A disappointing stroll down Wall St. - LA TImes

http://www.latimes.com/features/lifestyle/la-et-book2nov02,0,6381360.story?coll=la-home-style

BOOK REVIEW

A disappointing stroll down Wall St.

What Goes Up The Uncensored History of Modern Wall Street as Told by the Bankers, Brokers, CEOs, and Scoundrels Who Made It Happen Eric J. Weiner Little, Brown: 504 pp., $27.95

By Lee Drutman
Special to The Times

November 2, 2005

TO hear it from the folks on Wall Street, Michael Milken's downfall was "all about the blind political ambition of Rudy Giuliani," leveraged buyouts were "to the public's benefit to a certain extent" and "the public is just as much at fault" for the technology stock bubble of the '90s as anyone.

Such are some of the insights from financial journalist Eric J. Weiner's new book, "What Goes Up," an extensive pastiche of interviews with many of the financial community's biggest players — encounters strung together documentary-style in an attempt to tell the firsthand story of modern Wall Street.

Those who might be expecting the "uncensored" history promised by Weiner's subtitle, in the sense of a raw, here's-what-really-happened account, will be disappointed. "What Goes Up" is uncensored only in the most literal sense: The interviews are presented directly, with minimal background detail. Although Weiner may not have censored the quotes, the interviewees themselves appear to have chosen their words carefully, offering few surprises. The result is a mostly rah-rah narrative of Wall Street as the lively land of entrepreneurial heroes who rarely do wrong — or if they do, it's not their fault.

For example, Jerome Kohlberg, the first K of the famous leveraged-buyout firm KKR, concedes that, "Of course, what we were really doing, in my view, and I've thought about this a lot, was taking earnings or value that should've gone to the shareholders and bringing it unto ourselves." But lest he admit guilt, he quickly adds: "Corporate America, executive America, was responsible for a lot of this. That's the way I look at it." Similarly, Vanguard founder Jack Bogle admits that in the late '90s "we brought out technology funds, all at the high of the market, without any thought of whether any of this would be good for investors. They were good for the managers…." But again, the catch: "[B]ringing out funds only a moron would buy is not illegal." Wall Street, it would appear, is no place for tentative egos.

For the most part, it is this boosterism that guides the book. The episodic narrative begins with the story of Merrill Lynch co-founder Charlie Merrill, a Wall Street outsider who once had to drop out of college for lack of funds. In the early 1940s, Merrill came to Wall Street with the radical idea of dispensing with the "mumbo-jumbo from Harvard men in paneled rooms; let the stock market's workings henceforth be intelligible even to the small investor" (as his son the poet James Merrill describes it), making him, in Weiner's words, Wall Street's "first great democratizer."

The book goes on to salute the removal of other barriers to popular market entry: the rise of mutual funds, the end of fixed commissions, the arrival of Nasdaq in the 1970s. Former Nasdaq President Alfred R. Berkeley III recalls how Nasdaq founder Gordon Macklin "loved representing the little guy…. He was all about inclusion." And by the time the Internet arrives, just about everybody offers some version of the bland "technology democratized the stock market" insight.

Although scandals do rear their heads, they are either recounted in a matter-of-fact way with few new revelations or dismissed as circumstances magnified out of proportion by zealous, limelight-seeking government prosecutors. As one New York Stock Exchange broker says of former NYSE head Dick Grasso, whose $188-million pay package became a symbol of executive greed two years ago, "I don't personally care what you pay Dick Grasso…. So whatever you think of him, the fact is that we are here today, thriving, because he was the leader."

"What Goes Up" offers plenty of colorful anecdotes and outsize personalities, and its necessarily conversational style makes the book quite readable. Different voices keep the narrative fresh, and sometimes the first-person, blow-by-blow accounts are real page turners. But in the end, there are few surprises. It is the view from Wall Street and, as such, it's mostly the sort of high-handed self-congratulation you might expect.

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Lee Drutman is the coauthor of "The People's Business: Controlling Corporations and Restoring Democracy."

Lee Drutman: Bush's divergent assessment of risk

Lee Drutman: Bush's divergent assessment of risk

01:00 AM EDT on Sunday, October 16, 2005

BERKELEY, Calif.

AFTER HURRICANE Katrina, much was made of President Bush's tentative, stumbling reaction. In comparison with 9/11, when the president grabbed the bullhorn and won the nation's approval, Bush's Katrina response had a deer-in-the-headlights quality.

Even more striking has been his policy response to the natural disaster. This offers a disturbing insight into how the Bush administration applies one standard of risk assessment to the threats of terrorism, and quite another to the equally real threats of climate change -- global warming.

As we all remember, in the days after 9/11 it didn't take long for Bush to fixate on a specific enemy: Osama bin Laden and his not-so-merry band of Islamic fundamentalists had done this to us, and they would pay. And within weeks, the United States was on the offensive, relieving the al-Qaida-succoring Taliban of its brutal grip on Afghanistan.

Then, with bin Laden still on the loose and growing evidence that the Mideast was becoming a breeding ground for the kind of Islamic-fundamentalist anti-Americanism behind 9/11, President Bush and his advisers determined that to protect Americans from terrorism, the United States had to wage an open-ended struggle against Mideastern Islamo-fascism -- a goal that could take decades to accomplish.

Step one, of course, was the costly Iraq war, the first test of the controversial policy of "pre-emptive strike." Intelligence was admittedly murky, but Bush and his advisers insisted that there was reason to believe that Saddam Hussein had weapons of mass destruction, and might use them on us. Sure, they said, we didn't know precisely how big a threat this was, but Bush was fond of reminding us of a lesson of 9/11: When you finally have all the evidence, it will always be too late. Better to act now, he said, on the best available information, than to risk more disastrous consequences later.

But now, in the wake of Katrina, and then Hurricane Rita, a very different long-term enemy has emerged. A growing number of people are asking a variant of the question recently posed by Time magazine: Are we making hurricanes worse? United Nations emergency-relief coordinator Jan Egeland has called the hurricanes a "wake-up call" on the dangers of global warming. Indeed, there appears to be solid evidence that the intensity of Atlantic hurricanes is increasing (though not the frequency). One likely cause is the rise in surface sea temperature, although there is also evidence that the growing intensity is just part of natural storm cycles.

The problem is that until recently, satellite data were not particularly good, so it's hard to assemble accurate long-term data. But less in doubt is that climate change is real and man-made; on this, near unanimity exists within the international scientific community.

What also seems clear is that, regardless of whether Katrina was caused by climate change, major climate disaster is coming soon to major cities (think Manhattan under water) unless action is taken now to reduce carbon emissions.

Nevertheless, even as President Bush has called for a "generational commitment" to building democracy in the Mideast, there's been nary a peep from the administration -- even after Katrina -- about waging a war on climate change.

Instead of going on the offensive against the possible forces behind this latest form of devastation, President Bush responded with a cowboy promise to rebuild New Orleans -- "higher and better" than before -- and a National Day of Prayer, on which he essentially told the nation that Katrina is part of God's plan: "Through prayer we look for ways to understand the arbitrary harm left by this storm, and the mystery of undeserved suffering. And in our search we're reminded that God's purposes are sometimes impossible to know here on Earth."

Even the presidential call to drive less and use public transit more made no mention of climate change.

Alhough no one has expressed surprise, the disparate responses to the two forms of disaster should seem strange. When it comes to terrorism, Bush was willing to engage in a major military mission based on far-from-definite intelligence. But when it comes to climate change, Bush is unwilling to take any economic risks to forestall disaster. He now demands ironclad proof that the threat of climate change is real, man-made, and correctable before he commits himself even to cutting carbon emissions.

Just as the tragedy of 9/11 created an opportunity for the administration to talk about building democracy in the Mideast, Katrina has created an even clearer opportunity to talk about combating global warming.

As for the 9/11 lesson that one can be certain about a threat only after it's too late: Regarding climate change, President Bush ignores it -- at great peril to us all.

Lee Drutman, a frequent contributor, is the co-author of The People's Business: Controlling Corporations and Restoring Democracy (Berrett-Koehler).

http://www.projo.com/opinion/contributors/content/projo_20051016_16drut.32a685d.html

Miers And Roberts: A CEO's Dream Team

Miers And Roberts: A CEO's Dream Team

Lee Drutman

TomPaine.com

October 18, 2005

Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.

For those trying to make sense of President Bush’s decision to nominate Harriet Miers to the Supreme Court, here’s a question: What do Miers and John Roberts have in common, besides the fact that they were both nominated to the Supreme Court?

Answer: Both had substantial careers as corporate lawyers before being nominated.

Roberts spent 13 years a partner at Hogan & Hartson LLP, where he argued before the Supreme Court on behalf of such corporate clients as Digital Equipment Corp., Peabody Coal Co. and Toyota Motor Corp., Chrysler Corp., Litton Systems, WellPoint Health Networks, Fox and NBC, among others. He also served as a registered lobbyist for the Cosmetic, Toiletry and Fragrance Association before the Food and Drug Administration on commercial speech issues.

Miers, meanwhile “has a blue-chip résumé that would wow Wall Street,” as Business Week correspondent Lorraine Woellert put it in Sunday’s Washington Post . Miers was a managing partner of the Dallas law firm Locke Liddell & Sapp, where she handled consumer class-action lawsuits for Microsoft Corp., the Texas Automobile Dealers Association, and former mortgage industry giant Lomas & Nettleton. She has also defended Dupont, Disney and Miramax, among others. Additionally, Miers has served as a board member of Dallas' Better Business Bureau and the Greater Dallas Chamber of Commerce.

Such legal service to large corporations is not typically part of the resume of a Supreme Court Justice. As Bruce Josten, the U.S. Chamber of Commerce’s top lobbyist, told the Christian Science Monitor , “Having two justices, [Chief Justice John] Roberts and Miers, who we expect to join him shortly, that's adding two to nothing from the point of view of that kind of experience. That's big for the business community.”

In fact, you would have to go back to 1971, when President Nixon nominated corporate lawyer Lewis F. Powell Jr. to the Supreme Court, to find a justice who came to the court with that much experience in corporate law. Powell, of course, went on to become one of the most pro-corporate justices in modern Supreme Court history, helping to expand the legal rights of “free enterprise," especially when it came to commercial speech.

Unfortunately, this angle has been largely lost in the public debate over Miers. Instead, the media has focused on the infighting among conservatives about her credentials.

Indeed, it is newsworthy that many of the president’s hard-core social conservative supporters say they feel betrayed. They want to know: Where is the strict constructionist they were promised, the justice who would heroically restore America back to a shining theocracy on a hill, safe from the liberal scourges of pornography, homosexuality and abortion? Meanwhile, a small but influential group of conservative intellectuals has loudly complained that Miers is completely unqualified for a different reason—she has zero (Zero!) experience as a judge or as a constitutional scholar. As conservative pundit George F. Will wrote scathingly in a recent column, “If 100 such people had been asked to list 100 individuals who have given evidence of the reflectiveness and excellence requisite in a justice, Miers' name probably would not have appeared in any of the 10,000 places on those lists.”

Yet, one lesson we should have learned from the Bush presidency by now is that while social and intellectual conservatives are nice to have on your side, it is the large corporations that write the checks. And if you can throw a bone to those other groups now and then (like, say, coming out for a gay marriage amendment that has no chance of passage, or giving elegant speeches about your Christian faith), you can keep them in line.

But if you look closely at Bush’s record, you’ll see plenty of words about family values and religion and the virtues of small government, but plenty of actions on behalf of things like tort reform and bankruptcy reform.

Hence, John Roberts and now Harriet Miers. “Together, they could be a CEO's dream team,” writes Business Week’s Woellert.

But here’s the real problem. While obviously important issues like affirmative action and abortion and the religion evoke all kinds of emotions and hence good copy, the Supreme Court also tackles a lot of mundane, technical stuff, including many business-relevant cases. And with Roberts and Miers on board, the court will be likely to tackle even more business-related cases. As Pat Cleary, the National Association of Manufacturers’ senior vice president wrote on the NAM’s website, “the reason we're in this fray at all is because a S Ct Justice will spend far more of their time on issues of interest to manufacturers than they will on the social issues that seem to dominate the debate.”

This fall, for example, Supreme Court has several cases on its docket that could have a big impact on business. In Texaco and Shell Oil v. Dagher, the court will determine whether a Texaco-Shell joint venture violated anti-trust price-fixing rules, a case that could have far-reaching impacts on the nature of joint ventures and the rules about price-fixing. In Volvo Trucks North America v. Reeder-Simco GMC, the court will determine whether companies that provide preferential discounts to some dealers are engaging in price discrimination against others, which could open the floodgates to lawsuits under the Robinson-Patman Act. In Illinois Tool Works Inc. v. Independent Ink Inc., the court will determine whether a company that forces customers to by a certain type of printer ink in its patented ink-jet printer is violating the Sherman Act, another case with broad impacts.

If your eyes glazed over the preceding paragraph, you are probably not alone. Few people without a direct stake in these type of cases pay attention to them, which is probably why the business angle in both Roberts’ and Miers’ nominations has been largely relegated to the background. Yet, over the last three decades, one of the most important but least-remarked upon changes in American jurisprudence has been the steady expansion in the presupposition that the rights of free enterprise should only be curtailed in extraordinary circumstances—as compared to, say, the importance of truth in advertising or the value of protecting endangered species, or other considerations that have the annoying habit of getting in the way of “business civil rights.”

By nominating not one, but now two Supreme Court justices with formative experiences defending the rights of large corporations to be free of pesky regulations and bothersome responsibilities to workers and consumers, Bush has demonstrated where his true loyalties lie. Unfortunately for the American people, it is, once again, not with them.

http://www.tompaine.com/articles/20051018/miers_and_roberts_a_ceos_dream_team.php

Democracy DeLayed

Democracy DeLayed

Lee Drutman

October 03, 2005

Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.

In the never-ending chatter that necessarily follows the indictment of any politician as important as Tom DeLay, much effort has gone into prognosticating the political ramifications: What does this mean for 2006? Can the Democrats take advantage? What does this mean for the GOP agenda?

These are the kinds of questions that are perhaps to be expected of the mainstream media, with its endless focus on the horse race of politics. Unfortunately, much less has been made of the law that DeLay actually stands accused of violating—a Texas statute that bans corporate money from statewide political campaigns—or the larger problems of corporate money in politics that supported the entire DeLay empire.

In the news coverage so far, the Texas law has generally been treated as an aside, the trap that finally snared Tom DeLay’s arrogance (what is important, it would seem, is that he was finally caught doing something illegal!). Corporate money, meanwhile, is treated as a given—a fact of political life.

But let’s consider, for a second, what we know about this case. We know that Tom DeLay stands accused of violating Texas law by laundering $190,000 of corporate money to support Republican candidates for the state legislature. We know that with the help of this money, Republicans in Texas were indeed able to take over the state legislature, and redraw the election maps so they could send five more Republicans to Congress, increasing the sycophantically corporate-friendly GOP majority in Washington.

Chalk it up as yet another bit of evidence that corporate money can have a major influence on political outcomes.

In the big picture, of course, we ought to know this by now. We know that in more than 90 percent of congressional elections, the candidate who wins is the candidate who raises more money. We know that the cost of running for Congress is now prohibitively expensive—about $1 million for a House seat, about $6 million for a Senate seat. We know that in the last election cycle, business spent $1.5 billion on politics, accounting for 74 percent of all campaign contributions. It follows that if you want to run for federal office, you'd better be good at raising money. And if you want to raise money, you'd better be good at appealing to corporate donors, because without big business donors, it’s awfully hard to raise that kind of money. No wonder that Washington is such a corporate-friendly place these days.

Of course, this isn’t “news.” DeLay’s alleged laundering of corporate money is just another example of how big corporations—who have exponentially more resources than average citizens—use those resources to shape political outcomes. This happens all the time. Perhaps we are desensitized to it.

Or perhaps there is a sense of collective frustration that makes it seem easier to ignore the problem. We passed McCain-Feingold, and little changed—corporate campaign contributions did not vanish off into the sunset. There are 17 other states that, like Texas, also ban corporate money in statewide political campaigns. We even have federal law, the Tillman Act, that has officially banned corporations from contributing to federal campaigns for 98 years. Yet corporate money keeps finding its way into politics, often in decisive ways. What gives?

There is, however, some hope. This fall, the Supreme Court will rule on the constitutionality of a Vermont law that limits campaign spending and contributions. The point of the law is to make candidates less dependent on wealthy donors (e.g. large corporations) by putting a cap on the arms race of political spending.

Under current Supreme Court precedent, however, such an expenditure limit could be deemed unconstitutional. The precedent would be the 1976 Buckley v. Valeo ruling, which equates money with speech and therefore deems spending limits unconstitutional.

However, since Buckley was decided, we have amassed almost three decades of evidence demonstrating what happens when campaign expenditures are unlimited and the highest bidders are comfortable going quite high. It is also worth noting that while Buckley protected the speech of those few with countless resources to expend on politics, doing so effectively drowned out the speech of many others who might like to make their voice heard but can only offer small contributions.

In 2002, the Second Circuit U.S. Court of Appeals upheld the Vermont law, writing that without expenditure limits, Vermont officials “have been forced to provide privileged access to contributors in exchange for campaign money,” and that “the basic democratic requirements of accessibility, and thus accountability, are imperiled when the time of public officials is dominated by those who pay for such access with campaign contributions.”

This fall, the Supreme Court will decide. If it upholds the Vermont law, it would be a major step forward in the fight against excessive corporate political spending, since spending limits by necessity reduce the amount of money in politics.

And as the Supreme Court considers this case this fall, we ought to keep in mind the antics of Tom DeLay.

No doubt, in the big picture, Tom DeLay’s alleged corporate money laundering amounts to just one more example in the countless litany of big corporate money making a mockery of democracy.

Yet, because it has grabbed the spotlight, it offers an important opportunity to talk about what role large corporations, with their disproportionate financial resources compared to ordinary citizens, should play in politics. And the more we talk about this now, the stronger a case we can make this fall for upholding Vermont’s expenditure limits.

http://www.tompaine.com/articles/20051003/democracy_delayed.php

Corporations' great local-extortion racket

Lee Drutman: Corporations' great local-extortion racket

01:00 AM EDT on Friday, September 23, 2005

http://www.projo.com/opinion/contributors/content/projo_20050923_23drut.1d01d226.html

BERKELEY, Calif. -- IN 1995, the Massachusetts-based defense contractor Raytheon -- then the state's biggest private employer -- made a threat. If Massachusetts wanted to keep Raytheon's jobs in state, it would have to make the company a deal it couldn't refuse, preferably in the form of tax cuts. Though it took work, Raytheon eventually got its state-tax breaks -- about $21 million a year worth.

And those jobs that the company threatened to take away if it didn't get its tax breaks? Well, first there were the 4,400 buy-out offers in 1996. Then came the 4,100 layoffs in 1998 (about 20 percent of the workforce), and then another 1,600 layoffs the next year.

The tax breaks, however, remained.

Unfortunately, the Raytheon debacle is no anomaly. It is one of countless tales of corporations' shamelessly demanding that cities and states shower them with generous displays of affection (more technically known as property-tax abatements, corporate-income-tax credits, sales- and excise-tax exemptions, tax-increment financing, free land and land-grant write-downs, and so on) . . . or else!

Sometimes the companies threaten to move jobs away; sometimes they promise to bring in jobs and economic development. Collectively, they manage to wangle $50 billion a year in tax breaks: money that might otherwise go to schools or roads or poor people's health care.

Yet very few communities demand accountability for their generosity to corporations. And as a result, very few communities get any, as Greg LeRoy documents in his indispensable new book, The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation (Berrett-Koehler, 290 pgs, $24.95).

LeRoy, the founder and director of Good Jobs First, a national nonprofit advocating accountability in economic development, shows that most of these corporations take their gifts, say thank you very much, and a few years later are gone -- along with the jobs and economic development they so coyly promised.

This forces the obvious question: How do corporations get away with this?

The simple answer, LeRoy tells us, is "Because the system is rigged. Corporations have it down to a science. They have learned how to chant 'jobs, jobs, jobs' to win huge corporate-tax breaks -- and still do whatever they wanted to all along."

This "science" of shaking down communities for tax breaks with no accountability makes up much of The Great American Jobs Scam. It's a truly insidious "science," one that brims with disingenuous promises and misleading studies, and regularly pits community against community in a massive prisoner's dilemma.

Particular blame goes to "site-location consultants," experts in inducing helpless acts of sycophancy in elected officials. As LeRoy explains, "Given how this system is rigged, all the power rests with the site consultants and their corporate power."

Some site consultants earn as much as a 30-percent commission on the subsidy package, giving them special incentive to be as unctuous as possible.

Yet despite the huffing, puffing and bluffing that takes place in these lopsided site-location mating dances, LeRoy lets us in on a big secret: The subsidies that companies say are so important don't actually matter that much. When you factor in all the costs of running a company, taxes make up less than 1 percent of the company's expenses.

Sure, companies make much of the tax breaks they say are necessary. But the truth is, most companies have already decided where they want to go -- and on the basis of other things, such as workforce education, quality of life, and the chief executive officer's personal preference. The wooing of competitor cities is often just for show.

As LeRoy reports, "Candid site-location consultants will admit that the only time subsidies can actually tilt the scales is when a company has two equally compelling choices."

But even more infuriating are the aggregate consequences. Between 1980 and 2000, corporate-income taxes as a percentage of state revenue dropped from 9.7 percent to 6 percent. Now it is at 5.2 percent and falling.

What this means is that because of cities' and states' quest for jobs through tax breaks, they now have far less tax revenue to spend on what LeRoy calls "the two things that are proven job-creation winners -- our skills and infrastructure."

Writ large, this is a huge national problem. Writes LeRoy: "If our schools and workforce-development systems fail to provide enough skilled labor and our aging infrastructure impedes productivity, the United States will inevitably become a less attractive place to invest and create jobs."

No wonder all our jobs are moving overseas!

The Great American Jobs Scam's painstaking (though surprisingly readable) details on how corporations have slashed their state and local tax rates are clearly invaluable, as are the dozen reform proposals to help communities fight back. Yet the book's real service is its wake-up call regarding the long-term consequences of all these tax breaks and subsidies.

Elected leaders who recklessly offer corporations idiotically generous subsidies and abatements -- instead of investing in education and quality of life -- should remember that once the incentive packages run out, the corporations can always find a more attractive place to move.

Cities and states, of couse, don't have that luxury.

Lee Drutman, a frequent contributor, is the co-author of The People's Business: Controlling Corporations and Restoring Democracy (Berrett-Koehler).

Value and values at Wal-Mart -- Behind that implacable smiley face

Lee Drutman: Value and values at Wal-Mart -- Behind that implacable smiley face

10:13 AM EDT on Thursday, August 25, 2005, Providence Journal

BERKELEY, Calif.

WAL-MART. Speak this hyphenated word, and you'll get an instant response.

To some, the name of the world's largest retailer stands for everything that's wrong with corporate capitalism. Declining wages, suburban sprawl, cheap foreign goods' destroying American jobs, reckless corporate welfare, disappearing unions . . . You name the malady, and there's surely a way to implicate Wal-Mart.

For others, the behemoth's "always low prices" are the gateway to consumer bliss. Where else can you get a $38.76 DVD player or a $42.44 microwave oven? Wal-Mart may be widely reviled, but there's also a reason why it rakes in almost $300 billion a year.

Wherever you stand on the Wal-Mart debate, with anti-Wal-Mart campaigns popping up as fast as Wal-Mart stores (well, not quite that fast; Wal-Mart opens about 275 Supercenters a year), it's clear that the company is a force to be understood.

Though there are many books out there trying to make sense of Wal-Mart, John Dicker's informative and entertaining new The United States of Wal-Mart (Tarcher/Penguin, 245 pp., $18) is one of the best. Instead of merely disparaging Wal-Mart (which seems to have been Dicker's initial temptation), Dicker makes the effort to understand Wal-Mart's appeal. And in doing so, the narrative, which begins in mere bemusement ("We're all Wal-Mart's bitches"), evolves into a more nuanced sort of befuddlement ("Wal-Mart is a lot like the country where it was born -- a little good, a little bad, a lot confusing").

By the end, Dicker looks in the mirror and reaches a surprising conclusion: "The ugly truth is that we've become a nation that values little above a bargain." He writes, "As long as we remain blind to those consequences [of Wal-Mart's practices], we will also remain blind to the costs we pay, not at Wal-Mart but in our own conflicted souls." We have met the enemy, and it is us.

Of course, Wal-Mart is pretty bad, and Dicker doesn't spare the emblematic anecdotes. For one, there's the response of former Wal-Mart CEO David Glass to allegations of child labor in foreign factories. "You and I might, perhaps, define children differently," Glass told an NBC Dateline interviewer, then said that since Asians are quite short, you can't always tell how old they are.

Dateline investigators also found clothing made in Bangladesh sold under MADE IN THE USA signs in Wal-Mart stores.

Then there's the bit about how Wal-Mart refused to sell Jon Stewart's America: The Book, but it sold the anti-Semitic tract The Protocols of the Learned Elders of Zion (which says that Jews drink the blood of Christian children). Wal-Mart gave the following description: "If . . . the Protocols are genuine (which can never be proven conclusively), it might cause some of us to keep a wary eye on world affairs. We neither support nor deny its message." Considering the extent to which Wal-Mart serves as cultural gatekeeper, this is quite scary.

Wal-Mart's aggressive anti-unionism is legendary, but the company went so far as to close a store after the employees had voted to unionize. In the process, Wal-Mart fired one of the yes-voting employees on the pretext that he had eaten a pre-weighed banana in the checkout line.

Other irritating Wal-Mart traits include locking its workers in overnight; hiring illegal immigrants; foisting its employees' health-care costs on taxpayer-funded programs; and selling so many cheap Chinese imports that it threatens the survival of American manufacturers.

Such appear to be the trade-offs for what Dicker dubs "a near maniacal quest to create costless profit."

Yet to Wal-Mart's credit, the company has found retailing efficiencies, through technology, that benefit the consumer.

The investor Warren Buffett once called Wal-Mart the greatest asset for poor people in America. Dicker finds evidence that numerous low-income people want Wal-Mart in their community. He notes that many of Wal-Mart's 136 million weekly customers probably care little about the company's rap sheet.

Meanwhile, a McKinsey & Co. report credited Wal-Mart as a major source of U.S. productivity gains in the 1990s. Some experts say the company has kept inflation down.

What all this means, of course, is that those who hope to challenge Wal-Mart's ways have a long road. As Dicker writes, "it's one thing for a woman in Manhattan to refuse to go into Starbucks to protest. . . . It's quite another to ask millions of working-class people to stop patronizing a store that stocks everything -- everything -- on their shopping lists, at lower prices."

Truth is, Wal-Mart offers millions of Americans the cheap goods they crave, while discreetly hiding its unpleasant trade-offs behind its implacable yellow smiley face. The appeal, unfortunately, is irresistible.

Yet even if Wal-Mart could be brought down, there are plenty of other big-box discounters waiting to take its place -- spreading sprawl, importing cheap goods, paying low wages. The real challenge, it seems, lies not so much in confronting Wal-Mart as in confronting the trade-offs implicit in Wal-Mart's success.

Ultimately, the issue is both simple and difficult: a choice between value and values, which at some point are bound to conflict. Dicker understands this tension, and, more important, he seems to see that though it's fun to make cracks about Wal-Mart, we should figure out why the material for the cracks exists in the first place.

Lee Drutman, a frequent contributor, is the co-author of The People's Business: Controlling Corporations and Restoring Democracy (Berrett-Koehler).

http://www.projo.com/opinion/contributors/content/projo_20050825_25drut.17e00b9e.html

CEO pay accountability needed

Lee Drutman: CEO pay accountability needed

01:00 AM EDT on Sunday, July 24, 2005

Providence Journal

BERKELEY, Calif.

WANT TO MAKE a hundred million dollars quick? Be such an awful CEO that a faction of your own managers revolts and wages a public campaign against you, complaining how you have driven the company stock price into the tank with a conspicuous lack of leadership, strategy and vision.

Let them force you out. Then collect your previously agreed-upon $113-million retirement package, and don't let the door catch you on your way out.

Such appears to be the story of Phillip Purcell, the dethroned Morgan Stanley CEO who is the latest tragic anti-hero in the ongoing public saga of brash executives who get paid the kind of money that we normal folks would take several thousand years to earn at our current jobs.

Even in an era when American CEOs regularly earn 300, 400, even 500 times what the average company employee earns, Purcell stands out -- not just for his outrageous compensation package, but also for the fact that, by all accounts, he was at best a mediocre CEO. So much for pay for performance.

Equally extraordinary is the boon that former Morgan Stanley Co-President Stephen S. Crawford will enjoy from being in the right place at the right time. Just 3 1/2 months ago, Crawford was rewarded for his loyalty to Purcell by being promoted to co-president.

Now, Crawford is being rewarded for his loyalty to Purcell with a $32 million golden parachute. So much for pay for performance.

So what explains these outrageous pay packages, so completely disengaged from performance that they must be in a separate galaxy entirely? A Morgan Stanley spokesman explained that Purcell's compensation was "fair, appropriate to the circumstances, and consistent with past practice."

As for Crawford's compensation, Morgan Stanley's lead director, Miles L. Marsh, insisted that "I don't think that Steve's compensation is out of the norm. It was an increase, but there was also an increase in responsibility."

Fair? Appropriate? Not out of the norm?

True, executive compensation is sky-high all across Wall Street and much of the rest of America, but it's not that high. The real answer lies in the corporate governance of Morgan Stanley. Or rather the lack thereof.

Purcell got so much money despite his stunning mediocrity as a CEO because he packed the board of directors with his friends and got rid of his enemies. No wonder they gave him an exit bonus of $42.7 million, plus $34.7 million of restricted stock, plus $20.1 million of stock options, plus a lump-sump of retirement benefits worth $11 million, plus medical benefits and $250,000 a year for the rest of his life. Sure helps to have friends in the right places.

But while Morgan Stanley may be an egregious example, it is just an exaggerated case of what continues to take place at America's largest companies. Thanks to a great extent to complicit boards, average executive pay rose from $8.3 million in 2003 to $9.6 million in 2004 (a 15 percent increase), says Business Week's annual executive-pay survey.

Average workers, meanwhile, saw their pay rise by only 2.9 percent, to $33,176 a year. And no wonder. At roughly three-quarters of U.S. companies, the CEO is also the chairman of the board of directors. It is usually the CEO who decides who gets nominated for the board and who stays on it. And as it turns out, not challenging multimillion-dollar CEO compensation packages appears to be a good way to keep their jobs as corporate directors -- which average $200,000 a year.

Additionally, many directors are also top executives or retired CEOs themselves, so they can sympathize with the importance of needing enough money to buy that $6,000 gold shower curtain.

Meanwhile, the mass of shareholders, the actual owners of the company, don't have much of a say. Though shareholders do technically get to select the directors at the annual meeting, they rarely get that supposed hallmark of free-market capitalism -- choice. Almost all corporate board elections are run Soviet-style -- one slate of director candidates, chosen by management, for management.

Shareholders who want to nominate their own directors face an expensive and difficult campaign, because management controls access to corporate proxy statements. Accordingly, one way to curtail runaway executive compensation would be to make directors accountable to shareholders -- of all things! Make it easier for shareholders to nominate candidates to the board by giving them access to the proxy statement, as former Securities and Exchange Commission Chairman William Donaldson originally proposed two years ago.

Then, if shareholders think that, say, a $113 million pay package is unreasonable, they can vote the directors who supported it out of office.

Unfortunately, the U.S. Chamber of Commerce and Business Roundtable have successfully blocked this proposal, and with Donaldson now gone and pro-business ideologue Rep. Christopher Cox (R.-Calif.) his replacement, such a reform seems unlikely. (Institutional investors, however, are trying to open up director elections on a case-by-case basis through shareholder resolutions, with mixed success).

Another Donaldson-suggested reform -- requiring companies to clearly and transparently disclose their executive pay packages -- also stands little chance of becoming law under a Cox-led SEC. Which is a shame, because the unfortunate truth is that many CEOs are now smart enough to hide their compensation in a million places on the company's financial statements (a perk here, a perk there), making it hard to know what they are getting.

Capitalism always works best when it is infused with accountability and transparency, as opposed to cronyism and obfuscation. And when it comes to runaway executive pay, a little dose of accountability and transparency would go a long way toward making capitalism work a heck of a lot better for just about everyone.

Lee Drutman, a frequent contributor, is the co-author of The People's Business: Controlling Corporations and Restoring Democracy (Berrett-Koehler, 2004).

http://www.projo.com/opinion/contributors/content/projo_20050724_24lee.31c7ec0.html

The Supreme Boardroom

The Supreme Boardroom

Lee Drutman

TomPaine.com

July 15, 2005

Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.

In 1971, soon-to-be Supreme Court Justice and then prominent corporate lawyer Lewis Powell F. Powell Jr. offered the following words of advice in a confidential memo to the Chamber of Commerce: “The judiciary may be the most important instrument for social, economic, and political change.”

While the words themselves are a good reminder of what’s at stake in the impending Supreme Court nomination, what matters most is their context. Powell’s memo is widely seen as the impetus behind a business-funded mass legal movement that has over the last 30 years worked to shape the country’s jurisprudence. The result is that with each passing year, the Courts seem to be more and more enthralled with the ideas of “free enterprise” and less and less friendly to the idea of holding corporations accountable.

Led by organizations like the National Chamber Litigation Center, the Washington Legal Foundation and about two dozen other “Free Enterprise” legal groups, big business has worked aggressively to expand its legal rights on numerous fronts: strengthening First Amendment rights for the unfettered spread of advertising; undermining government regulation by pushing arguments that regulation can amount to unconstitutional “takings” under the Fifth Amendment; weakening the ability of victims of corporate wrongdoing to hold companies accountable; and generally doing away with any notion that business might actually be legally obligated to do anything more than make more money for shareholders.

But with the resignation of Sandra Day O’Connor, big business is losing perhaps its best friend on the Supreme Court. That’s why business groups like the Chamber of Commerce and the National Association of Manufacturers (NAM) are reportedly planning to pull out all the stops when it comes to getting the judge they want, including promises to spend an $18 million war chest.

What makes this potentially tricky, however, is that the type of judge that big business wants is not necessarily the kind of judge that religious and social conservatives want. The kind of ideological purity that makes a James Dobson type salivate over a Scalia/Thomas clone makes business nervous. Such ideological purity doesn’t wash well with business’s needs for a flexible interpretation of the Constitution, where the important thing is not so much adhering to legal principle but making sure that the decision is good for business. As Quentin Riegel, spokesman for the NAM put it, “it’s helpful to have someone who understands the business implications.”

Sometimes, a limited federal government is needed. But the belief in states rights that endears Scalia and Thomas to social conservatives doesn’t always make sense for business. Business tends to prefer the consistency of federal regulation over a patchwork of 50 state regulations and 50 state regulators (easier to avoid Eliot Spitzer types that way). As the Chamber of Commerce put it in a press release on O’Connor’s resignation, “The importance of a unified regulatory structure in fostering a free enterprise system that encourages market innovation cannot be ignored.”

In his most recent column, Chamber President Tom Donahue described six legal battlegrounds for business: “civil rights [By which he likely also means “business civil rights”], insurance, federal jurisdiction/federal preemption, employment, workplace injury, and other liability issues.” He goes on to note what should be the obvious: “The breadth of these issues is immense and clearly indicates that the impact of the Supreme Court on our free enterprise system cannot be ignored -- anymore than we can ignore the other two branches of the federal government.” Progressives should take note.

Unfortunately, progressive activists have so far largely ignored the economic implications and instead focused primarily on the social issues, casting O’Connor as a moderate in the process. As the Alliance for Justice’s Nan Aron put it on her organization’s website, “Justice O’Connor has been a swing vote in significant cases involving voting rights, race and sex discrimination, privacy and reproductive rights, and criminal justice, and Congressional authority to protect us all, to name a few. With her replacement, individual rights and freedoms hang in the balance.”

Obviously, these are important, crucial issues. But let’s also not forget that roughly 40 percent of Supreme Court cases now involve business. And at stake in a nominee is also the idea of a regulatory state that properly constrains the ability of businesses to pollute the environment, exploit workers, and engage in reckless consumer abuse without fear of legal accountability.

One of the consequences of progressive groups focusing primarily on the social issues is that it allows a potential nominee like Alberto Gonzales to come out looking like a compromise choice, even earning the endorsement of leading Dems like Minority Leader Harry Reid (D-Nev.). Yet, while social conservatives have made clear that they don’t trust Gonzales on their litmus test of abortion, economic conservatives must be quietly salivating at the prospect of Gonzales, who slavishly found in favor of businesses all the time as a Texas Supreme Court justice. There, he supported rulings that weakened safety standards for manufacturers of children’s products, weakened incentives for safe workplaces, and made it more difficult for victims of corporate wrongdoing to file class-action lawsuits, among other pro-business rulings.

Looking at President Bush’s history of reconciling the often incongruous twin GOP bases of social and business conservatives, one can observe a pattern of words and deeds. While the President frequently speaks the language of social conservatives and champions their causes in public statements, he actually delivers on the business agenda (consider the passage of the bankruptcy and class-action lawsuit bills this year). But by calling attention to the social and religious issues, Bush both satisfies his own base and draws the attention and energies of many progressive activists, creating a distracting bugaboo that makes it easier to do favors for big business.

In the case of the battle to replace O’Connor, the anti-abortion, pro-prayer, anti-gay right-wing groups may be doing the distracting for Bush, drawing progressives into a battle over social and religious issues. Such a limited battle, however, ignores the many crucial business issues at stake and makes it that much easier for big business to continue to push jurisprudence further and further away from anything resembling corporate accountability.

http://www.tompaine.com/articles/20050714/the_supreme_boardroom.php

Cavorting around copyright

Cavorting around copyright

Providence Journal
01:00 AM EDT on Tuesday, July 12, 2005

If history is any precedent, the recent U.S. Supreme Court decision clearing the way for the music industry to sue the pants off Grokster and StreamCast (and any other file-sharing service that promotes copyright infringement) will not really have much of a long-term effect on the illegal downloading of music.

For a while, the music industry will applaud the court's decision, which reasonably said that services that deliberately permit illegal behavior (and copyright infringement is, let's not forget, illegal) should be held accountable. Lawsuits will, of course, follow. And services that have been a little reckless in promoting their product as a way to illegally share copyrighted material (the mistake that Grokster and StreamCast made, in the court's eyes) will shut down or be shut down.

Yet just as after Napster was defused, dozens of clones took its place with new legal precautions, now, in the wake of MGM v. Grokster, it seems unlikely that the file-sharing parade will stop. Rather, new companies will simply be more careful about how they describe and market their services, so as not to run afoul of the new legal standard. Or they'll just move their headquarters to, say, Pacific islands where U.S. laws don't apply, and nobody can track them down anyway.

The strange thing is that for all the industry complaints that relentless and evil file sharing threatens to destroy the very companies that so selflessly gave us the joys of the Backstreet Boys and Shakira, the music industry is actually making out quite well these days. Last year, the recorded-music market grew 5.7 percent from the year before, to $38 billion, according to PricewaterhouseCoopers's recently released Global Entertainment and Media Outlook. The report also predicts that the global media industry (including entertainment) is expected to grow 7.3 percent annually for the next five years.

Why the projected growth? According to the report, the spread of technology: ever more online digital distribution of content. But such technology cuts two ways. It lets the music industry reach people around the world and makes content easy to buy; it also makes it easy to copy stuff illegally. According to the music industry's own estimates, one in every three compact disks sold around the world (about 1.2 billion) is now a pirated copy, which reportedly costs the music industry $4.6 billion a year.

Although we condemn such rampant copyright infringement, it also seems, in today's world, increasingly impossible to stop. Essentially, technology is overrunning copyright law as we know it.

Sure, entertainment companies will continue to sue to fight piracy, because copyright royalties and hence enforcement are important parts of their business model. But such a model is becoming obsolete.

We suspect that music and movies will always find a way to get made, simply because there are so many people who are passionate about making them. But how they make their money will have to be frequently revised, to meet the realities of modern technology -- and associated crime.

http://www.projo.com/opinion/editorials/content/projo_20050712_12edgr.ok.402b7da.html

Investor Class Warfare

http://www.tompaine.com/articles/20050707/investor_class_warfare.php

Investor Class Warfare

Lee Drutman

July 07, 2005

TomPaine.com

Lee Drutman is the author of The People’s Business: Controlling Corporations and Restoring Democracy.

After far too many months of watching President Bush ramble around the American heartland in his folksy “Strengthening Social Security” medicine show tour, actual bills are finally making the rounds in important committees, and the possibility of actual Social Security “reform” legislation lingers in the air of a hot and steamy Washington summer.

Yet despite the resounding failure to build popular support for plans of privatization, Bush and company continue to do everything they can politically to make sure private accounts happen. Such insistence, however, begs the question: Why do they want private accounts so badly? And does understanding the prize that Republicans are after provide the Democrats with a better political strategy than mere obstructionism?

I think the answer to the second question is a resounding yes.

But to understand why, we need to understand why privatization might be so important to Bush and company. Much of the thinking on this so far follows a simple and powerful follow-the-money approach.

Consider: Who were George W. Bush’s top contributors in 2004? 1) Morgan Stanley; 2) Merrill Lynch; 3) PriceWaterhouseCoopers; 4) UBS Americas; 5) Goldman Sachs; 6) MBNA Corp., 7) Credit Suisse First Boston; 8) Lehman Brothers; 9) Citigroup Inc.; 10) Bear Stearns. It's practically a clean sweep for Wall Street.

And who would make an estimated one trillion dollars in profits from charging management fees if private accounts went public? 1) Morgan Stanley; 2) Merrill Lynch, and so on down the list.

Yet, in today’s politics, when Republican power struggles and corporate greed have merged into a synergistic mutual beneficiary moloch (think “the K Street Project”), something more is likely behind the unyielding push for private accounts than merely pleasing Wall Street donors.

I refer to the November 22, 2004, edition of the conservative Weekly Standard magazine, in which editor Fred Barnes quotes Bush Campaign Manager Ken Mehlman as “insisting Bush's ‘ownership society’ agenda will lock in millions of voters by "changing the incentives of politics.’

Changing the incentives of politics? The short of it is this: Mehlman argues that if instead of turning to government for answers, individuals start turning to the private sector for answers, they will be more likely to support Republicans because Republicans support the private sector more.

Hence privatization.

If people rely on the stock market for their retirement instead of on government Social Security, they will be more likely to support Republicans, because Republicans are the party of big business and hence stock market growth. (Never mind that the stock market actually has historically done better with Democrats in the White House.)

Mehlman’s contention is supported by some recent polling numbers. Consider, for example, a recent Washington Post survey, which found that “at every income level, direct investors are more likely to identify themselves as Republicans than are non-investors.” For instance, among voters with income less than $50,000, 34 percent of direct investors classified themselves as Republicans, as compared to 23 percent of non-investors who classified themselves as Republicans.

Similarly, in a recent Wall Street Journal article, pollster John Zogby noted that the “response to a single question—‘Do you consider yourself to be a member of the investor class?’—is a far greater determinant of how [people] will vote and how they see their world than income, religion, race, marital status, or size of individual portfolio.” According to Zogby’s numbers, among voters in the $50-$75K range, self-identified investors favored Bush 64 percent to 36 percent, but non-investors favored Kerry 55 percent to 45 percent.

Additionally, in a recent National Review article, Republican strategist and ownership society cheerleader extraordinaire Richard Nadler reported that, according to his own study, “a 6-point Democrat advantage among workers in 401(k) plans for less than 5 years became an 8-point Republican advantage among workers who had been in such plans more than 10 years. Both free-market opinion and Republican partisanship increased statistically with time-in-market, portfolio size, and the workers' own self-identification as an investor.”

Following the logic of some GOP strategists, Republicans would benefit from transforming Americans into a adoring flock of self-identified investors who believe that the Republicans’ unabashed support for big business will bring them riches, too.

A brilliant strategy and one deserving of the impressive opposition that Democrats have so far mounted to privatization?

Perhaps.

But the problem with mere opposition is that while Social Security privatization remains a bad idea with little popular support, plenty of bad ideas with little popular support have become law, and there are plenty of ways that one can imagine this bad idea becoming law as well, even despite Democrats’ stalwart opposition. (Imagine, for a second, a closed conference committee door).

What Democrats can thwart, however, is the Republican attempt to realign politics through a growing investor class.

Instead of mere opposition to private accounts, Democrats should follow the lead of New York Attorney General Eliot Spitzer, who has shown that one can win the support of small investors by taking on the mutual funds and investment banks that prey on inexperience and ignorance.

Already, more than half of all households have money in the stock market—a number that keeps growing—and most of those folks are inexperienced small investors who depend on a healthy dose of government regulation to avoid getting ripped off by investment broker and mutual fund sharks. They are there for the winning over.

And considering that Republicans, for all their pro-business rhetoric, have shown a marked inability to take advantage of this opportunity by doing things like nominating free-market ideologue Christopher Cox to head the Securities and Exchange Commission (practically begging for another Enron-type disaster), Democrats have a golden opportunity to do well by doing good.

Certainly, Democrats should continue to oppose private accounts for what by now have become the obvious reasons in progressive circles. But they also need to be savvy about foreclosing any potential political benefits that Republicans could draw from privatization. Democrats can do this very easily: By reaching out to one of the fastest-growing demographics in American politics—the newly minted small investors—and proving that they are willing to take on the rampant greed that preys on them, often far too easily.

Rich pervert tax code for themselves

Lee Drutman: Rich pervert tax code for themselves

01:00 AM EDT on Tuesday, July 5, 2005

BERKELEY, Calif.

FOR A SENSE of the strange macroeconomic priorities in vogue in America these days, one need look no further than the unfolding congressional budget process. Though the final numbers are yet to be codified, the thrust is unmistakable.

In May, the House and Senate Republican conferees agreed to a budget resolution that cuts funding for education, veterans' health care, environmental protection, housing and other domestic programs by $212 billion over five years, according to an analysis by the watchdog Center for Budget and Policy Priorities.

Though one can frequently hear the deficit-based "money is tight" argument marshaled in favor of, say, cutting $600 million for Food Stamps, such rhetoric does not appear to extend to the $106 billion in tax cuts included in the resolution.

Those tax cuts, which are achieved through extending capital gains and dividend tax cuts, will disproportionately benefit the very wealthiest Americans.

How to explain such priorities? For at least part of the answer, here is one piece of required reading: David Cay Johnston's recent book, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich, and Cheat Everyone Else -- a lively and disturbing breakdown of the growing unfairness of our tax system and the wealthy loophole exploiters that make it so.

In Johnston's narrative, the current proposed round of tax cuts for the rich and welfare cuts to the poor is only the latest step in a longstanding campaign to shift more and more of the tax burden to those least able to afford it, a campaign that demands far more attention than it has received.

"The tax system is becoming a tool to turn the American dream of prosperity and reward for hard work into an impossible goal for tens of millions of Americans and into a nightmare for many others," writes Johnston, who, after 10 years as The New York Times's tax reporter, knows his stuff cold.

Part of the campaign, however, has actually not been that covert. There were the $1.35 billion Bush tax cuts, which overwhelmingly benefit the top 1 percent. Then there is the unceasing effort by Republican leaders to repeal the estate tax, which affects only the wealthiest 2 percent.

But the largely untold story, and the one that Johnston sheds important light on, is the endless variety of tax trickery that high-priced lawyers and accountants and bankers have cooked up for very richest among us -- things like reverse split-dollar family life insurance and manipulated charitable trusts and secretive offshore accounts that make tax liabilities vanish like a pina colada in the hot Bermuda sun.

Then there are big corporations, which now pay roughly half of the statutory rate of 35 percent through such clever techniques as setting up complex webs of subsidiaries around the world, mostly in tax havens, to move around assets and cut tax rates.

Sometimes, the company simply reincorporates in a tax haven for the biggest tax-savings bonanza of all. A recent MIT study found that corporate tax shelters cost the government $54 billion a year. And at the center of the storm are the tax-shelter promoters, the wily accountants, lawyers and bankers who scour the tax code for strategies to sell for a small fortune that only the very rich can afford to pay. "Ernst & Young has been known to charge people a fee of $1 million just to look at a tax shelter proposal," Johnston writes. "One Ernst & Young shelter cost $5 million to wipe out $20 million in tax obligations."

Nor are these professionals shy about marketing their "products." Add it all up, and the disturbing conclusion is that at a time when income disparities are growing more and more acute (levels of income inequality in America are at levels not seen since 1929), the progressive aspects of the tax code have effectively been excised: The top fifth of taxpayers now pay 19 percent of their incomes in taxes, while the bottom fifth pay 18 percent.

So what is to be done? Well, first of all, the Internal Revenue Service emerges from Johnston's book in need of a major makeover. Between the out-of-date technology, recent "reforms" that have tied the agency's hands, the hopelessly inadequate staffing levels, and the often not-so-subtle pressures that discourage enterprising agents from going after the "political donor class," the IRS comes across as a helpless chicken, pecking away at poor people who don't know how to properly fill out their earned income tax credit forms -- so that the agents can meet their quotas -- while the big-time tax cheats run free, gaming the system at will.

On the big scale, however, the leaders of our country, in their infinite wisdom, must realize that that the yawning gaps between rich and poor are hopelessly destructive to the long-term prosperity, and that the tax code must be refashioned to combat this problem, instead of exacerbating it.

Though we can't expect them to immediately change their cloistered perspective, getting them a copy of Perfectly Legal would be a good start.

Lee Drutman, a frequent contributor, is a Berkeley-based writer. He is the author of The People's Business: Controlling Corporations and Restoring Democracy (Berret-Koehler).

http://www.projo.com/opinion/contributors/content/projo_20050705_ctdrut.1ffe728.html

Congress must battle spyware and adware

Lee Drutman: Congress must battle spyware and adware

01:00 AM EDT on Friday, June 24, 2005

BERKELEY, Calif.

PERHAPS the following scenario sounds familiar. After downloading a new program, you start to see pop-up ads everywhere. The ads are relentless, promoting all manner of useless and even insulting products.

Try as you might, you can't stop them from invading, and hijacking your ability to use your computer in peace and quiet. Perhaps you also notice that your browser home page has been changed, with your browser favorites replaced by links you never would have selected in a million years.

And, perhaps most insulting of all, you get an ad that asks whether you are tired of the pop-ups. It promises to free your computer from their maddening grip for just $50.

If this sounds familiar, you are not alone. If it doesn't, it probably will soon. A 2004 survey by America Online and the National Cybersecurity Alliance found that 80 percent of people surveyed had some kind of spyware or adware program on their computer. (Generally, spyware refers to programs that monitor your computing activities, potentially stealing sensitive information; adware refers to programs that merely launch pop-up ads.)

Both of these programs are disruptive and sometimes destructive. They slow our computers, create frustration, and, if left unchecked, could render the Web virtually uninhabitable.

In short, somebody ought to do something about this. That somebody is, of course, Congress.

Actually, the House recently passed two bills dealing with the problem. One, the I-SPY Act, would toughen criminal penalties for spyware activities, although it ignores adware. The other bill, the SPY Act, would also toughen penalties for spyware, but would essentially make adware legal, by carving out protections for opt-in programs. A related bill is moving through committee in the Senate, and if approved, a compromise bill could become law this year.

Yet it's far from clear that what Congress is proposing would do the trick. The problem with the opt-in approach is that almost none of the adware programs are up-front about what they're doing. They bury the user's consent deep in the lengthy legalese of the terms of agreement, which Internet users "approve" when they download unrelated programs. According to the recent National Spyware Survey, sponsored by Unisys, 61 percent of respondents didn't remember consenting to adware.

One solution would be to require adware companies to be straight with potential downloaders: "If you download this program, you will be bombarded with pop-up ads."

The difficulty in dealing with adware is, of course, the advertisers, who aren't afraid to fight for the right to pester you till you throw your computer out the window.

At a recent Senate hearing on spyware, the executive director of the Network Advertising Imitative, J. Trevor Hughes, put it diplomatically: "Our responses to spyware must carefully balance our need to aggressively meet the threat, while protecting the continued legitimate use of a channel that is beginning to show its true promise. We must also be wary of spyware legislation that inappropriately includes online privacy standards."

The more thuggish approach comes courtesy of the Web-advertising firm WhenU, which last year sued after Utah enacted the country's toughest anti-spyware law. WhenU -- whose software tracks the Web sites a person visits and then sends the person targeted ads -- successfully asserted that the Utah law was unconstitutional, on the grounds that it interfered with interstate commerce and restricted freedom of (commercial) speech.

Utah has since enacted a toned-down anti-spyware law, but is still bracing itself for legal challenges.

Unfortunately, the legislative strategies that are emerging show that lawmakers aren't willing to do battle with advertisers. This was exactly the mistake that Congress made two years ago with its CAN-SPAM Act, which was supposed to deal with the problem of spam: unsolicited e-mail. The law served only to make deceptive e-mail illegal -- clearing the way for hopeless amounts of all other e-mail.

Spam thus continues unabated. Experts estimate that some 75 percent of all e-mail is spam -- about 15 billion messages a day -- costing businesses tens of billions of dollars a year in lost productivity.

Legislators now have a chance to do better in dealing with the latest threats. If Congress is serious about letting the Internet develop as it should, its members should take a tough line on both spyware and adware, and be far more willing to stand up to greedy advertisers.

If Congress doesn't do this, the Internet could become a lot less habitable a place in the near future.

Lee Drutman, a frequent contributor, is the author of The People's Business: Controlling Corporations and Restoring Democracy (Berrett-Koehler).

http://www.projo.com/opinion/contributors/content/projo_20050624_24lee.1a47dc3.html

Cox In The Henhouse

Cox In The Henhouse

Lee Drutman

TomPaine.com

June 10, 2005

Lee Drutman is the communications director of Citizen Works and the co-author of the book The People’s Business: Controlling Corporations and Restoring Democracy.

In Washington this past week, leaders of Delta Air Lines and Northwest Airlines told a Senate panel that they didn’t have the money to cover the pensions of 150,000 workers and retirees, and that they’d probably go bankrupt on account of it. If so, they would join their troubled competitors, U.S. Airways and United Airlines, who also broke their pension promises to thousands of employees and then turned to the government to cover at least part of the difference. (At $10 billion, United’s pension default is almost as big as WorldCom’s record-setting accounting fraud—though for whatever reason it has hardly produced the same uproar.)

These latest pension failures come closely on the heels of the resignation of William Donaldson as the chairman of the Securities and Exchange and the speedy nomination of free-market ideologue and corporate sycophant extraordinaire Rep. Christopher Cox, R-Calif., to be the agency’s new head. Though the two events are certainly unconnected on the surface, both bode poorly for the ability of hard-working Americans to enjoy an adequate retirement.

The fact that more and more companies are unable to provide promised pension benefits is troubling for obvious reasons. According to the Pension Benefit Guaranty Corporation, the taxpayer-funded agency responsible for providing partial insurance on corporate pensions, pension plans for 15 million employees at 1,108 major companies were underfunded by $353.7 billion last year, up a whopping 27 percent from the year before. That’s a lot of workers who are unlikely to get their promised retirement benefits.

The bigger and even more significant trend, however, is not the companies who are unable to provide. It is the companies who are simply unwilling. Over the last two decades, there has been a steady erosion of guaranteed pension benefits and a steady rise of corporations instead giving employees a 401(k) account, a few bucks to invest, and a hearty piece of advice: “Good luck. Go strike it rich.”

Problem is, it’s not so easy to strike it rich. Most people know very little about investing, and the recent wave of financial scandals has shown, it’s quite easy to get taken for a wild ride. Corporate financial reporting remains stubbornly obfuscatory, and the investment banks and mutual funds that are supposed to help individual investors get rich are riddled with conflicts of interest and, on the whole, seem far more concerned about making money off small investors than helping them to make money on their own.

This is where the Securities and Exchange Commission is supposed to come in. Unfortunately, in the years leading up to Enron and the cascade of accounting, investment banking and mutual fund scandals that followed, the SEC was consistently underfunded and undermined by a Republican Congress caught in the deregulatory fervor of self-regulating markets. As a result, the agency was unequipped to prevent or even really monitor the greedy corporate self-dealing that grew rampant go-go 1990s.

In the almost three years since the Sarbanes-Oxley accounting reform legislation was passed in a rare fit of Congress actually doing something productive, the SEC has been gradually revitalized. Under Donaldson, who took over early in 2003, the agency has doubled its budget, hired lots of new blood (though it is now on a hiring freeze that does not bode well), and begun to start to matter (even if New York Attorney General Eliot Spitzer still matters more).

In doing so, however, it has ruffled the feathers of business groups like the influential Business Roundtable and the powerful U.S. of Chamber of Commerce (which spent $193 million on lobbying between 1998 and 2004, almost $70 million more than the next biggest spender on Washington lobbying, Altria—formerly Phillip Morris). These groups have gone after Donaldson somewhat relentlessly (with the Chamber even suing over a rule to make mutual fund boards more independent), and may have had something to do with his resignation. Certainly, they have frustrated some important pieces of his agenda, including an unnecessarily controversial proposal to give shareholders some minimal say in nominating candidates to the board of directors. (Under the current system, management controls the process, and director elections are almost all done Soviet-style: one and only one slate of candidates. As a result, it’s very difficult for shareholders to hold directors accountable.) Donaldson also unsuccessfully pushed to require companies to clearly and straightforwardly disclose executive compensation packages, instead of engaging in an elaborate hide-and-go-seek game with investors, as most companies do.

Cox, however, comes pre-approved by the Chamber of Commerce, which gives him an 87 percent lifetime rating. David Hirschmann, senior vice-president of the chamber, pronounced that Cox would “bring the kind of philosophy that's needed to move the SEC forward at this time.”

But looking at Cox’s legislative record, the main philosophy that emerges is one of doing favors for business, happily taking their campaign contributions, and then proclaiming that the free market works. (According to the Center for Responsive Politics, 97 percent of Cox’s 2004 re-election campaign was funded by corporate political action committees or executives of companies and their family members. Since first being elected to Congress in 1988, he has received more than $254,000 from the securities industry). Though there were surely many causes of the recent wave of corporate scandals, two of the most often cited are the 1995 Private Securities Litigation Reform Act (PSLRA)—which made it harder for defrauded investors to hold companies accountable for securities fraud and essentially absolved accountants, lawyers and bankers of responsibility for fraud—and the explosion of unexpensed stock options, which allowed companies to distort their financial statements and made it easier to give executives massive compensation packages with perverse incentives to get the stock as high as possible and then sell out before it collapsed. Cox was a primary author of the PSLRA in 1995 and has been a key player in the shameless battle to preserve the stock options loophole. In short, Cox is no friend of the small investor.

We know from the recent scandals that, left to their own devices, much of corporate America and much of the investment industry is quite comfortable playing tricks on small investors. We also know now that more Americans are now more dependent on the investment industry for their retirement security than ever before. Certainly, the SEC cannot guarantee that the stock market will go up or down. For better or worse, there is a good deal of volatility in this arrangement that is far beyond anybody’s control. What the SEC can do, however, is make sure that investors are protected from the kind of corporate scams, frauds and inside-dealing that seems to proliferate when left unregulated. An SEC Chairman who ignores this regulatory responsibility, either out of ideological certitude or mere corporate toadyism, will do so at the peril of the retirements of millions of Americans, as well as the stability of the economy as a whole.

http://www.tompaine.com/articles/20050610/cox_in_the_henhouse.php

Hypothetical future-value accounting -- The tragicomedy that was Enron

Lee Drutman: Hypothetical future-value accounting -- The tragicomedy that was Enron

01:00 AM EDT on Wednesday, June 8, 2005

BERKELEY, Calif.

FILMMAKER ALEX GIBNEY, the man behind the recently released film about Enron, entitled The Smartest Guys in the Room, has done us a great service. He has reminded us that, 3 1/2 years after the company's befuddling bankruptcy made bombshell news, the Enron story is still as infuriating as ever, and perhaps, thanks to Gibney's film, even more so.

And yet, the very brilliance of the film -- devilish, devastating portraits of Enron's gang of gonifs, Ken Lay, Jeffrey Skilling, Andrew Fastow, and friends -- may distract from the political message that the film seems to be trying to get at: that Enron was as much a product of the collective evil genius of Lay, Skilling, and Fastow as it was the product of the Arthur Andersen and Merrill Lynch firms, energy deregulation, and an entire financial press, which was far more the reckless cheerleader than the mindful watchdog.

Enron was a rotten apple, sure, but it needed rotten soil and a rotten climate to make it so. Unfortunately, film culture being what it is -- to entertain for two hours -- one can't get lost in too many big-picture details. There must be characters, personal conflict, human tragedy, and, of course, suicide and strippers. Fortunately, the tortuous path of Enron provided plenty of all of the above.

Indeed, the film is a treasure trove of the real-life tragicomedy that was Enron's insatiable hubris, including some priceless internal footage of Jeffrey Skilling laughingly telling Enron employees to put all their 401(k) money into Enron stock -- and, even better, an internal video of Skilling parodying himself, suggesting that he had come up with a new form of accounting known as "HPV," or hypothetical future-value accounting, which would boost Enron's profits even higher.

The joke, of course, is that Enron's mark-to-market method of accounting (which was approved by the once-trusted gatekeepers known as Arthur Andersen and the Securities and Exchange Commission) was actually just that: outlandish predictions about future profits on such business schemes as trading weather derivatives, booked as if they were current earnings.

Of course, now we know that they were making it up, whole-cloth. And so it's both fascinating and instructive to see exactly how they did it: from the fudged accounting to the political connections that helped deregulate energy markets for the manipulating (the film has choice footage of both Presidents Bush and their Enron connections) to the creatively named shell companies used to hide debt in a game of 3,000-subsidiary monte so ridiculously complex that in the end only Andy Fastow could figure it out (and so rewarded himself with $45 million off the top).

Watching Enron build and build is a heck of a ride, a roller coaster of corporate insatiability, in which every new height promises an even more terrifying plummet -- because we in the audience know that it ends in a train wreck. And as Enron climbs to ever higher heights, we can't help enjoying a little Schadenfreude in seeing Enron's leaders sweat. On an investor call in 2001, Skilling refers to a Wall Street analyst as an obscenity for having asked how exactly Enron makes its money.

Late in 2001, Lay reads a question during an employee session: "Are you on crack? If you are, that might explain a lot of things. If you aren't, maybe you should be." (In another priceless moment, Lay compares Enron's being under attack to 9/11.)

Yet the $30 billion question remains: How did it happen? Was it just a brilliant scheme concocted by "The Smartest Guys in the Room"? If so, why was Enron far from alone in the cascade of corporate scandals that rocked the economy in 2002?

What about WorldCom, which managed to overstate its earnings by $11 billion -- more even than Enron -- with a far less complicated fraud? (Both Enron and WorldCom did share the accounting expertise of Arthur Andersen.) And why are we still seeing accounting scandals, with AIG's complex offshore dealings merely the latest iteration?

On screen, Enron's testosterone-soaked culture exasperates, it is hardly unique. Nor was Enron the only company to remind employees of the company stock price by posting it in such places as the elevator -- making very clear what mattered -- and it was far from the only company to pit employees against each other by firing the worst performers.

And though the film shows us Enron's energy traders exchange snide comments as they make millions by manufacturing California's energy crisis (the traders' commentary is wonderfully juxtaposed with car accidents and other forms of suffering caused by their behavior), Enron was just one of 70 energy and utility companies accused of artificially driving up prices during the California energy crisis.

Nor is it clear that the minds behind Enron -- or the leaders at any of the companies that have recently collapsed under the weight of their own arrogance -- could have accomplished so much on their own. Big accounting firms gave the company's financial statements their then-meaningful seal of approval. Lawyers signed off on dubious deals -- of which many of the worst were made possible by major financial institutions.

For example, four Merrill Lynch executives were recently sentenced to prison for having helped Enron hide debt through a fraud involving the sale of Nigerian barges. And between 1997 and 2001 Citigroup sold $167 million of financial services to Enron.

Then there are the numerous state and federal regulatory agencies that should have detected something -- as should have the financial press.

Thanks to Gibney's The Smartest Guys in the Room, we have a lasting and engaging testimony of Enron's financial and moral bankruptcy. Nevertheless, those who care about the integrity of the economy must remember that Enron was not merely a stunning tale about a bunch of evil geniuses. It was also an indictment of an economic and political system that allowed a company based almost entirely on hot air become the seventh-largest firm in America.

Unfortunately, the latter is a much more difficult story to tell.

Lee Drutman, a frequent contributor, is the author of The People's Business: Controlling Corporations and Restoring Democracy (Berrett-Koehler).

http://www.projo.com/opinion/contributors/content/projo_20050608_08lee.1db5d77.html

All the world's an ad

All the world's an ad

01:00 AM EDT on Monday, May 16, 2005

In Omaha, an enterprising 20-year-old Web designer named Andrew Fischer recently auctioned off the use of his forehead as advertising space on eBay. The winning bidder, a company promoting a snoring remedy, paid Mr. Fischer $37,375 for the privilege of placing a bright-red temporary tattoo on Mr. Fischer's forehead for a month to advertise its product.

On the one hand, calling attention to Andrew Fischer and his $37,375-a-month forehead space (which, by the way, is more than the average working American earns in a year) is irresistible. It is a rare Zeitgeist moment, marking a new low in our already depressingly commercialized lives.

In a world where we are bombarded day and night by commercial messages -- where advertising springs from billboards and buses and a thousand other places we encounter in daily life -- it is finally staring us in the face. And because Mr. Fischer is among the first to explore the novel area of headvertising, he has attracted much media attention. Fischer and his forehead have appeared on ABC's Good Morning America, Fox TV's Fox and Friends, and now in these pages.

Yet to call attention to Mr. Fischer's pioneering space rental is also to prove that it works, and, by extension, to encourage others to do the same. The company that advertised on Mr. Fischer's forehead got far more exposure than $37,375 usually buys. Does this mean that we will soon see more human-body advertising? (Fischer, who has started a business at HumanAdSpace.com, sure hopes so.)

Yet if it does catch on, body advertising will soon lose its power to shock, to generate news -- just like every other new and different advertising gimmick that has come before. Then what? As Mary Hilton, a spokeswoman for the American Advertising Federation, has told BrandWeek magazine: "With the increased media clutter, capturing the imagination of consumers is getting more and more challenging. Smart marketing teams are trying all sorts of new things to reach their audience."

Who knows what new and exciting ways marketers will next find to attract our ever attenuated and addled attention by invading our personal space?

-- Lee Drutman

http://www.projo.com/opinion/contributors/content/projo_20050516_cthead.202a979.html

Corporate Character Building

Corporate Character Building
Lee Drutman
May 02, 2005
TomPaine.com


In the more than three years since the Enron scandal broke, we’ve heard an awful lot about “corporate accountability.” It has become one of those delightful symbolic catchphrases that almost everyone supports (after all, who doesn’t want more “corporate accountability”?). And yet, in achieving such mainstream acceptance, it has lost its punch as a means to hold corporations truly accountable.

For most people, “corporate accountability” brings to mind the likes of Ken Lay and Jeffrey Skilling and Bernard Ebbers and their financial accounting fictions that cost all those poor pensioners their retirements. And so, in the almost three years since the Sarbanes-Oxley Act was enacted into law in response to Enron and WorldCom, an awful lot of attention has been paid to rooting out accounting fraud. Indeed, this was the thrust of the Sarbanes-Oxley Act—to make sure corporations report their financial numbers honestly and accurately. The message in respectable circles was that corporations should be run transparently and devoid of cronyism.

It’s hard to argue with that. More than half of all households now have money in the stock market. They deserve to not be cheated by the likes of Lay and Ebbers.

Yet, at the same time—by focusing only on financial accounting—we’ve lost sight of broader definition of corporate accountability that should also include the environment, human rights, and other public social goods.

For example, although the media and federal prosecutors focused on Enron’s house-of-cards numbers games, how many people fretted about Enron’s bribery of foreign officials and its construction of massive natural gas pipelines through a pristine region of a South American rainforest? Nor did many pay attention to documented human rights abuses at the company’s Dahbol, India, power plant. Same with WorldCom. While Bernard Ebbers and fellow executives were indicted for massive accounting fraud, few paid attention to customer abuses at the phone company, such as the switching of customers’ telephone carriers without permission.

Or consider the AIG scandal currently dominating headlines. Like almost all corporate scandals that have sustained media coverage in recent years, this one focuses on fraudulent accounting. The allegations are that that AIG engaged in a number of complex transactions, some of which involved subsidiaries in Bermuda and Barbados, in order to boost its revenue by as much as $1.7 billion. The purported victims are not AIG’s individual customers (were they overcharged as AIG’s corporate clients were?), nor their employees (are they treated fairly and paid well?), nor the public at large. The purported victims are AIG’s investors, who were allegedly deceived by the phony accounting.

While the media and political powers that be focus on improving accounting standards (the current Washington debate is over Sarbanes-Oxley’s mind-numbing Section 404, which involves internal accounting controls), a growing number of activist shareholders are pushing a much broader definition of corporate accountability. At least 211 shareholder resolutions on social and environmental issues are on tap for the 2005 proxy season, a new record. Socially responsible investors will be asking companies to address such issues as nondiscrimination in employment, better disclosure of environmental liabilities and health risks, disclosure of political ties, stopping environmentally damaging projects, getting companies to leave countries with human rights abuses, and improving the wages, benefits and conditions of workers. In fact, with political channels increasingly closed off, more and more public interest groups are turning to shareholder resolutions as a way to effect social change.

Yet, if recent trends are any indication, few, if any of these shareholder proposals will receive anything close to majority support among the shareholders of major corporations.

And here’s the troubling part. The reason that these resolutions don’t stand a shot is the same reason that corporate accountability has become defined narrowly in terms of financial accounting—most shareholders invest first and foremost to grow money for their retirement or to send their kids to college, not to reform corporate behavior. They watch their stocks go up and down, hoping to catch a break and retire well. This is why people generally get angry when AIG or Enron or WorldCom pulls off accounting fraud—because it puts their retirements at risk. And this is why it becomes easy to define corporate accountability as accountability to shareholders, because that’s so many of us.

What about defining corporate accountability more broadly? Well, even the most expansive definition of socially responsible investing (the Social Investment Forum defines socially responsible investing as investing that uses one or more of the three core socially responsible investing strategies—screening, shareholder advocacy, and community investing) accounts for only 11 percent of all assets. More narrowly, the assets of socially responsible funds (a decent proxy for the percentage of investors who deeply care about the consequences of corporate behavior) still represent only about one percent of all assets in the stock market.

Most investors, it seems, want their stock market returns. (And why shouldn’t they—after all, isn’t that what investment is all about?) They’d rather not hear about whether their fortune is being built on the backs of exploited workers, overcharged customers or polluted waterways. After all, there are kids to put through college, retirements to save for.

Yet, as long as the majority of investors are able to ignore this cognitive dissonance, it will be tough to expand the political battles of corporate accountability beyond issues of corporate governance and audits and other reforms designed to make sure companies are run honestly and profitably. Tougher questions of social and environmental accountability will be left to a minority of intrepid investors and corporate campaigners operating in a political environment that offers them little to no support.

Of course, there are cases where activist shareholders can convince managers that socially responsible policies are actually good for the bottom line. (PETA, for example, was able to convince McDonald’s to adopt more humane slaughtering at a cost of $1 million per slaughtering line by showing it would yield fewer worker injuries and more meat per chicken). But mostly, it’s a tough sell. Though one can find plenty of cosmetic socially responsible corporate programs and even more “corporate citizenship” rhetoric at most of the major companies, management is rarely willing to sacrifice profits to push real change—nor should they be, under current corporate governance guidelines—and almost always recommends against social and environmental proposals. As a result, very few resolutions proposing anything more radical than mild corporate governance reforms win a majority of shareholder votes.

The solution is a difficult one. It involves recognizing that there are trade-offs to stock market investing. Retirement savings cannot keep going up and up forever without some real consequences for the environment, workers, and even long-term economic stability. The solution involves long-term thinking, the kind that neither investors trying desperately to save for their retirements nor mutual fund investors trying to beat the market for the year are not likely to take. The market is unlikely to regulate itself. Instead, politics must get involved. Incentives must be changed. We must publicly recognize that corporate accountability means more than just providing cleanly accounted-for profits for shareholders. It means holding corporations accountable for everything they do—not just their accounting, but also how they treat the environment, their workers, and whether they value human rights. Without paying attention for these things, the more we invest, the bleaker our future will look.


http://www.tompaine.com/20050502/articles/corporate_character_building.php

The Paris Hilton relief plan

Lee Drutman: The Paris Hilton relief plan

01:00 AM EDT on Saturday, April 23, 2005
The Providence Journal

Here are the circumstances, as they stand assembled before us. The Congressional Budget Office has forecast this year's budget deficit at $394 billion, with cumulative deficits expected to add up to $2.6 trillion during the next 10 years. Numerous economists have expressed concern that these burgeoning deficits could lead to high interest rates, further weakening of the dollar, and other serious economic problems.

Meanwhile, President Bush barnstorms the countryside, howling that the Social Security system is about to run out of money,and that, rather than raising taxes to keep it solvent, the entitlement program should be privatized.

Other social-welfare programs are also on the chopping block. For example, a House-passed budget resolution calls for an estimated $30 billion to $35 billion in cuts over the next five years in Medicaid, Food Stamps, foster care and adoption, assistance for abused and neglected children, and other programs that help low-income families.

Given the dire financial situation, not to mention a basic sense of fairness, you might be forgiven for thinking that the U.S. House would oppose a tax cut for the wealthiest 2 percent of Americans -- at a cost over 10 years of $290 billion: enough to cover most of the current budget deficit. After all, President Bush's 2001 tax cut has already taken away $1.35 trillion in government revenue, over 10 years, and given most of it to the rich.

You would, of course, be wrong. The House has voted 272 to 162 to repeal the tax on all estates valued at more than $1.5 million, for individuals, and $3 million, for couples -- about 2 percent of all estates.

You might even be tempted to think that, at the very least, the House would keep in place a tax on estates of over $3.5 million ($7 million for couples) -- which would amount to just three-tenths of one percent of all estates (or just 8,500 estates in 2011, when the repeal would kick in).

Again, you'd be wrong -- by a 238-to-194 House vote.

At a time of dangerously large federal deficits, at a time when Congress is proposing large-scale cuts in social-welfare programs, it is hard to understand how anybody in Congress could defend this massive tax cut for the rich with a straight face -- let alone say that, as a matter of "basic fairness," we must permanently repeal the estate tax, as did bill sponsor Rep. Kenny Hulshof (R.-Mo.).

House Speaker Dennis Hastert (R.-Ill.), meanwhile, said that the estate tax was "just evil, because it takes away the American dream from too many American families."

The estate tax does not take away the American dream, from anyone.

The rich have already achieved the American dream, and they have found multiple ways to avoid paying the lion's share of estate taxes. They do this especially through charitable giving -- which actually helps make the American dream possible for more people (and which, according to Congressional Budget Office estimates, would be reduced by an annual $13 billion to $25 billion if the estate tax were repealed).

More serious, repealing the estate tax would greatly accelerate the growing concentration of wealth, by preserving the largest fortunes -- making it even harder for the vast majority of people to have a shot at the American dream.

When the Senate takes up the estate tax, as it has promised to do, the members should think long and hard about fairness. It's difficult to see how cutting help for abused and neglected children and saddling all children with massive future federal debt -- so that children of the wealthiest Americans can inherit millions and not work a day in their life -- resembles anything close to "basic fairness."

-- Lee Drutman

http://www.projo.com/opinion/contributors/content/projo_20050423_23estat.1bfe769.html