CT Progressive

Two stories have come out in the last couple days that serve as a reminder that not every business actually desires a functioning free market economy.

Barry Lynn and Phillip Longman talk about the economic consequences of business consolidation, suggesting that the lack of domestic job growth over the last ten years is closely tied to anti-competitive behavior:

It is now widely accepted among scholars that small businesses are responsible for most of the net job creation in the United States. It is also widely agreed that small businesses tend to be more inventive, producing more patents per employee, for example, than do larger firms. Less well established is what role concentration plays in suppressing new business formation and the expansion of existing businesses, along with the jobs and innovation that go with such growth. Evidence is growing, however, that the radical, wide-ranging consolidation of recent years has reduced job creation at both big and small firms simultaneously. At one extreme, ever more dominant Goliaths increasingly lack any real incentive to create new jobs; after all, many can increase their earnings merely by using their power to charge customers more or pay suppliers less. At the other extreme, the people who run our small enterprises enjoy fewer opportunities than in the past to grow their businesses. The Goliaths of today are so big and so adept at protecting their turf that they leave few niches open to exploit.

Over the next few years, we can use our government to do many things to promote the creation of new and better jobs in America. But even the most aggressive stimulus packages and tax cutting will do little to restore the sort of open market competition that, over the years, has proven to be such an important impetus to the creation of wealth, well-being, and work. Consolidation is certainly not the only factor at play. But any policymaker who is really serious about creating new jobs in America would be unwise to continue to ignore our new monopolies.

Their argument touches on manufacturing, where monopoly practices have caused stagnating product development (in many industries, a single manufacturer often produces the products for nearly every “competing” company in the field), to retail, where the market power of large chains causes de facto industry-wide price fixing even in the absence of collusion. The stifling of new inventions would seem to disproportionately impact a knowledge-industry state like Connecticut.

Monopoly power has also become a hot topic in healthcare coverage, as most states are dominated by a small number of providers; this was addressed in part by the creation of exchanges, but national exchanges (and a repeal of the anti-trust exemption for the insurance industry) don’t seem to be on the table at this point. A study cited in the article shows that in 80% of mergers, the new (larger and theoretically more efficient) company raises their prices when faced with less competition.

None of this, of course, is surprising, but somehow the national debate about job creation is hitched to a belief that what we should do what business wants, because what business wants is more and better competition. In a lot of cases, that’s exactly the opposite of what business wants. Competition cuts profits; new products create headaches and unpredictability.

The other story that came out is about our less-than-enlightened business lobbyists here in Connecticut, who see the economic suffering of the state’s residence as a great opportunity to weaken environmental regulations in the state. How lifting a regulation that you can’t dump battery acid in the river (or, as cited in the article, paint into the groundwater) is going to create jobs is beyond me — but it serves as a useful reminder of how cynical the politics around these issues can be.

There seems to be conflicting visions of what our economy is for – not that you’d be able to tell from watching C-SPAN. But the rise of Friedman/Reagan economics wasn’t so long ago that people don’t remember a time before it, and it wasn’t so long ago that we can’t contemplate a different model to follow it.

What’s the purpose of industry? To build useful things? To constantly improve the quality of life in our society? To be a strong component in the fabric of our communities? Too often, the answer is that the purpose is simply to generate capital, that this alone is sufficient to justify the human costs of profit-enhancing decisions; an ethic of ownership over work that trends naturally towards monopolies and rent-seeking over the (imo more desirable) elements of competitive, community-oriented businesses. From the excellent wikipedia description of “rent seeking” (wanted to check that I was describing the right phenomenon):

From a theoretical standpoint, the moral hazard of rent seeking can be considerable. If “buying” a favorable regulatory environment is cheaper than building more efficient production, a firm will choose the former option, reaping incomes entirely unrelated to any contribution to total wealth or well-being. This results in a sub-optimal allocation of resources — money spent on lobbyists and counter-lobbyists rather than on research and development, improved business practices, employee training, or additional capital goods — which retards economic growth.

That seems a pretty tidy description of the situation we find ourselves in right now. And the solution? The big-picture version from Lynn and Longman sounds pretty compelling:

When we get serious about this task, we will find that an entire political economic model lies ready for our use—the one shaped largely by the populists in Congress and the Roosevelt administration during the second New Deal. Before we can make use of this ready-made system for distributing power and opportunity, however, we will first have to break up the intellectual monopoly that has been forged over so much political economic policymaking in Washington today. The generation of political economists who understood the theory and practice of antitrust as devised by the late New Dealers are mostly retired or dead, and the academic economists who today dominate most discussions either have little understanding of the political nature of antimonopoly law or are openly hostile.

That’s why our first step must be to repopulate our discussions of political economics with the voices of the people who actually make our economy go. After all, real entrepreneurs and real scientists and real executives and real bankers and real farmers and real software engineers and real venture capitalists tend to understand quite well how real power is used against them. Just as it is they who know better than anyone else what freedoms they require to go about the task of putting their fellow Americans back to work.

In the news:

Federal and state officials, many facing record budget deficits, are starting to aggressively pursue companies that try to pass off regular employees as independent contractors. [...]

Companies that pass off employees as independent contractors avoid paying Social Security, Medicare and unemployment insurance taxes for those workers. Companies do not withhold income taxes from contractors’ paychecks, and several studies have indicated that, on average, misclassified independent workers do not report 30 percent of their income.

Not having unemployment insurance also means that you lose the safety net that keeps you from economic ruin when your job disappears (do they give pink slips to independent contractors?) The article goes on to mention that independent contractors can’t form unions, and generally don’t receive overtime. Misclassification is a tool that’s used to isolate people from their co-workers and the protections of labor law. It’s arguably the crown jewel in a range of modern abuses in the private sector, including elimination of breaks, tip garnishment, coercing workers not to file for worker’s comp, off-the-clock work, and illegal deductions from paychecks (also known as straight-up “stealing”). There’s a great and extensive report on how widespread these problems are for working-class Americans here. (PDF link)

One thing that jumps out from the article:

“This denies many workers their basic rights and protections and means less revenues to the Treasury and a competitive advantage for employers who misclassify,” said Jared Bernstein, who as executive director of Vice President Joseph R. Biden Jr.’s Middle Class Task Force has helped orchestrate the administration’s campaign against misclassification. “The last thing you want is to give a competitive advantage to employers who are breaking the rules.”

I’d argue that you’d actually want to provide a competitive disadvantage to employers that engage in these kinds of practices: businesses that cheat their workers as a matter of course weaken the fabric of our entire society and pull the quality of life downwards for everyone, not just those working at their firm. The cost of shoveling risk onto the rest of society should be priced into the economic and regulatory systems in which these companies operate; as it stands, the enforcement effort is merely seeking lost wages and back taxes, so there’s no financial incentive for companies to proactively correct these issues. Serious penalties (or, at the extreme, a corporate three-strikes law) would provide a stick; using those penalties to provide a credit or benefit to companies that follow best practices could be a worthwhile carrot.

Finally, in the category of “accidentally sharp critique of capitalism:”

“The goal of raising money is not a proper rationale for reclassifying who falls on what side of the line,” said Randel K. Johnson, senior vice president with the United States Chamber of Commerce.

Yes, it’s true that making an extra buck isn’t a moral rationale for screwing with your workers, though I’m not sure Randel really thought that through before giving a quote to the paper of record.

This has been brewing for a couple of days now, and it brings a couple of points to mind:

First, what Lamont said was stupid and wrong. No doubt.

Second, I’m very impressed that nobody who’s familiar with Malloy’s history of labor relations in Stamford seems to have said a single word about how awe-inspiringly cynical his attack here is.

Third, there’s a disconnect here that repeats itself over and over again with progressive policy initiatives – a compromise is hashed out behind the scenes and introduced, but those who want to be seen as centrists don’t get the memo (or the airtime, more likely), and attack whatever bill as too liberal.

With healthcare, a national health system was compromised down to single payer, single payer activists were sold on the public option, the public option was vaporized in exchange for nothing. Advocates, who would have been thrilled at half a loaf, start getting pretty unhappy when they’re told to give back the 1/8 of a loaf that they have remaining. And now, everyone’s clucking at the clever Democrats promoting the ultra-conservative Paul Ryan healthcare bill. Of course, the Ryan bill will go down in flames, but in February 2010, some fringe Republican character will get a chance to insert items into the signature Democratic legislative accomplishment while the large and loyal progressive caucus has been frozen out for the better part of a year.

The President or the Governor is always going to tack to the center – as another example, Bush wanted the authority to invade anything and everything without giving any reason, and compromised by accepting the mere authority to invade Iraq for no particular reason. He was able to compromise with the extreme right because there was a functioning extreme that he could negotiate with.

But now, as Lamont is realizing that the bill (click here to see the draft) is already compromised to a pale shadow of what liberals wanted, it’s basically impossible to ask for any further compromises in the name of moderation and reasonableness. So he’s forced to either crap on a bill that was already pretty conservative and incremental (making it moreso), or sound like an idiot for not understanding what’s actually on the table.

Yes, what Ned said was uncool, but without a functioning left in the legislature, it’s something that’s going to be repeated over and over again no matter who winds up being Governor.

The debate over Connecticut’s film tax credits has been fascinating – and there’s a new post up at the WFP blog that tries to sort it all out by characterizing both sides of the argument.

On the one side, it’s a massive giveaway from the State of Connecticut to companies that don’t necessarily create jobs or spend money in our borders. That sucks. But, the massive giveaway creates good jobs in other places, and maybe someday those jobs will come here.

I’m trying to be briefer than usual without being rude, but that’s really the heart of it. And what it illustrates is the sorry state of, for lack of a better phrase, tax philosophy in our political system.

If you believe in the theory that the government can do counter-cyclical spending to boost the economy in a recession, then you’d come up with a range of different ideas to help boost the economy in appropriate ways. As Gary LeBeau says in a post linked from the WFP blog, film production has some excellent qualities:

* It is second only to aerospace as the top export of the United States.
* It is a clean industry that is high tech, high value added and highly skilled.
* It brings excitement to wherever it is located and a magnet to keep young people.

The film industry also, due to high levels of unionization, pays workers at all levels a fair wage that will generally re-circulate in the economy. Those bullet points might also apply to financial products, but dropping a billion dollars on the financial services industry won’t stimulate the economy in the way that putting cash in the hands of middle-class workers will.

So if you wanted to promote the film industry in Connecticut, why not give them in-state stuff credits — paying for the cost of their carpentry, for vehicle rental, subsidizing production staff, etc? Or, just offer grants for artists working in the state. Art is nice, and more utilitarian than the also-made-in-Connecticut F-22s. So why not spend money on films by Connecticut residents? And failing all of that, you could just have the state government buy movie tickets and send them to people, because theater employees will then spend their money on rent and groceries, and at the very least we’ll be able to enjoy some movies in the process. And that money would be partly recouped by the state as is circulates around. Spending money to subsidize work that is being done in California might be a legitimate public policy interest, but one that should be handled by the Federal government.

Similarly, there’s an idea that you tax things you want less of, and subsidize things you want more of – think sales taxes on junk food but not on produce – and was recently reflected in the state plastic bag bill which died on the calendar without a vote this year. The bill would charge a nickel for every plastic bag purchased, and spend that money to enhance local recycling facilities. Of course, since it went down, towns are introducing legislation on plastic bags, preferring outright bans to revenue-enhancing fee measures.

Anyway, this dovetails nicely with this tidbit from Ezra Klein’s interview with Bruce Bartlett, a not-insane conservative economist, who offers a theory about why our tax policy is so stupid:

I think the administration made a mistake approaching the funding of health-care reform how it did and I think Republicans made a mistake refusing to seriously debate the issue or its funding. [...]

I think there’s a couple of reasons for that. Both sides are pathologically afraid of advocating any kind of tax that would be paid by the average person. Republicans are opposed in particular to the VAT precisely because it’s such a good tax. They fear it would become a money machine and it would help the government grow. I agreed with that for a long time. But the problem now is that we need a money machine! We have all this spending in the pipeline. It’s not a question of whether we’ll create new programs. It’s whether we’ll fund the ones that are already there.

The biggest shame is that Republicans don’t negotiate in good faith to set up our tax system in a way that is logical and functional top to bottom. Having a VAT to fund healthcare is a decent idea, and consistent with a lot of best practices both here and abroad, but since the GOP has a monomaniacal opposition to taxes at every level, we’ll probably have to do it with an cap of the tax exemption for healthcare or an adjustment to the top rate. And since there’s no rational debate about the best way to do it, nominal health reform allies will wind up being split off because they won’t be able to deliver a pony plan for free.

The Catholic Church hierarchy has come to a mutual accord with labor over organizing in hospitals:

The accord, announced Monday, seeks to apply Catholic teachings that recognize the right of workers to “freely and fairly” decide whether to join a union. [...]

The agreement touches on a thorny situation for Catholic hospitals, some of which have aggressively resisted union organizing amid complaints that their conduct contradicts Catholic doctrine on social justice. [...]

“The central actors in these dramas have to be the workers themselves, that’s what we feel is the strength of the document,” said Cardinal Theodore McCarrick, retired archbishop of Washington, D.C., who helped lead the discussions.

Under the agreement, hospital managers agree not to use “traditional anti-union tactics,” including hiring firms, known as union-busters, that work with companies to defeat organizing drives. Unions also agree not to publicly attack Catholic health care organizations during labor campaigns.

The article mentions that 15 percent of the 600,000 Catholic hospital workers nationwide are members of unions right now, but so far as I’ve been able to find, none of the Connecticut Catholic hospitals are unionized.

Update: The U.S. Conference of Catholic Bishops has the document available as a PDF here.

Via CAP, a study on the slow increase of union membership reveals that union membership has increased for the second year in a row, up to 12.4% nationwide. Connecticut is one of eleven states that have posted an increase in percentage of union jobs in recent years, rising from 16.4 to 16.9% since 2000.