Thursday, December 04, 2008

Bailouts and the corporate form

By LindaBeth

Some things have really been bothering me about the auto bailout talk vis-a-vis the financial sector bailout, and especially the recent
Citigroup bailout.

First, I agree with Rachel Maddow that something seems off when the (white collar) financial sector can get a quick bailout with few strings attached with no blame placed on employees and CEOs compensation structure (or any suggestion that it be revamped to take the federal funds), but in the case of the auto manufacturing (blue collar) sector, the quick blame is placed on the unionized workers, with their outrageous expectation for health care and decent wages. These worker "demands" are unreasonably passed on to consumers in the form of higher vehicle prices, according to conservatives like Cal Thomas, and that's the real reason US car manufacturer's cannot compete. Meanwhile, CEOs still rake in overly inflated incomes, benefits, stock options, and other perks instead of lowering vehicle prices so as to not "pass on" health care costs to the consumer. Be sure to check out this excellent analysis of the cost-per-employee figures being used to blame union labor.

Class warfare, indeed. I don't mind criticizing compensation structure, but how is unionized labor being blamed for the failure of the auto industry? What about the auto CEOs? And finance CEOs compensation is irrelevant to their bailout? This is akin to blaming welfare to the poor for the economic strain on the middle class, while the average compensation for an S & P 500 CEO in 2007 is projected to have been $14.2 million; in 2006 the average Fortune 500 CEO received $10.8 million, which is 364 times the average worker. In 2007, the Ford CEO's total compensation was $21,670,674, and GM's CEO's was $14,415,914. The average of auto worker's wages (not the pay of the average worker, but the average of workers' pay) is $20.53/hour, or $42,702/year--just below the median income. And it's the unions' fault?

Second, why is the troubled banks seen as economically "necessary" and an industry with $1.1 direct workers (in 2005) and several million related workers is not? Auto manufacturing, like the manufacturing sector of time past, has been a way for lower-skilled, less educated workers to have jobs with security, with decent wages, and health care. Sure, they can get new jobs, but what will these new jobs look like? In our deindustrialized economy, when these jobs go, they aren't going to be replaced with like jobs. The loss of these jobs will undoubtedly create new economic hardships for a slew of families. When we start talking about "necessary" industries, I want to ask, Economically necessary for who, and why?

Third, and this is really what's been getting me, I am absolutely floored that when corporations are coming to the government for help in a state of desperation and vulnerability, that we are not adequately using this leverage to make demands for corporate change. We have the position of power here. These CEOs don't want their companies to go down--think of their company stock and stock options that would become valueless! Why aren't we using it to get the regulations and accountability we've desired of them?

I just used the excellent film The Corporation (watch it in installments here) in my sociology classes this week in doing the Politics and the Economy chapter, so after watching it again -- 3 times this week -- it's been invading my thoughts. Underlying the definition of the modern corporation is that it's only legal obligation is to the shareholders, and that under a ridiculous usage of the 14th Amendment, the corporation itself is a person, meaning that no actual human being is held responsible for the actions of the corporation. This was not always so. Originally, corporations existed for the purpose of the public good. Now, they do not have any commitment to the community or tho their employees; they are legally required to act in the best interests of their shareholders in the pursuit of short-term profit (which, not surprisingly, is tied to a huge chunk of CEOs' compensation). Corporations and their activities are not held accountable to the democratic process, which is supposed to keep institutional power in check. Well, until now. To me, our economic crisis ought to be an opportunity to evaluate the way we do business (literally) in the United States, and to make steps that will hold corporations ultimately accountable to the interests of the public good (environmental, social welfare, whatever), not the interests of pure profit.

(Cross-posted to Speak Truth to Power.)

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  • I do think there's some pretty compelling evidence that the labor unions in Detroit are not a help to the Big Three: they're a hindrance. Anyone from Michigan can tell you that Detroiters know this: the Detroit mob and the unions are one and the same. Whatever the leftist illuminati would prefer to say, it is unfortunately true for my liberal friends that the Democratic party accepts a lot of money from the unions - and that is a conflict of interest. I don't say that Washington should've done the first bailout, so therefore I can consistently say they shouldn't bail out the automakers, either.

    By Blogger Unknown, at 10:53 PM  

  • Sure, labor unions give money to the left (and the right) and white collar financial industries give money to the right (and the left). Our campaign finance system means that all industries give to all candidates, some more than others. If we required that legislation couldn't be passed in industries where contributions have been made, we'd never legislate. That's a problem in my book, but that has little to do with this particular post.

    There is a much different way of speaking about both bailouts, and one bailout was too easily given and the other is being too easily blamed on the workers. People aren't blaming union leaders, they're blaming the union wages and (god forbid!) health care as what's causing the inviability of the industry. The CEOs pay in neither industry is being blamed by the center-right and right. Something else is going on here.

    I'm curious about your "everybody knows" claim that unions are a hindrance to automakers. I'm a pretty well-read gal, and opinions of unions tend to fall on partisan lines. And a hindrance to what? What hinders the US car market is our refusal to make quality efficient vehicles; what hinders our ability to control costs has more to do with our lack of national health care than anything else. Their union wages are nothing to write home about--$48k, like I said--and fairly comparable to non-union wages. Most of the per-employee cost is in current health care and in paying retirees heath care--which could all be solved by national health care.

    If we're going to give out this money (and I'm not sure whether I think we should or not, mind you), we should use our leverage in the situation to make industry changes. We should have done this with the financial bailout too. And with Citigroup more recently.

    Also, why the "liberal illuminati" insistence? What the heck do you even mean by that?

    You may personally be consistent, and that's great, but I'm addressing those legislators and pundits who aren't.

    By Blogger lindabeth, at 1:50 AM  

  • Why is it that no one can see the forest for the trees on this issue. What we have witnessed overtly in the last decades is the re-emergance of the robber barons, who have pillaged this country with no regard for the welfare of the families or standard of living of this nation. Like their forbears they have considered labor as little mor than chattel and had only grudgingly agreed to work conditions we consider standard today. Organized labor is their natural enemy. There are underlying reasons for the resistance to an auto industry bailout. It can be argued that the auto industry created the american middle class when Henry Ford had the foresight in a 1913 recession to make sure his employees could afford the cars they built by doubling the average daily wage to $5 and reducing the work day to 8 hours. This empowerment of workers shocked and was published around the world and was lambasted by the bankers and the capitalists of the day who lorded over labor with impunity. Those same bankers who own and control the federal reserve and thus the country gave themselves a pass at the bailout counter while working to exact revenge on the auto industry which is simply asking for loans. How is that service economy working for you? Americans are going to understand why America is hated around the world for its treatment of 3rd world countries when we become a 3rd would country that exports raw materials but manufactures nothing. We will come begging to the global government and new world order on our knees and that is just the point. These banksters will eventually do to the independent nation state what we did to the aboriginal/indian tribal state - that is subjugate it.

    By Anonymous Anonymous, at 1:09 PM  

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