Sunday, March 20, 2016

The Lesson of Carrier: America Needs a Real Socialist Agenda

I just finished listening to the video clip that has been making the rounds, in which a spokesman announces to the assembled workers at the Carrier plant in Indianapolis that their jobs will be moved to Mexico.  It’s embedded in a long article in today’s New York Times that uselessly follows the framing of this and similar events in American political discourse: it’s about whether you are for “free trade” or not, how you feel about Mexican workers versus US workers, etc.  The whole discussion takes as given the way corporations in the US (and Mexico) are run and the purposes they serve.  It invites us down a rabbit hole that leads to nowhere useful—tariffs and other barriers, or whether we need more programs to redirect some of the “gains from trade” to unemployed workers in the form of checks and education subsidies.  Not that trade doesn’t matter, of course, but it’s really missing the point to think that the deindustrialization of America is the simple result of engaging in international trade.

You’ll get to the heart of the matter if you linger on a passage that comes near the end:
Over all, United Technologies [Carrier’s parent] earned nearly $7.6 billion last year, and $2.9 billion of that came from the climate, controls and security division that includes Carrier.  Those profits aren’t under pressure; in fact, margins in the unit have steadily expanded in recent years. 
But that’s not good enough, said Howard Rubel, a senior analyst at Jeffries, who notes that United Technologies has vowed to cut at least a half-billion dollars in costs annually for the next few years.  “The stock hasn’t done well,” Mr. Rubel pointed out.
So here’s the problem: Carrier is profitable and there are no apparent threats to its continued profitability.  But it could be more profitable if it replaced workers in Indiana with workers in Mexico who can be paid about a tenth as much.  Investors, of course, demand these higher profits.  If the purpose of the company is to satisfy its investors, that’s what it needs to do.

But what should be the purpose of a company?  Businesses have many beneficial purposes: they can produce things people want and are willing to pay for, they can provide employment for workers and an economic base for their communities, they can promote education through training programs and linkages with schools and universities, and they can pitch in to promote social objectives like sustainability and racial and gender equality.  Through their R&D they can contribute to society’s fund of useful knowledge, and through their management and governance they can help cultivate democratic values of participation, cooperation and respect.  Of course, to do all these good things they need to be profitable, not just now and then, but on an ongoing basis, anticipating future threats to profitability and responding with innovation and toughness when necessary.

But putting the interests of investors above all others, and putting profit maximization above any other benefit they can provide, can turn them into instruments of economic, social and political decline.  It’s not just about shipping jobs to Mexico; moving jobs around the US to force workers to make concessions or simply because the costs of dislocation don’t matter to them, can be just as harmful.  Or maybe the way to make an extra buck is to cut corners on the environment, or to avoid paying taxes or to invest in politicians who can rig the system for you.  The ability of clever executives to devise new ways to boost profits at the expense of society will always exceed the capacity of regulators to keep them in line.

To put it in a nutshell, the actions of Carrier and the rest of corporate America reflect a system in which investors come first, and the primary goal of business is to maximize profits.  We need a system in which investors are just one of many constituencies, and the financial goal is to maximize the probability of remaining profitable over an extended time horizon.  Profit has to become a means, not an end.

The socialist agenda, as I understand it, is about the many reforms that move us closer to such a world.  It includes worker participation in corporate governance, but also representation of other community interests.  It can include measures to broaden ownership, including a role for public and social ownership vehicles along with private ones.  Financial reform also has a large contribution to make, especially if it expands the role of public and cooperative banking.  Consideration should also be given to measures that would alter the incentives to issue preferred rather than common stock or otherwise attenuate the connection between ownership and control—in other words, perform a Reverse Jensen.  And this is just the beginning: once you start thinking about it, you can see the agenda is enormous, especially because it’s been in mothballs for generations.

I wish there were a socialist running for president right now.


Bob Sharak said...

Good post. Made a lot of strong points. A couple others:

First, there's only one class of investor CEOs like Rubel care about - the insider-manager. Providing the bulk of CEO compensation in stock may have started out a way to align investor and management interests but it always seems to work out a lot better for management. Just look at the ups and downs of the market over the past 16 years. Adjusted for inflation, the S&P is no higher than it was in 2000 but Corporate titans are vastly more wealthy. And the cult of shareholder value provides CEOs a conscience balming excuse for ruthlessness.

Second, this phenomenon has been going on for decades. Growing up an Upstate New Yorker I watched as companies moved their operations to low wage US states, mostly in the Southeast. Believe me, losing one's job to a North Carolinian feels no better than losing it to the Mexicans or Chinese.

Doc at the Radar Station said...

In the 1946 film, The Best Years of Our Lives, you see where men from different classes were brought together in the war and had to cooperate and they found out how valuable they were. I think that had as much to do with the post WWII prosperity as anything else. Since the 70s the memory of that all faded and the elites became insular and now you have people's lives uprooted over peanuts and they have no power and people wonder why they are so angry.

the blame-e said...

The bottom line from never ending articles, like this one, is about Capitalism and one word: Profits.

Capitalism, as represented by corporations like Carrier and its parent United Technologies, cares nothing about anything but profit.

This is proven by all the out-sourcing of the millions of American jobs to places like China and Mexico, where middle class jobs here are quickly turned back into subsistence and slave labor jobs once again. All for increased profits.

Until such time as Capitalism is brought to heel, and compelled to be a responsible corporate citizen, expect nothing but profit to be used as the excuse for endless war, the financialization of America, the poisoning of all human beings need to exist -- the air we all breath, the water we all drink, the land we all get our food from; the pauperization of human beings, in a country that says "You will work or you will starve," where there are no jobs.

The experience of once again watching as one manager told the Carrier slaves in Indianapolis stand by and do nothing as their miserable lives were once again stolen from them. Pathetic.

John Reece said...

I didn't know that "Economically Incorrect" was a literal description. Fact one: If Carrier was able to see that products could be made with the same quality at lower cost in Mexico, then others could, too. Thus, if they didn't do it, someone else would. Have you bought a Zenith TV lately? How about some Bethlehem Steel? The same forces that gave Uber the idea to undercut cab drivers are at work everywhere, all the time. American companies that didn't/don't shift jobs to stay competitive are simply gone. Fact two: You are just picking and choosing the things you think should be saved. Play God all you want: The crank telephone system employed a lot of operators, should we have preserved it? How about those job-killing ATMs? Should we outlaw those? It's fine to have empathy, but let's not be stupid. How many examples of Socialist failure do you need? USSR, Venezuela, France, China, Vietnam, North Korea, and many others. Politburos don't allocate effort and ingenuity well and the societies they rule die as a result. Please stop hurting America by publishing this rot.

ProGrowthLiberal said...

United Technologies had an effective tax rate = 26% for 2013 and 2014 (60% of its operations are abroad) and they were not reporting repatriation taxes until 2015 when the effective tax rate jumped to 32.6% as explained in their Annual Report:

"The 2015 effective tax rate reflects an unfavorable tax adjustment of $274 million related to the planned repatriation of certain foreign earnings"

The Bureau of National Affairs had some report noting that Bernie Sanders are calling for a more vigorous enforcement of this repatriation tax. Good idea!

KISSWeb said...

We can start by recognizing that the executive's first fiduciary obligation is to the health of the corporation itself, not directly to shareholders. (Which shareholders would those be, the wealthiest heavy traders who want profits maximized now, now, now, or the people who have invested for the long haul. Once you start down the path of claiming "maximizing shareholder value" as the one and only objective,you must ask this question: which shareholders would those be? )

The next step is figuring out how not maximizing profit in any given situation is nevertheless good for the long-term health of the corporation. I would guess that Carrier will suffer some long-term damage to its reputation in the U.S. from this move. A case could be made -- a very strong case, I would say -- that an international corporation needs to be creating as many jobs as possible in all of the places where it has or wants to sell its products. Isn't the U.S. still Carrier's largest market?

A sample of one: we will soon be in the market for a new heating and cooling system. I for one, now that I know about this, will try to avoid purchasing a Carrier system.

Jack said...

"But what should be the purpose of a company?"

Maybe the better question is, what is the purpose of import duties on goods manufactured in factories whose primary advantage is labor exploitation? If there are no such duties maybe there should be. Another question might be, why not tax corporations at point of sale of any of their goods in this country? Let's stop trying to tax profits. Profits are too illusory. Republicans want a VAT,right? Good enough. Tax all goods and services at point of sale regardless of where the costs of those products originate. No more need for trying to calculate where the profits are made. Just tax corporations on revenue within U.S.A. borders.

cpwegener said...

It never ceases to amaze me that people can read a clearly written article such as this and then show they are missing the point completely.

cpwegener said...

It never ceases to amaze me that people can read a clearly written article such as this and then show they are missing the point completely.