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The War on Workers

     How Stock Buy-Backs Hurt Middle America

I recently read a post by award winning journalist Matt Taibbi, who shared his interview with author Les Leopold. Here’s an excerpt from the post:

“In late February a new book by journalist Paul Waldman and University of Maryland professor Thomas Schaller called White Rural Rage hit the bookshelves. The book was a compendium of Hee Haw! caricatures of hayseed America mixed with a blunt diagnosis: rural Americans are disproportionately racist, conspiratorial, authoritarian, and supportive of political violence, key culprits in the rise of Donald Trump.”

“I was grumbling about this book when author Chris Hedges connected me with Les Leopold, director of the Labor Institute, who’d just written an opposite sort of book called Wall Street’s War on Workers, which turns out to be a thorough deconstruction of most of White Rural Rage.”

Leopold points out that from 1996, approximately 30 million Americans have been laid off. He attributes many of these layoffs to corporate stock buy-backs, which tend to increase the stock values, and because stock options are common for corporate executives, their wealth, at least on paper, can increase dramatically. 

I remember awhile back when someone was complaining that a fair amount of the bail out money given to corporations during the 2008-2009 housing crisis was used for stock buy-backs. If I remember right, it was Bernie Sanders. Regardless of your opinion of Sanders, he’s one of the few politicians to criticize Wall St. Why is that? Corporate lobbyists. Huge amounts of money is at stake for politicians to cooperate with lobbyists, adding money to their campaign funds, helping them get re-elected. 

I think they are reluctant to bite the hand that feeds them. 

Here’s another excerpt from Taibbi’s post:

“ The passage of NAFTA led to a lot of job losses, but a bigger cause is a phenomenon I’ve covered here and which Leopold tackles: stock buybacks. 

Buybacks happen when big companies use cash or borrow funds to buy their own stock on the marketplace, then retire the shares. Both the buying and the retiring tend to drive share prices up, which is a good thing for executives compensated in company stock, but less advantageous for those not privy to the company’s plans. For this reason, the SEC barred buybacks as manipulation until 1982, when the administration of Ronald Reagan instituted rule 10b-18, creating a “safe harbor” for such transactions. Leopold, examining a Department of Defense study of what contractors did with excess cash when they had it, writes:

Defense contractors increased their stock repurchases and dividends to shareholders by 73 percent in the last decade… Where to get all that money? For defense contractors it’s a no-brainer—take it from our tax dollars. 

For the business sector, it is often extracted from the troubled companies through cost-cutting—including mass layoffs, wage and benefit cuts, shifting production to low-wage areas, and cutting spending on things like health, safety, environmental safeguards, and research and development.”

“The implications of this are crucial. As Leopold notes below, most people assume layoffs are just cold hard economic reality, the unavoidable result of market forces taking their toll on uncompetitive businesses. But it’s not always true. Healthy companies will cut jobs just to up share prices for executives, who increasingly are compensated in company equity. Leopold cites a stat saying 85% of executive compensation comes in the form of stock awards, creating massive incentives to spend on buybacks.”

“In the end, Leopold posits that while Democratic voters (I think Taibbi meant Democrats) believe they need to shift to more illiberal positions to win working class voters, they’d more likely need to emphasize mass layoffs as a root of rural anger, which would force them to choose between Wall Street donors and rural votes. Survey findings turned up the following two conclusions, for instance: 

  • Some 10 to 25 million white working class people are liberal on social issues but don’t identify as Democrats.
  • These non-Democrats are extremely worried about trade deals and imports, which likely reflects their concerns about job loss and job insecurity.”

This last excerpt from Taibbi’s post explains why Les Leopold started looking into mass layoffs:

MT: What prompted you to write the book?

Les Leopold: It’s almost embarrassing. I’m a graduate of Oberlin College and in the middle of the pandemic they decided to lay off like 105 UAW blue collar workers that worked in the cafeteria and then cleaned after the students. I just couldn’t figure out why they did it. A bunch of us got involved in trying to stop it, and of course we failed, but we raised a lot of money for the workers. But what struck me was their stories when they started to talk to me about what they went through and the disappointment, the hardship and the crushing depression that they had. 

And it was totally needless. I mean, I don’t even think they’re going to save any money. They went to some subcontractor, they had some sort of bullshit argument. So it caused me to start thinking: how big is this mass layoff problem? It turns out it’s a huge thing and it’s metastasized all through the economy. I can’t think of a sector that isn’t going through mass layoffs —

MT: Sorry to interrupt, but wasn’t a key element of the surprise of that story was that Oberlin is like the cradle of progressivism, and the justification didn’t seem to be there?

Les Leopold: We couldn’t come up with any motive. They had this whole thing about how they’re going to have to tighten their belts and all that, and they had this thing called “One Oberlin,” and it included everybody in Oberlin, students, the faculty, etc., except the workers. In other words, it was going to be collective austerity, but what we’re going to do is tighten our belts by screwing the workers. We happened to have a reunion at that point and I was out there and tried to asked them: “Well, how the hell can you do this?” They said, “Oh, they have contracts. They’re not allowed to make any concessions.” Well, give me a break. What planet are you guys on? Anyway, it just got me going. If this liberal college could do it – and they were really behaving just like every other corporation – then forget about it. That’s what got me to start looking at mass layoffs. What is that process? “

Oberlin College is a private liberal arts college and conservatory of music in Oberlin, Ohio, United States. Founded in 1833, it is the oldest coeducational liberal arts college in the United States and the second-oldest continuously operating coeducational institute of higher learning in the world. Wikipedia

I thought this was an interesting post by Taibbi and opened my eyes a little to at least one cause of middle America anger and frustration.”

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