How Corporations’ Good Social and Environmental Intentions Undermine the Common Good

“these trends will undermine the most important way businesses really do contribute to the common good. By pursuing shareholder value and maximizing profit, publicly traded companies facilitate choice in goods and services for consumers, provide wages and benefits to their employees, repay their loans to banks, and pay their taxes. They increase the total material wealth in society, allowing people who have never owned a share in their lives to realize goods ranging from health care to education.

Just as protectionism and industrial policy significantly compromise the workings of market exchange by using state power to privilege connected groups of businesses and political leaders, so too would a capacious, government-enforced vision of stakeholder capitalism. By blending politics and business, it would further shift the economy’s focus away from meeting the needs and wants of 330 million American consumers and toward promoting the interests of politically connected businesses.”

Humanity was stagnant for millennia — then something big changed 150 years ago

“It really looks that we had as much technological change and progress between 1870 and today as we had between 6000 BC and 1870 AD. We packed what had previously been nearly eight millennia of changes in the underlying technological hardware of society, which required changes in the running sociological code on top of that hardware. To try to pack what had been eight millennia worth of changes before in 150 years is going to produce an awful lot of history.

Before 1870, most of history is how elites run their force-and-fraud, domination-and-extraction mechanism against a poor peasantry so that they, at least, can have enough, and so that their children are only two inches shorter than we are, rather than five or six as the peasants are. It’s about how the elites elbow each other out of the way as they eat from the trough. And it’s about the use they make of their wealth for purposes good and ill, of civilization and destruction.

But if you’re enough of a Marxist, like me, to say that the real motor of history is the forces of production, their changes, and how society reacts for good or ill to changing forces of production, then yes, [1870 to 2010] has to be as consequential because there’s as much technological change-driven history as there is in entire millennia before.”

“you look worldwide and you take my index of technological progress, and it [grows by] less than half a percent per year from 1770 to 1870. That’s based on exploitation of really cheap coal and also on the productivity benefits of falling transport costs that gather all of the manufacturing in the world into the place [the United Kingdom] where it’s most productive and most efficient, because it’s the place where coal is cheapest.

I was struck by a line I came across from the 1871 version of John Stuart Mill’s Principles of Political Economy: “Hitherto it is questionable if all the mechanical inventions yet made have lightened the day’s toll of any human being.”

Say you have some slowdown in global technological progress after 1870 because the cheapest coal has already been mined and the deeper coal is hard to find, and say that you have some other slowdown because you don’t get the boost from gathering manufacturing in places where it’s productive. We might well have wound up right with a steampunk world after 1870: a world with about the population of today, but the living standards of 1870 on average.

That’s what the pace of progress was, except that we got the industrial research lab, the modern corporation, and then full globalization around 1870. The industrial research lab rationalized and routinized the discovery and development of technologies; the corporation rationalized and routinized the development and deployment of technologies; and globalization diffused them everywhere.”

Both Democrats and Republicans Want To Break Up Big Tech. Consumers Would Pay the Price.

“You don’t have to believe that the market produces perfect outcomes to understand that government can rarely outperform private enterprise. Political decisions aren’t driven by any market signals, profit motive, or consumer preferences. These decisions are inherently political, suffer from a serious knowledge problem and are mostly untied to any accountability regimes when they fail. Government often proves to be biased against large, successful companies that provide new technology that legislators often don’t understand well but consumers love. This is why government so often fails, and this policy is no exception.”

The CHIPS Act Is Corporate Welfare Disguised as Industrial Policy

“Industrial policy is making a comeback. For those of you under the age of 50, this is just another term for corporate welfare—a lovely name for the unlovely practice of a government granting subsidies, protective tariffs, and other privileges to politically influential industries or companies. It’s often done in the name of some lofty goal such as strengthening national security or ensuring that America is a leader in the “industries of the future.” But the outcome is always the same: wasteful, unfair, unsuccessful, and unjustified. Oh, and it invariably grows the budget deficit.

The latest form of industrial policy is Congress’s CHIPS Act of 2022, a bill meant to subsidize the semiconductor industry by channeling taxpayer money to build up domestic production capacity and combat feared Chinese computer-chip supremacy.

This chapter began with the disruption caused by lockdowns to global supply chains. Unsurprisingly, that led to a series of semiconductor shortages aggravated by a surge in demand for automobiles. Automakers wrongly assumed that the original drop in demand would persist, canceled orders for semiconductors, and then could not keep up with the buying public.

Now, Congress is responding to this temporary chip shortage with $52 billion in subsidies and $24 billion in tax credits mostly directed at semiconductor industry beggars.

Never mind that chip firms have already expanded production without subsidies. In fact, two years into negotiating this bill, it’s obvious that it has little to do with any alleged structural deficiencies in the semiconductor market. For instance, the initial chip subsidy proposal had a $16 billion price tag. Since then, the industry has announced its own investments totaling over $800 billion, with $80 billion committed for near-term investment in U.S.-based fabrication facilities. Yet somehow, the bill more than tripled in price to target a problem that’s already being solved.

What about the argument that China is subsidizing its chip producers and thus threatening our technological leadership? Yes, China subsidizes its chip industry, but this doesn’t guarantee their subsidies will work. If U.S. politicians could for a moment stop treating every Chinese action as a threat, they would see that the Chinese semiconductor industry is both quantitatively and qualitatively weak. In fact, many of the companies subsidized would go under without the government’s help. That’s hardly the sign of a vibrant industry. These subsidies are more like life support than super-vitamins.”

“” Any resulting new operations would still face deep-rooted issues hindering American manufacturing. Large-scale environmental assessments will be required, but over the years, the costs and delays have become excessive. Recent trends promoting or requiring unionized workers for federal contracts, combined with the current labor shortage, will hinder chipmakers’ ability to find talent and could exacerbate the cost of domestic production. ”

In other words, if you believe that moving most of our chip production onshore is important for national security reasons, you should labor for regulatory reforms rather than subsidies.”

The Export-Import Bank’s New ‘Made in America’ Corporate Welfare Scheme

“Dating back to its founding in 1934, the Export-Import Bank of the United States has had a pretty specific mission: subsidize the export of American-made products by extending cheap credit to foreign companies looking to buy our stuff.

Whether the bank serves any legitimate purpose is another matter entirely. These days, the Export-Import Bank mostly acts as a slush fund for politically connected American corporations like Boeing and General Electric that would have no trouble doing business abroad but are more than happy to benefit from its largesse, doled out in the form of low-interest loans to potential buyers. Sometimes it also blows American taxpayer money on propping up government-run monopolies in foreign countries.

Still, the mission has always been clear. It’s right there in Executive Order 6581, which President Franklin Delano Roosevelt signed in 1934 to authorize “a banking corporation…with power to aid in financing and to facilitate exports and imports and the exchange of commodities between the United States and other Nations.” The bank’s current mission statement, too, clearly spells out a goal of “supporting American jobs by facilitating the export of U.S. goods and services.”

Now, quietly, the Ex-Im Bank is taking on a new—and entirely domestic—project.

At a meeting last week, the Ex-Im Bank’s board of directors voted unanimously to approve a so-called “Make More in America” initiative. The press release announcing the new program is a gobbledygook of crony capitalist doublespeak virtually devoid of specifics about how the program will operate or what it will cost. The new program “will create new financing opportunities that spur manufacturing in the United States, support American jobs and boost America’s ability to compete with countries like China,” Reta Jo Reyes, the bank’s president and board chair, says in the statement.

This latest development at the Ex-Im Bank is another aspect of the sprawling federal effort that began under President Donald Trump and continues under President Joe Biden to subsidize American manufacturing. The creation of a “domestic financing program” at the Ex-Im Bank was part of a series of supply chain recommendations made by the White House in June. A few days before Christmas, the Ex-Im Bank filed a vague notice in the Federal Register outlining plans to implement the program.

But there has been little clarity about what the program will aim to do, which businesses might stand to benefit from it, or how its results will be judged. In the announcement last week, the Ex-Im Bank only said that the new program will “immediately make available the agency’s existing medium- and long-term loans and loan guarantees for export-oriented domestic manufacturing projects.””

“the government will throw taxpayer dollars at investments that private capital markets have deemed too risky.

But how will the government decide which projects to fund? Toomey also asked the bank to explain what steps will be taken to “ensure that domestic transactions will not be influenced by political pressures.”

The Ex-Im Bank’s response to that query is even more worrying. There don’t appear to be any safeguards in place. “Financing is available to all qualifying applicants based on criteria established by law and agency practice,” Lewis wrote in reply.

Translation: Any company with the resources to hire the attorneys, accountants, and lawyers necessary to decipher the bank’s policies and sufficiently schmooze decision-makers can get paid.

“There is no reason that taxpayers should have to back domestic financing when we live in a highly developed market economy in which promising businesses have access to capital on competitive terms,” says Toomey.”

Elizabeth Warren’s plan to break up Big Everything

“mergers don’t just affect consumers: “The world has changed for those workers,” Warren said.”

“Studies have shown that as markets become more concentrated, wages stagnate.”

“Under Warren’s new bill, mergers over a certain size or that consolidate the market too much are forbidden. And consummated mergers that have harmed competition, workers, consumers, or competitors can be broken up.”

Corporate pricing is boosting inflation — but we’re still buying

“On recent earnings calls, massive corporations have posted huge profits and promised continued price increases, even as inflation continues to rise to rates not seen in decades.

For example, Starbucks celebrated a 31 percent increase in profits at the end of 2021 — but it still plans to hike prices this year, the New York Times reported earlier this month. Tyson Foods, the meat processing behemoth, raised its prices 19.6 percent overall, driving record stock prices for the company.

Inflation, meanwhile, hit a four-decade high in January, with the consumer price index increasing 7.5 percent over the past year, before seasonal adjustment. Although prices dropped in the energy sector for goods like gasoline and fuel oil, every other sector — including medical care, apparel, transportation, food, and shelter — saw increases, resulting in the largest overall 12-month increase since 1982.

Some of that’s to be expected: With Covid-19 still throwing kinks into the global supply chain, the challenge of getting goods and materials where they need to be translates into increased prices for both companies and consumers. Meanwhile, consumers have increased purchasing power due to wage increases and stimulus benefits like checks, child tax credits, and low interest rates — and at least in the US, they’ve proven willing to pay higher prices. At its core, those are the necessary ingredients for inflation — demand outstripping supply.

But some economists and politicians say that corporations are using inflation as an excuse to jack up prices beyond what’s necessary to account for their increased costs. More than just passing those costs onto consumers, they say, corporations are taking advantage of the unprecedented global economic circumstances to increase their profits, simply because they can.”

“there’s plenty of pushback, both political and economic, to this perspective. A survey of a number of leading economists by the Initiative on Global Markets at the University of Chicago’s Booth School of Business showed that a majority of those surveyed — 67 percent — disagreed or strongly disagreed with the statement, “A significant factor behind today’s higher US inflation is dominant corporations in uncompetitive markets taking advantage of their market power to raise prices in order to increase their profit margins.” Only 7 percent of those surveyed agreed or strongly agreed with the statement.”

“But critics of major corporate price increases aren’t arguing that the consolidation is the only force driving inflation; rather, that because these conglomerates hold so much of the market share, they are able to raise prices out of step with the actual price increases they’re incurring and passing on to consumers — essentially, that they’re using the current inflationary environment as an excuse to raise prices more than necessary because they don’t have competitors to drive them to keep prices down, in turn contributing to the problem of inflation.”

Tariffs on Chinese Imports Have Accomplished Approximately Nothing

“At the core of former President Donald Trump’s aggressive trade policies was a relatively simple—perhaps overly simplified—promise: Tariffs on Chinese-made products would drive manufacturers out of China.

“Many tariffed companies will be leaving China for Vietnam and other such countries in Asia,” Trump claimed in May 2019, about a year after his tariffs were first imposed. “China wants to make a deal so badly. Thousands of companies are leaving because of the Tariffs,” he tweeted a few months later, suggesting that the outflow was already underway. “If you want certainty, bring your plants back to America,” Robert Lighthizer, Trump’s U.S. trade representative, lightly threatened in a New York Times op-ed in May 2020, as the trade war’s second anniversary arrived.

But the tariffs failed to achieve that primary policy aim, according to a new paper published by researchers at the University of Kansas and the University of California, Irvine. Roughly 11 percent of multinational companies exited China in 2019, the first full year in which tariffs were in place—a significant increase from previous years. But the overall number of multinational firms operating in China actually increased during that same year, as foreign investment continued to flow into China even as the trade war ratcheted up costs.

In fact, the number of U.S.-based multinationals in China actually increased from 16,141 in 2017 to 16,536 in 2019. Non-U.S. companies were more likely to exit China during 2019 despite not being subjected to Trump’s tariffs.

“We estimate that less than 1 percent of the increase in U.S. firm exits during this period was due to U.S. tariffs. And U.S. firms were no more likely to divest than firms from Europe or Asia,” researchers Jiakun Jack Zhang and Samantha Vortherms wrote in The Washington Post this week.”

“Trump is no longer running U.S. trade policy, but his failed tariffs on Chinese imports are still in force. Lighthizer’s replacement in the Biden administration, U.S. Trade Representative Katherine Tai, has said the tariffs provide “leverage” over China.

But that perspective is no more grounded in reality than Trump’s promises that his tariffs would cause companies to flee China. American consumers are bearing nearly 93 percent of the costs of the tariffs applied to Chinese goods, according to a recent report from Moody’s Investors Service. How is this giving the White House leverage over China?”

The Misleading Push for Corporate Tax Hikes

“A corporation’s book profits are actually an unhelpful metric when it comes to assessing what its tax liability should be. While the tax code is far from perfect, many deductions and credits that reduce liabilities serve an important purpose and help make the tax code fairer. Calculating a corporation’s income before factoring these in makes as much sense as complaining that a kid with a summer job gets to avoid paying regular income taxes because of the “standard deduction loophole.”

For example, consider net operating loss (NOL) carryforwards and carrybacks, one of the most common culprits behind these sensational headlines. These are normal features of a smart policy that allows corporations to pay taxes based on a realistic view of their cash flow over time.

Imagine a start-up business that spends two years developing its feature product, only to release it in the next year. If that business ran a deficit of $2 million the previous two years, then made a $1 million profit the third year, it has not actually made a profit in the long term. Disallowing NOL deductions from being carried forward would mean that the business would face corporate income tax liability despite having, thus far, lost money.”

“NOL carryforwards were one reason Amazon had no federal tax liability when those articles appeared a couple years back. Another was the research and development (R&D) tax credit, long a bipartisan favorite. The Obama administration in 2012 identified the R&D credit as a crucial element of business tax reform, claiming that businesses undervalue R&D in the absence of the credit as the social benefit is far greater. It’s deeply disingenuous to incentivize R&D, then wag your finger when businesses respond to the incentives the R&D credit provides.

Then there’s accelerated depreciation. One of the most positive changes in the 2017 tax reform law was the introduction of full expensing of capital investments, which allowed businesses to bypass the complicated system of asset depreciation that requires them to recoup the value of capital investments over timelines as long as decades. Huffing and puffing that businesses use full expensing to zero out their tax liabilities is absurd, because it merely accelerates tax deductions businesses would receive anyway. In other words, the long-term “cost” of accelerated depreciation in terms of revenue reduction is zero. The difference is that businesses, which prefer cash on hand to cash down the line, are then able to reinvest the value of the deduction immediately rather than waiting years to receive the tax benefit.”