Monthly Archives: June 2014

Naked Capitalism: European Two-Tiered Austerity

Don Quijones: Mini Tax Havens – How Europe’s 1% Gets to Pay Only 1%

Posted on June 30, 2014 by

Yves here. Don Quijones describes some the mechanisms by which Europe’s wealthy get to achieve tax haven level treatment of their funds, at the very same time that ordinary citizens are being broken on the rack of austerity.

By Don Quijones, a freelance writer and translator based in Barcelona, Spain. His blog, Raging Bull-Shit, is a modest attempt to challenge some of the wishful thinking and scrub away the lathers of soft soap peddled by our political and business leaders and their loyal mainstream media. Originally published at Testosterone Pit

Something completely out of the ordinary happened in Spain this week: a politician resigned. His name is Willy Meyer and he was, until Wednesday morning at least, a Member of the European Parliament  (MEP) and European Parliamentary leader for Spain’s ostensibly far-left party “Izquierda Union.”

The reason for Meyer’s resignation is that he was caught funneling his parliamentary pension contributions into an EU-sponsored investment fund commonly referred to as a SICAV (standing for Société d’Investissement à Capital Variable) – an investment vehicle that Meyer’s own party has long pledged to ban.

A SICAV is an open-ended collective investment scheme that is common throughout Western Europe, especially in Luxembourg, Switzerland, Italy, Spain, Belgium, Malta, France and the Czech Republic. In all of those countries SICAVs receive preferential tax treatment. In Spain, for example, investors must pool together a minimum of 2.4 million euros and pay only 1 percent tax on annual returns. Meanwhile, in banker-friendly Luxembourg – where the EU-sponsored SICAV just happens to be based – the funds are taxed at a measly 0.05 percent rate.

Meyer is not the only Spanish politician to have invested in the mini tax haven of the SICAV. According to the financial daily El Confidencial, a total of 39 Members of the Spanish Parliament, MEPs, and government ministers signed up to the SICAV. They include Spain’s current finance minister, Cristobal Montoro, the man who over the past two years has hiked direct and indirect taxes on both workers and small businesses to confiscatory levels.

Lax Legislation and Limp Enforcement

Thanks to lax legislation and limp enforcement, SICAVs have effectively become mini-tax havens allowing many of the country’s best-heeled individuals and families to avoid paying almost any tax on their investment earnings. One way they do that is by not cashing in their dividends or selling their shares in the funds, since that would accrue taxes of 19 percent and 21 percent respectively. Instead, what they do is execute regular draw-downs on their capital investment. By withdrawing just part – rather than all – of their initial investment, they pay just 1 percent tax on their earnings.

What’s more, by law each SICAV must have a minimum of 100 stockholders. Most funds avoid this rule, however, by naming a series of straw-man investors, commonly known as “mariachis,” so that each SICAV is effectively controlled by only one person or one family.

Six Bourbons and Hundreds of Mariachis

A perfect case in point is the SICAV owned by the sister of Spain’s recently abdicated King, Juan Carlos II. As Lo Que Somos reported in an initially censored article from 2012:

Pilar of Spain, Duchess of Badajoz, Grandee of Spain, Dowager Viscountess de la Torre (…) has five children (…). Those five are the only shareholders that appear registered on the SICAV. (…) The rest of the stockholders don’t even appear. In order for the SICAV to be legal, a minimum of 100 is necessary, and the Labiérnago 2000, as the fund is called, has plenty: 237, according to the National Securities Market Commission (CNMV), but it is not known who 231 of them are (…)

(…) At the end of the 2001 fiscal year, the SICAV assets had already surpassed 4.3 million euros (…) Labiérnago 2000 earned [in 2009] 392,970 euros, on which 930 euros were paid in taxes, according to the financial statements that feature in the records. No zero is missing. To put this in perspective, if an ordinary company earned this profit, it would have to pay some 100,000 euros in corporate taxes. If a person received that from working, more than half of the earnings, some 200,000 euros, would go to the Ministry of Economy and Finance. (Translation courtesy of Global Voices Online)

It’s not just royalty that’s in on the act. So too is the Catholic Church and prominent members of the business community, including Amancio Ortega, Europe’s richest man and owner of global fashion giant Inditex. Also at it are politicians, members of the nobility, bankers, TV and film personalities, footballers, singers, tennis players and bullfighters (this is Spain, after all).

Indeed, so serious and widespread are the abuses of the financial vehicles that in 2004 it prompted a full-scale investigation by Spain’s tax office. What it found was that of the 3,100 SICAVs in operation in Spain, 58 were plainly illegal. The vast majority of them (2,650) were, in the words of the tax inspectors, “highly dubious” since more than 90 percent of the shares were controlled by just one individual or family.

But before the tax office could take legal action and claw back some of the tax owed, Zapatero’s government of caviar-socialists stepped in, granting legal immunity to the owners of SICAVs and handing over exclusive regulatory authority to the Commisión Nacional de Mercados de Valores – a Spanish version of the Security and Exchange Commission (which should more or less tell you all you need to know about where this story’s heading).

Just to give an idea of how thorough the Commission’s regulatory oversight has been, one of the people responsible for overseeing the SICAV industry is the CNMV’s vice-president, Carlos Arernillas – a man who until recently spent much of his spare time running a 9-million euro SICAV of his own, of which he owns 99.25 percent of shares.

The Eternal Global Race to the Bottom

Indeed, rather than tackling the abuses of the SICAVs, the Commission seems far more inclined to kowtow even lower to the demands of industry representatives, who argue that even less – indeed, preferably zero – tax should be paid by SICAV investors while the rules demanding at least 100 participants should be scrapped altogether.

The logic is simple: if Spain doesn’t offer the best possible conditions for investors, they will simply up sticks and take their money elsewhere, including to pseudo tax havens such as Luxembourg. In other words, in order not to lose the financial patronage of Spain’s wealthiest individuals and families, the government and financial regulator need to replicate the favourable conditions and opacity offered by tax havens.

And it’s not just Spain that’s playing this game. SICAVs are everywhere in Western Europe. As Nicholas Shaxson reports in his book Treasure Islands, the world’s biggest tax haven has long been the sovereign City of London. Thanks to the creation of the Euro-Dollar market in the post-war years, it became the favourite place for foreigners to park their money, no matter who they were or where it came from [Click here to see two fascinating Democracy Now interviews on tax havens with Shaxson and John Le Carre].

The main beneficiaries of this global race to the bottom have not been the top 1 percent, but the top 0.1 percent of the population, who in the U.S. alone have seen their share of national wealth surge from 2.7 percent in 1974 to 13 percent today – and thanks in no small part to the luxury of tax-free living.

None of this has happened by accident. As Jacob Hacker and Paul Pierson document in Winner-Take-All Politics, it happened because law-makers and public officials allowed it to happen – not because international markets or globalisation made it inevitable. It was a choice, driven by the pressure of lobbyists and other organisations to create an environment much more hospitable to the needs of the very rich.

Fiscal Suicide

The problem today is that the very rich are now rich beyond their wildest imagination, while most of the rest of us struggle with declining real wages. At issue is not just the question of justice or fairness. Nor is it, as defenders of the current system claim, about envy. What’s at stake is fiscal sustainability.

The super-rich are not only the primary beneficiaries of offshore havens and vehicles such as SICAVs; they are also the primary – if not exclusive – beneficiaries of today’s deeply-flawed model of money creation, whereby new money is injected into the economy at strategic points, creating a few winners and countless losers along the way. Those with access to the new money (namely those already endowed with vast financial wealth and power) gain immeasurably while vast majority, far from the free-money spigot, continue to lose purchasing power and end up having to pay more in taxes to boot.

As this process escalates, all talk (whether from governments, economists, central bankers or the IMF) of the need to rebalance government fiscal accounts is cruelly disingenuous.

European governments can (and no doubt will) continue to privatise what remains of their national industry, infrastructure and natural resources; they can (and no doubt will) ramp up taxes on the incomes of what little remains of the middle classes; they can even – as the Spanish government has just decided to do – begin taxing bank deposits. But as long as the individuals and companies that possess the lion’s share of the financial and resource wealth can get away with contributing next to nothing to public coffers, the fiscal health of our governments is doomed to continue its terminal decline.

Also by Don Quijones: Quietly, the rules governing global trade and financial markets are being changed. Despite the enormous impact they have on our lives, the public is not consulted. Most people are not even aware it is happening. Read…. The Global Corporatocracy Is Nearing Completion



Koch Brothers University

This article on the Daily Kos website last year listed the money the Koch brothers have given to universities to influence what they teach, shown in the list below. A Center for Public Integrity chart from this year showed this chart of the largest recipients. Despite denials from university officials that this largesse had any effect on curriculum, the CPC notes:

When, for example, the Charles Koch Foundation in 2011 pledged $1.5 million to Florida State University’s economics department, a contract between the foundation and university stipulated that a Koch-appointed advisory committee select professors and conduct annual evaluations, the Tampa Bay Times reported.

Rank School Location Amount
1 George Mason University Fairfax, Va. $8.49 million
2 Florida State University Tallahassee, Fla. $297,341
3 Troy University Troy, Ala. $274,500
4 University of Arizona Tucson, Ariz. $249,520
5 Utah State University Logan, Utah $170,000
6 Clemson University Clemson, S.C. $165,000
7 Kansas State University Manhattan, Kan. $149,000
8 West Virginia University Morgantown, W. Va. $146,200
9 University of North Carolina Chapel Hill, N.C. $116,800
10 George Washington University Washington, D.C. $116,000
11 Ohio State University Columbus, Ohio $112,000
12 Southern Methodist University University Park, Texas $100,000

Source: IRS tax returns in 2012 from Charles Koch Foundation, Fred C. and Mary R. Koch Foundation


Universities – Sum of Koch ContributionsAlma College    $15,175

American University    $17,500
Andrew College    $2,500
Appalachian State University    $17,000
Arkansas Tech University    $21,000
Ashland University    $20,000
Athens State University    $7,000
Auburn University    $300,000
Azusa Pacific University    $45,500
Ball State University    $24,600
Barton College    $12,680
Baylor University    $6,000
Beloit College    $167,000
Berry College    $79,500
Bethel College    $23,105
Boise State University    $15,020
Brown University    $437,682
Buena Vista University    $2,000
California State University – East Bay    $14,000
Campbell University    $36,693
Carnegie Mellon University    $5,850
Carthage College    $6,500
Case Western Reserve University    $25,000
Chapman University    $89,000
Charleston Southern University    $17,200
Christendom College    $10,200
Christopher Newport University    $14,000
Claremont McKenna College    $50,000
Clemson University    $932,516
Coastal Carolina University    $21,300
Colgate University    $4,931
College of Charleston    $118,555
College of New Jersey    $27,210
College of William & Mary    $12,300
Colorado College    $9,000
Dartmouth College    $47,000
Delaware State University    $15,422
Delta State University    $8,000
Duke University    $27,781
Duquesne University    $80,000
East Stroudsburg University    $31,200
Fayetteville State University    $7,000
Florida Gulf Coast University    $87,146
Florida State University    $1,063,459
Fort Hays State University    $507,000
Friends University    $144,620
George Fox University    $17,392
George Mason University    $16,374,492
George Washington University    $105,620
Georgetown University    $14,000
Georgia College & State University    $18,830
Georgia State University    $25,000
Georgia Tech Research Corp.    $30,000
Grove City College    $182,949
Hampden-Sydney College    $108,500
Hanover College    $10,500
Henderson State University    $6,515
High Point University    $2,000
Hillsdale College    $110,423
Indiana University    $7,600
Jacksonville State University    $6,000
James Madison University    $51,705
Johns Hopkins University    $9,000
Kansas State University    $269,254
Kansas University Endowment Association    $571,717
La Sierra University    $17,500
Lake Forest College    $7,500
Lakeland College    $7,000
Lindenwood University    $5,000
Linfield College    $11,500
Louisiana State University    $11,340
Loyola (IL) University    $7,184
Loyola (LA) University    $120,000
Massachusetts Institute of Technology    $319,988
McGill University    $14,000
McKendree University    $7,000
McNeese State University    $4,500
Mercer University    $42,500
Metropolitan State College of Denver    $59,840
Michigan State University    $49,730
Middle Tennessee State University    $8,000
Midwestern State University    $9,800
Milligan College    $8,800
Monclair State University    $5,271
Montana State University    $57,500
Morehead State University    $9,300
National University    $31,708
New York State University    $26,000
New York University    $142,500
Newman University    $78,000
Nicholls State University    $4,200
North Carolina State University    $13,000
Northeastern State University – Tahlequah    $21,600
Northern Illinois Research Foundation    $5,000
Northern Michigan University    $1,000
Northwestern Oklahoma State University    $7,250
Northwestern University    $450,750
Northwood University      $40,000
Northwood University – Florida Campus    $6,000
Northwood University – Texas Campus    $8,000
Oglethorpe University    $5,000
Ohio University    $33,000
Oklahoma State University    $36,400
Patrick Henry College    $8,000
Pennsylvania State University    $45,500
Pennsylvania State University – Erie, Black School of Business    $14,500
Pepperdine University    $32,150
Presbyterian College    $4,243
Providence College    $13,650
Randolph-Macon College    $9,000
Regent University    $17,500
Research Foundation of the State University of New York    $11,781
Rhodes College    $89,300
Robert Morris University    $7,000
Rockford College    $32,350
Roosevelt University    $16,350
Saginawy Valley State University    $8,590
Salisbury University    $24,000
San Diego State University Research Foundation    $5,500
San Jose State University    $87,900
Santa Clara University    $5,000
Sarah Lawrence College    $17,000
Seton Hall University    $31,911
Skidmore College    $8,000
Southeast Idaho Research Institute    $7,500
Southern Illinois University – Carbondale    $31,976
Southern Methodist University    $101,800
Southern Utah University    $9,200
St. Ambrose University    $5,400
St. Cloud State University    $20,700
St. Edwards University    $7,000
St. John Fisher College    $8,000
St. John’s University    $57,562
St. Lawrence University    $50,000
St. Vincent College    $7,500
State University of New York – Plattsburgh    $7,500
Stephen F. Austin State University    $7,000
Stillman College    $7,500
Stonehill College    $13,494
Suffolk University (MA)    $457,160
Suffolk University (NY)    $472,434

Texas A&M University    $9,000
Texas Christian University    $7,500
Texas State University – San Marcos    $6,546
The King’s College    $35,500
Towson University    $4,650
Trinity College    $72,253
Trinity University    $8,000
Troy University    $480,000
University at Buffalo    $7,960
University of Akron    $9,500
University of Alabama – Birmingham    $4,874
University of Alabama – Huntsville    $14,974
University of Alabama – Tuscaloosa    $22,950
University of Alaska- Fairbanks    $56,800
University of Arizona    $725,945
University of Arkansas    -$3,826
University of Arkansas – Little Rock    $21,855
University of California – Davis    $5,561
University of California – Los Angeles    $32,426
University of California – Riverside    $15,000
University of Central Arkansas    $15,375
University of Colorado    $55,000
University of Dallas    $42,000
University of Dayton    $30,500
University of Georgia – Arch Foundation    $2,600
University of Houston    $20,000
University of Illinois – Springfield    $10,375
University of Kansas    $50,000
University of Kentucky    $2,000
University of Louisville    $31,055
University of Maine – Machias    $6,000
University of Maine – Orono    $3,200
University of Maryland – Baltimore County    $7,400
University of Memphis    $5,900
University of Michigan    $18,607
University of Mississippi    $7,000
University of Missouri- Columbia    $80,000
University of Nebraska – Omaha    $30,000
University of Nevada – Las Vegas    $10,000
University of Nevada – Reno    $8,000
University of North Alabama    $7,000
University of North Carolina – Chapel Hill    $255,000
University of North Carolina – Greensboro    $7,500
University of Notre Dame    $9,650
University of Oklahoma    $3,000
University of Richmond    $25,675
University of Rochester    $9,000
University of San Diego    $23,620
University of South Alabama    $15,586
University of South Florida    $7,500
University of St. Thomas    $30,000
University of Texas – San Antonio    $11,500
University of Texas- Arlington    $19,500
University of Texas- Austin    $11,400
University of Texas- El Paso    $21,975
University of Texas- Pan America    $59,300

University of Tulsa    $5,000
University of Virginia    $23,000
University of Virginia’s College at Wise    $6,000
University of Washington    $7,000
University of West Florida    $20,000
University of Wisconsin – Eau Claire    $7,082
University of Wisconsin – Madison    $12,400
Utah State University    $668,500
Wake Forest University    $14,310
Washington University – St. Louis    $6,000
Webber International University    $3,000
Wesleyan College    $15,300
West Texas A&M University    $8,500
West Virginia University    $965,200
Western Carolina University College of Business    $24,000
Western Kentucky University    $17,700
Western Michigan University    $28,190
Westmont College    $3,000
Wheaton College    $7,300
Whitman College    $6,000
Wichita State University    $48,000
Winston-Salem State University    $8,500
Wisconsin Lutheran College    $7,500
Yeshiva University    $20,000

Common Dreams: Chickens Home to Roost on Empire Building

How the US Is Fueling Military Repression in Honduras

The Honduran military was a front-line enforcer of U.S. goals in Central America during the Cold War. The country is still paying the price to this day. (Photo: Charlie Company / Flickr)A few weeks ago in Honduras, six Americans were arrested and thrown in jail while salvaging from the ocean floor off the northern coast. Their charge: possession of illegal weapons while on board the ship. A spokesman for the salvage company the men work for said that port officials had approved the guns in advance for purposes of protection. Since their arrest, there have been reports that the men are poorly fed, the jail is foul and mosquito-infested, and vicious fights have broken out among the other inmates.

Publicity over the case has pried the lid off the longstanding human rights crisis in Honduras. Harassment, arbitrary arrest, crowded prisons, and a host of other human rights abuses are a way of life for many Hondurans, and especially the poor. Unionists, peasant activists, environmentalists, indigenous people, and the journalists, lawyers, and others who support them are particularly vulnerable to threats, disappearance, and murder. Over the years, politically motivated killings, along with other factors, have given Honduras the highest murder rate in the world.

The highly charged nature of politics in this country was on display last month when military police violently expelled members of former President Manuel Zelaya’s center-left party from the building for supporting a demonstration against military repression. Zelaya himself had been ousted from office in a 2009 coup, and his followers have suffered a wave of persecution since then. These events prompted a letter to U.S. Secretary of State John Kerry from 108 members of the House of Representatives asking him to review the human rights situation in Honduras and cut off aid to those responsible for abuses.

These and other dynamics have made Honduras one of the most dangerous places in the western hemisphere. It is curious that such conditions persist when armed forces in other parts of Latin America have long since come to terms with the principles of democracy. To understand the persistence of authoritarianism in Honduras, a comparison to neighboring Nicaragua reveals differences in the way that militaries in the region are trained and politicized.

Nicaragua: Dynastic Rule

For most of the 20th century, the United States maintained a strong influence in both Nicaragua and Honduras. The United States built the military forces there by establishing schools for military training, providing weapons and aircraft, and supplying funds. In both cases, the armed forces assisted with the U.S. Cold War objective of containing and suppressing the left in the region. The Nicaraguan military provided support for the U.S. invasion of Guatemala in 1954 as well as the Bay of Pigs invasion of Cuba in 1961. The Honduran armed forces also provided assistance in the invasion of Guatemala and in the “Contra” war against the Sandinista government in the 1980s.

Yet there were important differences in the way the United States worked with the military in each case. While the strategy was more direct in Honduras,U.S. officials managed the military indirectly in Nicaragua by relying on the loyalty of a single family. This longstanding relationship began when U.S. Secretary of War Henry Stimson gained the assistance of Anastasio Somoza García during the peace negotiations that ended the Nicaraguan civil war in 1927.

Having been schooled in the United States, Somoza spoke American English fluently, a rare ability in Nicaragua at the time. This ability more than anything else enabled Somoza to become head of the National Guard, an elite fighting force trained by the U.S. Marines. When the Marines withdrew in 1934, Somoza became the essential conduit between U.S. officials and the Spanish-speaking Guardsmen.

After his death in 1956, Somoza was succeeded first by one and then another of his sons, so that the family remained largely in control of the country for some 45 years.

As Anthony Lake writes, after U.S. forces left, “Nicaragua’s problems were Nicaragua’s affair. American representatives scrupulously avoided taking sides or even offering advice.” The Somoza dynasty and its supporters in the Liberal Party would be the key to maintaining stability and order even “at the cost of the American ideal of democracy.” Left to their own devices, the Somozas rooted out political rivals and intimidated and corrupted business interests, public officials, political opponents, and rural communities. In time, they became one of the richest families in Central America.

Honduras: Institutionalized Militarism

While Nicaraguans regarded the National Guard with contempt in Nicaragua, the Honduran military forces actually attained a level of cohesion with society.

As Honduran historians point out, the predominant National Party has upheld both traditional and economic versions of “conservative” politics in Honduras. In the economic version, as far back as the 1910s, the National Party strongly supported investments by foreign investors such as United Fruit. In the traditional version of conservatism, elites and peasants were seen as part of a whole community united by the Catholic faith and a belief in strong military leadership. As an embodiment of these two views, the National Party effectively fused the interests of elites, foreign investors, the military, and a portion of the peasantry.

This philosophy also led the army, as a strong ally of the National Party, to recruit from a broad segment of society, including “those of low social origin.”In this way, the armed forces were able to identify with the claims of the people and maintain a certain measure of popular appeal. This practice stood in stark contrast to that of the National Guard in Nicaragua.

The opposition Liberal Party, by far the weaker of the two, sought support among small holders and banana workers along the northern Atlantic coast by promoting worker rights and opposing imperialism. Although more subject to coups and political repression, the Liberals were credited early on with improving wages and working conditions in that region. Nonetheless, the two parties took turns protecting the interests of the fruit companies by cracking down on strikes and persecuting union leaders.

Authoritarianism also differed in the two countries as a result of the different goals that the United States advanced.

In Nicaragua, U.S. military bases were first established in 1914 along with the exclusive right to build a canal across that country. Hoping to fend off European and other great power designs in the region, the United States turned its attention in Nicaragua to concerns outside the country.

On the other hand,the United States chose Honduras as a central location for controlling unrest and revolutionary movements that threatened stability along the isthmus. U.S. Secretary of State Philander Knox had noted in 1912 how Honduras bordered on three other Central American countries and effectively served as a pathway for the armies of other states in the region: “It has not been possible to prevent their passing through without committing her to the struggle here or elsewhere.” For Knox, peace in Honduras would always be the key to peace in Central America.

By the late 1970s, political tensions were high in both countries as President Jimmy Carter pressed for democratization. Yet once again, the outcomes were quite different.

In Nicaragua, where the Somoza family and the National Guard had been isolated from the population, the opposition was able to build a broad base of support. The situation worsened after the devastating earthquake of 1972 amid reports that government officials had embezzled international donations. The assassination of an opposition leader in 1978 led to a mass strike while conservatives, business leaders, and the archbishop in Managua denounced the government. Sandinista leaders took advantage of these events to increase their support. After the overthrow of the Somoza family, exposing the abuses of the National Guard became a way to heighten support for the Sandinistas while also paving the way for free elections.

In Honduras, where the military had become a governing institution, society did not undergo the same level of polarization. Faith, philosophy, a close alliance with the National Party, a populist character, and ample backing from the United States all helped maintain the continuity of military rule throughout the 1980s.

Failing at Defense 

The faith of Hondurans in their armed forces was sadly misplaced, however. Not only did the armed forces repress their own population, they also failed miserably at actually defending the country against invasion.

On one occasion, an invasion by El Salvador set off what became known as the Soccer War in 1969. Despite air bombing by the Honduran Air Force, the superior Salvadoran ground forces attacked six points near the Honduran border and bombed 10 Honduran cities, including the capital. It took a negotiated ceasefire by the Organization of American States (OAS) to restore the old borders. The humiliation of the invasion and contempt for Salvadorans provoked a surge in Honduran nationalism and a new drive to expand and professionalize the army.

A second invasion took place during the Contra war against Nicaragua’s Sandinista government in the 1980s. At that time, Honduras hosted the base operations of the Nicaraguan counterrevolutionaries, or “Contras,” fighting to regain control in Nicaragua. The Reagan administration, determined to topple the Sandinistas, leaned hard on the Honduran government to continue that support, increasing military aid tenfold over what it had been in the late 1970s.

Nonetheless, in March 1986, 1,500 members of the Sandinista army successfully crossed into Honduras near the town of Las Vegas and engaged the Contras in combat. The Sandinistas subsequently withdrew without ever encountering the Honduran army. Honduran officials were reluctant to admit to this acute embarrassment, but U.S. officials used it as proof of Sandinista aggression and were thus able to obtain an additional $100 million in Contra aid from Congress.

Although many Hondurans tended to support U.S. policy toward the Contras, Honduran officials were uneasy about their presence inside the country. In a challenge to the United States, military leaders took decisive steps to close down a Contra hospital and other facilities, and even turned away two U.S. State Department officials intent on touring a Contra training camp. This unusual stance against U.S. policy by the Honduran government likely helped bring an end to the Contra war. But it did little to make the military itself more compatible with democracy.

Turning a Corner? 

Since the end of the Contra war, social movements have sprung up in Honduras much as they have elsewhere. Students, workers, women’s organizations, indigenous groups, and LGBT activists have poured into the streets and into the world of print, radio, and internet journalism. The initial excitement of these democratizing movements gave way, however, as authoritarian brutality continued.

Since the ouster of President Manuel Zelaya in 2009, leading activists have increasingly been targeted for harassment, arbitrary arrest, and assassination. More journalists have now been murdered in Honduras than in any other country, and many of those under threat have fled to the United States.

In the fertile Lower Aguán Valley where cooperative farmers battle wealthy exporters for the right to farm land, at least 88 peasant activists have been killed, likely at the hands of military forces. Human Rights Watch recently found that such killings are routinely ignored by the police and prosecutors and seldom investigated. In these and other ways the long history of military forces in this country suppressing social activism has continued.

The fact that American citizens are now being subjected to many of the abuses Hondurans have experienced for years has brought the issue to the attention of Congress. Recently, 108 members of the House of Representatives signed a letter calling on Secretary of State John Kerry to review the human rights situation. Newly appointed Ambassador to Honduras James Nealon clearly recognized both the nature and urgency of the problem during his recent confirmation. Coming out against the use of the military in policing, he noted:

A Honduras with greater accountability and transparency will establish stronger rule of law institutions and be more likely to protect human rights. … Respect for human rights is an antidote to instability—a Honduras with strong human rights protections means enhanced security in our region.

With so much at stake and so few allies to count on, the poor and the vulnerable in Honduras are now watching the United States to see what these changes will bring. With the right response on our part, we can hope to see the dawn of a more congenial policy for the United States and a safer and more democratic era for Hondurans.


Humor: The Borowitz Report

Boehner Calls Obama’s Practice of Accomplishing Things Unconstitutional


WASHINGTON (The Borowitz Report)—Speaker of the House John Boehner (R-Ohio) said today that he plans to sue President Obama for violating the United States Constitution with what Boehner called “his outrageous practice of accomplishing things.”

“The United States Constitution guarantees the American people that its government will be free from activity,” Boehner told reporters. “Again and again, President Obama has broken that sacred trust.”

Ripping the President for his “willful insistence on doing things,” Speaker Boehner said that his lawsuit was intended “to restore the inaction and inertia that have been the hallmarks of our democracy.”

The Speaker acknowledged that suing the President was an extreme measure, but added, “I take this step only after exhausting every other method to prevent him from getting anything done.”

Concluding his remarks, Boehner said that he hoped his lawsuit would send a “powerful message” to President Obama: “If you stubbornly continue to take actions that result in tangible outcomes, you will be very, very sorry.”

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Photograph by J. Scott Applewhite/AP.

Naked Capitalism on Global Warming

“Risky Business” Climate Report: Paulson, Bloomberg, Rubin, Schultz Late to Combat the Denialists

Posted on June 24, 2014 by

Those who have been involved in trying to raise awareness of the risks of global warming might have to repress a “Beware of Greeks bearing gifts” response to a new, accessible, and well written report on the probable impact of climate change on the US. The effort, called “Risky Business” has Hank Paulson, Michael Bloomberg, and Thomas Steyer, retired chairman of Farallon Capital, as co-chairs, with its other committee members including Bob Rubin, George Schultz, Henry Cisneros, Gregory Page (the executive chairman of Cargill), Donna Shalala, and Olympia Snowe. In other words, when Hank Paulson looks like the best of a bunch, there’s reason to be cautious.

Chart showing carbon emission levels from 1775 to 2100 under various scenariosYet there is a lot to welcome about this development. This is a well-funded, hugely connected and respected bi-partisan group that intends to galvanize efforts to combat greenhouse gas emissions. It represents a long-overdue split in the elites. The Kochs and other denialists have succeeded in stymieing action by raising doubts about the origins and dynamics of climate change. The report is meant to demonstrate that the US is long past having the luxury of debating whether global warming is happening, and that a sober look at the seriousness of the outcomes says we need to do something, pronto.

Even though the document focuses on economic impacts, its novel and clever feature is to give readers a tangible sense of how bad things will get by showing how many 95° average temperature days there will be in various location in the future (emphasis original):

US Map of 95 Degree Days, 1981-2010 versus versus 2020-2039
US Map of 95 Degree Days, 2040-2059 v. 2080- 2099

Extreme heat across the nation—especially in the Southwest, Southeast, and Upper Midwest—threatening labor productivity, human health, and energy systems

» By the middle of this century, the average American will likely see 27 to 50 days over 95°F each year—two to more than three times the average annual number of 95°F days we’ve seen over the past 30 years. By the end of this century, this number will likely reach 45 to 96 days over 95°F each year on average.

» As with sea level rise, these national averages mask regional extremes, especially in the Southwest, Southeast, and upper Midwest, which will likely see several months of 95°F days each year.

» Labor productivity of outdoor workers, such as those working in construction, utility maintenance, landscaping, and agriculture, could be reduced by as much as 3%, particularly in the Southeast. For context, labor productivity across the entire U.S. labor force declined about 1.5% during the famous “productivity slowdown” in the 1970s.

» Over the longer term, during portions of the year, extreme heat could surpass the threshold at which the human body can no longer maintain a normal core temperature without air conditioning, which we measure using a “Humid Heat Stroke Index” (HHSI). During these periods, anyone whose job requires them to work outdoors, as well as anyone lacking access to air conditioning, will face severe health risks and potential death.

» Demand for electricity for air conditioning will surge in those parts of the country facing the most extreme temperature increases, straining regional generation and transmission capacity and driving up costs for consumers.

The most impressive feature of the presentation is its estimates of local climate impact, in some cases down to the county level (click to enlarge).

Impact of hotter temperatures and rising sea level on various parts of the Northeast in 2100

The report is full of cheery tidbits like this:

Rising seas and greater coastal storm damage already threaten the financial value and viability of many properties and infrastructure along the Eastern Seaboard and Gulf Coast. If we stay on our current climate path, some homes and commercial properties with 30-year mortgages in places in Virginia, North Carolina, New Jersey, Alabama, Florida, and Louisiana and elsewhere could quite literally be underwater before the note is paid off.

The report then works through what the effect will be on agriculture, energy use, heat and cold related deaths, and sea level rise/flood/extreme weather damage to property. For example:

As Risk Committee member Dr. Alfred Sommer has pointed out, extreme heat will have a major impact on the capacity of local hospitals: “We just don’t have the surge capacity left in the medical system anymore. . . If these [impacts] occur in rural areas you’re particularly in trouble.” He goes on to note that in Chicago during the 1995 heat wave, local officials “didn’t even have a place to properly store [bodies from] the 700 deaths . . .that occurred over a small number of days.”

While the study does try to estimate how much more extremely hot days will lower productivity, it does not estimate other secondary effects, like the potential for higher levels of infectious diseases.

Some of the projected effects start setting in sooner than many Americans might expect. For instance, Risky Business anticipates that the annual cost of flooding, along with hurricanes and other storms will increase by $7.3 billion in the next 15 years, which is a bit more than 25%. The production of staples is also in jeopardy. From the executive summary:

Without adaptation, some Midwestern and Southern counties could see a decline in yields of more than 10% over the next 5 to 25 years should they continue to sow corn, wheat, soy and cotton, with a 1-in-20 chance of yield losses of these crops of more than 20%.

Given the professed aim of this august group to stir more serious action, the caution and conservatism of the document is perplexing. On the one hand, the 95° day analysis may be sufficiently novel and tangible as to reach both businessmen and the broader public in a way past presentations have failed, particularly since it includes commentary like this:

But the real story in this region [the Midwest] is the combined impact of heat and humidity, which we measure using the Humid Heat Stroke Index, or HHSI. The human body’s capacity to cool down in the hottest weather depends on our ability to sweat, and to have that sweat evaporate on our skin. Sweat keeps the skin temperature below 95°F, which is required for our core temperature to stay around 98.6°F. But if the outside temperature is a combination of very hot and very humid—if it reaches a HHSI of about 95°F—our sweat cannot evaporate, and our core body temperature can rise until we actually collapse from heat stroke. Even at an HHSI of 92°F, core body temperatures can get close to 104°F, which is the body’s absolute limit.

To date, the U.S. has never experienced heat-plus-humidity at this scale. The closest this country has come was in 1995 in Appleton, Wisconsin, when the HHSI hit 92°F. (At the time, the outside temperature was 101°F and the dew point was 90°F.) The only place in the world that has ever reached the unbearable HHSI of 95°F was Dhahran, Saudi Arabia, in 2003 (outside temperature of 108°F, dew point of 95°F). Our research shows that if we continue on our current path, the average Midwesterner could see an HHSI at the dangerous level of 95°F two days every year by late century, and that by the middle of the next
century, she or he can expect to experience 20 full days in a typical year of HHSI over 95°F, during which it will be functionally impossible to be outdoors.

So if that proves compelling, the authors’ and committee members’ instincts to let that information speak for itself will be proven correct.

But otherwise, the report has looked hard and well at critical first-order climate change effects: energy use, flooding/extreme weather risks, loss of agricultural production, and other extreme heat effects (loss of productivity and extreme temperature-related deaths). But as much as the facts might seem sobering to a businessman, there’s no focus on broader social effects. Once a certain level of adverse change has been breached, negative outcomes are likely to become self-reinforcing.

The Department of Defense has been studying this topic (admittedly with more focus on areas deemed to be geopolitically unstable) and the recognize how enough change in living conditions and costs generates social instability. The Arab Spring was the direct result of increases in the cost of foodstuffs and cooking fuel that pushed those who were just barely getting by into desperate straits. The DoD has modeled the impact of mass migrations when low-lying, densely populated areas like Sri Lanka become increasingly uninhabitable. What happens in the US when areas that were once vibrant Sunbelt communities start looking too costly and unpleasant to live, and they start depopulating rapidly? Where do those former residents go? And what happens to those who lack the resources to decamp? Is the US future a series of sun-blasted Detroits? The East Coast will have similar issues with cities that are vulnerable to storms and sea level rises. That level of change in where people live has to have tremendous knock-on effects in terms of damage to communities, the loss of local businesses and jobs. And Bloomberg, the US leader in militarization of local policing, is certainly aware of these risks to the 1%, as are his colleagues in this effort; that (and profiteering) are the justifications for cops suddenly tricked out like cast members of a dystopian summer action movie.

So I am genuinely not certain of what to make of this document. Is it an effort (aside from Hank Paulson, who is a long standing conservationist) to assuage their consciences? Where were they when the IPCC made its report in 2007 and a push from such top-level businessmen could have had a real impact? Or is this sort of public presentation a sign of disfunction among the business elite? In the old days, as Lambert reminds me, there was a cadre of recognized wise men who had the stature that when they pulled one of their peers aside to urge then to change course, they’d get a serious hearing. Perhaps some members of this cabal (one can imagine Gregory Page of Cargill, who has a commercial interest as well as an organization famed for its ability to gather information) might have tried private suasion and been frustrated at their difficulty in getting traction. This document might reflect the reality of our modern era, that to shift the narrative on the elite level, it needs to be reflected in mass media as well.

The perplexing bit, in addition to underselling the seriousness of the climate change issue issue by steering clear of societal impacts, is the fact that the report pointedly steers clear of making any policy recommendations. It’s hard to know what to make of a document that stresses the need for urgent action yet fails to say much about what actions would have the biggest impact. It does, in its thin “Next Steps” section, call on farmers to adapt and make anticipatory investment, and suggests that the Federal government should help. And it makes an apple-pie-and-motherhood general call for a “Public Sector Response: Instituting policies to mitigate and adapt to climate change.”

Despite the high quality and astute focus of the analysis, the fact that the committee lacked the guts to call for concerted efforts to reduce energy use (and a lot can be done by simply better planning and changes of habits with minimal lifestyle impact, although clearly more severe energy “diets” would be better). For instance, as we pointed out, BP (yes that BP) decided in 1997 to reduce its greenhouse gas emissions to its 1990 level. It thought it would take 13 years. It took three years and cost $20 million…and yielded savings of $650 million. Yet most companies are loath to put in the effort and too short-term focused to incur expenses.

But the reality is that a Marshall Plan level effort to tackle global warming would need to look hard at undoing many extended supply chains and at reducing air travel. And it goes without saying that the global elite and business executives and managers who oversee multinational operations make a lot of environmentally costly long-haul flights. As the New York Times pointed out:

For many people reading this, air travel is their most serious environmental sin. One round-trip flight from New York to Europe or to San Francisco creates a warming effect equivalent to 2 or 3 tons of carbon dioxide per person. The average American generates about 19 tons of carbon dioxide a year; the average European, 10.

So if you take five long flights a year, they may well account for three-quarters of the emissions you create. “For many people in New York City, who don’t drive much and live in apartments, this is probably going to be by far the largest part of their carbon footprint,” says Anja Kollmuss, a Zurich-based environmental consultant.

It is for me. And for people like Al Gore or Richard Branson who crisscross the world, often by private jet, proclaiming their devotion to the environment.

Though air travel emissions now account for only about 5 percent of warming, that fraction is projected to rise significantly, since the volume of air travel is increasing much faster than gains in flight fuel efficiency. (Also, emissions from most other sectors are falling.)

We used to have leaders who were at least willing to make a credible show of leading by example. JP Morgan, for all of his many faults, insisted that the members of the House of Morgan had to be models of probity to make manifest the stability and trustworthiness of his firm. While this report is a step in the right direction, Paulson, Bloomberg, Page et al would have an even bigger impact on opinion if they took some concrete steps themselves to reduce their and their organizations’ carbon use, most important by making personal changes like cutting back significantly on airplane use and naming and shaming colleagues who didn’t. But people who become members of the most exclusive clubs are the least likely to break the unwritten rules and criticize powerful peers.

When I was briefly in Caracas, I was taught a local saying, “They have changed their minds, but they haven’t changed their hearts.” This report at best might change some minds, but it will take much more to find the emotional and practical triggers to shift behavior on a widespread basis. And the runway to do that is awfully short.


Dick Cheney

The Offshore Tax Haven Dodge


The Use of Offshore Tax Havens by Fortune 500 Companies


Executive Summary:

Many large U.S.-based multinational corporations avoid paying U.S. taxes by using accounting tricks to make profits made in America appear to be generated in offshore tax havens – countries with minimal or no taxes. By booking profits to subsidiaries registered in tax havens, multinational corporations are able to avoid an estimated $90 billion in federal income taxes each year. These subsidiaries are often shell companies with few, if any employees, and which engage in little to no real business activity.

Congress has left loopholes in our tax code that allow this tax avoidance, which forces ordinary Americans to make up the difference. Every dollar in taxes that corporations avoid by using tax havens must be balanced by higher taxes on individuals, cuts to public investments and public services, or increased federal debt.

This study examines the use of tax havens by Fortune 500 companies in 2013. It reveals that tax haven use is ubiquitous among America’s largest companies, but a narrow set of companies benefit disproportionately.

Most of America’s largest corporations maintain subsidiaries in offshore tax havens. At least 362 companies, making up 72 percent of the Fortune 500, operate subsidiaries in tax haven jurisdictions as of 2013.

–          All told, these 362 companies maintain at least 7,827 tax haven subsidiaries.

–          The 30 companies with the most money officially booked offshore for tax purposes collectively operate 1,357 tax haven subsidiaries.

Approximately 64 percent of the companies with any tax haven subsidiaries registered at least one in Bermuda or the Cayman Islands – two notorious tax havens. Furthermore, the profits that all American multinationals – not just Fortune 500 companies – collectively claim were earned in these island nations in 2010 totaled 1,643 percent and 1,600 percent of each country’s entire yearly economic output, respectively.

Six percent of Fortune 500 companies account for over 60 percent of the profits reported offshore for tax purposes. These 30 companies with the most money offshore – out of the 287 that report offshore profits – collectively book $1.2 trillion overseas for tax purposes.

Only 55 Fortune 500 companies disclose what they would expect to pay in U.S. taxes if these profits were not officially booked offshore. All told, these 55 companies would collectively owe $147.5 billion in additional federal taxes. To put this enormous sum in context, it represents more than the entire state budgets of California, Virginia, and Indiana combined. Based on these 55 corporations’ public disclosures, the average tax rate that they have collectively paid to other countries on this income is just 6.7 percent, suggesting that a large portion of this offshore money is booked to tax havens. This list includes:

–          Apple: Apple has booked $111.3 billion offshore – more than any other company. It would owe $36.4 billion in U.S. taxes if these profits were not officially held offshore for tax purposes. A 2013 Senate investigation found that Apple has structured two Irish subsidiaries to be tax residents of neither the U.S. – where they are managed and controlled – nor Ireland – where they are incorporated. This arrangement ensures that they pay no taxes to any government on the lion’s share of their offshore profits.

–          American Express: The credit card company officially reports $9.6 billion offshore for tax purposes on which it would otherwise owe $3 billion in U.S. taxes. That implies that American Express currently pays only a 3.8 percent tax rate on its offshore profits to foreign governments, suggesting that most of the money is booked in tax havens levying little to no tax. American Express maintains 23 subsidiaries in offshore tax havens.

–          Nike: The sneaker giant officially holds $6.7 billion offshore for tax purposes, on which it would otherwise owe $2.2 billion in U.S. taxes. That implies Nike pays a mere 2.2 percent tax rate to foreign governments on those offshore profits, suggesting that nearly all of the money is officially held by subsidiaries in tax havens. Nike does this in part by licensing the trademarks for some of its products to 12 subsidiaries in Bermuda to which it then pays royalties.

Some companies that report a significant amount of money offshore maintain hundreds of subsidiaries in tax havens, including the following:

–          Bank of America reports having 264 subsidiaries in offshore tax havens – more than any other company. The bank officially holds $17 billion offshore for tax purposes, on which it would otherwise owe $4.3 billion in U.S. taxes. That means it currently pays a ten percent tax rate to foreign governments on the profits it has booked offshore, implying much of those profits are booked to tax havens.

–          PepsiCo maintains 137 subsidiaries in offshore tax havens. The soft drink maker reports holding $34.1 billion offshore for tax purposes, though it does not disclose what its estimated tax bill would be if it didn’t keep those profits booked offshore for tax purposes.

–          Pfizer, the world’s largest drug maker, operates 128 subsidiaries in tax havens and officially holds $69 billion in profits offshore for tax purposes, the third highest among the Fortune 500. Pfizer recently attempted the acquisition of a smaller foreign competitor so it could reincorporate on paper as a “foreign company.” Pulling this off would have allowed the company a tax-free way to use its supposedly offshore profits in the U.S.

Corporations that disclose fewer tax haven subsidiaries do not necessarily dodge fewer taxes. Many companies have disclosed fewer tax haven subsidiaries, all the while increasing the amount of cash they keep offshore. For some companies, their actual number of tax haven subsidiaries may be substantially greater than what they disclose in the official documents used for this study. For others, it suggests that they are booking larger amounts of income to fewer tax haven subsidiaries. 


–          Citigroup reported operating 427 tax haven subsidiaries in 2008 but disclosed only 21 in 2013. Over that time period, Citigroup more than doubled the amount of cash it reported holding offshore. The company currently pays an 8.3 percent tax rate offshore, implying that most of those profits have been booked to low- or no-tax jurisdictions.

–          Google reported operating 25 subsidiaries in tax havens in 2009, but since 2010 only discloses two, both in Ireland. During that period, it increased the amount of cash it reported offshore from $7.7 billion to $38.9 billion. An academic analysis found that as of 2012, the 23 no-longer-disclosed tax haven subsidiaries were still operating.

–          Microsoft, which reported operating 10 subsidiaries in tax havens in 2007, disclosed only five in 2013. During this same time period, the company increased the amount of money it reported holding offshore by more than 12 times. Microsoft currently pays a tax rate of just 3 percent to foreign governments on those profits, suggesting that most of the cash is booked to tax havens.

Strong action to prevent corporations from using offshore tax havens will restore basic fairness to the tax system, make it easier to avoid large budget deficits, and improve the functioning of markets.

There are clear policy solutions policymakers can enact to crack down on tax haven abuse. Policymakers should end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, and increase transparency.


Naked Capitalism on Our Modern Gilded Age

How Oligopolies Undermined Competitiveness and Produced Inequality

Yves Smith








Economists, commentators, and policymakers have spilled boatloads of ink on what caused the financial crisis and why the US and most advanced economies remain mired in a weak recovery. A substantial school of thought sees stagnant wage rates, financialization, and rising inequality as linked causes. Starting in the 1970s, the old bargain between large corporations, which tended to anchor wages, and labor began to break down. Before, workers shared in the benefits of productivity gains, which enabled them to enjoy a rising standard of living. Economic policy also focused on the health of labor, measured in wage and employment levels.

While the shift in emphasis started in the 1970s, the new “free market” economic paradigm really took hold in the 1980s. Markets were touted as the neutral arbiters of economic problem, regulations were depicted as a drag on this virtuous device. That belief served to justify widespread deregulation. Stagnant worker wages were papered over by rising levels of consumer debt and asset prices, which allowed ordinary citizens for decades to use borrowing to augment flagging incomes and thus provide for rising living standards (another prop was much greater participation by women in the economy, so more and more two-earner households also masked the flat trend in real wages). Increased financialization, as well as lower tax rates on top earners (and the failure to close critical loopholes), helped promote widening inequality. And that now much greater disparity between the 1%, and particularly the 0.1%, and everyone else, has dampened the recovery, since the wealthiest don’t consume as much of their income as low and middle income people do, so the high degree of wealth concentration perpetuates post-crisis weak aggregate demand.

Now notice what is missing from this account: the role of anti-trust policy. One thing that even conservative economists will concede is that monopolies and oligopolies undermine the tidy “markets are virtuous” account. Monopolies and oligopolies have the power to set prices unnaturally high, assuring more profits for themselves. Yet the highly efficient markets of economic fairy tales, where no producer or buyer has pricing power, is a highly unattractive setting for businessmen. Efficient markets produce minimal profits. Indeed, rampant competition is destructive to businesses, as railroad speculation and bankruptcies in America in the 1800s demonstrated.

The job of an entrepreneur is to find or create market inefficiencies. That might be the virtuous way, by creating a distinctive product that is hard to replicate (think the iPhone). It might be by exploiting a niche market (think the convenience store that charges high prices but can get away with it by being open 24 hours or by being in an underserved location). Or it might be by trying to become a dominant player in a market that has some barriers to entry (say scale economies or network effects).

The US knows, or should know, how this movie plays out. The Gilded Age era of consolidation, which came to be described as Morganization (for JP Morgan) was one of combining businesses into trust to gain market power. But the result, as Morgan’s US Steel showed, was uncompetitive, high cost producers that under-invested in innovation and even in upgrading the caliber of management (Alfred Chandler described US Steel’s failure to adopt management structures appropriate for an enterprise of its scale).

A lnot-widely-noticed, but nevertheless important element of the new economic paradigm that emerged in the 1970s and 1980s was less and less enforcement of anti-trust laws. When I was young and involved in acquisitions, large corporations worried about having a deal nixed on anti-trust grounds. Now that sort of event is so rare as to be noteworthy when it does take place.

Weak anti-trust enforcement has played a direct role in the restructuring of American business and the unprecedentedly high profit share of GDP that US corporations now enjoy. For instance, a popular strategy among private equity firms is what are called rollups, meaning industry consolidations. And when a small number of players come to dominate an industry, crapification often results. For instance, in his excellent book The Buyout of America, Josh Kosman describes how the two biggest mattress makers, Sealy and Simmons, each owned by private equity firms, kept raising prices by twice the rate in the general economy from 1998 to 2006, while cheapening the top of the mattress and moving the industry to “no flip” beds, which were less durable. That paved the way for the success of foam beds by makers like Tempu-Pedic. Simmons filed for bankruptcy in 2009.

In an important Washington Post op-ed earlier this week, Lina Khan, a policy analyst for the New America Foundation and Sandeep Vaheesan, special counsel at the American Antitrust Institute, describe how lax antitrust enforcement made the US less competitive and more unequal. From their article:

Take the $2.5 trillion health-care industry, where rising costs are fueled in good part by consolidation. A frenzy of mergers starting in the 1990s has meant that most Americans today live in areas where there is little competition among hospitals. Studies show that after merging, hospitals routinely raise prices. As detailed in Time last year, many hospitals now mark up services from a routine blood test to chemotherapy by as much as several hundred percent. In health care alone, market power redistributes hundreds of billions of dollars in wealth upward annually.

The same is true in other sectors. Meager competition among cable providers and the growing market power of large content owners have enabled Comcast, Time Warner Cable and others to raise the price of subscriptions at close to three times the rate of inflation since 2008. High-speed broadband presents a similar picture: Americans now pay more than double what European consumers pay. Merger mania in the airline industry — where eight majors have combined to create four giant carriers over the past decade — has resulted in fare increases of as much as 65 percent on certain routes.

And although the place where oligopolies usually throw their weight around is with pricing to customers, they also can exert pricing power with suppliers. Khan and Vaheesan describe the now-notorious wage-suppression pact among Apple, Google, Pixar, Intel, and Adobe. That sort of price collusion is a flat-out antitrust violation. But there are softer forms that have become depressingly normal. For instance, I’ve mentioned how Wal-Mart seeks to become a big supplier at its mid-sized and smaller vendors. Once the Bentonville giant becomes 40% or more of a company’s revenues, it knows it can exploit its leverage. One of my attorneys heard repeatedly of how Wal-Mart would keep demanding lower and lower prices from its vendors, unconcerned as to whether it drove them out of business (which it too often did). The authors describe similar practices in the poultry business:

In agriculture, meanwhile, consolidation among meat processors has left many farmers subject to the whims of individual companies, enabling firms such as Tyson to cut what they pay farmers and raise their own profit margins. The average price a farmer could fetch per hog dropped 31 percent between 1989 and 2008, for example, a period when the top four pork producers increased their national market share from around 45 percent to 63 percent.

Khan and Vaheesan also point to the fall in the number of new businesses that create jobs (as opposed to merely employ the principals) fell by 53% from 1977 to 2010 relative to the working age population. They argue that concentrated power of entrenched businesses plays a role. They also highlight the dearth of decent academic work in this area, which has the convenient effect of keeping it off the policy agenda.

The authors describe how some fairly simple policy measures would reverse these adverse developments:

We can restore a more fair and competitive economy. To do so, we must realize, first, that intense concentration across our markets contributes to inequality. Second, we must recognize that we have the right to use laws to neutralize the power of these corporate giants. Americans in the Gilded Age freed themselves from the clutches of Standard Oil and the railroads because they knew that markets and economic outcomes were theirs to shape. Today, by contrast, we frequently surrender this power by assuming that inequality is a result of impersonal forces — technology, globalization — to be tracked and studied by technocrats, rather than a condition we can change through popular will and political action.

But first the public has to recognize that market concentration is a problem that affects them broadly, and not just in obvious cases like their cable bill. Hopefully as concerns about inequality and plutocracy rise, we’ll see better forensics on the causes.

Humor: The Borowitz Report

Dick Cheney: “My Thoughts and Prayers Are with the Iraqi Oil Wells”


JACKSON HOLE, WYOMING (The Borowitz Report)—Former Vice-President Dick Cheney broke his silence about the crisis in Iraq on Tuesday, telling reporters, “My thoughts and prayers are with the Iraqi oil wells.”

Speaking from his Wyoming ranch, Cheney said that he had planned to remain quiet about the current state of affairs in Iraq, but “thinking about those oil wells has kept me up at night.”

“If Dick Cheney won’t speak for the Iraqi oil wells, who will?” he said.

Cheney indicated that, as of now, there was no fighting near Iraq’s oil wells, but warned, “If the violence spreads, those wells could be in jeopardy. And it’s up to the international community to insure that that worst-case scenario doesn’t happen.”

The former Vice-President said that he expected to “catch hell” for inserting himself into the debate about Iraq, but was resolute in his decision to do so. “If I prevent one drop of precious oil from being spilled, it will have been worth it,” he said.

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Photograph by Win McNamee/Getty.