The Progressive Ensign

insights and analytics to build an economy that works for all

Category: Stock Buybacks (Page 1 of 2)

Drug Companies Want a $4 Billion Break: No Way!

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Image: youtube.com

Major drug companies are lobbying Congress to reduce the $4 billion increase in costs due to raising the discount for seniors purchasing drugs at the ‘donut hole’ level in Medicare Part D to 70 % from 50 %. The provisions for an increase in the discount was included in a spending bill passed by Congress last February.

Pharma companies and major corporations with billions of dollars stashed overseas said that if tax rates were cut on dollars transferred to the U.S they would raise wages, increase R & D spending and reduce prices.  Most companies did not deliver on their promises or benefits to patients either. Instead, they increased the size of their stock buybacks by 4 to 5 times in the case of the largest stock buyback company, Amgen.

Sources: SEC, The Wall Street Journal – 12/6/18

Only two of the top ten companies actually reduced share buy backs since January of this year.  Corporations overall are expected to complete over $1 trillion of stock buy backs by December 31st Goldman Sachs estimates.

Over a dozen Democratic members of the House ofRepresentatives sent letters to five top pharma companies with data showing new increases in drug prices while increasing share buy backs.  The drug industry responded that they were reducing prices, increasing R & D spending and raising employee wages.  Merck, CEO, Kenneth Frazier said in a reply, “We view the legislation (tax cut) as providing us with more flexibility to deploy capital in support of our strategy to invent new medicines that address key unmet medical needs, ultimately benefiting patients.”  The reality is that prices for the most popular drugs are still going up.

AbbVie raised the price of Humira by 9.7 % in January the Democrats pointed out in their letter to the firm.   Inflation for this past year is 2.4 % that drug increase is nearly 4 times the rate of overall consumer price increases in the U.S. economy. AbbVie sent a reply to the Congressmen outlining many programs using their tax cut funds including: a $1000 salary increase to non-executive employees, plans to invest $2.5 billion in capital projects in the U.S. over the next five years, $100 million healthcare and housing for people in Puerto Rico, an $100 million to the Ronald McDonald House to fund lodging for pediatric cancer patients and their families.

Next Steps:

Drug costs hit seniors particularly hard because they need the medication, and they are on fixed incomes.  Drug companies have to do better by ending what the SEC called, “stock price manipulation”,  before the Safe Harbor policy in 1982 allowed stock buybacks. Billions of dollars are wasted to goose the price of stocks to benefit executives and big investors.  Investors are misled by earnings reports using fewer stock shares to compute earnings per share, often used to assess company performance. Patients are hurt by price increases, Humira costs patients $50,000 per year for the standard treatment if they have no insurance coverage.  Stock buybacks by pharma companies must stop, the price gouging of patients and insurers needs to end.

Another economy that drug companies should adopt is to end direct-to-consumer advertising of prescription drugs.  Over 150 countries do not allow prescription drug advertising, only the U.S. and New Zealand allow advertising directly to patients to create “pull” sales from patients requesting a drug from their doctor.  According to Kantar media, drug manufacturers spent $6 billion on direct to consumer television advertising in 2017, a 64 % jump from 2012. The billions being spent on DTC advertising are better spent on reducing drug prices. We applaud the moves by AbbVie in raising employee salaries, donations to Puerto Rico and Ronald McDonald house, these are excellent steps.  Many drug firms have foundations that offer patients with low incomes a way to obtain their medicines for free or little cost.  The difficult aspect of most of these drug-for-free programs is they require large volumes of paper work, with major time delays when the patient needs to the drug immediately. Drug company executives need to see the light on what is happening, the price gravy train and waste of stock buyback funds gleaned from patients needs to end.   Why wait for legislation? We appeal to CEOs – make the right moves now. See that taking responsibility for solving the cost crisis you have created will be far better for your firm, patients and insurers. You may get a solution you don’t want if you wait for Congress to pass legislation.

GM: Case Study to End Share Buy Backs

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Image: GM Lordstown plant to be closed – gmauthority.com

Yesterday, GM announced a series of plant closings and layoffs of 15,000 workers in North America.  GM attributed the need to shift its focus to electric car development, trucks and SUVs that consumers were buying, as sedan sales are falling.  Actually, auto sales worldwide have been dropping for the past year.

Source: Bloomberg – 11/27/18

Jesse Colombo, analyst at Clarity Financial notes that while GM’s announcement focused on electric car development the plant shutdowns and layoffs really were driven by of slowing auto sales.  The auto market has been shifting rapidly with the development of driverless cars, ride sharing reducing the need to own a car, and urbanization causing policy makers to fund more public transit. The auto maker announced that it will end production of the Chevy Volt electric sedan with sales falling short of targets. GM has targeted gig economy drivers for ride sharing companies like Uber and Lyft by offering an on demand service for the Chevy Volt at $225 per week in Austin.  It is not clear what will happen with this on demand service marketing beta test with Volt production being halted.  GM has partnered with Lyft, and made a $500 million dollar investment in the ride sharing company 2 years ago.  Thus, GM has made some investments in key new markets and technologies, yet is behind in adjusting to sedan sales which fell by 11 % in third quarter.

At the same time the auto market is undergoing rapid change, GM executives have been taking care of themselves as a first priority.  Wolf Richter, editor of the Wolf Report blog reports that GM spent $13.9 billion in stock buy backs since 2014.

Sources: Wolf Richter, Wolfstreet.com, Y- Charts, Marketwatch – 11/27/18

GM stock purchases took shares off the market to reduce supply, while expecting stock demand would move the share price up.  However, as Richter notes GM share price has actually fallen 10 % in that four year period. So, much for boosting the price of shares to pad the executive stock compensation plan.  Instead of investing in new technologies, research, new plants, employee training, increasing wages and other key transition programs GM completely wasted $13.9 billion dollars.  Poor management judgement is now causing 15,000 workers to lose their jobs in the U.S. and Canada.  While we will not know over the last four years if good business investments would have prevented all the layoffs it is certain the economic damage to Midwest and Canadian communities could have been significantly mitigated.

Next Steps:

Goldman Sachs estimates that S & P 500 corporations will complete $1.0 trillion dollars in stock buybacks this year.  One trillion dollars will be wasted by U.S. corporations as productivity investments have lagged over the past 5 years, and average real wages have been stagnant for the 80 % in income since the Great Recession.  As the GM example demonstrates, besides hurting employee wages, making U.S. companies less competitive and inflating stock prices now workers are losing jobs due to executive mismanagement and myopia on stock price.

Prior to 1982, the Securities Act of 1934 held that stock buybacks were a form of ‘stock price manipulation’ and were not allowed by the SEC.  This policy was overturned by an E.F. Hutton executive, John Shad as SEC Chairman appointed by President Reagan.  He created a ‘safe harbor’ policy where corporations could purchase their own stock, only a certain times during the trading day, with disclosure quarterly and blackout periods prior to earnings reports. Corporations have used buy backs since then but stock buy backs took off in 2015 to $695 billion and almost doubled to $1 trillion for 2018.

We recommend an end to the stock buyback safe harbor provisions and a return to the pre-1982 policy, management in many corporations has lost their bearings on why the company exists – first priorities being workers, their families, customer communities, society and the nation not their own compensation plan. Making the corporation profitable and valuable to shareholders is a means to achieving our societal goals of a decent wage, quality housing, and the ability of families to support their children.  In October, we posted an analysis on how major corporations like Boeing, GE and American Airlines underfunded their pension plans while executing  billions of dollars in stock buy backs. Executives need to take responsibility for full funding of all pensions not wasting money on stock buy backs. It  is time with so many middle class and economic investment needs that corporations receive a direct SEC policy shift to end stock buy backs.

Memo To CEOs: Invest in the Company, Not Yourself

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Photo: wikipedia.org

To: CEOs – S & P – 500

From: The Progressive Ensign

Subject: Stock Buybacks Are Out of Control

Date: November 5, 2018

Congratulations, this past quarter you knocked earnings out of the park, profits were higher in particular, though revenues lower and you did well by raising stock prices to new highs in September via stock buybacks.

Source: Standard & Poors – 11/4/18

Ok, you did well on stock compensation too with soaring stock prices.  You can take that trip to Cancun, buy a boat and a villa for extended stays.  You have worked hard, your team has gone all out to make your companies successful, and worked harder.  Remember, while you were traveling and making decisions on sales, financing, product development and marketing they are actually designing, building, shipping, selling and supporting your products and services.

Sources: The Labor Department, The Wall Street Journal, The Daily Shot – 11/5/18

Next, you have not been making the investments in capital equipment , R & D and innovation to move companies along and be prepared for more overseas competition or increase productivity. Thanks for moving wages higher for less than high school educated workers recently they still aren’t enough to keep up with inflation though. If you can increase productivity we can give workers raises without it hitting the bottom line an increasing cost, and earning would be stabilized or even get better. You wouldn’t need to use financial gimmicks like stock buy backs to take stock off the market, and goose the price so earnings look better on a per share basis.  Between 2010 and 2017 S & P companies spent 51 % of their operating earnings on stock buy backs.  That’s money just hyping stock nothing else.  Note that business investment is continuing to decline with lower highs and investments flat since 1998.

Sources: The Wall Street Journal, The Daily Shot – 11/5/18

Your joy ride on $1 trillion of stock buybacks needs to end.  We want to see a plan by the end of the month on how you will use that $1 trillion dollars in meaningful long term ways such as raising wages, job training, purchasing new equipment and systems, and innovating new products.  You are basically taking away the future of your workers and the country for your short term gain. Show by quarter how you will implement the plan and get your businesses actually growing again (in real dollars not financial gimmicks), workers supporting their families in sustainable lifestyle and making America stronger.

P.S. By the way, it is time to end your constant borrowing, rates are going up, and you spent most of the money on stock buybacks or other goodies not investing in the company.  You are mortgaging the future of the business by taking on a record amount of debt.  Please submit a plan for retiring this debt as part of your financial plan for investing in the company by the end of the month.

P.P.S.  For those of you ( a minority) who are not doing stock buybacks, thank you, and you who are spending on capex and raising wages thanks a lot!  Just submit a set of graphs showing your investments so we can show the other CEOs how it is done – as a best practice.

Major Corporations Underfund Pensions While Pocketing Stock Buybacks

 

Photo: marketplace.org

Five major corporations, among many others were examined by Danielle DiMartino Booth, in the Quill Intelligence blog,  The Daily Feather – Boeing, GE, American Airlines, Lockheed Martin and AT &T on their spending for pensions versus stock buybacks.

Sources : Bloomberg, Quill Intelligence – 10/22/18

The underfunded pensions ranged from just 62.4 % funded to a high of 79.6% for Boeing. Compared to explosive stock buybacks the pension underfunding is not acceptable.  This typifies the character of corporate America taking care of its own executives who are well compensated in stock plans versus workers who are given the financial leftovers.  When corporations purchase their stock from the open market  the price of the stock often goes up because the shares are effectively taken off the market.  Most executives have earnings and stock price targets as part of their compensation plans.

Goldman Sachs forecasts for all of 2019 about $1 trillion in stock buybacks.  Stock buyback funds are not going into raises for workers – which are the lowest they have ever been in a growing economy 2.5 % over the past 10 years.  When inflation is considered the wage raises are basically stagnant causing workers to fall further behind financially.  Workers are strapped by the high cost of auto loans, credit card debt and increasing healthcare premiums.

Stock buybacks means that corporations are not investing in innovation to increase productivity.  Productivity has stagnated since the Great Recession between 1.5 to 2.3 % per year, not enough to boost wages or keep prices in check for many sectors.  With 70 % of the U.S. economy provided by services businesses it is increasingly important that businesses invest in services innovation because services are a challenge to reduce costs or increase quality.

Next Steps:

We have been against stock buybacks from a pure transparency and valuation perspective to begin with – stock prices have been artificially inflated by as much as 20 % some experts believe.  Soaring valuations mislead investors into thinking a company on an earnings per share basis is performing better than it actually is. Stock buybacks do exactly nothing for the economy except to line the pockets of  executives who already make 300 % more than the average employee.  The trillion dollars going into stock buybacks are better spent on pensions to ensure workers can retire, or receive wage increases to make ends meet, or invest in equipment or innovation in research and development to increase productivity.   Stock buybacks were allowed by a former E.F. Hutton executive, named to head the SEC during the Reagan administration.  Now, would be a good time to end the malpractice and for the good of workers and the economy invest stock buyback funds in the future of America.

End Offshore Corporate Tax Havens

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Image: marylandpirg.org

In 2016, multinational U.S. corporations booked over 50 % of their foreign profits in overseas tax havens.  Whether the profits are made in Casablanca or Singapore corporations are using lax US tax laws and accommodative offshore tax haven laws to book profits where they can’t be taxed at fair share rates.  Note that pre-tax profits viewed as a percentage of wages paid ranged from 200 % in Singapore to 800 % in Ireland!

Sources: The Wall Street Journal, The Daily Shot – 9/12/18

Combine this tax information with the soaring use of stock buybacks by moving dollars from these offshore accounts to juice the price of their stock and we see corporate executives doing a great job of increasing their stock based compensation.

Sources: Compustat, Bloomberg Finance LP, Deutsche Bank, The Wall Street Journal, The Daily Shot – 9/12/18

The US stock market has dramatically diverged from overseas markets where China markets are down in bearish territory at 20 % for the year and emerging markets down close to 18 %. Yet, the  S & P 500 Index of U.S. stocks is up 7.4 % for the year.  With all the uncertainty in emerging country currencies, trade wars, lack of wages, falling home and care sales, the U.S. stock markets keep rising being propped up by stock buybacks. Nearly $1 trillion of buy backs have been announced for the year. Buy back dollars are not going toward raising employee wages which are 312 times lower than CEO wages.

Sources: The Wall Street Journal, The Daily Shot – 9/12/18

Little wonder workers are not getting a fair wage in many industries with corporate executives stashing money overseas where it is out of reach of U.S. tax laws.  Plus, executives are compensated for increasing profits, not increasing wages that would cut into profits.

Next Steps:

Corporations received a windfall from the Tax Bill last year which did not change taxation of U.S. corporate profits overseas, but instead gave corporations a huge one-time tax break on repatriated funds from the listed rate of 35 % to 15.5 % for cash related assets and 8% for illiquid assets.  Many corporations did bring funds back to U.S. this year, yet 70 % of the funds were used for dividends and stock buybacks. Only a small percentage of repatriated funds went to raising worker’s wages which is what CEOs promised they would do when lobbying for the Tax Bill.

It is time for corporate leaders to understand they need to start paying their fair share of U.S. taxes for entities overseas, and they need to pay a share of the cost of our armed forces overseas.  They benefit directly from having safe countries, government protection through embassies and staff and safe passage of cargo worldwide.  Plus, the U.S. government working in partnership with corporations provides businesses opportunities that firms from other countries with less presence don’t enjoy.  U.S. corporations need to pay up, and recognize profits in their respective countries where they do business with a share going to the U.S. government for the offshore benefits they receive.

Labor is Our Most Productive Asset

 

Image: progressivebumperstickers.com

“Nothing will work unless you do” – Maya Angelou

On Labor Day it is a good time to reflect on our labor force – the people who make our economy go. What has become of labor in America? Does labor hold equal power with capital? No.

Wall Street, the citadel of capital,  wields supreme power focused on profit throughout our economy and control of our government. Corporations pander to financial leaders with ever higher profits manipulated by stock buybacks juicing the value of share prices. Management ensures investors are pleased with financial results using loose financial gimmicks and laying on record debt. While workers have seen their wages stagnate for 30 years since the 1980s.

Executives are handsomely compensated at 300% of the average worker’s wage. Why? They think they ‘are’ the company. At a $400 million biotech firm, this author listened to a VP extoll the value of management over workers, “we have all the power; we decide wages, allocation of resources, when and how work is done, and we can fire them anytime”.  Yet, workers make the company go.  Nothing works until the employees make it work. Managers don’t do the work, they manage the work that is getting done.

Managers are doing what they are compensated to do – increase profits and reduce costs. In Western accounting labor is viewed as an expense while money and machines are viewed as assets. Wait, aren’t employees assets? CEOs are always telling employees at ‘all hands’ meetings they are the companies’ most important asset. Do they treat employees that way?  What about when things get tough; instead of selling equipment, moving out of buildings or reducing executive benefits they lay off employees who can least afford it. Executives need to start treating employees like they are an asset.

Maybe we need to start recognizing labor as an asset from an accounting perspective. When we label capital an asset and labor a cost we are fundamentally placing a higher value on money and a lower value on people. That framework us wrong – if anything it should be the other way around. Because people create value in corporations not money. Money does not come up with the latest innovation or new process or service – people do. We need to require corporations to report on how they are building employees as assets and worker contribution to increasing company value.  The next step is for Wall Street to recognize social responsibility in their investments as Blackrock, CEO Larry Fink, has in a letter to CEOs of companies in their portfolio that he will be looking beyond profit, for implementation of policies by management in sustainability and worker advancement.

Unfortunately labor power is at an all-time low when in a great ‘boom’ economy now the 80 % in income have experienced declining wages since the Great Recession. On Labor Day we need to dig deep and renew our commitment to recognizing labor must share equally in all corporate prosperity.

Families Are the Place to Start Building the Common Good

Image: sleepingshouldbeeasy.com

We all have a mother and father, and may have brothers and sisters.  We come into the world born of our mother with a bonding to her, and if all goes well the father is there to raise us too.  We can all agree that families are a priority – when things get tough our families come first.

Bo Lotzoff, philosopher and counselor helping many prisoners and poor people turnaround their lives, observed about American society that we ‘love things and use people’. It should be the other way around, ‘love people and use things’. Think about this insight.  When we look objectively at what has happened to family life in the past 30 years, the slice of time devoted to family versus work has progressed in reality to not much time, or invested engagement by the working parent.

In Silicon Valley, the heart of technology innovation world-wide, it is the standard expectation for most workers at top companies to be at work until 8 or 9pm, just leaving barely enough time for fathers or mothers to read a story and tuck their children into bed.  Management expects knowledge workers to check for text messages at least 19 hours a day and email before coming into the office, responding to work requests on weekends too.  Even, on vacations, if project reviews are planned workers are expected to phone in for the key meetings and ‘stay on top’ of what is happening.  When global conference calls are involved, the calls may start at 6am to Germany and continue to 7 or 8 pm to Japan or China.  What all this connectedness means is that the company owns the mind and emotions of the worker 24 by 7. At one startup  ‘all hands’ meeting just prior to the Christmas holiday the CEO thanked everyone for their hard work over the past year and declared, “have a fun Christmas or holiday rest for a day, then let’s make our numbers!”  He made the statement kind of in just but half serious, the workers got his point, see your families and friends but stay connected 24 by 7.

Corporate life is destroying family life and our connectedness as a community.  Being totally connected to the corporation is more important if we want to maintain our standard of living is the message.  Corporations are using people and loving things (sounds like high tech).

Nourishing, sustaining and building stronger families would do a lot for solving our societal and economic issues.  Crime would go down as young men who are left to live on the streets would be learning skills, playing a team sport or having a family supporting his life, and where after school programs were funded and staffed well. Groups like Thread, in Baltimore actually use the family structure with Parents and Grandparent surrogates to support youth in poor parts of the city where there may be only one parent and that parent is not home much of the time working two or three jobs to support the family.  Today we are missing millions of our youth to crime, opioids and dead end jobs that could be active productive members of our labor force. Our labor force is declining with the aging of baby boomers, we need all the paycheck workers we can to support our aging population and for young workers to save for their futures.

So, let’s look at the policies of our federal government using the family yardstick which most people right or left, Republican or Democrat agree:

  1. Family Separation – recently we saw that there was consensus that children should be kept with their parents – even immigrant children
  2. Health Insurance – a Pew Research survey showed that 58 % of all Americans believed that every person should have affordable health insurance for which the government is responsible
  3. Childhood Health Insurance Program (CHIP) – most Senator and Congressmen agreed and renewed the CHIP bill to protect children caught between Medicaid and being too poor to afford an individual health insurance plan in this past December’s spending bill.
  4. Flexible Job Definition – more social and family counselors see a need for men and women to have flexible time jobs meaning that when a family emergency comes up like an illness or doctor appointment the worker can take time off and make the appointment without repercussions in job performance, salary or benefits.
  5. Parental Leave – Federal law of 1997 requires private employers to provide maternity leave up to 12 weeks of unpaid job-protected parental leave to bond with a new child within one year of birth, adoption, or foster care placement (parental leave).  The US is the only country in the developed world that does not have paid leave for parents.
  6. Wages – real wages (after inflation) for the 80 % of workers in the U.S. have basically been stagnant for the last 30 years. Instead, corporate executives use excess profits to juice their stock prices with stock buybacks instead of raising wages. They are wasting nearly $810 billion that Goldman Sachs estimates is being spent in 2018 on stock buy backs. That $810 billion could go a long way to providing decent wages for workers. Analysts estimate the S & P 500 index is at least 20 % higher from what the prices of company stocks would be without stock buybacks. The reality is that workers and their families suffer having to work two or three jobs because of the greed of executive management. 

We could add to the list, our point is made, when we have a consensus that families need to be placed as the first priority, not the second or third or thirty-fifth, then our legislative priorities are clear.  Other countries seem to make a thriving economy and support of families work. Germany has paid parental leave, a net export economy, good wages, employee councils and at least 4 weeks of paid vacation for most employees.  Most German families feel secure.  This author asked a co-worker from Germany if he considered working in the U.S., he noted,  “I would get sharper, get closer to engineering and innovation, yet, there is no real recognition of families, In Germany, I have paid leave for a new child, four weeks of vacation every year, a good guaranteed retirement program, health insurance and I participate in our employee council…I don’t want to live under constant stress in America.”

Families are the basic economic building block of our country.  When corporations take control of our government and run our families into oblivion we all are hurt as a country.  In the end corporate executives need to wake up and support family sustaining policies in their company, their management culture, wages and in Washington to build strong families. Otherwise, someday corporations will discover as is beginning to happen today, that young women having the fewest babies ever since WW II, the lowest level of family formations ever and lowest number of millennials buying homes will lead to shrinking markets, falling margins and reduced sales. We need to monitor what is happening to the health of our families to know if our societal values, economic values, government policies and corporate behavior are strengthening or weakening families.

Amazon’s Growing Corporate Power In Washington – Threat to Capitalist Democracy

Source: e-brand.biz

An oligarchy is defined by Wikipedia as, “a form of power structure in which power rests with a small number of people”.  One of the Elite is corporate tycoon Jeff Bezos, Amazon founder, who is thought to be the wealthiest person in the world with net worth estimated at $141 billion.  He wields great corporate power leading an innovative company, pioneering e-retailing when many said it couldn’t be done building a $177 billion empire in e-Commerce, web services, grocery, and just about everything you can buy in a store you can get from Amazon.  Amazon owns 43 % of the e-Commerce market, and has been responsible for a complete transformation of brick-n-mortar retailing causing the loss  of thousands of jobs.  The company name is synonymous with going out of business as some store owners declare they have been ‘Amazoned’.

Amazon has one of the largest lobbying forces in Washington, 94 strong:

Sources: The Center for Responsible Politics, The Wall Street Journal, 6/20/18

Amazon spent $13 million on lobbying and is one of the top spenders on lobbying along with Google, AT & T and Oracle.

The Amazon corporate power juggernaut keeps rolling.  The e-Commerce giant owns 50 % of the book print sales market for publishers, with Barnes and Noble in the teens and independent book sellers about 6 – 8 percent. Ten years ago, independent book stores held a 30 % share of the book print sales market until Amazon drove them out of business, with convenience and not being required to pay sales taxes to states (though the Supreme Court just ruled last week that e-Commerce firms must pay sales taxes). Now, in an ironic twist the firm has 3 brick- n-mortar stores and is opening 5 more in 2017- so Amazon drives the competition out of business, with low cost prices and no taxes then starts opening brick n-mortar-stores.  Is that fair? In audio books Amazon owns Audible the No. 1 provider of audio books where last year listener – readers heard over 2 billion hours of programming.  The Kindle subscription business holds 14 % of the e-reader market and is the fastest growing segment increasing 4 % in 2016

Amazon is humongous compared to its competitors with brick-n-mortar stores:

Source: visualcapitalist.com – 12/30/16

Amazon is larger than the next 8 competitors and it is killing their businesses by amortizing its cut rate prices with profits from its Business to Business cloud enterprise – Amazon Web Services (AWS).

Source: Geekwire – 10/1/16

Without AWS Amazon would not be able to take profit from the B to B side of the business and fund the cut rate prices driving other stores out of business. While it may seem like this is capitalism ‘creative destruction’ at its best, this condition strikes us as unfair competition. Add a tax cut giveaway to corporations like Amazon, and the juggernaut keeps picking up speed at the expense of workers and democracy.

Next steps:

  1. One Lobbyist Limit – The Company is a citizen according to the Supreme Court in Citizens United, then good it has one lobbyist representative to Congress.
  2. Sunshine Contractor Monitoring – Amazon and the top 100 government contractors would have to contribute to a web site noting their business with the Federal Government, revenue from the contracts, agencies working with, number of government staff working with Amazon, Amazon staff size working on projects, where they are located, and all contacts with Congress, Executive branch staff – date, time, attends, discussion top, money involved, follow up. All these details would be available to the public on a web site 24/7.  These disclosure are a ‘annual report’ to the people of the US about what the top 100 contracts are doing for our federal government, and us and how they are contributing to our government and society goals.
  3. Campaign Contribution limits – $2700 per corporation if they are a person, that is all a citizen is allowed to contribute, and the Supreme Court found corporations were citizens, so Amazon has the same limit as a citizen.
  4. Corporate Reform – top 2 corporations in an industry sector must have a minority number of outside board members elected by all the shareholders. Employees can form ‘councils’ along the line of the German worker council models.  Salaries for executives would be limited to 50 times the average worker in the firm (consumer discretionary sector the average for CEOs is 350 times, Bloomberg, Feb 1 2018)., Stock buy backs need to end, or be phased out as they are artificially raising the price of stock on major exchanges by 20 – 15 % experts estimate just to line the pockets of executives and major shareholders, the funds are not going to wage increases, productivity investments or job training.
  5. Anti – trust – Amazon needs to be broken up into a corporate web business – Amazon Web Services, and grocery business (Whole Foods never should have been approved) spun off. The e-Commerce business needs to stand on its own, plus we need to look for other ways to create fair- play markets possibly separating services from distribution,

The Rich View Our Government as A Trusted Rule Keeper, The Common Man Not So Much

Image: Your Little Planet

Thomas Jefferson and James Madison saw the need to frame a government such that ‘forced compromises’ would push political leaders to focus on the Common Good.  The institutions that maintain our common good include the federal government three estates:  The Supreme Court, Congress and The Executive.  In addition, the Fourth Estate, a Free Press is crucial for our citizens to have access to fair and impartial reporting about the activity of government officials and their policies. We have spotlighted the key role Education, as the Fifth estate, plays in educating our people to make critical decisions and understand comprehensively the information they receive from a Free Press.

Trust in our federal government has been falling since the presidency of Lyndon Johnson in 1965.

Source: Pew Research Center – 12/14/17

We noted in our first post on the Common Good that there were two factors contributing to the decline in trust:

We see two major factors for the lack of trust.  One, is that economic inequality has been increasing over the last 60 years to the point where it is at the worst it has ever been since 1929.  Americans expect their government to be the rule keeper of a fair shot at economic opportunity not a bastion for the rich and powerful.  As wealthy donors have taken over control of both major parties, the influence of the average citizen has been reduced to nearly nothing except at the ballot box – but not in legislative policy.”

The second major factor is the change in information access and news viewing habits of our society.

In the 1950s and 1960s families gathered around the television set to watch Walter Cronkite or Huntley and Brinkley bring them the news for the day.  These news anchors had teams of trained journalists in how to gather news, provide airing of opposing views and investigation to reveal the facts of the story. As cable news programs became popular people drifted away from central network journalist supported news programs toward popular ‘viewpoint news’ programs like Fox News or CNN.  Then, from 1995 until today, the Internet was a catalyst for the growth of blogging, and ‘friend news’ on Facebook which had virtually no formally trained journalists and limited understanding of the difference between facts and opinions.  Opinions spread virally through the Internet often with no foundation in formal fact gathering or fact finding investigation techniques. Today, we even have presidential spokespersons talking about ‘alternative facts’ to justify their policies or opinions.

Trust gaps by income level are increasing around the world with many developed countries showing double digit gaps between the top income quartile and the bottom income quartile and the U.S. with the largest gap:

In the U.S. incomes for the lower 80 % have been largely stagnant for the past three decades since the Reagan years, higher education costs rising to levels never seen before with student loan debt at $1.5 trillion dollars. In short, lower and middle income parents expect their children to have fewer opportunities and to make less money over their lifetime. This growing sense of hopelessness is in part triggering the populist movements we see world-wide. The top quartile trust government institutions the most because they are getting the benefits, tax cuts, relaxed environmental policies to allow their businesses to make as much money as they can, and continued stock buy backs to make even more money instead of increasing worker wages.  Workers see their votes not making a difference as Congress is at the beck and call of Corporate Nation States who make multi-million dollar campaign contributions and the Executive Branch now run by billionaires.

Little wonder the Common Good is not embraced by all people, for the rich they are on top of the economic pyramid. The rich get the laws they want and aren’t interested in sharing their wealth or time to build the Common Good.

Here is what will likely happen, in the end the rich will need to see that it is in their interest to build the Common Good, by contributing to our institutions of government and common people or they will lose what they already have and probably a lot more.

14 % of Workers Have Not Received Wage Increases In the Last Year

 

Photo: theaustintimes.com

While CEOs at the top 100 corporations received a 5 %  raise in average compensation  of  $15.7 million last year,  14 % of all workers have received no raises at all, higher than before the Great Recession. The recovery has not come for many workers.

Sources: San Francisco Federal Reserve, National Bureau of Economic Research, Haver Analytics, Marketwatch – 5/29/18

Prior to the 2008 recession there were 11 % of all workers not receiving raises, still too high but much lower when considering the size in millions of the US workforce. After the recession companies were slow to give all workers raises as the rate rose to almost 17 % without raises.  Then, over time more workers are receiving raises as the economy recovered for the top 20 % in income. Still, 14 % is still too high.  The Federal Reserve economists note that the no raise rate would have to drop to 12.5 % or so for enough wage pressure to cause a move from the present stagnant 2.5 % to increase to 3 % and cause wage push inflation.  The fact the number of employees not receiving wages is actually going up is a concern that wage raises may actually fall or stay the same.

Next Steps:

We continue to see the extreme inequity of executives and professionals continuing to receive raises, for many twice the 2 % inflation rate versus workers. The reality is that employees just do not have the same wage power that they used to. We have previously discussed the combination of factors that contribute to extreme lack of wage power for workers including: lack of union representation, automation, fewer corporations due to mergers reducing the number of jobs,  low wage H1-B visas being approved,  using profits for stocky buybacks instead of investment in productivity increases, Internet recruiting nationwide and worldwide for some positions, and the shift to outsourcing jobs and the gig economy.

We recommend the following actions be taken by Congress and Corporate Leaders:

  1. Place Workers on Boards– as Germany has so effectively setup, engaging management with required representation of workers on Boards.
  2. End Outsourcing– corporations would pay 50 % tax on each job moved overseas making the move costly, encouraging corporations to move jobs to low cost or inland areas of the US, or innovation economic zones (special tax geographies) and to invest in worker training to receive training tax credits.
  3. End Low Cost H1-B Visas– the practice of importing inexpensive labor to drive down wages in US markets would be ended.
  4. Offer Lower Taxes on Repatriated Funds– only if the profits from overseas are invested in productivity actions, increasing wages of workers (not executives), reducing costs or innovation. Stock buybacks or dividends would be prohibited.
  5. End Stock buybacks– these funds are totally wasted, mislead investors on earnings reports and only serve to increase compensation for executives and shareholders. These funds are better allocated to increase worker wages or increase productivity so workers can receive higher wage increases.
  6. Breakup Oligopolies– breakup market concentrations in key sectors: information technology, banks and financial services, health insurers, airlines, hospitals and clinics, entertainment, media and distribution and others as deemed in the public interest.
  7. Balance Job Market Process– require companies over 100 employees to offer information on their website for contacts, phone numbers, job listings with identified contacts, and to let the candidate know the status of his consideration, and candidate introductions held monthly for F2F communication.
  8. Balance Worker and Executive Pay– tax corporations 25 % surcharge on any corporate income where any executive makes greater than 150 % than any the average worker wage – this would force executives to share their income with workers while not increasing costs. End federal tax deductions on corporate income taxes for executive stock compensation above $1 million. End golden parachute packages by taxing 50 % of every dollar received above $1 million. Severance packages for workers would have to be in proportion to the highest executive package ie, executive receives 10x of monthly salary a worker would receive 10x of his/her monthly salary.
  9. Fund Worker Training and Increase Wages – for each robot employed, the corporation would be required to offer training, skills development for the displaced worker to find a comparable job within the company or outside. Where automation software or technology is deployed 10 % of the realized cost benefit would be used to raise the wages of all workers in the company.

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