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Trump's Trickle-Down Populism

By       Message Robert B. Reich     Permalink
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From Robert Reich Blog

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Last Thursday President-elect Donald Trump triumphantly celebrated Carrier's decision to reverse its plan to close a furnace plant and move jobs to Mexico. Some 800 jobs will remain in Indianapolis.

"Corporate America is going to have to understand that we have to take care of our workers," Trump toldThe New York Times. "The free market has been sorting it out and America's been losing," Vice President-elect Michael Pence added, as Trump interjected, "Every time, every time."

The "free market" is really a collection of rules about how the economic game is played. Trump says he wants to renegotiate trade treaties that he believes causes America to "lose."

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But Trump has shown no interest in changing the rules that for over three decades have imposed unrelenting pressure on American companies to cut their payrolls by shipping jobs abroad or replacing them with automated machinery.

Carrier's move to Mexico would save the company $65 million a year in wages, which would have boosted the profits of Carrier and its parent, United Technologies. The company relented because, once Trump was elected, the stakes for United Technologies grew much larger.

"Every penny counts, but if we step back and I'm looking at earnings of $6.60 per share this year, 2 cents is an easy concession if the president-elect listens to some of the company's bigger concerns," said Howard Rubel, a senior equity analyst with Jefferies, an investment banking firm in New York.

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Those bigger concerns include United Technology's military contracts, which last year generated $6.8 billion of its $57 billion in revenue -- creating a yuge Trump card that made $65 million look like peanuts. The President-elect could harm the corporation's bottom line, or, if he comes through with the big military buildup he's promising, generate a bonanza.

Another bigger concern is taxes. United Technologies has more than $6 billion parked abroad where tax rates are low. It will make a bundle if Trump follows through with a plan to allow global corporations to bring that money home and pay a rock-bottom tax rate.

This is how Trump aims get corporate America to take care of "our workers" -- bribe firms with big tax cuts, government contracts, and relief from regulations.

It's "trickle-down" economics dressed in populist garb.

But as long as Wall Street pushes corporations to maximize shareholder returns, American workers will continue to lose good-paying jobs to foreign workers or to homegrown robots. Payrolls are the biggest single cost on most companies' balance sheets, so squeezing them is the easiest way to boost profits and share prices.

It doesn't have to be this way. For more than three decades -- from the end of World War II through the early 1980s -- large corporations were responsible to their workers and communities as well as to their shareholders. They treated workers as assets to be developed -- retraining them with higher skills as the companies moved to higher value-added production, or for new jobs as the companies expanded, and resorting to layoffs only as a last resort.

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This was partly due to strong trade unions, and also a government that had become a central player in the economy during the preceding years of depression and war. These two national emergencies required CEOs be "industrial statesmen" rather than relentless profit-seekers.

But a radically different vision of the corporation erupted in the 1980s when corporate raiders mounted hostile takeovers -- using high-yield junk bonds, leveraged buyouts, and proxy fights against the industrial statesmen, who, in their view, were depriving shareholders of the wealth that properly belonged to them.

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http://robertreich.org/

Robert Reich, former U.S. Secretary of Labor and Professor of Public Policy at the University of California at Berkeley, has a new film, "Inequality for All," to be released September 27. He blogs at www.robertreich.org.


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