay gap between the top CEOs and the average worker was $45 to $1. Today it is an incomprehensible $844 to $1. So there’s a codependency between the big hedge fund investors and the United Technologies CEO to move the Carrier facility, obtain more cash flow, and use it all to buy back more stock.
What proof do we have? Since 2006, United Technologies has spent over $25 billion on stock buybacks, amounting to over fifty percent of its net income. Last year, just before it announced the move to Mexico, the parent company instituted a $10 billion stock buyback and the stock price immediately jumped 5 percent. This means United Technologies used 131.4 percent of its net income to move money from the company to its major investors and top officers.
Gregory Hayes, CEO of United Technologies, gets his share of the booty. Since 2012, he received $44,100,000 in total compensation, about half of which derives from stock incentives. Fifty-six top hedge funds have taken a stock position in the company to reap the bounty from these stock buybacks.
And so Trump bluffed his way into the soulless heart of an economy dominated by Wall Street. Does he have the guts to take on the fundamental evil of stock buybacks? Not unless he is forced to. It’s so much easier to blame Mexico and China.
Is Carrier a major opening for the Democratic Party?
Hillary Clinton’s benign neglect of these workers is symptomatic of the party’s ongoing romance with Wall Street elites, the source of so much of the party’s funding. These political leaders, their high-level campaign officials and the party’s financial backers have never had it so good. They won’t suffer one iota from the loss of those 1,400 Carrier jobs. They won’t have to contemplate finding a replacement job at Walmart for $13 an hour. They won’t have to worry about how to pay off their kids’ student loans. Instead, they will continue to enjoy the fruits of America’s wealth that is rapidly flowing to the top 1 percent.
The reality facing America and the global community is that jobs are being destroyed and the worth of labor is being devalued by tectonic shifts in the technologies of production and by the globalization of production and constant low cost competition on a global scale.
To prevent massive income inequality in the future we absolutely must finance future economic growth using financial mechanisms that empower propertyless Americans to acquire wealth-creating, income-generating productive capital assets with the earnings of the investments – just like the billionaires operate. OWNERSHIP CREATION should be the focus of our political leadership and academia. This is the path to inclusive prosperity, inclusive opportunity, and inclusive economic justice
We, as a nation, are underwriting the exponential growth of economic inequality by allowing the ownership of business corporations to continually concentrate among a small group of individuals, who own the majority of the controlling stock. This is due to our inept corporate tax structure, which under Donald Trump will see the lowest tax rate in our history, which in turn, will result in a boon to efforts on the part of the already wealthy capital ownership class to further concentrate their controlling ownership in existing business corporations and future businesses.
This has been occurring at an exponential rate ever since the Industrial Revolution and is accelerating in this age of non-human technological invention and innovation in the means of production, resulting in far less human labor input in the production of products and services people need and want. The fundamental reason is that the vast majority of Americans are ill-educated and do not understand the nature of business and the mechanics of financial means that facilitate concentrated ownership.
With respect to lowering the corporate tax rate, the result will be that the wealthy capital ownership class will have more money to acquire MORE capital asset wealth, all in the name of creating jobs. But the real prize is the capture of MORE capital asset wealth. Because Americans are not educated to understand the critical importance of owning capital wealth assets, and do not have past savings to invest, the rich are the ONLY people who can invest and further concentrate the nation’s capital ownership wealth.
For example, in the Carrier case, while operating profitably (a fundamental requirement of a successful business) in the United States, the narrowly owned corporation plans to move its manufacturing operations to Mexico to realize even more profits for the owners of Carrier by replacing “expensive” American workers with “cheap” Mexican workers. The author asks “Why?”
“The major pressure to shift jobs abroad comes from the big hedge funds and private equity investors that have one goal only — to siphon as much wealth as possible out of companies like United Technologies [the parent corporate of the Carrier operation]. High profits, low profits or no profits, they pressure company after company to squeeze their costs as much as possible so there is more money available for the company to buy back its own shares.”
The result is that current owners of the corporation, as well as the CEO (whose compensation is largely paid with stock ownership) will see their stock value increase, allowing them to increase their net worth and earnings when they sell their stock on the securities exchanges. The financial rewards are the result of driving up the price of stock, allowing them to become richer and richer. The buybacks further concentrate ownership among those individuals who own the majority of the stock of the corporation.
According to the article, “United Technologies spent over $25 billion on stock buybacks, amounting to over 50 percent of its net income (after corporate taxes). That $25 billion is retained earnings that were not paid out to the owners of the corporation, but instead used to grow the stock value of the owners. The remaining earnings can be used to invest in new factories in Mexico and other technological efficiencies of production. Of course, using retained earnings financing or corporate debt financing does not create any new owners, but instead further concentrates ownership among those who already own the corporation, and benefits that same class with increased stock value.
Today, corporations typically do not pay dividends, and if they do they are miniscule. Instead they retain earnings, which they use to accumulate more newly formed capital assets and bolster stock value. They also use debt financing to acquire more assets. Neither of these two methods create any new owners, and as a result the same wealthy ownership class continues to concentrate ownership and grow their wealth.
All this concentrated wealth ownership can be abated if we engage in monetary and tax reform. What needs to transpire is for corporations to pay out all their profits to their owners as taxable personal incomes to avoid paying corporate income taxes and to finance their growth by issuing new, full-voting and full-earnings dividend payout shares to achieve broad-based citizen ownership.
Instead of further lowering the corporate tax rate, the rate should be raised to at least 90 percent, with the caveat that if the corporation pays out fully its gross earnings to its owners it would not pay any taxes. Instead, the full tax burden would fall on the individual owners who would be subject to personal tax rates. This would effectively halt retained earnings practices.
The other challenge is to effectively end corporate debt financing, which also only enriches the existing corporate ownership class. Corporate debt financing uses the logic of corporate finance to justify whether to invest for expansion or not, as the requirement is that investments must generate earnings to pay for themselves. Even if the owners are now taking out the full earnings of the corporation as dividends subject to personal tax rates, the capital asset worth of the corporation they own can be used as capital credit security for any new capital credit loan the owners would qualify for to further expand their wealth-creating, income-producing ownership interests.
One possible solution would be to impose a capital credit tax on substantial business corporations who seek to further expand without using financing that creates new owners, making corporate debt financing using the above method unfeasible.
But then the question becomes, how does a business corporation finance its growth? How about a proposal to finance future corporate growth by every business corporation issuing and selling new shares of stock in accordance with the value of the new capital asset productive capacity to be formed? Along with this proposal would be a proposal, such as the proposed Capital Homestead Act (aka Economic Opportunity Act), to empower EVERY citizen, including the employees of corporations, to acquire newly issued shares using insured, interest-free capital credit loans repayable out of the future full-earnings of the investments in the corporations growing our economy, paid out to each investor using capital credit to purchase a corporation’s new stock issues. Instead of the existing owners solely being the ones who enrich themselves through corporate debt financing, now EVERY citizen would have the equal opportunity to invest in the growth corporations of their choice, without the need of past savings to invest, without limiting the capital credit financing security to past savings, without requiring workers and other citizens to reduce their consumption incomes to become owners, and without taking ownership shares from those who already own (since this is about FUTURE growth investments, not redistribution of existing wealth).
If we would build a FUTURE economy using “future earnings” to finance growth, we could significantly broaden private, individual ownership of the economy’s productive capital assets and provide financial security and general affluence to EVERY American citizen, whose income in large part (in addition to the real (not make-work) job opportunities that would be created) would be derived from the full payout of the dividend earnings they would be entitled to as per their share holdings in portfolios of diversified business corporations.
In this way, we can begin to broaden personal wealth-creating, income-producing capital asset wealth, ensure sustainable demand for environmentally-enhanced quality products and services with EVERY citizen benefiting from new income sources.
To reform the system is not a matter of clicking a switch and it suddenly all changes. It will probably take about a generation if we start now to bring about broadened personal ownership with the new capital owners benefiting from the full-earnings dividends produced by their asset holdings. As the economy creates more “customers with money,” this will snowball and accelerate the economy’s growth, creating both real job opportunities and more technological investment in the non-human factor of production to produce a future, responsible economy capable of supporting general affluence for EVERY child, woman and man.
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice.
Support the Capital Homestead Act (aka Economic Democracy Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/.
What do you think?
