Category Archives: Public Policy and Governance

Foxconn For Dummies

Remember all the hoopla about Scott Walker’s deal with Foxconn? As the New Yorker summarized it,

When it was signed, less than two years ago, the deal that Wisconsin struck with the electronics giant Foxconn contained all kinds of headline-grabbing numbers: the company promised a ten-billion-dollar investment in the state, a new 21.5-million-square-foot campus for manufacturing L.C.D. screens, and as many as thirteen thousand new jobs, paying an average wage of fifty-four thousand dollars a year. The manufacturing facility would be the Taiwan-based company’s first U.S. factory, and the prospect stirred the hopes of a region that still dreams of clawing back the middle-class factory jobs that were its pride in the middle of the twentieth century and that it lost to foreign competition long ago. As Dan Kaufman wrote for The New Yorker last year, the deal also appeared poised to give a boost to the reëlection prospects of Scott Walker, the conservative Republican who was then Wisconsin’s governor, who transformed the state into a bastion of conservative, free-market politics.

Scott Walker’s version of free markets differs rather considerably from mine; giving huge subsidies via tax abatements and other government goodies to large enterprises hardly equates to a competitive marketplace where manufacturers and sellers contend on equal terms with others.

Trump, of course, applauded the announcement as evidence that he–the self-described great dealmaker– was bringing manufacturing back to the U.S. (although from what I read, he had nothing to do with making the deal originally).

As the details of Walker’s great coup leaked out, and Wisconsin citizens found out what the state had promised, the coverage became considerably less rosy.

But since then Wisconsinites have found out a lot more about the $4.5 billion in taxpayer subsidies that Foxconn was promised—money the company was being given despite the dramatic cuts that the state has made, in recent years, to education, infrastructure, and other public spending—along with the pollution waivers and special legal privileges that it was granted and the bulldozing of neighborhoods that it needed to acquire the land it wanted.

Those details helped defeat Walker in the gubernatorial election. But the state was still on the hook for the promised subsidies.

To add insult to injury, the company recently–and significantly– backpedaled on its commitments, telling Reuters it isn’t even going to manufacture in Wisconsin, and will employ mainly research and development workers. As a result, some of the incentives the state originally promised will be left on the table, but others are irreversible. Millions of dollars of highway money have already been redirected to support Foxconn’s project, and a number of homeowners have been “cleared” from the area designated for the factory.

Time Magazine reported that, following a telephone call from Trump in the wake of the no-manufacturing announcement, the company said it would build a smaller factory after all.

I wonder what Trump promised them.

The Foxcomm scandal is just a particularly egregious example of corporate welfare; bribery ( subsidies and an absence of regulation) has become a commonplace element of what is delicately called “economic development.”

This clusterf**k is simply added evidence that America’s economic system is corporatism, not market capitalism. The dictionary defines corporatism as the control of a state or organization by large interest groups, and adds that “fascism was the high point of corporatism.”

Real capitalists are screwed.

 

Kakistocracy

Kakistocracy is defined as government by the least competent or suitable. To which I would add: most corrupt. And that corruption goes well beyond the White House, where Trump’s incompetence is on constant display.

Examples abound. The Guardian recently reported accusations that the FDA has “direct links” to the opioid crisis.

The Food and Drug Administration is sacrificing American lives by continuing to approve new high-strength opioidpainkillers, and manipulating the process in favor of big pharma, according to the chair of the agency’s own opioid advisory committee.

Dr Raeford Brown told the Guardian there is “a war” within the FDA as officials in charge of opioid policy have “failed to learn the lessons” of the epidemic that has killed hundreds of thousands of people over the past 20 years and continues to claim about 150 lives a day.

Brown accused the agency of putting the interests of narcotics manufacturers ahead of public health, most recently by approving a “terrible drug”, Dsuvia, in a process he alleged was manipulated.

Brown’s accusations come at a time when the FDA’s credibility is low; it has been damaged by  the opioid crisis and by accusations that the agency has behaved less as a regulator and overseer of the pharmaceutical industry and more like a business partner of drug manufacturers.

The FDA was also embarrassed by revelations that officials responsible for opioid approvals were taking part in “pay to play” schemes in which manufacturers paid to attend meetings to draw up the criteria for approving prescription narcotics.

Things are no better at the EPA.

The EPA is in charge of ensuring companies and utilities follow national environmental laws. Its enforcement has actually been on the decline for the past decade and reached 10-year lows in the fiscal year 2017, according to the agency’s own data. But the numbers really plummeted between the fiscal years 2017 and 2018, according to the Environmental Data and Governance Initiative, an advocacy group formed by university researchers to counter what they see as the Trump administration’s rejection of science.

The decline in enforcement is intentional, according to environmental groups and former EPA personnel.

“The administration has strongly sent a message, to the folks who do enforcement, that they should cut back on their role,” says Marianne Sullivan, a public-health professor at William Paterson University in New Jersey and an EDGI volunteer who conducted the interviews. “There are declining resources. There’s much more deference to industry.”

Less enforcement, of course, means–among other things– that more Americans may be exposed to lead, smoke, and other pollutants that the EPA regulates.

Here in Indiana, we have  two recent examples of the consequences of EPA non-performance. In Franklin, Indiana, residents attribute a cluster of childhood cancers to a toxic site identified years ago by the EPA–after which nothing was done.

And in the small town of Wheatfield, Indiana, toxic coal ash is leaching into the groundwater.

In Indiana, coal ash ponds are leaking at 15 out of 15 power plant sites tested. But the problem isn’t limited to the Hoosier State, which currently has the most coal ash dumps in the country. Based on the industry’s own data, 92 percent of all coal ash ponds and landfills tested under the new rule have contaminated groundwaterwith harmful levels of toxic chemicals like arsenic and boron. Oklahoma reported in June that 4 out of 4 sites tested had contaminated groundwater, while Illinois revealed in November that 22 out of 24 coal ash sites tested positive for groundwater contamination. In total, the U.S. is home to more than 1,400 of these sites, many of them filled with millions of gallons of toxic ash.

As news about the contamination leaks out, coal companies and electric utilities are desperate to water down the 2015 regulations, including weakening the reporting, closure, siting, and cleanup requirements in the new rule.

Last March, Trump’s EPA heeded their wishes, proposing to gut coal ash regulationsjust as the nation began discovering that many coal ash ponds and landfills are leakingtoxic pollutants into groundwater. The 2015 rule opened a door to a hidden disaster; weak regulators now want to slam it shut. And they’re just getting started.

To characterize the current administration as “just” a Kakistocracy is to be kind. If it isn’t also a criminal enterprise, it’s close.

Transparency

Classes in public management routinely include lectures on the importance of transparency; after all, democratic processes depend upon the participation of informed voters, and–as yesterday’s post noted– being informed requires knowledge of what government is doing.

From that perspective, I suppose we might applaud news of the most recent survey from Transparency International.

Transparency International publishes an annual Corruption Index that ranks the world’s governments on their honesty. The United States didn’t do so well.

The U.S. has plummetedin an annual corruption index, falling out of the top 20 countries for the first time since 2011, watchdog Transparency International said in a new report that links the global erosion of democracy and tidal wave of autocrats to an uptick in graft.

“Corruption chips away at democracy to produce a vicious cycle, where corruption undermines democratic institutions and, in turn, weak institutions are less able to control corruption,” said Patricia Moreira, managing director of Transparency International (TI).

The Corruption Perceptions Index, which ranks 180 countries by their perceived levels of public sector corruption, found overall that the failure to control corruption is contributing to a “crisis of democracy around the world.”

It will probably not shock you to learn that the U.S. slipped four points since the election of Donald Trump. That’s the lowest score we have registered in seven years.

The low score comes at a time when the U.S. is experiencing threats to its system of checks and balances as well as an erosion of ethical norms at the highest levels of power,” according to TI.

President Donald Trump is a “symptom, not a cause,” Zoe Reiter, the watchdog’s acting representative to the U.S., told Reuters

“Conflict of interest wasn’t a new problem, but it was illuminated in its glory when you have someone who is basically breaking norms,” she said.

According to the Index, the least corrupt countries were Denmark and New Zealand; Western Europe and the European Union scored the highest by region.

The most obvious question raised by America’s declining honesty is: what are we going to do about it? The most obvious answer is: we’re going to begin by getting rid of Donald Trump and Mitch McConnell. As salutary as that would be–as much of an improvement their exit from public life would represent–that should only be a start. As Zoe Reiter has pointed out, they are symptoms.

There’s a reason we have rarely heard pundits and public figures use terms like “public servant” and “statesman” over the past couple of decades. The political figures worthy of those labels–in Indiana, the Richard Lugars and the Lee Hamiltons–have been replaced by ambitious empty suits who lack both gravitas and integrity (and frequently, intelligence) and who are unwilling to do the hard work needed to master policy areas.

Empty suits are much easier to corrupt. Hence America’s declining place on the Corruption Index.

The problem is, when politics becomes a dirty word, it’s much harder to recruit bright, idealistic young people to run for office.

We can only hope that the number of newcomers who ran and won in 2018 are a sign of renewed political interest among young citizens intent upon cleaning up what has become America’s disgraceful political sewer.

 

It’s Complicated

The usual reason economists oppose monopolies is that when a business effectively dominates a particular market, it is able to raise prices. A monopoly has effectively eliminated the competition that keeps prices low. The higher prices harm consumers, and allow the company to rake in more profit than it would otherwise be able to generate.

One of the criticisms of the current administration (a criticism that tends to get lost among the mountain of others) is that enforcement of anti-trust laws has been somewhere between lax and non-existent.

Despite their almost-universal support for vigorous anti-trust enforcement, however, few economists identified a relationship between monopolies and the growth of  inequality. As a post from Inequality.org informs us, that may change.

Andrew Leigh is both a member of the Australian Parliament and an economist, and his recent research is making waves.

Working with a team of Australian, Canadian, and American analysts, he’s been studying how much the prices corporate monopolies charge impact inequality.

The conventional wisdom has a simple answer: not much. Yes, the reasoning goes, prices do go up when a few large corporations start to dominate an economic sector. But those same higher prices translate into higher returns for corporate shareholders.

Thanks to 401(k)s and the like, the argument continues, the ranks of these corporate shareholders include millions of average families. So we end up with a wash. As consumers, families pay more in prices. As shareholders, they pocket higher dividends.

But this nonchalance about the impact of monopolies, Andrew Leigh and his colleagues counter, obscures “the relative distribution of consumption and corporate equity ownership.” Average families do hold some shares of stock, but not many. In the United States, for instance, the most affluent 20 percent of households own 13 times more stock than the bottom 60 percent.

In other words, when prices rise, low- and middle-class families pay and wealthy families profit. According to Leigh and his fellow researchers, this redistribution from the less affluent to the wealthy via corporate concentration has shifted 3 percent of national income out of the pockets of poor and middle-class families and into the wallets of the affluent.

The research also shows that corporations grow large because there are incentives to growth to which their executives respond.

Indeed, firm size determines how much executives make more than any other factor, as research has shown repeatedly over the years. Executives don’t have to “perform”— make their enterprises more efficient and effective — to make bigger bucks. They just to need to make their enterprises bigger.

Executives, in short, have a powerful incentive to grow their companies, and that powerful incentive, as the latest research from Andrew Leigh and his colleagues shows, isn’t just making these executives richer. It’s leaving our societies much more unequal.

An obvious lesson from this research is that we need much more robust anti-trust enforcement. Another remedy, just now being tried, is a requirement that corporations publish the  pay ratio between their CEOs and their workers. (Portland, Oregon imposes an “inequality tax” on companies reporting too wide a disparity.)

Evidently, size does matter–at least, in corporate America.

Rejecting Science

Watching the Trump Administration, I am reminded that there are many kinds of collusion.

The dictionary defines collusion as secret agreement or cooperation for an illegal or deceitful purpose. The  Mueller investigation is pursuing a particularly egregious form–one that, if proven, would legally be considered treason. Americans are focused on that allegation to a degree that overshadows other activities by this Administration–activities that involve a more “homegrown”variety of collusion, and tend to carry less serious legal labels.

Trump’s war on science in cooperation with favored industries is, in my view, every bit as treasonous as his relationship with Russia.

The Guardian recently documented that assault.

Donald Trump’s administration is cutting programs scientists say are proven to protect Americans, from pollution safeguards to teen pregnancy prevention and healthier school lunches, with effects that could last for years.

Experts who have worked in the federal government under Republicans and Democrats say both have sometimes put politics ahead of science but none have done so as blatantly as Trump. And they warn the consequences could continue long into the future.

“It’s as egregious as I’ve ever seen it, starting from the very top with the president just denying the existence of science, manipulating the system on behalf of special interests,” said the former surgeon general Richard Carmona, who testified to Congress that the George W Bush administration pushed him to weaken or suppress public health findings.

Science writer Timothy Ferris has noted the connection between science and liberal democracy; in his book The Science of Liberty, he also documented the historical connection between anti-science and totalitarianism.  As he writes, new scientific knowledge exposes prior ignorance and error, a process that doesn’t pose a problem for democratic regimes, since fallibility is a given in such cultures, “but it leaves totalitarian leaders clinging to outmoded doctrines in a changing world.”  He quotes China scholar H. Lyman Miller,

Just as the scientific community operates according to anti-authoritarian norms of free debate…so science prospers in an external environment that similarly tolerates pluralism and dissent…Scientific dissidents espoused a strong form of liberal political philosophy that grew out of the norms of their profession.

The assault on science, on evidence and on the proper process for achieving reliable data is an assault on liberty and democracy. Refusing to act on the basis of scientific evidence that inconveniences political allies not only causes significant harm to public health and the environment, it is an attack on reason, progress and the rule of law.

In my view, such behavior is every bit as treasonous as taking orders from Vladimir Putin.