The Trump Tax Plan Proves A Bonanza For Business

Every time a progressive policy captures the public imagination, like the Green New Deal, opponents are quick to raise the revenue question in an effort to discredit it.  While higher taxes on the wealthy and leading corporations should be an obvious starting point in any response, until recently elites have been remarkably successful in winning tax reductions, spinning the argument that cuts are the best way to stimulate private investment and create jobs.  And they have enjoyed a double gain: not only do the cuts benefit them financially, the loss of public revenue encourages people to think small when it comes to public policy.

However, there are signs that the times might be changing.  Alexandria Ocasio-Cortez’s proposal to tax annual incomes over $10 million at a marginal tax rate of 70 percent has won significant public support. Strong popular opposition in New York to a plan to heavily subsidize a new Amazon headquarters forced the company to withdraw its proposal. And then there is the negative lesson of the Wisconsin fiasco, where the state showered Foxconn with massive tax and other subsidies in an effort to land a new manufacturing facility, only to have the company walk-back its commitments after significant state expenditures.

But there is still important education as well as political work that remains to be done to win majority support for the kind of tax reform we so desperately need. President Trump’s “Tax Cuts and Jobs Act,” which was signed into law on Dec. 22, 2017, is one example of what we are up against.

The “American model”

President Trump’s signature tax law included significant benefits for the wealthy as well as most major corporations.  Looking just at the business side, the law:

  • lowered the US corporate tax rate from 35 percent to 21 percent and eliminated the corporate Alternative Minimum Tax.
  • changed the federal tax system from a global to a territorial one.  Under the previous global tax system, US multinational corporations were supposed to pay the 35 percent US tax rate for income earned in any country in which they had a subsidiary, less a credit for the income taxes they paid to that country. However, the tax payment could be deferred until the earnings were repatriated.  Under the new territorial tax system, each corporate subsidiary only has to pay the tax rate of the country in which it is legally established; foreign profits face no additional US taxes.
  • established a new “global minimum” tax of 10.5 percent that is only applied to total foreign earnings greater than a newly established “normal rate of return” on tangible investments in plant and equipment (set at 10 percent).
  • offered multinational corporations a one-time special lower tax rate of 8 percent on repatriated funds that were held overseas by corporate subsidiaries in tax-haven countries.

Of course, President Trump sold these changes as a means to rebuild the American economy, predicting a massive return of overseas money and increase in domestic investment.  As he explained:

For too long, our tax code has incentivized companies to leave our country in search of lower tax rates. My administration rejects the offshoring model, and we have embraced a brand new model. It’s called the American model. We want companies to hire and grow in America, to raise wages for the American workers, and to help rebuild American cities and towns.

The same old story

Not surprisingly, the so-called new American model looks a lot like the old one, with corporations–and their managers and stockholders–gaining at the public expense.

Corporate investment has not been limited by a lack of money.  Rather, corporate profits have steadily increased while investment in plant and equipment has remained weak.  Instead of investing, corporations have used their surplus to finance dividend payments, stock repurchases, and mergers and acquisitions. Instead of stimulating new productive investment, the tax cut only gave firms more money to use for the same purposes.

The new territorial tax system, which was supposed to promote domestic investment and production, actually continues to encourage the globalization of production since it lowers the taxes corporations have to pay on profits generated outside the country. The new global minimum tax does much the same.  Although its supporters claimed that it would ensure that corporations pay some US tax on their foreign profits, as structured it encourages foreign investment.  The minimum tax rate remains far below the US domestic rate, and the larger the capital base of the foreign subsidiary, the greater the foreign profits the parent firm can shield from taxation.

As for the one-time tax break on repatriated profits, the fact is that most of the money supposedly held abroad was already in the country, sitting in accounts protected from taxation.  Moreover, since firms remain reluctant to invest, the one-time break only served to give firms the opportunity to channel more money into nonproductive uses at a special lower tax rate.

Tax realities

According to the Treasury Department, corporate income tax receipts fell by 31 percent in fiscal year 2018.  As a Peter G. Peterson blog post explains:

The 31 percent drop in corporate income tax receipts last year is the second largest since at least 1934, which is the first year for which data are available. Only the 55 percent decline from 2008 to 2009 was larger. While that decrease can be explained by the Great Recession, the drop from 2017 to 2018 can be explained by tax policy decisions.

The Tax Cuts and Jobs Act, enacted in December 2017, is responsible for the plunge in corporate income tax receipts in 2018. Those changes include a reduction in the statutory rate from 35 percent to 21 percent and the expanded ability to immediately deduct the full value of equipment purchases. The Congressional Budget Office points out that about half of the 2018 decline occurred since June, which includes estimated tax payments made by corporations in June and September that reflected the new tax provisions.

Ben Foldy, writing for Bloomberg news, highlights the spoils that went to the banking sector:

Major U.S. banks shaved about $21 billion from their tax bills last year — almost double the IRS’s annual budget — as the industry benefited more than many others from the Republican tax overhaul. . . .

On average, the banks saw their effective tax rates fall below 19 percent from the roughly 28 percent they paid in 2016. And while the breaks set off a gusher of payouts to shareholders, firms cut thousands of jobs and saw their lending growth slow. . . .

Tax savings contributed to a banner year for banks, with the six largest surpassing $120 billion in combined profits for the first time. Dividends and stock buybacks at the 23 [largest] lenders surged by an additional $28 billion from 2017 — even more than their tax savings.

The stability and profitability of global corporate networks

US firms also continue to take advantage of overseas tax havens.  As Brad Setser, writing in the New York Times, points out:

despite Mr. Trump’s proud rhetoric regarding tax reform . . . there is no wide pattern of companies bringing back jobs or profits from abroad. The global distribution of corporations’ offshore profits — our best measure of their tax avoidance gymnastics — hasn’t budged from the prevailing trend.

Well over half the profits that American companies report earning abroad are still booked in only a few low-tax nations — places that, of course, are not actually home to the customers, workers and taxpayers facilitating most of their business. A multinational corporation can route its global sales through Ireland, pay royalties to its Dutch subsidiary and then funnel income to its Bermudian subsidiary — taking advantage of Bermuda’s corporate tax rate of zero.

The chart below makes this quite clear, showing that US profits are disproportionately booked in countries where there is little or no actual productive activity.

In fact, as Setser notes, “the new [tax] law encourages firms to move ‘tangible assets’ — like factories — offshore.”

The chart below, from a Fortune magazine post, provides an overview of the large cash holdings of some of America’s largest corporations and the share held “outside” the country.

Economists estimated that US firms held approximately $2.6 trillion outside the country and the Trump administration predicted that a large share would be brought back, funding new productive investments, thanks to the one-time lower tax rate included in the 2017 tax reform act.  Government officials and the media talked about this money in a way that gave the impression that it was actually sitting outside the country. But it wasn’t.

Adam Looney, in a Brookings blog post, clarifies that:

”repatriation” is not a geographic concept, but refers to a set of rules defining when corporations have to pay taxes on their earnings. For instance, paying dividends to shareholders triggers a tax bill, but simply bringing the cash to the U.S. does not. Indeed, nearly all of the $2.6 trillion is already invested in the U.S. . . .

U.S. multinational corporations can defer paying tax on profits they earn abroad indefinitely by agreeing not to use the earnings for certain purposes, like paying dividends to shareholders, financing domestic acquisitions, guaranteeing loans, or making investments in physical capital in the U.S. In short, the rules prohibit a company from using pre-tax money in transactions that benefit shareholders. No one believes this is rational or efficient, and it is certainly onerous for shareholders, who would rather have that cash in their pockets than held by the corporation. But those rules don’t place requirements on the geographic location of the cash. Multinational firms are allowed to bring those dollars back to the U.S. and to invest them in our financial system.

Indeed, that’s exactly what they do. Don’t take my word for it, the financial statements of the companies with large stocks of overseas earnings, like Apple, Microsoft, Cisco, Google, Oracle, or Merck describe exactly where their cash is invested. Those statements show most of it is in U.S. treasuries, U.S. agency securities, U.S. mortgage backed securities, or U.S. dollar-denominated corporate notes and bonds.

Of course, these firms could easily have used their tax deferred dollar assets as collateral to borrow to finance any investment projects they found attractive.  Their lack of interest in doing so provides additional evidence that low corporate rates of investment are not due to funding constraints.  Rather, corporations have only a limited interest in undertaking productive investments in the US.

Thus, it should come as no surprise that the one-time tax break resulted in a one-time, modest, “repatriation” and that the money was largely used for financial rather than productive purposes. The New York Times reports that:

 JPMorgan Chase analysts estimate that in the first half of 2018, about $270 billion in corporate profits previously held overseas were repatriated to the United States and spent as a result of changes to the tax code. Some 46 percent of that, JPMorgan Chase analysts said, was spent on $124 billion in stock buybacks.

The flow of repatriated corporate cash is just one tributary in what has become a flood of payouts to shareholders, both as buybacks and dividends. Such payouts are expected to hit almost $1.3 trillion this year, up 28 percent from 2017, according to estimates from Goldman Sachs analysts.

In sum, thanks to the Trump tax plan, trillions of dollars that could have been used to transform our transportation and energy infrastructure, industrial structure, and system of social services are instead being transferred to big businesses, who use them for speculative activities and to further enrich their already wealthy managers and stock holders.

Given current realities, we can expect growing popular interest in and support for new public initiatives like the Green New Deal and a new progressive system of taxation to help finance it.  Hopefully, exposing the workings of our current tax system and the lies our government and business leaders tell about whose interests it serves, will help speed this development.

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Foxconn: Playing Fast and Loose in Wisconsin

When state and local governments bid for corporate investment, working people lose.  It is as simple as that.  And Foxconn’s on-again, off-again, and on-again shrinking investment in Wisconsin is a case in point.

In July 2017 Foxconn announced, at the White House, its agreement to spend $10 billion to build a factory in Wisconsin to produce flat-panel display screens for televisions and other consumer electronics, creating 13,000 manufacturing jobs within six years.  In return, the state of Wisconsin offered the company $3 billion in subsidies.  The agreement was celebrated by then Wisconsin governor Scott Walker and, of course, lauded by President Trump.

However, in January 2019, the special assistant to the president of Foxconn announced that “In Wisconsin we’re not building a factory. You can’t use a factory to view our Wisconsin investment.” The reason, according to the special assistant, was that Foxconn decided that it couldn’t compete in the US TV market using US labor to build LCD panels.

As for jobs, the company has already fallen short on its employment promises.  It pledged to create 260 jobs in 2018 but added only 178.  It also promised to employ 5,200 workers by the end of 2020, but now estimates that the total will likely be closer to 1,000. And most of the future hires will be engaged in research and development, not manufacturing.

And the cost to Wisconsin’s communities?  The size of the subsidy quickly grew by over a billion dollars from its initial figure.  As the Verge reports:

By December 2017, the public cost had grown to include $764 million in new tax incentives from local governments in Racine County, which is just 40 minutes south of Milwaukee where the plant was to be located. Other additions included $164 million for road and highway connections built to service the plant, plus $140 million for a new electric transmission line to Foxconn that would be paid for by all 5 million ratepayers of the public utility We Energies. With other small costs added, the total Foxconn subsidy hit $4.1 billion — a stunning $1,774 per household in Wisconsin.

The original plan specified that the subsidy would be given out in increments as investments were made and jobs created.  It remains to be seen how the state will respond to Foxconn’s retrenchment.  But the additional $1.1 billion highlighted above will cost the public regardless of what Foxconn does, since local governments have already begun building the infrastructure that Foxconn wanted.  Those are real outlays that will come at the expense of other, far more critical social programs. And then there are the families who lost their homes when eminent domain was used to seize their properties to prepare the land for Foxconn’s proposed factory.

Not surprisingly, Foxconn’s announcement that it was walking back its commitment has generated a lot of anger in Wisconsin.  And bad press for President Trump.  And so, after a January 2019 phone exchange between President Trump and Foxconn chairman Terry Gou, the company announced that it will indeed build a factory in Wisconsin, just a smaller one than originally promised.

I think we all know how this will work out.

The Deal 

Foxconn’s proposed investment was seen as a significant win for both Governor Walker and President Trump. The Guardian quoted a senior administration official “who said the announcement was ‘meaningful,’ because ‘it [represents] a milestone in bringing back advanced manufacturing, specifically in the electronics sector, to the United States.’”  President Trump followed with “If I didn’t get elected, [Foxconn] definitely would not be spending $10bn.”

But Foxconn was always an unreliable investor. As the Cap Times pointed out, Foxconn had a track record of broken promises:

  • Foxconn promised a $30 million factory employing 500 workers in Harrisburg, Pennsylvania, in 2013. The plant was never built, not a single job was created.
  • That same year, the company signed a letter of intent to invest up to $1 billion in Indonesia. Nothing came of it.
  • Foxconn announced it would invest $5 billion and create 50,000 jobs over five years in India as part of an ambitious expansion in 2014. The investment amounted to a small fraction of that, according to The Washington Post’s Todd Frankel.
  • Foxconn committed to a $5 billion investment in Vietnam in 2007, and $10 billion in Brazil in 2011. The company made its first major foray in Vietnam only last year. In Brazil, Foxconn has an iPhone factory, but its investment has fallen far short of promises.
  • Foxconn recently laid off 60,000 workers, more than 50 percent of its workforce at its IPhone 6 factory in Kushan, China, replacing them with robots that Foxconn produces.

Even more importantly, the deal was a stinker for working people in Wisconsin.  Wisconsin’s Legislative Fiscal Bureau, after examining the initial agreement, concluded that that the state wouldn’t break even on its investment until 2043 — and that was an absolute best-case scenario.

Playing fast and loose

The agreement was announced in July 2017.  Less than one year later, in June 2018, Foxconn announced a change to its plan.  Instead of a Generation 10.5 plant producing 10-foot by 11-foot panels for 75-inch TV screens, Foxconn said it would build a Generation 6 plant that only produced 5-foot by 6-foot panels.  The smaller plant would require only about one-third the initially promised investment.

Then, in late August, Foxconn announced yet another change, when its spokesperson, Louis Woo, told the Journal Times that even the Gen 6 panels might not be manufactured in Racine for long.  “We are not really interested in television,” Woo told the newspaper.

And then in January 2019, Foxconn announced it might not ever build a factory in Wisconsin or have need for manufacturing workers.  As Reuters explained, the company:

is reconsidering plans to make advanced liquid crystal display panels at a $10 billion Wisconsin campus, and said it intends to hire mostly engineers and researchers rather than the manufacturing workforce the project originally promised.

Rather than a focus on LCD manufacturing, Foxconn wants to create a “technology hub” in Wisconsin that would largely consist of research facilities along with packaging and assembly operations, Woo said. It would also produce specialized tech products for industrial, healthcare, and professional applications, he added.

“In Wisconsin we’re not building a factory. You can’t use a factory to view our Wisconsin investment,” Woo said.”

Finally, as noted above, after a phone conversation between President Trump and Chairman Gou, some kind of factory is back in Foxconn’s plans.  But for how long?

Foxconn failed to earn its 2018 tax credits because it fell short of its employment target.  As Reuters reports: “The company may be prepared to walk away from future incentives if it is unable to meet Wisconsin’s job creation and capital investment requirements, according to the source familiar with the matter.”

Lessons

Governor Walker went all in to get Foxconn, giving the company far more than he needed to do. As the Verge explains:

In retrospect, it’s clear that Walker had a strong hand to play in negotiations with Foxconn. The company had to locate in a Great Lakes state because of the huge amount of water needed to clean the glass used in manufacturing LCD screens. And no other Great Lakes state came close to offering the $4.1 billion Foxconn is getting. Michigan came the closest, offering $2.3 billion, but it was partly a tax subsidy rather than cash.

The Walker administration also gave Foxconn an exemption for the state’s environmental rules, “allowing it to discharge materials into wetlands and reroute streams during construction and operation.” And it “also agreed to allow Foxconn to draw massive amounts of water from Lake Michigan” in violation of “the provisions of the Great Lake Compact signed by the Great Lakes states and Canadian provinces to protect the lakes.”

And of course, the production of LCD screens requires the use of a number of hazardous materials, such as benzene, chromium, cadmium, mercury, zinc, and copper. Foxconn’s track record in handling such materials is far from good, even if it promised to build a Zero Liquid Discharge system, “which will go beyond any local, state and federal requirements relating to industrial water discharge.”

When the Legislative Fiscal Bureau did its evaluation of the deal, it concluded, as noted above, that it would take until 2043 for taxpayers to recoup the subsidy. But that was based on a $3 billion subsidy. At $4.1 billion, the current amount, the date gets pushed back to 2050.  And again, that assumes that all goes according to the initial plan.

In short, there is no good outcome here for the people of Wisconsin. Given the enormous social and environmental costs associated with this project, Wisconsin is probably better off if it can cancel the deal the previous governor made with Foxconn. Most importantly, one hopes that the Foxconn fiasco will solidify popular understandings that it never pays to compete for corporate investment with tax cuts and public subsidies.

Despite Offering Significant Benefits, Union Membership Continues To Decline

The Bureau of Labor Statistics just published its latest news release on union membership. Unfortunately, the downward trend continues.

The union membership rate—the percent of wage and salary workers in unions—fell in 2018, down to 10.5 percent.  That is 0.2 percentage points below what it was in 2017.  The number of union members also fell slightly, from 14,817 million in 2017 down to 14,744 million in 2018.  By comparison, in 1983, the earliest year with comparable data, the union membership rate was 20.1 percent and there were 17.7 million union members.

Private sector unionized workers still outnumber public sector unionized workers, 7.6 million to 7.2 million.  However, public sector workers continue to have a union membership rate more than five times that of private sector workers, 33.9 percent to 6.4 percent.  That is a major reason corporate leaders are focusing their anti-union attacks on public sector unions.

The Bureau of Labor Statistics also reported that:

Within the public sector, the union membership rate was highest in local government (40.3 percent), which employs many workers in heavily unionized occupations, such as police officers, firefighters, and teachers. Private-sector industries with high unionization rates included utilities (20.1 percent), transportation and warehousing (16.7 percent), and telecommunications (15.4 percent). Low unionization rates occurred in finance (1.3 percent), food services and drinking places (1.3 percent), and professional and technical services (1.5 percent).

Among occupational groups, the highest unionization rates in 2018 were in protective service occupations (33.9 percent) and in education, training, and library occupations (33.8 percent). Unionization rates were lowest in farming, fishing, and forestry occupations (2.4 percent); sales and related occupations (3.3 percent); computer and mathematical occupations (3.7 percent); and in food preparation and serving related occupations (3.9 percent).

As for earnings, the union difference remains strong.  For example, the median weekly earnings of unionized full-time wage and salary workers in 2018 was $1051 compared to $860 for non-unionized full-time wage and salary workers.

Looking at occupations, the median weekly earnings of full-time wage and salary workers in service occupations was $802 for unionized workers and $541 for non-unionized workers.  In sales and office occupations, it was $835 for unionized workers and $735 for non-unionized workers. In production, transportation, and material moving occupations, it was $924 for unionized workers and $680 for non-unionized workers. [More complete data is provided in the table below].

earningsAnd then there are other benefits. For example, union workers are far more likely to be covered by employer-provided health insurance; enjoy paid sick days and vacations; and, perhaps most importantly, have access to a transparent process that protects them from arbitrary punishment or dismissal. The table below, from a Bureau of Labor Statistics published article, highlights the benefit differential between unionized and non-unionized workers.Employers never want to pay higher salaries and benefits or cede power to their workers. Therefore, despite their growing profits, they continue to push for new measures designed to weaken unions and worker rights more generally. There are signs of resistance, especially among public sector workers, but there is a long way to go before the balance of power shifts to working people.

 

Millennials: Hit Hard And Fighting Back

A lot has been written and said critical of millennials. The business press has been tough on their spending habits.  As a recent Federal Reserve Board study of millennial economic well-being explained:

In the fields of business and economics, the unique tastes and preferences of millennials have been cited as reasons why new-car sales were lackluster during the early years of the recovery from the 2007–09 recession, why many brick-and-mortar retail chains have run into financial trouble (through lower brand loyalty and goods spending), why the recoveries in home sales and construction have remained slow, and why the indebtedness of the working-age population has increased.

Politicians, even some Democratic Party leaders, have tended to write them off as complainers. For example, while on a book tour, former Vice President Joe Biden told a Los Angeles Times interviewer that “The younger generation now tells me how tough things are. Give me a break. I have no empathy for it. Give me a break.” Biden went on to say that things were much tougher for young people in the 1960s and 1970s.

In fact, quite the opposite is true.  For better or worse, the authors of the Federal Reserve Board study found that there is “little evidence that millennial households have tastes and preference for consumption that are lower than those of earlier generations, once the effects of age, income, and a wide range of demographic characteristics are taken into account.”  More importantly, millennials are far poorer than past generations were at a similar age, and are becoming a significant force in revitalizing the labor movement.

Economic hard times for millennials

The Federal Reserve Board study leaves no doubt that millennials are less well off than members of earlier generations when they were equally young. They have lower earnings, fewer assets, and less wealth.  All despite being better educated.

The study compares the financial standing of three different cohorts: millennials (those born between 1981 and 1997), Generation Xers (those born between 1965 and 1980), and baby boomers (those born between 1946 and 1964).  Table 1, below, shows inflation adjusted income in three different time periods for all households with a full-time worker and for all households headed by a worker younger than 33 years.

The median figures, which best represent the earnings of the typical member of the group, are shown in brackets.  Comparing the median annual earnings of young male heads of households and of young female heads of household across the three time periods shows the millennial earnings disadvantage.  For example, while the median boomer male head of household earned $53,400, the median millennial male head of household earned only $40,600.  Millennial female heads of household suffered a similar decline, although not nearly as steep.

Table 4 compares the asset and wealth holdings of the three generations, and again highlights the deteriorating economic position of millennials.  As we can see, the median total assets held by millennials in 2016 is significantly lower than that held by baby boomers and only half as large as that held by Generation Xers.  Moreover, millennials suffered a decrease in asset holdings across most asset categories.

Finally, we also see that millennials have substantially lower real net worth than earlier cohorts. In 2016, the average real net worth of millennial households was $91,700, some 20 percent less than baby boomer households and almost 40 percent less than Generation X households.

Fighting back

Millennials have good reason to be concerned about their economic situation.  What is encouraging is that there are signs that growing numbers see structural failings in the operation of capitalism as the cause of their problems and collective action as the best response.  A recent Gallup poll offers one sign.  It found a sharp fall in support for capitalism among those 18 to 29 years, from 68 percent positive in 2010 down to 45 percent positive in 2018.  Support for socialism remained unchanged at 51 percent.

A recent Pew Research poll offers another, as shown below. Young people registered the strongest support for unions and the weakest support for corporations.

Of course, what millennials do rather than say is what counts. And millennials are now boosting the ranks of unions.  Union membership grew in 2017 for the first time in years, by 262,000.  And three in four of those new members was under 35.  Figures for 2018 are not yet available, but given the strong and successful organizing work among education, health care, hotel, and restaurant workers, the positive trend is likely to continue.

Millennials are now the largest generation in the United States, having surpassed the baby boomers in 2015.  Hopefully, self-interest will encourage them to play a leading role in building the movement necessary to transform the US political-economy, improving working and living conditions for everyone.

Politics in America: Politicians at State and Federal Levels Consistently Overestimate Popular Support for Conservative Positions

US elected leaders, and those that work for them, think their constituents are far more conservative than they are. The good news is that this means there is far more support for a progressive political agenda than one might think.  The bad news is that without sustained popular activism it is doubtful that elected leaders will change their policies accordingly.

The misinformed views of those running for state office

In August 2012, David E. Broockman and Christopher Skovron, surveyed candidates running for state legislative offices across the US.  They asked them their own positions and to estimate their constituents’ positions on same-sex marriage and universal health care.  Then, they compared candidate estimates with their constituents’ responses to questions on those issues that were included in a large national survey.

They found that “politicians consistently and substantially overestimated support for conservative positions among their constituents on these issues.”  More specifically:

The differences we discover in this regard are exceptionally large among conservative politicians: across both issues we examine, conservative politicians appear to overestimate support for conservative policy views among their constituents by over 20 percentage points on average. In fact, on each of the issues we examine, over 90% of politicians with conservative views appear to overestimate their constituents’ support for conservative policies. . . . Comparable figures for liberal politicians also show a slight conservative bias: in fact, about 70% of liberal officeholders typically underestimate support for liberal positions on these issues among their constituents.

The figure below illustrates their results.  Each scatter point represents a different district and shows the candidate estimate of district support for the issue in question and the actual surveyed district support for that issue.  Districts where the candidate accurately estimated the district position would be positioned along the linear grey line.  As we can see, both the blue line representing liberal politicans and the red line representing conservative ones lie beneath the grey line, showing that district residents are far more favorable to both these issues than either liberal or conservative politicians think.

Perhaps not surprisingly, when Broockman and Skovron resurveyed the politicians in November, they found that “politicians’ perceptions of public opinion after the campaign and the election itself look identical to their perceptions prior to these events, with little evidence that their misperceptions had been corrected.”

They did another survey in 2014 of the views and perceptions of state legislative candidates and office holders, this time asking about more issues, including ones dealing with gay and lesbian marriage, gun control, the right to abortion, and the legalization of illegal immigrants.  Once again they found that:

politicians from both parties believed that support for conservative positions on these issues in their constituencies was much higher than it actually was. These misperceptions are large, pervasive, and robust: Politicians’ right-skewed misperceptions exceed 20 percentage points on issues such as gun control—where these misperceptions are the largest—and persist in states at every level of legislative professionalism, among both candidates and sitting officeholders, among politicians in very competitive districts, and when we compare politicians’ perceptions to voters’ opinions only. That Democratic politicians also overestimate constituency conservatism suggests these misperceptions cannot be attributed to motivated reasoning or social desirability bias alone.

It’s no better at the federal level

Alexander Hertel-Fernandez, Matto Mildenberger and Leah C. Stokes did a similar study on the federal level. In 2016 they surveyed the top legislative staffers of every House and Senate member, asking them to estimate their constituents’ support for repealing Obamacare, regulating carbon dioxide, making a $305 billion investment in infrastructure, mandating universal background checks for firearm purchases, and raising the federal minimum wage to $12 an hour.  Then, they compared their estimates to district or state-level survey results.

They summarized their findings in a New York Times op-ed as follows:

if we took a group of people who reflected the makeup of America and asked them whether they supported background checks for gun sales, nine out of 10 would say yes. But congressional aides guessed as few as one in 10 citizens in their district or state favored the policy. Shockingly, 92 percent of the staff members we surveyed underestimated support in their district or state for background checks, including all Republican aides and over 85 percent of Democratic aides.

The same is true for the four other issues we looked at . . . . On climate change, the average aide thought only a minority of his or her district wanted action, when in truth a majority supported regulating carbon.

Across the five issues, Democratic staff members tended to be more accurate than Republicans. Democrats guessed about 13 points closer to the truth on average than Republicans.

Below is a visual summary of their results.

The authors also found corporate lobbying to be an important cause of this misrepresentation of public opinion. As Hertel-Fernandez, Mildenberger, and Stokes explain:

Aides who reported meeting with groups representing big business — like the United States Chamber of Commerce or the American Petroleum Institute — were more likely to get their constituents’ opinions wrong compared with staffers who reported meeting with mass membership groups that represented ordinary Americans, like the Sierra Club or labor unions. The same pattern holds for campaign contributions: The more that offices get support from fossil fuel companies over environmental groups, the more they underestimate state- or district-level support for climate action.

And it appears that corporate influence may have more to do with campaign contributions than the quality of corporate arguments.  As Eric Levitz, discussing the work in the Intelligencer, points out, “The study . . . found that ‘45 percent of senior legislative staffers report having changed their opinion about legislation after a group gave their Member a campaign contribution’ — and that 62 percent of staffers believe that ‘correspondence from businesses’ are ‘more representative of their constituents’ preferences than correspondence from ordinary constituents.’”

None of this means that we should abandon electoral work.  But it does make clear that simply working to elect “good” people, and hoping for the best, will only continue the country’s rightwing drift.  There are real forces at work encouraging elected leaders to create their own realities favorable to rightwing positions, including the willingness of conservatives to aggressively and regularly communicate their views to their representatives and, no doubt more importantly, corporate lobbying backed by financial contributions and a careful monitoring of votes.

We can overcome these forces, but only if we build strong popular movements that are able to organize and mobilize people to fight for the things we want, thereby shifting the terms of political debate and the consciousness of politicians in the process.  And, back to the good news: the studies above show that popular sentiment is far more receptive to progressive change than we might think from recent election outcomes and government policy.

The US Economy: Monopolized Product Markets And Precarious Work

Most economists and politicians sing the praises of competition.  It is supposed to keep firms on their toes for the benefit of consumers and workers.  Well, competition is certainly alive and well in the US, but the results are far from positive for working people.

Monopolized product markets

The Open Markets Institute recently issued a report that looks at recent changes in industry concentration in 32 different product markets.  It framed its work as follows:

while it may appear as though there are endless brands to choose from online and on the shelf, most are owned by a few large parent companies, the array of labels a mere façade creating the illusion of abundant options.

Locating data on how few companies control individual markets, though, has long been difficult, and not by accident. Although Americans used anti-monopoly policies throughout much of the 20th century to preserve competition, a shift in ideology in the late 1970s allowed increased monopolization across the economy. To shield this pro-corporate turn from the public, the Federal Trade Commission halted the collection and publication of industry concentration data in 1981.

To remedy this gap in public knowledge, Open Markets purchased extensive, up-to-date industry intelligence from IBISWorld, a team of analysts who collect economic and market data, with the intention of releasing the information regarding industry concentration to the public.

David Leonhardt, in his New York Times commentary on the report, includes the following summary chart:

And as Leonhardt notes, “If anything, the chart here understates consolidation, because it doesn’t yet cover energy, telecommunications and some other areas.”

These trends paint a picture of an economy in which a growing number of industries are dominated by a few powerful corporations, one that belies the conventional view that since our economy is subject to ever stronger competitive pressures, fears of monopoly domination are unjustified. This is not a new insight. For example, John Bellamy Foster, Robert W. McChesney, and R. Jamil Jonna made the same point in a 2011 Monthly Review article:

A striking paradox animates political economy in our times. On the one hand, mainstream economics and much of left economics discuss our era as one of intense and increased competition among businesses, now on a global scale. It is a matter so self-evident as no longer to require empirical verification or scholarly examination. On the other hand, wherever one looks, it seems that nearly every industry is concentrated into fewer and fewer hands.

The following chart, taken from the article, illustrates their point about growing industry concentration.

Foster, McChesney, and Jonna explain this “striking paradox” by showing how the competition that captures our attention is increasingly driven by, and largely takes place between, powerful, globally-organized corporations.  And, they also discuss the ways in which mainstream economic theory has worked to minimize public awareness of the resulting monopolization of economic processes and its negative consequences for the stability and vibrancy of the economy.

Precarious work

One negative consequence of these competitive battles is worth highlighting here: the transformation of labor relations which is making work, by design, more precarious.  As Lauren Weber, in a Wall Street Journal article titled “The End of Employees,” explains:

Never before have big employers tried so hard to hand over chunks of their business to contractors. From Google to Wal-Mart, the strategy prunes costs for firms and job security for millions of workers. . . .

The outsourcing wave that moved apparel-making jobs to China and call-center operations to India is now just as likely to happen inside companies across the U.S. and in almost every industry. . . .

The shift is radically altering what it means to be a company and a worker. More flexibility for companies to shrink the size of their employee base, pay and benefits means less job security for workers. Rising from the mailroom to a corner office is harder now that outsourced jobs are no longer part of the workforce from which star performers are promoted. . . .

Companies, which disclose few details about their outside workers, are rapidly increasing the numbers and types of jobs seen as ripe for contracting. At large firms, 20% to 50% of the total workforce often is outsourced, according to staffing executives. Bank of America Corp., Verizon Communications Inc., Procter & Gamble Co. and FedEx Corp. have thousands of contractors each.

Is it any wonder that income inequality has exploded in the US and even a record-breaking economic expansion in terms of longevity brings few benefits to working people?  Clearly, we need some new words, if not an entirely new song, if we are going to keep singing about competition.

We Need To Strengthen The Public In The US Public Sector

Many people have given up on the idea of government as an instrument of progressive social change, especially the federal government.  They think that the federal government is dominating and distorting economic activity and, more often than not, believe that the cause is a bloated, highly paid, and selfish federal workforce.

In fact, federal programs are increasingly being delivered by private contractors.  As a result, private employees doing work for the federal government now outnumber the federal workforce.  Moreover, in most cases, they are paid far more than the public employees they replace.  And, as more federal work is carried out under the direction of profit-seeking firms, there is good reason to believe that programs are reshaped to ensure that it is the private rather than public interest that is best served.

The declining share of federal workers

As a Public Goods Post explains:

the federal government workforce has not increased in absolute numbers in half a century. Not only is it the same size now as it was in the 1960s, since the 1980s it has shrunk. There are actually fewer government employees now than there were under Reagan even though the population has grown by over 30%.

As a consequence, as we see below, the size of the federal workforce as a share of the total civilian non-farm workforce has steadily fallen.  It is now less than 2 percent of the total.

The growth in private contractors

While the size of federal workforce has remained relatively unchanged for decades, the same is not true for real federal government spending on consumption and investment, as seen in the figure below.

So, how has the federal government been able to boost its activity with a relatively unchanged workforce?  The answer is an explosion in the use of private contractors.

According to the Public Goods Post,

the federal contractor workforce dwarfs the federal employee workforce nearly four-fold.

This massive third-party workforce has been mostly hidden from public view, kept intentionally out of sight by corporations and their lobbyists who have the most to gain, as well as by elected officials who want to claim that they are not growing government. Moreover, federal corporate contractors operate behind a shield of secrecy, enabled by their de facto exemption from the Freedom of Information Act (FOIA), and ensuring that they can operate without public scrutiny.

Fattening the corporate sector at public expense

This outsourcing of federal activities to private firms is likely an important reason for people’s dissatisfaction with government: they are far more expensive and their goal is profit not service.

A Project on Government Oversight study examined compensation paid to federal and private sector employees, as well as annual billing rates for contractor employees across 35 occupational classifications covering over 550 service activities.

It found, among other things, that:

Federal government employees were less expensive than contractors in 33 of the 35 occupational classifications reviewed.

Private sector compensation was lower than contractor billing rates in all 35 occupational classifications we reviewed.

The federal government approves service contract billing rates—deemed fair and reasonable—that pay contractors 1.83 times more than the government pays federal employees in total compensation, and more than 2 times the total compensation paid in the private sector for comparable services.

Here are some examples of the compensation bias favoring private contractors:

As bad as it is, this compensation bias is far from the whole story.  The fact is that public regulators incur significant costs trying to develop contracts that are supposed to ensure acceptable private contractor outcomes as well as actually monitoring performance.  And shortfalls in performance, an all too frequent outcome, require either additional federal expenditures beyond those initially stipulated in the contract or a lowering of public standards.

Moreover, a recent review of “the extensive global empirical evidence on the relative efficiency of the private versus public sectors” found no evidence:

that there is any systematic difference in efficiency between public and private sector companies, either in services which are subject to outsourcing, such as waste management, or in sectors privatized by sale, such as telecoms. . . .

This picture is further confirmed by examination of nine sectors which are most often subject to privatization, outsourcing and PPPs – buses, electricity, healthcare, ports, prisons, rail, telecoms, waste management and water – and the same results hold true in each sector: the evidence does not show any superior efficiency by private companies.

The challenge ahead

A report summarizing the discussions and outcomes of an October 2017 conference titled “Restoring Public Control of Public Goods” began as follows:

Over the past thirty-five years, government in the United States has been vilified and vitiated through a movement designed to de-legitimize government in the eyes of the public, to reduce government’s capacity to operate, and to replace that capacity with private contractors and other forms of privatization. . . .

We now are left with:

  • An increasingly hollowed-out, de-moralized, de-professionalized, and devalued government;
  • A hidden and growing “shadow government” of corporate contractors;
  • An array of expensive false economies–since, in fact, contracting out regularly costs taxpayers more than direct government provision of services;
  • Public goods that are so invisible as to be under-valued, and are therefore underfunded or struck from the budget;
  • Counter-productive systems of performance measurement that create further harmful (if sometimes unintended) consequences;
  • A citizenry that under-appreciates, or are unaware, of the public goods they receive.

The private sector has been quietly and efficiently winning its war to control and profit from public sector activities.  One can only hope that the recent interest in socialism will encourage a renewed popular commitment to work with public sector workers to resist this war on the public and build a new, more accountable, not to mentioned well-financed, public sector.