Every company you can think of has benefitted from a public investment. Whether it’s direct handouts through the tax code, government research efforts, or employee reliance on programs like EITC or TANF, taxpayers are subsidizing wildly profitable companies.
David Dayen, the executive editor of The American Prospect, and Financial Times associate editor Rana Foroohar join Nick and Zach to explain how we let corporate parasites get so out of control—and what we can do about it.
News clips credit: CNBC, KING 5, NPR, Democracy Now!
Rana Foroohar is Global Business Columnist and an Associate Editor at the Financial Times. She is also CNN’s global economic analyst. She is the author of Makers and Takers: The Rise of Finance and the Fall of American Business and Don’t Be Evil: How Big Tech Betrayed Its Founding Principles and All of Us.
David Dayen is the executive editor of The American Prospect. His work has appeared in The Intercept, The New Republic, HuffPost, The Washington Post, the Los Angeles Times, and more. His is the author of Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud.
Confronting the parasite economy: https://prospect.org/labor/confronting-parasite-economy/
Makers and Takers: https://www.ranaforoohar.com/makersandtakers
How to Cure Corporate America’s Selfishness: https://newrepublic.com/article/150695/cure-corporate-americas-selfishness
Nick’s twitter: @NickHanauer
David Dayen: We have allowed concentrated corporate power to maintain such control over society.
Rana Foroohar: And to be fair, a lot of them are doing things that are perfectly legal.
Zach Silk: For sure. There’s a few people winning and almost everybody else is losing.
Rana Foroohar: I got to think we’re going to have some major social unrest.
Nick Hanauer: You’re basically going to be sharpening up the guillotines.
Rana Foroohar: Pitchfork maybe.
Nick Hanauer: Yeah. Pitchfork. Exactly.
Speaker 5: From the offices of Civic Ventures in downtown Seattle. This is Pitchfork Economics with Nick Hanauer. A conversation about how capitalism actually works.
Speaker 6: Amazon has conducted a very public horse race between cities and States to choose a site for its new headquarters, HQ2. In pitching themselves to Amazon, local governments dusted off a familiar playbook. Generous incentives promising billions in tax breaks to a company valued at $1 trillion.
Speaker 7: A third of jobs in this community are Boeing jobs.
Speaker 8: A shutdown of 737 production, the backbone of Renton’s economy would have painful consequences beyond the factory. The company warned, it might have to halt manufacturing of the max jet if it cannot get government approval for it to fly again.
Speaker 6: There is a war going on along the border between Kansas and Missouri.
Speaker 9: And this war is over something very important. It’s a war over jobs. The two States are fighting to lure companies to their state and not the one across state line road and they’re spending millions of dollars to do it. This is something that’s happening all over the country right now. It’s just that usually it happens over much greater distances, like California and New York competing over a tech company or Georgia and New Jersey battling it out over car companies.
Zach Silk: And we can’t allow these corporations to continue to play one state off against another to try to leverage those tax breaks. We should push back against this corporate behavior that does that.
Nick Hanauer: I’m Nick Hanauer, founder of Civic Ventures.
Zach Silk: Hey, I’m Zach Silk and I’m the president of Civic Ventures.
Nick Hanauer: So Zach, on this episode of Pitchfork Economics, we are going to explore the multitudinous ways that big corporations misbehave in the economy, and take part in all sorts of forms of parasitic behavior, and violating norms and laws and rules that have existed in our economy for a long time, to solve the collective action problems that a human economy is.
Zach Silk: For example, they take advantage of the tax code, right? They take massive advantage of this regulatory regimes. They manipulate the rules to benefit them and harm others. And then there’s this norm behavior that has also shifted, and know you’ve talked about that a lot. That when you grew up in your family company, of course there was the taxes you needed to pay, the regulations you needed to follow. But there also was just behavior-
Nick Hanauer: Behavior.
Zach Silk: … that you [crosstalk 00:03:09]. Right?
Nick Hanauer: Yeah. My favorite story I’ve told it I think before on the podcast at least once was that, when I went to work for the family business my brother and I wanted to buy sports cars, and my dad forbid it. Because he thought it looked terrible that these young, know nothings frankly would be paid enough to drive sports cars, when the folks who were… at least as far as my dad was concerned, were far harder and were far more useful to the business than us couldn’t afford to do that. And so until I was 28 years old, I shared a car with my younger brother, which is just astonishing to think about when you reflect on it today. But such behavior you would not find at Facebook today or Google or really any other corporation in America.
Zach Silk: Yeah. When you combine this Neoliberal ideology, which informs what’s happening in the rulemaking, the policymaking and the behavior of our governments as they’re manipulated by this, with these kind of immoral behavior and this desire to be a parasite rather than a producer, it just leads us to where we are, which is of course there’s a few people winning and almost everybody else’s is losing.
Nick Hanauer: Right. We’re going to talk to a couple of really super interesting guests who are going to help us explore these topics. But definitely the intersection between the technology business in the finance business is a nexus for this misbehavior, right? And the way in which the financial services industry has migrated from a service to the real economy to help it grow by providing capital and services too, an industry in and of itself that simply serves its own interests is a really interesting manifestation of that. And then, the way in which companies, like for instance, Facebook, our trans national, right, they can have their data in any place, they can pay taxes in any place they serve as many customers, well more customers than any single country, I think today has, has citizens.
Nick Hanauer: And therefore it gives it inabilities simply to out run all of the rules and norms that have constrained corporate behavior in the past that, all of these are really super interesting things to explore.
Zach Silk: If you think about it in our kind of parasite way, there are these little parasites happening all around us, and then there are these super parasites. These unbelievably super bugs that are really taking a lot of the value that we create gets sucked of your local economy and taken elsewhere, sometimes beyond the borders.
Nick Hanauer: Right, exactly.
Zach Silk: Like the hundreds of billions of dollars in corporate profits hiding in various global low tax jurisdictions, which could be used, for instance in the United States of America to solve our infrastructure problem, or the woeful state of our public education system, or whatever it is, right? There are so many things that we could use that money for. And instead we’ve got these, like hundreds of billions of dollars sitting in some bank account somewhere.
Nick Hanauer: Yeah. And then I know there’s a lot of stories that have been written about how the smaller bugs, the little ones, the parasite, the smaller parasites, they’re manipulating rules every single day. Little tax loopholes here, this regulatory malfeasance there, which ultimately means that the public good, the commonwealth is suffering. Not only do they take from us directly, but of course they are benefiting from the public investments that we have made that has created the opportunity for what they’re doing. The best possible example of this is basically every company you can think of has benefited from a public investment, whether it was through public research, R&D, or a direct build of an entire industry.
Zach Silk: Right. Whether it’s roads or the public infrastructure that created the internet.
Nick Hanauer: GPS.
Zach Silk: Yeah. How about the air traffic control system, which allows people to fly safely from one place to another?
Nick Hanauer: All of these things.
Zach Silk: All of these things, right? Are a consequence of public investments that these folks are seeking to avoid. Yeah, and there’s no coincidence that the time that we had the fastest, largest, most equitable growth in this country coincided with when we were making the best, most equitable investments. And we did so in a way that allowed prosperity to grow. I mean, it was not about choking capitalism, it actually was about feeding. And we were ultimately ended up with really large corporations that benefited a lot of people and now we’ve tipped over.
Nick Hanauer: Yeah. So our first guest is an amazing guy named David Dayen, who is the executive editor of The American Prospect and has written extensively about these issues.
Zach Silk: David is one of our first reads. He’s somebody that you ought to be following if you’re interested in these subjects. I’m really excited to talk to him.
David Dayen: My name is David Dayen. I am the executive editor of The American Prospect and I live in Los Angeles, California.
Nick Hanauer: Well, David, today we wanted to pick your brain about a subject that I know you know a lot about, which is corporate welfare, what we call in our shop, parasitism. You have written extensively about this, you talk about it a lot for our listeners, would you sort of lay out what the problem is? Just explain the issue.
David Dayen: I think one thing that’s interesting is that we hear a lot of conservative denunciations of the welfare state that these people who are allegedly undeserving received these benefits while doing nothing for them. And these are meager benefits, right? Food stamps, welfare to the extent that it exists anymore, and what they call TANIF Temporary Assistance for Needy Families, Medicaid, things like that. The truth is that the largest amount of funding that could be seen as a welfare payment, which is, as conservatives characterize it, goes to the largest corporations in American. It does so in a number of different ways. One is certainly through the tax code. We just got a report recently that the effective tax rate for the top 400 corporations in America after the Trump tax cuts was something like 11%. In our current number, that’s about half of what the nominal corporate tax rate is supposed to be.
David Dayen: So obviously there are a lot of perks, a lot of gifts, a lot of handouts being given through the tax code. Sometimes those handouts are very direct. We see this in the States all the time to attempt to attract a business to relocate in their area. Hundreds of millions, sometimes billions of dollars are given to large corporations who certainly could afford the relocation expenses in order that they show up in a certain location. It’s essentially pitting cities and States against one another. And the large S of that of course goes to this giant corporation. So those are a couple examples of which there are many of corporate welfare. And I think I would say that in a society that has a certain amount of resources to deliver so much of them to wealthy corporations that can certainly afford the ability to, whether it’s relocate or just conduct their business rather than having them pay their fair share is important.
Nick Hanauer: What are the biggest chunks of these giveaways? In what form do these giveaways come?
David Dayen: Right? some of them are certainly tax credits, the research and development tax credit is a big one. There’s tax credits for expensing. Then as I mentioned, there are very large just cash giveaways that are done. One of the more famous examples of this was of course Amazon’s HQ2 competition. Where were they pitted all of these cities in this large contest, this absurd contest to see how much money they would be able to give to Amazon for the privilege of hosting their facilities. Now, as it turned out, Amazon ended up going with two cities. Washington DC and New York city, New York city eventually revolted and decided not to give what was going to be a package of billions of dollars in grants, mostly just actual handout. What’s funny is that later on, months later after Amazon backs out of the deal, they very quietly go back into New York because that’s where a lot of the talent is-
Nick Hanauer: Of course.
David Dayen: … without taking any money.
Nick Hanauer: I know. It’s just hilarious. Living in Seattle, we watched this whole HQ2 thing unfold in vivid detail. And it was just an astonishingly predatory approach. And of course, here’s the thing is that I’ve run technology companies before and there was zero doubt in my mind, they were either going to land in New York, DC, San Francisco or LA. There was no chance they were going to wind up in Akron, Ohio or some small town in Nebraska. All of whom are clamoring to be part of this because at the end of the day, the only thing that matters is where the talent is. And there’s a very short list of places that have enough people to deliver that talent.
David Dayen: That’s absolutely correct.
Nick Hanauer: It’s just terrible.
David Dayen: The other part of this, and really the real ulterior motive to why Amazon conducted this contest was to gather information on what these cities that had no chance of locating or getting HQ2 in their neighborhood just to see what they would be willing to give up. Because of course Amazon isn’t just citing headquarters, it’s citing all sorts of things, right? Data centers and warehouses, and all these other facilities, and now that they are armed with this information, “Oh Cleveland, you are willing to give up $1 billion for a headquarters? Well we can’t give you that, but how about this warehouse? What are you willing to give up for that? Now that we already have your bid?” So it was a negotiating tactic as well in a bid to get even more money.
David Dayen: And of course, if you look at the totality of Amazon subsidies that have been given corporate welfare has been given from cities for warehouses and data centers and things like that, it’s spreads into the billions and billions of dollars. And of course Amazon is the highest valued company in the world.
Nick Hanauer: I’ve got a question to come back to this idea of subsidizing profitable corporations. One of the ways we think about that, of course, is through the tax code, but the Trump administration uniquely has been willing to use regulatory mechanisms. I know that you wrote about this recently related to Payday Lenders and what they’re doing with what was supposed to be the consumer protection agency and similarly with the department of education is doing for for-profit educational institutions. Can you talk about how they’re manipulating these regulations to basically get them off the hook?
David Dayen: Yeah, absolutely. And thank you for bringing that up because sometimes we focus too much on the actual cash value handouts that are given to corporations. And a little less on these regulatory favors, which translate often into much more money than any kind of direct grant, or even direct tax break. So the example, one of the examples you brought up was Payday Lending, which I have written about. There’s a guy, his last name is Hodges. He runs a Payday Lender called Advanced Financial out in Tennessee. And he was caught on tape bragging to his fellow Payday Lenders that the way to get things done in the Trump administration is to give more money to their reelection campaign. And that gives me the clout to go ahead and get regulations changed. We saw a very notable example of this very recently.
David Dayen: The consumer financial protection Bureau changed under the Trump appointee, Kathy Kraninger changed the Payday Lending rule that the Obama administration had put out. But it changed most of it, but decided it would not change this one provision which forces Payday Lenders to get approval from customers before continually trying to hit their bank account multiple times, even when there are insufficient funds. This is a way to rack up fees both by the bank and also by the Payday Lender. So CFPB even under the Trump administration said, we’re not going to do that. That clearly is abusive and we’re going to keep this rule in. Well, after they said that twice, once when they changed the rule and the second time in court, this Hodges fellow and his wife gave something like $780,000 to the Trump administration reelection campaign and also various Republican members of Congress.
David Dayen: And within six months of getting all that money, Kraninger had changed her mind. She said that she would act upon this petition that Hodges’ company, Advanced Financial made to change those payment provisions. And it was really one of the most stark examples of pay to play that I’ve seen in the Trump era. The Payday Lender literally gave these donations and bought a regulation that is going to be worth untold amounts of money to his business.
Nick Hanauer: Draining the swamp.
David Dayen: There it is.
Nick Hanauer: Yeah. We’re a little less focused on tax transfers. Those are obviously important, but we often think about where the real money is, and of course that is in these corporations profits. And what they do to manipulate government rules to maximize their profits. And that is a great example. Of course, the one you just gave. The other one that we think a lot about is actually the welfare programs that exist. Ultimately the way that they have been designed by successive administrations, Democrat. But of course, particularly Republican administrations, is they put such an emphasis on work that we, the taxpayer end up doing. We basically subsidize profitable corporations.
Nick Hanauer: So with AITC, TANIF, SNAP, whatever the programs are, you the taxpayer are subsidizing work, which is another way of saying you are subsidizing wildly profitable corporations. The McDonald’s employee is being subsidized by the taxpayer despite the fact that McDonald’s is wildly profitable. Or the Walmart employee is being subsidized by the taxpayer for food stamps or AITC programs. Do you see it that way?
David Dayen: Yeah, absolutely. What we continually see, particularly in States held by Republicans, is this focus on putting work requirements on Medicaid beneficiaries, putting drug tests requirements on them, doing everything they can to chip away not only at their eligibility, but in some ways their dignity. To make it harder and harder to become eligible for these benefits when there are really no such restrictions on corporate welfare.
Nick Hanauer: Exactly.
David Dayen: To a similar degree, I’m not saying drug tests corporations, but all I’m saying is-
Nick Hanauer: I don’t know. This is entertaining to-
David Dayen: …. that there’s a real inequity there between what it takes for a low wage, resident of a particular state to qualify for benefits and what it takes for a corporation to do so.
Zach Silk: You’ve been studying this a long time and writing about it. How did we get into this mess? What do you trace it to? Can you thumbnail the history of this?
David Dayen: It’s certainly something that, since the break off in the 1970s of wages and productivity, since we’ve seen corporations really retrench and see themselves as only responsible to shareholders rather than being responsible to stakeholders, including the community at large and their workers and things like that. We’ve really seen this growth of a business class that is more rapacious, that seeks advantage at every opportunity including government advantage. And maybe where prior to the Reagan revolution they would have been less successful in acquiring this corporate welfare benefits. These days the bar is open, they’re ready and willing to give these handouts. I also think that as we’ve seen, budgets become much more strapped in cities, much more pressure on cities to perform. We have seen this sort of contest arise between cities, between States to compete to acquire workers and usually public money is at stake there.
David Dayen: That’s a somewhat recent phenomenon that I think coincides just with the ways in which funding at state level for cities has dropped in a more conservative moment that we’ve seen since the 1970s and 1980s, just become more difficult for a city to make their budget and they see the opportunity for not only bringing companies in but also privatizing their own services. There’s a whole other part of this corporate welfare that we haven’t really gotten into and talked about, the ability for a private corporations to take over functions that were previously subscribed to government. They get them for a small payment up front and they get to keep them for years, if not decades into the future making huge markups in the exchange.
David Dayen: We’ve seen this privatization a number of places, whether you’re talking about the parking meters in Chicago, or you’re talking about water systems, or you’re talking about education in some senses. I think that should maybe fall into this conversation as well because it is a way in which the government essentially engages in a fire sale and large corporate interests pick up these things at a discount and they’re able to make a whole lot of money off it.
Nick Hanauer: So what are the top five things we should do to fix this?
David Dayen: There’s probably a lot that can be done to equalize these outcomes, to fight corporate power over a number of ways, obviously changes to the tax code. That’s a pretty simple response. Another would be stronger enforcement against concentrations of corporate power, monopolies. I think that shrinking the extreme economic and political power of these large actors would make it less likely for them to acquire these benefits from the public. One thing that we’ve seen that that has been successful are almost these non-aggression pacts between States and cities. I’ll give you one example in Kansas city. The Kansas city region, which straddles Kansas and Missouri for years, companies which has bounced between Kansas city, Missouri and Kansas city, Kansas, then take welfare benefits from the [crosstalk 00:24:05].
Nick Hanauer: I have read about that. Yeah.
David Dayen: Yeah. And so what they finally did earlier this year is essentially a nonaggression pact, a truce between Kansas city, Missouri and Kansas city, Kansas that says, we’re not going to do that anymore. It doesn’t make sense for our bottom line to just hand out this money even though no economic activity or productivity is taking place. I think there are solutions like that out there, creative solutions that retain a role for the public sector. And understand that in a time where money is somewhat scarce, especially at the state and local level, giving it all away in the name of economic development, a large corporations to try to lure them into the town is probably not the best outcome compared to improving public services, improving the workforce, improving human capital, and then the companies will want to come there anyway.
Nick Hanauer: Yeah, correct. David, we have one more question we love to ask, which is, why do you do this work? What brings you to it?
David Dayen: Well, I believe in a certain opportunity in fairness and the ability for people who work hard to be able to get ahead. And those are just my personal values. I think that’s the challenge of our time, is how we have allowed concentrated corporate power to maintain such control over society. What we’re trying to build at the American Prospect is an organization that really talks about these issues in ways, maybe others don’t. To tell this story of power and who has it, and what they’re doing with it. And frequently that happens, not from Washington but from the corporate board room because regulation is going to happen. We all have rules that we abide by, whether in market, or our personal rules that are going to be followed. And if government is not going to conduct those regulations, if deregulation is going to win the day, it doesn’t end regulation. It just transfers it into corporate America.
David Dayen: It’s a question of who gets to write the rules. Are they going to be written in a democratic way, through democratic process of elected representatives? Are they going to be written in C-suites by people who have their own interests at heart and don’t have the public interest in mind. I feel like what my work tries to illuminate is these areas where corporate power has run-a-muck, where the public isn’t getting a fair shake, and how that can be ameliorated in some way. That’s always been sort of my guidestone in my work and I hope for it to continue.
Nick Hanauer: Well, David, thank you so much for spending this time with us and for your work. There’s much left to do.
David Dayen: Certainly so, but the work goes on. Thank you guys for having me on.
Nick Hanauer: Okay, thank you so much Dave.
David Dayen: All right, great. Thanks. Bye.
Nick Hanauer: Bye.
Zach Silk: Well that was really great, Nick. He is one of my favorite writers. I’ve really enjoyed reading him over the years and he was even better in person. That was really awesome.
Nick Hanauer: Yeah. And now we get to talk to this fantastic woman, Rana Foroohar, who is the global business columnist and associate editor at the Financial Times. And she’s written some really interesting books about global capitalism and knows a ton about it, should be fascinating.
Zach Silk: She’s one of the most fascinating commentators on finance. And she’s written really one of the books that I enjoyed the most, which was called, Makers and Takers, which is really prescient about the moment we’re in. And then equally interesting, she’s got this book that just came out, which is called, Don’t Be Evil.
Nick Hanauer: Don’t Be Evil.
Zach Silk: And so I’m really, really curious to hear what she’s going to say.
Nick Hanauer: Hi, Rana.
Rana Foroohar: Hey, how are you?
Nick Hanauer: Welcome to the podcast and there are so many thousands of things that we could talk to you about. Because the world is so rich in economic calamity. Before we start, tell us what you’re up to and pitch anything you would like.
Rana Foroohar: Yeah, yeah, absolutely. Well, so my day job is as a columnist and an associate editor at the Financial Times. I’m also a global economic analyst at CNN.
Nick Hanauer: In this episode, what we’re talking about is what we love to refer to as the parasite economy, which is-
Rana Foroohar: I’m familiar with it.
Nick Hanauer: Which is the degree to which we have organized or economic system to basically benefit large corporations at the cost to the greater society. In your last book, Makers and Takers, you specifically address how finance has done that to a certain extent in business. And we’d love for you to unpack that a little bit.
Rana Foroohar: Sure. Well, one of the things I do in that first book is look at the financial system and what it was set up to do, and what it is really doing today. So if you go way in history really to the birth of modern capitalism, Adam Smith, 18th, 19th century, thinking about how economies worked. Finance was really supposed to be a help meet to other industries. The financial sector was set up to sit in the middle of the economy between individuals, savers that wanted to find some productive way to grow their own savings and wealth and people that needed that money. So that could be small business owners, might be merchants, might be people that want to borrow for a house. And the financial sector was basically supposed to sit as an intermediary between those two bodies and help to funnel money where it was most productive.
Rana Foroohar: And if you go back to say the 1970s or so, that’s mostly what the financial sector did. It mediated between buyers and sellers. Today only about 15% of all the money that is sloshing through the global financial system, goes back into the real economy, into main street to people who want to say buy a home or start a business. And so that begs the question, well, what’s the other 85% doing? And what it’s doing is existing in a closed loop of buying and selling of existing assets, stocks, bonds, houses. A lot of people feel that there’s a disconnect between Wall Street and main street. Mean. If you look out today just of the headlines, we are at pretty much all time record high stock prices. And yet we’ve been in a “recovery” and I put that in quotation marks for about 10 years. That it sure as heck doesn’t feel like it for most people.
Rana Foroohar: This parasite economy, as you’ve called it, a rentier economy is what some economists would call it, is very much a reason for that. And the financial system is at the center of that problem.
Nick Hanauer: Right? It’s like this sort of private Ponzi scheme that exists to benefit a very small group of characters. And if I might, one of my favorite dimensions of this is the stock buy backs industry, right?
Rana Foroohar: Mm-hmm (affirmative).
Nick Hanauer: Which is this fantastic example where approximately a trillion dollars per year is tossed back and forth between large public companies and Wall Street.
Rana Foroohar: Yep. That is the prime example of how [inaudible 00:32:22] the system is right now. That’s actually, that that issue of share buybacks is the thread between my first book and my second book. When I was writing Makers and Takers and I was thinking of what is the most bizarre use of the financial system that I can come up with? And the one that I found which leads directly into my second book was which company is giving back the most money to its richest investors in the form of these share buybacks? Well Apple. Apple is the wealthiest company in the world. First trillion dollar company. It and the other tech giants, which have most of the cash on hand in corporate America now and in the world have stored a lot of their money in recent years in offshore bank accounts because they can pay lower taxes if they relocate profits overseas. They don’t have to pay taxes back to the government, but then they’ll issue debt on the US bond markets and then use that hoard of money to pay back shareholders by buying up their stock. That artificially bolsters the share price and it really is a Ponzi scheme.
Rana Foroohar: And then that makes the wealthiest people in the country that own most of the stock, even wealthier. So we have less than the tax coffers to pay for the social programs that might enrich folks and allow them to create the next Apple. But we have more in the pockets of the wealthiest investors. And it’s worth noting just one step that about 10% of investors own 80% of the stock in this country.
Nick Hanauer: And the 10% of that 10% own 80% of that, to be clear.
Rana Foroohar: That’s right. That’s right, yeah. And I think that gets to the unimportant point, which is, it’s not even so much a problem of the 1% of the 0.001% we’re talking about here.
Nick Hanauer: Correct.
Zach Silk: Hey Rana you brought up an interesting point there, which is what the alternative could be. The use of this capital, 15% of those capital flows are going back to what you might call real business as opposed to parasitic business. That means of course, 85% is going into this alternative economy. What could be done with that money? If we were putting it back into the real economy and real businesses?
Rana Foroohar: Well two or three things come to mind there. The first thing that comes to mind is to look at the way the US economy is run compared to say, the Chinese economy. Now, I don’t want to laud China because it’s an autocratic nation with a lot of its own problems, but right now the Chinese which have a totally different state run economy, are investing a lot in infrastructure. New rail lines, new technological developments. They’re actually trying to recreate the silk road with a unifying infrastructure program to build economic development. That’s real investing. That’s how you build the next innovation economy. In the US companies are not investing in those sorts of things. Now, why aren’t they? Well, the returns simply aren’t as great. It’s better to build really expensive condominiums, or better still to trade splice and dice securities representing those condominiums than it is to say, fix bridges, or crumbling water mains or build rural broadband and do the sorts of things, that would actually create the next investment boom.
Rana Foroohar: And that’s the problem in a nutshell with our country right now. We are eating our seed corn. As a matter of fact, we’ve already eaten it and we’re not putting any more seeds in the ground.
Zach Silk: And when you talk to your corporate executives, what they will tell you is, well, if we had places to invest this money profitably, if there was demand to meet, then we wouldn’t do the stock buybacks. But of course it’s a chicken and egg problem. If you were paying your workers the money that you’re currently using to do stock buybacks, they would be buying stuff which would require you to make investments, right?
Rana Foroohar: Right.
Zach Silk: If you take the trillion dollars that you’re spending on stock buybacks and make it wages, well you will have a lot more investing to do because you will have a lot more demand. It’s this fascinating thing.
Rana Foroohar: It is fascinating. And there’s a couple of other things I would throw in there, if companies were actually paying their taxes appropriately in the US, and to be fair, a lot of them are doing things that are perfectly legal.
Zach Silk: For sure.
Rana Foroohar: And now it’s like we need to change the rules. But if we have that kind of investment being given to a larger community of stakeholders, like the government with the tax payers that funded their development to begin with. If you think about what has made the richest companies in the world, rich, most of them are big tech firms, GPS, the internet, touchscreen technology. This is all stuff that was developed by the government, which was funded by you and I. If we had that corporate wealth being shared with the appropriate stakeholders, going back into federal coffers so we could do education reform. So we could do infrastructure building, so we could do these things that would actually then create the next generation of companies, you could get a virtual cycle going. Unfortunately we have a system that’s designed to incentivize all the wrong things.
Nick Hanauer: Yeah, exactly. No. It’s a sad state of affairs, isn’t it?
Rana Foroohar: It doesn’t have to be that way.
Nick Hanauer: No, it doesn’t.
Rana Foroohar: There are other models.
Nick Hanauer: There are indeed other models. So in your new book, Don’t Be Evil, you also point out how little these companies actually contribute back in taxes in particular. So talk a little bit about the new book too.
Rana Foroohar: Let me step back and put all this in the context of the political economy. And we’re having such a robust debate in the US right now about what should capitalism look like? Who are we going to elect? Who are the Democrats going to put up as their next candidate? That says a lot about where our debate is going. A lot of this debate is about globalization in the last 40 or 50 years of global capitalism. And in that system, the idea was that capital goods and people should all be able to travel across borders. But in reality what happened is that capital traveled very freely across borders, goods less so people not at all.
Nick Hanauer: Not all, right.
Rana Foroohar: And that’s why you had, the biggest financial institutions getting so big and powerful. Now you have this new digital economy.
Zach Silk: And worker’s getting weaker.
Rana Foroohar: And workers getting weaker. Exactly.
Zach Silk: Correct, right.
Rana Foroohar: The labor capital, asymmetry of power was really at the heart of a lot of the problems we’re experiencing liberal democracies right now. So fast forward now to the digital economy, the move into a world in which most wealth is now in data and in IP. That puts this whole trend on steroids. Because if capital can move quickly across borders, data can move even faster, digital data across borders. So you have these companies now and Facebook is in some ways like the Neil liberal apex. It’s this company that is domiciled nowhere, has more users than the largest countries in the world, can put its intellectual property and its profits and its information wherever it wants. It’s kind of supra national that takes this problem of the balance of power between corporations and labor, between capital and income that takes it to a whole new level.
Rana Foroohar: And so I think we’re going to see in the same way we saw calls to occupy Wall Street. I think we’re going to start taking calls to occupy Silicon Valley.
Nick Hanauer: Yeah, it’s one of the things that they live in this way where our normal rules and mechanisms for reigning this in, in this national way through democratic mechanisms. They can subvert-
Zach Silk: Out run them.
Nick Hanauer: Out run them.
Zach Silk: Out run them, yeah.
Nick Hanauer: They can outrun them.
Zach Silk: Yeah.
Rana Foroohar: Yeah. And out bargain them. And one of the really fascinating things I’ve found when I was researching, Don’t Be Evil, I was trying to find independent research on a lot of these topics. How should we think about monopoly power? How much corporate power is too much? What’s the way to get more of an equal sharing between capital and labor? As I would try and investigate these things, I would find that many of the people working on these issues were actually consultants, paid consultants for the big tech firms. So, and this speaks to the fact that tech and finance are now the two most powerful lobbying forces in Washington and in Brussels, and in most capitals around the world. And they’ve bought up not only a lot of politicians, but a lot of the intellectual debate around these topics.
Rana Foroohar: So it’s difficult to even find unbiased academic research. It’s difficult to create a clear narrative. Because everyone has been intellectually captured by the idea that, “Oh, of course we need Google and Facebook to be this size. Of course, we need the system work the way it does.”
Nick Hanauer: Right. Because to imagine otherwise would be to kill jobs in the economy.
Rana Foroohar: Right. And this is not to make a big topic bigger, but this also has a geopolitical angle. Because right now as we’re moving to a world in which there are now two major systems, there’s the US style capitalist system, and there’s the state run Chinese economy and we are in one world with two systems and it’s clashing. You are now seeing the biggest American companies using that as a lever to make sure that they don’t get regulated. So you’ve got the biggest tech companies saying, “Oh, don’t break us up because we’re your national champions in the fight against China.” It’s just a whole nother perverse way to allow the big to stay bigger.
Rana Foroohar: I actually think that this is not a debate as it’s often put between innovation and regulation. It’s a debate between concentration and innovation. Because innovation comes from small, it comes from people and small companies and creative working nimbly. It doesn’t come from giant conglomerate.
Zach Silk: Absolutely. And mostly it’s a debate, my humble opinion, over power.
Rana Foroohar: Well, yes. Yes indeed.
Zach Silk: [crosstalk 00:42:54] that power.
Nick Hanauer: Because it’s concentrations of power really that ultimately put this in place.
Zach Silk: Right.
Nick Hanauer: Our podcast, Pitchfork Economics is devoted to debunking Neoliberalism, writ large and pointing the way to new things, and the ethic and the culture that emerged. That Neoliberalism produced and weaponized. And it is a sign of the times that the best known moral claim by an American business is, don’t be evil which is… And here’s the thing, if you just put aside whether Google has lived up to that, that creator or not, how did we get to the point where the highest standard of business will hold itself too? So it’s simply the absence of criminal behavior. That is Neoliberalism in a nutshell.
Zach Silk: That’s right.
Rana Foroohar: It’s funny you’re reminding me, Jeff Bezos, the head of Amazon, who by the way was one of the seed investors in Google, actually was asked about that one time. When people started realizing maybe this, don’t be evil thing a little bit BS? He was asked about and he’s like, “Well yeah of course you shouldn’t be evil but you also shouldn’t have to say it.” What Jeff Bezos is saying, maybe your slogan is little cynical, that’s not a good thing.
Zach Silk: Yeah. In the book do you go over… because there’s obviously the political and policy dimension to this, but there is a little bit of the ethical dimension of this. Nick often talks about how his father would think about the family business. Now some of that of course was constrained by taxation, regulation and rules. And some of it was constrained by-
Nick Hanauer: Norms.
Zach Silk: … norms.
Nick Hanauer: Just norms.
Zach Silk: Yeah.
Rana Foroohar: By culture. Yeah. Well that’s a huge issue. I mean that was actually something I looked at a lot in my first book because I… and I’ll come back to your point. But in my first book I looked a bit at the comparison between the US style market system and say Germany’s market system, which is a little… it’s got its problems in the banking sector, but it’s a little more fair. I was looking in particular the manufacturing sector in Germany and around Stuttgart, the middle [inaudible 00:45:02] as it’s known. You see for example, worker to CEO pay ratios that are much, much lower than in the US. And I remember one time interviewing a CEO in Germany and saying, well, how was it that this country was able to, create all of these highly paid, highly skilled manufacturing workers stay globally competitive?
Rana Foroohar: And there was just a cultural sense, he felt like he couldn’t walk into the local diner and hold up his head if he was getting paid 350 times what his lowest paid worker was getting paid. So there was a cultural issue, but there’s efficiency in that. Because one of the reasons that countries like Germany or Japan for example, another place where workers are relatively highly paid, are able to do great innovation is that there’s a tight system where management and workers move together, operate together, share knowledge. It actually creates a higher skill set, it allows them to gain competitive advantage in certain industries. So there are ways to think about this that are win-win. It doesn’t have to be so adversarial.
Rana Foroohar: But to your point about culture in Silicon Valley, that is a tricky one. One of the things I really grappled with is, okay, California is a blue state. A lot of the heads of tech companies would count themselves as progressive. But I actually think that in some ways are libertarian because really they’re about, we want to be able to do whatever we want, move fast and break things. Anybody that gets in our way is a problem, including society. I think that that has allowed people to feel that they are above the law above [inaudible 00:46:53]. You see Zuckerberg on the hill, and it’s just very clear that these companies don’t feel that they’re held to the same standards as others.
Zach Silk: For sure. Those folks mostly are not progressive. I call them [foggressives 00:47:09]. which is their progressive right up-
Rana Foroohar: [crosstalk 00:47:11].
Zach Silk: They’re progressive right up until the point where they may be constrained or where it may cost them money, and then they’re like, “Oh hell no. Hell no.” They’re Neoliberals, but without the overt racism.
Rana Foroohar: Yes. That’s right. It’s tricky because that cloaks a lot of the really bad stuff on the [inaudible 00:47:31].
Zach Silk: It does.
Rana Foroohar: It’s funny. Well, I kind of have a weird begrudging respect for the really odious people like Peter Theal. They’ll just come out and say, “Yeah, I just want to have California secede from the union and I’m moving to Newfield.” Okay [crosstalk 00:47:47].
Nick Hanauer: At least he’s honest about it.
Zach Silk: Yeah, exactly.
Rana Foroohar: Yeah.
Nick Hanauer: When we do our podcasts and these conversations, we call it Pitchfork Economics of course because that’s a little bit of a prediction of what might happen if we don’t change. On the other hand we have conversations with people now that were not happening just as little as two years ago. It does feel like there is a legitimate conversation about the nature of American capitalism in ways that have not really been for a very long time. So I’m curious, do you find hope in all of this?
Rana Foroohar: Yeah, I think you’re right. I think that there has been a lot of movement. It’s funny I got into some of the kind of deep conversations that we’re having now really in that first book that was published in 2016 and I felt like it was almost too early because I feel like a lot of things that were in that book are just now in the mainstream. But I do think we’re at a turning point. We talk a lot about what’s going to happen in 2020. In some ways, I think it’s what happens in 2021 that will really show us where we are. No matter who is in office, whether it’s a progressive then we have to see whether we can actually institute a new way of doing things or whether Trump gets another term and we end up with, I think a market crash when people finally give up the magical thinking that we can constantly prop up the markets with easy money.
Rana Foroohar: I think that that’s going to be a really telling point as to okay, we now know the old system is broken, but what’s the new paradigm? We’ve had this crisis of the old order as the historian arch lessons or I would say, but where are we going? What does the future look like? And also what’s happening in China, what’s happening in Europe. These are parts of the world where they’re also grappling with entirely new systemic change around the economy.
Nick Hanauer: And when we did the $15 minimum wage in 2012/13, people thought we had lost our minds and now it’s… they’re all clamoring [crosstalk 00:49:58]. It was everybody’s idea now.
Rana Foroohar: Well, that actually, the wage question is I think going to get more and more pressing in the digital age. I recently reviewed Daniel Susskind, new book, A World Without Work. I don’t know if you’ve seen that, reviewed it in the EFT. And it’s interesting because he’s an ex-British economist, labor economist. He posits that all the advantages we’ve seen accrue to capital away from labor are as the robots take over, it’s going to… It means that there’s even going to be fewer capitalists. It’s like there’ll be no labor and there’ll be like five capitalists, including Mark Zuckerberg. And so what do you do? It’s an extreme prediction, but what do you do in that world? How do you think about these problems of Neoliberalism. And I got to think we’re going to have some major social unrest, before we get to that point.
Nick Hanauer: Yeah. You’re basically going to be sharpening up the guillotines.
Rana Foroohar: Pitchfork maybe.
Nick Hanauer: Yeah, pitchfork exactly. Well, we always ask our guests one question, which is why do you do this work?
Rana Foroohar: Oh my gosh, that’s such a great question. Right before you called, I’m putting the finishing touches on a big FT, weekend feature I’m doing on how mobile home communities residents are getting together in cooperatives to buy up the parks with the help of some community lenders in order to avoid being taken over by Blackstone and Sam Zell and all these private equity guys. And I went out and I spent some time with these people. And I mean there’s just nothing more interesting in the world than going and talking to people that are trying to make their lives better, other people’s lives better, real people. They’re just so interesting and it’s such a privilege to get to tell their stories. And that’s why I do this work.
Nick Hanauer: Thank you very much for spending time. It was a pleasure to chat with you.
Rana Foroohar: Thank you. Thanks for having me again.
Nick Hanauer: Thank you so much.
Rana Foroohar: All right, thanks guys. Okay [crosstalk 00:52:03].
Nick Hanauer: Okay, take care. Bye.
Rana Foroohar: Bye-bye.
Nick Hanauer: Zach, that was an amazing conversation with Rana. She’s articulate.
Zach Silk: I know, right. It really feels like we’ve been on similar paths. Her mark was 2012 and 2016 as these marks and you’ve been on the similar path where you’ve been ahead of this curve.
Nick Hanauer: So interesting.
Zach Silk: Super interesting.
Nick Hanauer: Our conversation with her brings to mind local corporate misbehavior. This thing that happened in 2013 in the state of Washington where we live when the state legislature and the governor handed Boeing $8.7 billion in order to maintain, “Maintain and grow its workforce within the state.”
Zach Silk: How did that work out?
Nick Hanauer: Over the next few years they laid off 12,000 workers. Even worse, I grew up in Seattle, I know you’ve been here a long time. For local people we take the recent Boeing news about the-
Zach Silk: The 737 max.
Nick Hanauer: … 737 max really personally.
Zach Silk: Sure. Of course.
Nick Hanauer: Just this horrific cutting of corners and malfeasance that has shown up. That naked pursuit of maximizing profits and shareholder value and executive bonuses. It’s just embarrassing and egregious.
Zach Silk: Well, it reflected to me on all the things that we’re talking about in this episode where they are in really naked pursuit of a parasitic corporate behavior.
Nick Hanauer: Yeah, absolutely.
Zach Silk: They’re getting massive tax subsidies. They’re manipulating regulations to benefit themselves.
Nick Hanauer: Exactly.
Zach Silk: The other thing of course is they complete the trifecta on trickle-down, which is that the repress their workers’ wages, which is one of the other big things that they’ve been doing all over the world, and simultaneous to that, what does that create? Not a better product.
Nick Hanauer: No.
Zach Silk: It doesn’t create better, safer air.
Nick Hanauer: Nothing.
Zach Silk: It actually has created something really, really dangerous.
Nick Hanauer: Right, exactly. And it’s just appalling and embarrassing. And the Neoliberal cherry on the top of the Sunday after this entire debacle is to give this clown Muellenberg the CEO, a $60 million exit bonus while they’re laying people off the production lines.
Zach Silk: That’s right.
Nick Hanauer: Right? What the hell? Proving to ordinary Americans, again beyond a shadow of a doubt that modern capitalism is corrupt and awful.
Zach Silk: And parasitic.
Nick Hanauer: Yeah. This is just-
Zach Silk: [crosstalk 00:54:56] parasite behavior.
Nick Hanauer: Just awful. Like, thank you Boeing, congratulations. I mean why that guy doesn’t go to jail is the question we should all be asking ourselves. How can you not be held responsible for that behavior?
Zach Silk: And the reality is, if it was just isolated to Boeing and we were sore about it, because we’re here in the Pacific Northwest, it’d be one thing. But this is behavior we know as being replicated in industry, after industry all over the country and really all over the world. And it’s tied to this kind of parasites mindset that they’re willing to use the public dollars to build their companies. And then they come in and they want to undermine the public support and your ability to shop and behave as consumers in the economy and use every imaginable mechanism to benefit them privately. It’s a crazy circle that we found ourselves in.
Nick Hanauer: Welcome to Neoliberalism.
Zach Silk: So anyway, it was great talking to our guests. These are obviously highly… These are very difficult challenges for the country to meet. Very complex problems. But we think it’s important that people are at least identifying and people are talking about them.
Nick Hanauer: That’s right. Well, I think we say this a lot and it’s important for us to all remember that we made decisions that got us into this mess-
Zach Silk: Yeah, and we can make decisions to get us out of these.
Nick Hanauer: We can make [crosstalk 00:56:21] decisions to get us out.
Zach Silk: But the only way you could do that, is you have to identify the problem.
Nick Hanauer: Yeah.
Zach Silk: Okay. Well in our next episode we’re going to have our friend, professor James Kwak on to talk about his new series being published online with the American Prospect. It’s called, Take Back Our Party: Restoring the Democratic Legacy. You haven’t had a chance, you should go and read some of it now and then come back and hear from Kwak himself.
Speaker 5: Pitchfork economics is produced by Civic Ventures. The magic happens in Seattle in partnership with the Young Turks network. If you liked the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook @civicaction and Nick Hanauer follow our writing on medium at Civic Skunk Works and peek behind the podcast scenes on Instagram @apitchforkeconomics. As always, from our team at Civic Ventures. Thanks for listening. See you next week.