Bernie v. Jeffrey

April 8th, 2016 at 1:03 pm

Bernie Sanders and Jeffrey Immelt had a bit of a dustup over the past couple of days. For the details, links, and some really trenchant analysis, see Jeff Spross here. Basically, Sanders went after GE as a bad corporate actor, a serial tax avoider, and an outsourcer. He said something about the firm eroding “the moral fabric of America.”

That last bit is pretty heated, and Immelt punched back, as you’d expect. He made reasonable points–I don’t blame GE for rips in the moral fabric–though as Spross notes, Immelt’s response lacks context and fails to deal with the dual problems of their outsourcing and tax avoidance.

Most of GE’s workforce–about 60 percent, I believe–is in other countries at this point. Spross notes that their net job creation in the US has been about zero since 2008. And, according to the tax analysts at CTJ, they paid about 1% in federal taxes in 2014 and -1.2% in state taxes.

Here’s the problem: there was a time when the goals of GE and those of the American middle class were mutually reinforcing. But globalization, financialization, and the ability of large, powerful firms to lobby for favorable tax treatment have altered that symbioses such that you can no longer assume that what’s good for GE is good for the middle class.

That doesn’t mean that what’s bad for GE is good for our workforce, either. As Immelt claims, they do some impressive things, and they do some of them here, including in Vermont. Moreover, it’s perfectly legal to avoid taxes (avoidance, yes; evasion, no) and offshore work.

What, then, is the responsibility of policymakers in the midst of this fundamental divergence of goals, where GE’s success fails to reach our workforce the way it once did? Clearly, it’s not to facilitate tax avoidance, ignore the loopholes that allow them to pay such low effective rates, grant them further tax breaks, or to turn a blind eye to unfair trade practices like currency manipulation by trading partners.

Nor is it to assail their morality.

It’s to implement policies that will shift more bargaining power and thus a more balanced share of the economy’s growth from multinational corporations to the majority on the wrong side of the inequality divide upon which GE’s riding so high. Which policies are those? Read the book!

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7 comments in reply to "Bernie v. Jeffrey"

  1. Carol says:

    I guess I have a hard time thinking that just because it is legal is a good excuse for doing the immoral. Maybe we should say that they, raking in the benefits of the US, chose to avoid paying their fair share is amoral since it is legal but uncivic or even uncivilized.


  2. urban legend says:

    The business is going to play by whatever rules are in place. It’s up to us to insist that new rules be written.


  3. Loser says:

    Generally there was a time in US history when a CEO doing the right thing was not punished. The US elite had a general conscience. But the legal system stepped in and made a mess of it. But also, the ability to use foreign employees to eliminate any concern over employee welfare changed the game. And huge salaries accepted by investors fueled the problem.

    There has to be laws that define the roles in this system. CEOs can’t make millions when their company is failing. They can’t make millions just because they increase the bottom line at the expense of US workers.

    They’ve been given too much choice. They view it is freedom, but most citizens don’t have that freedom. Can a citizen of the US easily throw their employer under the bus to work for the competitor? Not really. But is allowing them to do this with more trade desirable? NO.

    The major problem is capital mobility. The answer is not labor mobility. The answer is to constrain capital mobility.


    • Flex says:

      Generally there was a time in US history when a CEO doing the right thing was not punished. The US elite had a general conscience

      I’m not certain I know when that time was in US History. In the Gilded Age, 1870-1890, the robber barons were famous for not having a conscience. And the only time I can think of when the leaders of industry were not trying to squeeze the most money out of their business was during the time when there was a powerful dis-incentive to do so.

      That is, throughout the 1950’s, when there was a 90% tax bracket, the corporate boards were willing to share the wealth with their workers because they couldn’t keep it themselves. It wasn’t their choice, and as soon as they could they convinced the nation to reduce the top marginal rate. But if that was the period you were thinking of, it wasn’t because the US elite had a general conscience, they were forced by the legal system to either hand over a large portion of their earnings to the government, or find other uses for that money (one of the other uses was to improve the lot of their workforce).


  4. Tom says:

    “Nor is it to assail their morality.” But we’re not assailing GE’s morality. We’re assailing the morality of the living people behind the corporate fiction, who have shed civic responsibility for their actions by doing everything possible to make the most for their shareholders _and nothing else_.

    I’m not sorry if we hurt the feelings of individuals who lead companies into acting purely in their selfish short-term interests. Immoral actions are never taken by “companies,” they are always taken by people, and it’s reasonable to point that out.


  5. Joe Cloud says:

    Jared asks “What, then, is the responsibility of policymakers …?” etc.

    He then says “Nor is it to assail their morality. It’s to implement policies that will shift more bargaining power and thus a more balanced share of the economy’s growth from multinational corporations to the majority on the wrong side of the inequality divide”

    That is a reasonable position, if we lived in a reasonable society. However, this overlooks the fact that in our current national situation the only way to enact significant legislation that would facilitate the shift he calls for is arouse a big degree of moral outrage. By necessity, one must assault the ethics and morality of the actors whose actions you are trying to re-direct. It is the harmful decisions and actions that good policies will block and change. But it is individuals who make those decisions, even if perfectly legal. Legal is not always ethical. To mobilize society to action, you must have realistic persuasive stories to tell. Individuals relate to individual actions, much more readily than abstract concepts. So you must tell stories about real people doing real things.

    In this case, the story is about Jeffery Immelt leading GE down a path of tax avoidance and out-sourcing. It is legal, it benefits his company, but it hurts Americans. He made the risk/reward calculation that it was the appropriate business decision. If you want to enact a policy that changes that risk/reward balance, it is arguably necessary to make him the face of GE’s harmful actions. We need to put faces to black money, to individuals named in the Panama Papers, to the faceless forces of globalism, in order to enact the policies that Jared calls for. Thomas Piketty has provided the data illustrating the relentless historical ratchet mechanisms behind inequality. Without powerful moral/ethical arguments, those policies will not be enacted, and the ratcheting will continue. I greatly admire Jared Bernstein’s writing and thoughts, but wonky economics will not sell real change.


  6. Larry Signor says:

    Let us not assail the voice of reason with small prejudices. Read the book.


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