Wayne O'Leary

Corporations Without Borders

Are you out of work, underemployed or underpaid, about to lose the house or struggling to make the rent, caught up in a never-ending cycle of indebtedness with no way out? You’re not unique; you’re simply another victim of what’s known as “hard times,” a catchall term used to explain to the losers in capitalism’s great game the whys and wherefores of their condition. It’s been a handy shorthand expression much in use since Charles Dickens first coined it during the cruel heyday of England’s dark Satanic mills.

The thing about hard times (we’re told) is this: they’re no one’s fault; no one is responsible, least of all the reigning economic elite and its political retainers. Hard times just spontaneously happen, not unlike the weather. Into every life a little rain must fall, and this is just one of those moments, assuming you’re currently on the short end.

Curiously, though, for some people it never rains. Since 2008, while millions of Americans, as well as millions in the Western democracies as a whole, went through an economic ringer that changed their lives forever, what we euphemistically call the ownership class merely suffered a momentary inconvenience, a hiccup for investors. Being sufficiently big, its institutions were not allowed to fail; the transgressions the corporate sector visited upon everyone else by turning the world economy into a vast casino not only went unpunished, but were rewarded.

The upshot, a half-dozen years on, is perhaps the most unbalanced recovery from depression conditions ever witnessed. A few trenchant statistics: The prevailing bull market has lasted over five years, making it the fourth-longest since the crash of 1929. In July, the Dow Jones industrial average passed 17,000 for the first time, while the S&P 500 index peaked at triple its recessionary low point. One result is the value of stocks and mutual funds held by American households increased by $3 trillion in 2013-14 alone, but almost all the gains went to the wealthy, who own most equities.

Meanwhile, real economic growth (productivity and employment expansion) has been half the rate of previous recoveries, suggesting stocks are artificially overvalued and shielded from reality. American companies are not spending on equipment (down 20% over the investment rate of the previous half-century, according to the New York Times), nor on buildings, software, or anything else; they’re like elderly dowagers, hoarding and living on their inheritances — no future prescription for a healthy national economy, but plenty adequate to provide opulent lifestyles for today’s shareholders.

And “shareholder value” is really all that has come to matter since the corporate world’s favorite right-wing economist, the late Milton Friedman, proclaimed profit maximization for the benefit of stockholders the primary responsibility of public companies. Friedman’s 1970 dictum has evolved over time into an accepted quasi-legal principle on Wall Street, making it every CEO’s fiduciary duty to increase profits and stock prices for his firm and (incidentally) for himself. So, the search is always on for ways to achieve that end, and damn the consequences for society.

Corporate America has squeezed about as much out of downsizing and cost cutting as it can for the time being, but there are other recourses available. Now topping the list is that old standby mergers and acquisitions (M&A). After a brief, recession-induced hiatus, M&A, the painless (for the companies) route to artificially inflated growth, is once more all the rage. In the first six months of 2014, $1.8 trillion in transactions were announced, up 73% over 2013 and the most since 2007, according to news syndicate Thomson Reuters.

No harm done, provided a lack of competitive markets and the entrenchment of oligopoly is of no concern. In fact, the artificial enhancement of stock values obtained for individual companies by increased concentration of ownership exacts a toll throughout the entire economy in the form of higher prices, excess profits, and reduced consumer choice.

Mergers are bad enough, but lately corporate America, looking to make more money without earning it, has happened upon a new strategy, an offshoot of M&A called “inversion.” In more fastidious times, it would be labelled tax evasion.

Inversion is simplicity itself. A company merely declares that its US operations are actually owned by a foreign subsidiary — at least 20% of combined shares under current American law — and moves its nominal corporate headquarters to the subsidiary’s home country, reincorporating there. If the company in question has no foreign subsidiaries, it does a merger deal and acquires one. The subsequent advantage is obvious; taxes are immediately reduced, because most subsidiaries are located either in European countries with lower corporate income- tax rates (21% in the Netherlands and the UK versus 35% — on paper — here), or in outright tax havens like Ireland (a 12.5% rate).

So far, between 50 and 60 American corporations have renounced their citizenships for cash on the barrelhead, half of them in the last two years. The biggest offenders have been those paragons of avarice the drug companies, notably Pfizer, Mylan Labs, AbbVie, Actavis, Endo, Perrigo, and Valeant; these firms already pay far below the official U.S. tax rate after write-offs — for example, 27% for Pfizer, 25% for Mylan, and 23% for AbbVie — but it’s still too much, so sayonara!

And who is advising and encouraging the expatriates, promoting their overseas deals for an estimated $1 billion in fees since 2012? Why, the too-big-to-fail investment banks, of course, led by Goldman Sachs and JPMorgan Chase. That their sordid work will cost the US Treasury $19.5 billion over the coming decade (per Congress’ Joint Committee on Taxation) doesn’t embarrass them in the least.

You see, they’re all self-proclaimed patriots. “I love America,” says JPMorgan CEO Jamie Dimon, adding, “I’m just as patriotic as anyone.” The corporations packing their bags are patriotic, too. Mylan CEO Heather Bresch was even named an Esquire magazine “Patriot of the Year” in 2011 for her drug-safety advocacy. But a woman’s gotta do what a woman’s gotta do.

President Obama has called this shameless behavior immoral. “I don’t care if it’s legal,” said the president, “it’s wrong.” The companies, naturally, have a riposte: cut their taxes more, and they won’t go. Don’t be fooled, Barack; in a greed-motivated race to the bottom, there will always be a lower bid. Maybe zero.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He is the author of two prizewinning books.

From The Progressive Populist, September 15, 2014