How adept at avoiding taxes have America’s CEOs become?
This adept: In 2013, corporate profits jumped $93 billion, says the Commerce Department, but the taxes U.S. corporations paid on those profits dropped by over $15 billion.
Sam Pizzigati, www.toomuchonline.org
The moral is to the physical as three to one.
Napoleon
A policy of underpaying workers to the point where millions need government assistance to keep them out of poverty—which is the current situation—does not speak well of the American Business Model.
- DEMORALIZED WORKFORCE. It makes for an unhappy and demoralized workforce—which is scarcely conducive to productivity. Currently, it is under 1 percent—less than half the typical historical figure.
- NEGATIVE SOCIAL CONSEQUENCES. There are all sorts of negative social consequences from poverty, to being food insecure, to undermining family cohesion, to health issues, to fostering crime.
- LOW DEMAND. It suppresses demand which undermines economic growth.
- WEAKENS U.S. MARKET. Because demand is suppressed, it undermines sales—and thus profitability—of corporations which are primarily dependent on the U.S. market—which, in turn, undermines employment and investment.
- BUSINESS SUBSIDY. It amounts to yet another business subsidy.
- MARKETPLACE DISTORTION. It distorts the marketplace.
- GOVERNMENT EXPENDITURE DISTORTION. It distorts government expenditure. Funds spent on such subsidies are not available for infrastructure or other more desirable uses.
- NATIONAL DEBT. It adds to our National Debt.
- HYPOCRITAL. It is grossly hypocritical—and is the antithesis of the free market system we purport to follow.
The negative side effects of low pay are already widely in evidence. We have just experienced the worst recession since the Great Depression and the recovery—even after five years—is the slowest we have ever seen. Unemployment is finally beginning to fall, but millions who want full time jobs are only working part-time, investment in plant and equipment is worryingly low, and out infrastructure is in a terrible state.
True, corporate profits have never been higher, and the stock market is booming, but this situation primarily benefits only an affluent elite—and graphically demonstrates the unhealthy dominance of financialization and speculation of the U.S. economy.
I really don’t understand this U.S. corporate obsession with treating workers badly. It is not universal, but it is widespread. The notion that a workforce is a disposable commodity is a serious cultural problem. People do not give of their best when they feel under-valued. Then there are other issues like:
- INADEQUATE MINIMUM WAGE. A minimum wage which is far too low.
- PERVASIVE WAGE THEFT. Wage theft (which is widespread).
- HOURS DELIBERATELY RATIONED. Limiting hours to keep under the minimum where some benefit kicks in (and thus keeping the worker in poverty).
- ARBITRARY SCHEDULING. Near impossible scheduling.
- NO JOB SECURITY. Arbitrary dismissal.
- SHORT TO NON EXISTENT PAID VACATIONS. Minimum or non-existent paid vacations.
Northern Europe has shown that this kind of gratuitous meanness is unnecessary—and that, in fact, profits—and life in general—can be a whole lot better if you treat your workers well.
The Costco story is an interesting one (and there are others like it). Let me quote from a recent Business Week story.
Costco Wholesale (COST), the second-largest retailer in the U.S. behind Walmart, is an anomaly in an age marked by turmoil and downsizing. Known for its $55-a-year membership fee and its massive, austere warehouses stocked floor to ceiling with indulgent portions of everything from tilapia to toilet paper, Costco has thrived over the last five years. While competitors lost customers to the Internet and weathered a wave of investor pessimism, Costco’s sales have grown 39 percent and its stock price has doubled since 2009. The hot streak continued through last year’s retirement of widely admired co-founder and Chief Executive Officer Jim Sinegal. The share price is up 30 percent under the leadership of its new, plain-spoken CEO, Craig Jelinek.
Despite the sagging economy and challenges to the industry, Costco pays its hourly workers an average of $20.89 an hour, not including overtime (vs. the minimum wage of $7.25 an hour). By comparison, Walmart said its average wage for full-time employees in the U.S. is $12.67 an hour, according to a letter it sent in April to activist Ralph Nader. Eighty-eight percent of Costco employees have company-sponsored health insurance; Walmart says that “more than half” of its do. Costco workers with coverage pay premiums that amount to less than 10 percent of the overall cost of their plans. It treats its employees well in the belief that a happier work environment will result in a more profitable company. “I just think people need to make a living wage with health benefits,” says Jelinek. “It also puts more money back into the economy and creates a healthier country. It’s really that simple.”
Quite.
The U.S. corporate argument that unions and decent wages are incompatible with being globally competitive and profitable is demonstrably untrue—as Northern Europe demonstrates.
The following is a short extract from THE CRASH OF 2016 by Thom Hartmann.
Actually, Germany paid their autoworkers about $67 an hour (including wages and benefits). But the United States paid its average worker only $33 an hour (also including wages and benefits). On top of that, German car manufacturers were highly profitable, despite the comparatively large paychecks of their workers. BMW earned a before-tax profit of 3.8 billion euros, and Mercedes-Benz hauled in profits of 4.6 billion euros.
So how did Germany just completely blow up the myth that car companies have to pay their workers less to be more profitable and manufacture more cars? How can Germany do the opposite: pay their workers more, be more profitable, and make more cars?
The answer: democracy.
First, Germans have completely democratized the auto plant by unionizing nearly every single autoworker in the country—under IG Metall, the German autoworkers union. With such a high union membership rate, autoworkers hold a lot of sway when they threaten to go on strike. That’s how workers have been able to keep wages high and working conditions satisfactory. But as Horst Mund, the head of the International Department of the German autoworkers union, pointed out, unions hardly ever go on strike in Germany “because there is an elaborate system of conflict resolution that regularly is used to come to the sort of compromise that is acceptable to all parties.”
BLOWBACK. Sooner or later there is going to be blowback against 40 years of U.S. corporate greed, short termism, and obsession with shareholder value to the exclusion of other stakeholders such as employees, suppliers, the local community, and society in general. In fact, there are some signs it has started already—both in the workforce where Fast Food workers are pushing ever more strongly for a $15 an hour minimum wage (which you might expect) and in the business community where entrepreneurs such as Nick Hanauer have been speaking up (which is particularly encouraging).
Will it show up in the Mid-Terms? Possibly too soon. 2016? Almost certainly.
But it is going to happen—largely because it has to. The present grossly unjust economic situation is unsustainable.
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