Thursday, February 14, 2008

The Cafeteria is... Free?

David Cay Johnston explores the Corporate Free Lunch

When I was a freshman in business school back in 1977, we had a mandatory course called 'Management and Society'. Professor John A. Hornaday. Interesting class. One time we had Edsel Ford in as a guest speaker (yes, the very Edsel that the infamous lemon was named after). Someone asked him how long a Ford vehicle should be expected to reliably last. Edsel said, "If you are diligent about changing the oil every 2,000 miles, and rotate the tires a couple of times a year, there's no reason why your Ford shouldn't last for five years." Five years? I immediately thought of the family cars we'd tried to keep going forever with cheap plug and wire kits, glue, duct tape, jumper cables and bondo.

One day Hornaday asked us, "How many of you people have a positive attitude towards unions?" Out of about 35 students, I raised my hand with about 2 or 3 other guys. I had a feeling right then, that I just might be a fish out of water, and that this was going to be a very long four years for me...

Just the same, I remember learning in that class that a corporation was a public charter, set up for public purposes. In return for granting the partners and shareholders limited liability, a corporation was expected to provide something in return for the public good; for the commonweal. In addition, it was recognized at the time that:

- Corporations should be willing and ready to regulate their own behavior, in order to keep the government from having to step in and do so.

- Maximizing shareholder value (the stock price) is a corporate strategy, but it doesn't necessarily need to be the corporate strategy. A lot of that depends upon the cash position of the company, how much debt it's carrying, the long-range view of the market, the nature of the competition, the age of the company, potential for growth, etc...

Bear in mind, of course, that this was during the Carter administration. The Reagan Revolution was just in the process of picking up steam before it emerged triumphant by the time I graduated. In the years after that, we increasingly came to see that the only "stakeholders" who mattered at all were the shareholders, and apparently, the executive class at the very top of the corporations.

The inevitable deregulation, union-busting, and the shifting of the corporate tax burden onto you and me was one set of things to be expected, but was the plan to have new regulations set up that would funnel subsidized wealth into the hands of a priviliged few? This is the charge of Pulitzer-winning journalist David Cay Johnston in his book Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense

There are lots of problems with the government. I've spent my life exposing all sorts of problems with government. But government is fundamentally essential. Government is what creates for us civilization. We created this country so that we could be free, so that we could pursue our lives the way that we want to pursue them. And wealth is a byproduct of that. But the government is being turned into a vehicle not to ensure our liberties and create a level playing field but instead into a vehicle to take from the many to enrich the few.
It takes great fortitude and moral conviction not to go and shop for the lower prices at the big box stores like Wal-Mart, Sam's Club, Costco, etc... and to not contribute to the downfall of mom-and-pop businesses around the country, but are we all aware of the extent to which corporations of this kind are actually subsidized, can pit towns against each other to win tax breaks, and even get license from the government to keep the sales tax they charge us?

Listen to Johnston on NPR's Fresh Air

Investigative reporter David Cay Johnston explores in his new book how in recent years, government subsidies and new regulations have quietly funneled money from the poor and the middle class to the rich and politically connected.

Read and watch Johnston on Democracy Now!

From Democracy Now...

DAVID CAY JOHNSTON: Between 1945 and the election of Ronald Reagan, we had a government that was focused on creating and nurturing the middle class. When I was a young man, I was able to go to college only because it was free. It didn’t matter that I didn’t have any money—my dad was a 100 percent disabled veteran, and I went to work when I was ten years old and full time since I was thirteen—because it was free.

Today, the cost of a college education, a state college education, is about $10,000 a year. The average income of the bottom half of taxpayers—that’s not families, that’s taxpayers—is about $15,000. Think you can go to college if two-thirds of your income would have to go to college? I don’t think so.

Well, Mr.—what Mr. Reagan did in 1980 was he asked a question that had a very powerful effect. He said, “Are you better off than you were four years ago?” And Americans said no, they weren’t. And they elected him to office, and they set in motion a major change in government policy, a change that I think has been perverted. I do not believe Reagan intended all of the things that have been done since he started this happening.

But I’m asking the question in Free Lunch: Are you better off than you were in 1980? And on the surface, America is much better off. The country is more than twice as wealthy in real terms as it was in 1980. Per person, adjusted for inflation, the economy now puts out $1.70 for every dollar that it put out in 1980. Those are absolutely tremendous economic numbers.

So how come we’re not all really well-off? Why is it one-in-seven families has filed bankruptcy in the last twenty-five years? Why is it people are so mired in debt that television ads are just full of debt relief and take on more debt ads, sometimes at 99 percent interest? Why is it that so many people don’t have health insurance and so many people no longer have a retirement plan?

AMY GOODMAN: Didn’t that wealth transfer massively begin—I mean, accelerate with Reagan?

DAVID CAY JOHNSTON: Oh, yes. No, that’s—I’m sorry, that’s exactly my point, Amy, is that what happened is that we put in place all sorts of new programs, many of which were never written about in the news media, that got no attention whatsoever. We created healthcare billionaires while making healthcare unavailable to one-in-seven Americans. And we did this with government money. We allowed people to buy public assets for, in some cases, a fraction of a penny on the dollar and then poured government money into them.

And, you know, our national myth that Ronald Reagan ran for office on was that there were all these welfare queen Cadillacs—welfare queens driving Cadillacs out there. I think there was, in fact, one scam artist who went to prison. But what’s really going on is welfare at the top, and way beyond what’s been reported in the news media as corporate welfare. We have built into the scaffolding of the new economy rules that funnel money to the top.

JUAN GONZALEZ: You also delve into this whole phenomena across America of the big box stores, the Targets and the Wal-Marts and the Kmarts. And obviously they’ve—to some, they at least offer cheaper goods, cheaper consumer goods. Your analysis of their impact?

DAVID CAY JOHNSTON: Well, first of all, they say they offer cheaper goods. I don’t accept that that’s necessarily true. But here’s what happens. And this is a good example of where the news media hasn’t done a good job. I have tons of news clips that say, oh, this new shopping mall is coming or a new Wal-Mart or a new Cabela’s store, and thanks to tax increment financing, this store is going to be built. Well, what is tax increment financing? I’ll tell you what it is. You go to the store with your goods, you pay for it at Wal-Mart, and there’s a very good chance that that store has made a deal with the government that the sales taxes you are required to pay, that government requires you to pay, never go to the government. Instead, those sales taxes are kept by Wal-Mart and used to pay the cost of the store. And typically in those deals, the store is tax exempt, just like a church.

Now, there are two ways that it’s important to think about this. One is, that means your kid’s schools, your police department, your library, your parks are not getting that money. And you’ll notice we keep saying we’re starved for money. We’re twice as wealthy as we were in 1980, but we’ve got to close hospitals, and we’ve got to close schools, and we don’t have money for all sorts of things like after-school programs, even though we’re twice as wealthy. The second thing to think about is, imagine that you own Amy Goodman’s or Juan’s department store across the street. You suddenly have to compete with people whom the government is giving a huge leg up on. You think you would go broke after a while? Well, in fact, you will.

And I tell about a man named Jim Weaknecht who owned a little store in the Poconos of Pennsylvania. He sold fishing tackle, hunting gear, stuff like that. And the way he made his living in his little tiny store, enough that he was able to have his wife stay at home and raise their three kids full time, was by charging less than a company called Cabela’s. Well, then Cabela’s came to town. This little city of 4,000 people made a deal to give Cabela’s $36 million to build a store. That’s more than the city budget for that town for ten years. It’s $8,000 for every man, woman, and child in that town to have this store. And even though he charged lower prices, he was pretty quickly run out of business.

That’s not market capitalism, which is what Ronald Reagan said he was going to bring us. He said, you know, government’s the problem, we need markets as a solution. Well, that’s not the market. That’s corporate socialism. And what we’ve gotten is corporate socialism for the politically connected rich—not all the rich, the politically connected rich—and market capitalism for everybody else.


Liam said...

Jeff, you're posting like a madman -- it's hard to keep up.

Another excellent post. I wonder if we will reach a tipping point at which this type of argument won't be shot down as "sour grapes" or "class warfare" or "anti-free market"? It's obvious that people are sick of the GOP, but are they going to let go of memes like "tax and spend liberal," "socialized medicine," and "welfare queens"? Since 1980, the right wing has done a remarkable job of convincing people to vote against the general interest and against their own interests. Of course, the Democratic party fell apart during the same period, and the only real "success" they had during that period was holding the presidency from 1992-2000 (though losing congress at the same time), and the expense they paid for that was a president and party leader who aped a lot of the Republican economic rhetoric (and was still politically assaulted by the power-hungry ideologues in the GOP).

Could we have some change, please?

And one more thing... Go Mets!

Garpu the Fork said...

I've seriously considered getting out of the US. On the one hand, if everyone who wants change leaves, nothing will change. But on the other hand, I can't help but see the political attitudes towards others and companies as horribly selfish. I mean, I pay taxes for a host of services I don't use. Then again others pay taxes for things I don't use. In the end it all balances out.

It reminds me of the one Canadian they interviewed during the movie, "Sicko." The guy didn't mind that he was paying for someone else's healthcare, because when the time came, they'd be paying for his. But when everyone is only looking out for their own interests--especially when foreclosure rates are at an all-time high, you can't help but wonder if there's any way back from this.

crystal said...

When I went to college, it wasn't very expensive - maybe because it was just a state college - and I had jobs all the way through to pay for it. I'd never be able to go to college now - too expensive.

I try to never buy stuff from China and I've never been to Walmart, but I understand how hard it is not to. When my sister was trying to have her own business selling tea and coffee baskets, she wanted to add some other items, like tea cups, and then there were the baskets it all went it, etc .... it was incredible the difference in price between stuff made in China and everywhere else, if you could even find stuff not made in China. Really depressing.

Jeff said...

Hi Liam,

You know, I’m afraid that a sound argument can be made that I’m posting like a madman even when I’m not being prolific.

You’re absolutely right. I can’t help but to be astounded and impressed (in a dubious way) at how they’ve been so successful in tarring and feathering certain words beyond recovery.

Taking recent campaign-season ribbing from my wife Anne aside, I am not a socialist, even though a post like this is enough to get me labelled as one in a lot of quarters these days. After all, I do work aggressively against the competition for a Fortune 500 company. I believe in private property and the free market. I recognize that people generally aren’t willing to take close care of what they don’t own. Is it too much to ask, though, to see some semblance of the New Deal consensus retained, and have some kind of social safety net left around that’s not completely shredded? Maybe that’s true conservatism, because that’s something worth conserving.

I’ve read some interesting stuff the last couple of years about why Red State America has been persuaded to vote consistently for the party that has been against their economic interests and has been tucking it to them over and over again. Tom Franks wrote about it in What’s The Matter with Kansas?. Some politicos like his analysis but don’t think it takes enough things into account. Paul Krugman (The Conscience of a Liberal) thinks the racial, civil-rights era resentment angle has not been emphasized enough. Joe Bageant makes a big issue about Scots-Irish gun culture being offended by the left (Deer Hunting with Jesus). All of them make references to conservative religion, but not enough in my view. I don’t think they understand the phenomenon well enough. I don’t think they can relate well enough to the mindset. Quite frankly, I don’t think they realize how seriously Red State voters take the abortion issue, to the near exclusion of everything else. Republican operatives do understand it. It turns out these voters have been like the shock-troops for the Wall Street crowd who’ve laughing at them behind their backs for being red-necked yokels. These parties need a realignment, and this country needs some kind of way to come to a consensus on that issue... if it is at all possible. It may not be.

IMO, the Democrats haven’t done themselves any big favors over the last couple of decades by appearing hostile to people of faith, basically writing off huge segments of the population in doing so, but this finally seems to be changing.

I think we are going to see a lot of change.

And one more thing... Go Mets!

Hey Blossom, don’t forget that the Fung Wah bus can take me and my David Ortiz bat down to Upper Manhattan for only 25 bucks.
-- The Venetian

Hi Jen,

Move out? Don’t do that! It’d just be written off as a Dixie Chicks/Johnny Depp/Gwen Paltrow kind of thing. :-)

Good points. Sicko… That reminds me. That’s another one movie I need to see. 3:10 to Yuma and Jesus Camp last week, Sicko this week…


I can understand your sister’s dilemma. I remember hearing a radio interview with a woman who wrote a book about a whole year she spent trying not to buy anything made in China (there’s a whole slew of “A Year of…” books out there). She had a really, really hard time doing it. It was nearly impossible. For a few Christmas mornings I had to explain that Santa and his elves were outsourcing work to China...
College tuition is out of control. I’m going to have to figure out a way to handle this without my kids being in debt up to their eyeballs for decades.

crystal said...

What you said about business and ethics reminded me of a book by James Martin SJ - In Good Company. Before he became a Jesuit, he went to business school (Wharton) and got hired after by General Electric. He wrote that it was such an unethical place to work that he couldn't stay.

cowboyangel said...


Yes, another excellent post.

Only in the U.S. would someone like you have to say, "I am not a Socialist." That's because people here have no idea anymore what the real Left looks like. The spectrum starts so far to the right compared to other countries, or our own country long ago.

All of them make references to conservative religion, but not enough in my view. I don’t think they understand the phenomenon well enough.

I agree with you completely. That was my problem with the Franks' book, which didn't illuminate anything for me about Kansas but did make me realize how poorly Liberals have analyzed the situation for three decades now. For as much as they can pick apart the Republican Party, they're not very good at looking at themselves. Ask someone about the 2000 election and it's that Bush stole the election and Nader screwed everything up. I heard this again two days ago from one of my colleagues. It was all Nader's fault. They never analyze Gore's campaign or the effect of the Lewinsky scandal on Independents and more socially conservative swing voters. I have never once heard these people ask the question "Why was there a third party effort to begin with?" What happened during the Clinton-Gore administration that caused the Left wing of the party to abandon the Dems for an alternative?

So the Dems moved left socially and lost a huge group to Reagan, which they're still unable to recover because of the religious issues. Then they moved right economically and lost another good chunk of their historic base. Then they became gutless cowards and couldn't stand up to Bush on an insane war, domestic surveillance. Even this week they caved in. And they wonder why they struggle sometimes.

BTW, I've actually read good things about Costco, at least in comparison to Wal-Mart and other similar chains. They've done a lot more to work with their employees, benefits, etc. I'm not sure they belong in the same class as the others you mention.

Hey Venetian, you come on down on the Chinatown bus. We wanna introduce you to our friend Justin "The Mangler" Tuck. Evidently, he knows some of your Boston boys pretty well. He said, "Send a kiss to Tommy."

Garpu the Fork said...

I'd rent a comedy, as well. "Sicko" wasn't bad, but it's a downer. I'd recommend Caddyshack.

College: Back when I was an undergrad, I didn't qualify for many of the need-based programs, even though my dad was on disability and my mom (with only a high school education) wasn't making a whole hell of a lot of money. If anything, my dad's (and my) social security was a penalty, because it was tax-free money. It's only gotten worse now. College funding is something that needs to be taken care of, sooner rather than later. I've got loans up to my eyeballs, but it was the only way to do it. I know i'll be paying them off for the rest of my life, too. (And the write-off programs are a joke. Either join the military, peace corps, or teach in an inner city school for a few thousand dollars off your loans.)

Meh. this is a downer. It's sunny in Seattle, and that makes us cranky. ;)

Jeff said...


James Martin was GE guy? I didn't know that. One of my very best friends in the world was a longtime GE employee... Went through the Black Belt program and everything. He's a believer. We've had our disagreements over "Neutron" Jack Welch, but I'd lay down my life for him. :-)

Del Murder,

That's a pretty searing indictment of the Democratic Party, and you know what? There's not much there to take issue with. You pretty much told off on it and nailed it.

Didn't know that about Costco, thanks for the heads-up.

Justin Tuck? I liked the old Tuck Rule much better.

What are you, some kind of Giants fan now? You turncoat. Some code of Omerta you keep. Del Murder, you're like Tessio in The Godfather... "Tell Michael I always liked him. It was just business."

Actually, I really liked this:

Billy "The Blossom" Moore, who beat a man to death with The Collected Poems of Frank O'Hara.

That has to go go into the next Martin Scorcese movie, maybe against the audio backdrop of a Nick Cave song... or perhaps Led Zeppelin... Maybe Kashmir. It would fit well there, with a biblio-beat-down.


Followed your advice. Sicko, plus Over the Hedge with the whole family. They were both very good.

The only reason I went to college where I did was because I got a tuition break on account of my mother working there as a nurse (imagine how I needed to keep my nose clean). About 6,000 bucks a year. Sounded like a lot of money back then. With all my kids, if I live to be an old man, I'll never be able to retire. "Will that be paper or plastic please?"

cowboyangel said...

You calling me a Giants fan? You calling ME a Giants fan?!

Sometimes alliances have to be formed with your enemies in order to eliminate an even bigger enemy. It's not about loyalty. It's about geopolitics.

I will continue to suffer with the Jets. But Justin Tuck was an animal in that game. I appreciated his effort.

a biblio-beat-down.

Oh man, I see it. Definitely to "Kashmir." In fact, I see The Blossom at Grassroots Tavern, trying to read Frank O'Hara, and someone plays "Kashmir" on the juke box. The Blossom flips. Maybe the Utah Jazz have just gotten beat by the Knicks. He's already in an ugly mood. Maybe the guy playing Kashmir has been talking too loud about how great Bush & Cheney are. (Except, that wouldn't be likely at Grassroots, in the heart of the Village, next to NYU. The whole bar would probably kill him.)

Yeah, let's write it up and send it to Marty.

Two articles on Costco:

NYT: "How Costco Became the Anti-Wal-Mart."

WSJ: "Costco's Dilemma: Be Kind to Its Workers, or Wall Street?" [Original Title of the article]

Who was speaking in that Tuck Rule video?

You realize, of course, that was a fumble. :-)

Jeff said...


Thanks for the Costco links. It's good to know that they can treat their employees a little better and have it show up better in their stock price.

Yeah, I can see that Grassroots Tavern scenario... finishing up with little flecks of blood spattered on his Francisco de Quevedo inspired glasses. That's Scorcese poetry.

Then again, Martin could just place the scene in a casino in Reno, where Liam does it just to watch a man die... An unsuspecting Halliburton Sales rep, or something.

You realize, of course, that was a fumble.

A fumble? Oh brother... Here we go. :-)

It was a blown call, I'll grant you that, followed up by a ridiculous attempt at an justification.

It was the wrong call.

What it SHOULD have been was a ROUGHING THE PASSER call, because as the replay clearly shows, Woodson didn't hit Brady on the ARM like the stupid re-creation scenarios acted out by Howie, Terry, and all those clowns in the following weeks, but he whacked him upside the HEAD. It should have been 15 yards and a first down. Watch the video.

You can call it a fumble. We call it payback. Ever heard of Ben Dreith?

In 1976, in a divisional playoff game, we had stopped the Raiders in the red zone late in the 4th quarter after Dreith had missed a flagrant hold by Phil Villipiano on Russ Francis on the series before. We stopped them on 4th down, but Dreith flagged Sugar Bear Hamilton for roughing the passer due to an incidental hit on Stabler as he let go of the ball (Hamilton did hit him on the face mask, but this was in the years when quarterbacks were relatively unprotected). It was the most flagantry corrupt and crooked penalty I've ever seen called in any sporting event, amateur or professional. Before or since.

To add injury to insult, Jack Tatum paralyzed Darrll Stingley with a vicious hit in an EXHIBITION game the following Summer, and never even attempted to apologize to Stingley until years later, and only because his publicist urged him to do so.

Hey, at least we gave the country their money's worth in the Super Bowls we've been in, unlike Gannon and those other frauds who had the floor wiped with them by Tampa Bay the following year. Madden, Davis, Gruden, Woodsen, and the rest of the Silver and Black can all po'g mahon.

Other than that, I have no strong feelings about it. :-)

I'm pretty sure that was "Chuckie" Gruden in the audio.

Believe it or not, I've always kind of liked the Raiders in general, despite all that. I was a big Bo Jackson fan in particular.

cowboyangel said...

Oops, looks like I touched on a sore spot.

Did I call that a fumble? I meant stumble. Or bumble. Or tumble.

I remember the Stingley hit very well. In fact, I swear I was watching the game, even though I don't see why they would've been showing a Raiders-Patriots pre-season game on TV in Texas. Maybe I saw the replay so much I imagined I saw the game. In any case, I liked Stingley. That was tragic.

Jeff said...

No problem. I guess Jack Tatum isn't doing too well himself these days. He's lost some toes on his left foot and his right leg.

After listening to that audio again, I'm starting to wonder if that was Al Davis speaking.