Is American Capitalism Becoming More Human?

Suddenly, capitalism American-style looks a little more human and a little more fair, if recent developments on the business front become a trend.
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Suddenly, capitalism American-style looks a little more human and a little more fair, if recent developments on the business front become a trend.

Like the magical number of three, and seemingly magical in being sprung on the public so unexpectedly and in such quick order, three recent business developments should be welcome news on Main Street America, where anger at the inequities and harshness of modern capitalism has ignited and propelled both political parties in an emphatically populist direction in this presidential election.

In all three instances, it was government action that enabled these hopeful developments, not corporate magnanimity or corporate commitment to social responsibility. Here's what the much-maligned government bureaucrats have done for us lately:

One: Corporations can no longer avoid U.S. taxes via international mergers

Through a financial mechanism called "inversion," a growing number of American corporations have acquired foreign counterparts in low-tax nations for the express purpose of stashing their profits abroad, thereby avoiding U.S. taxes. One example: Burger King's acquisition of the Tim Hortons coffee chain of Canada. Pending: drug giant Pfizer's proposed $152 billion takeover of Allergan, the Dublin-based maker of Botox, in "the biggest tax-avoidance deal in the history of corporate America." Almost always the American corporation keeps its headquarters in the U.S., making the ulterior motivation of inversion crystal-clear: tax evasion.

In a forceful move to forestall future inversions, and taking action where a Republican-dominated and anti-tax Congress has taken none, the U.S. Treasury Department in conjunction with the Internal Revenue Service earlier this month "dropped the gloves" and announced strict new rules to stop the corporate looting of the nation's tax base (also here and here). Targets include "serial inverters" and a clever practice called "earnings stripping," in which the American subsidiary borrows money from the foreign parent company and deducts the interest on that loan against its earnings, which cuts its tax bill.

Upshot: The corporate world is gob-smacked; the Pfizer-Allergan merger is off. Experts predict corporations will file legal challenges, especially to the earnings stripping rule. Republicans still point to inversions as proof that U.S. corporate taxes are too high and must be cut, but as The New York Times editorializes, "broad tax reform is pie-in-the-sky in today's hyper-partisan Congress, and they know it."

The monetary stakes are enormous. In a "surging market" for mega-mergers, in 2015 alone corporate inversions were valued at $4.7 trillion, "smashing records." If Treasury's action holds and withstands legal challenge, then reversing those inversions, bringing that money home, could pay for desperately-needed infrastructure repair on Main Street---lots and lots and lots of it.

Two: Financial advisers must now serve their client's best interests, not their own

Like the reader no doubt, I assumed financial advisers already served their client's best interests. I assumed, at the least, financial advisers through their professional associations had already established professional standards and that trust---gaining and guaranteeing the client's trust---was professional objective number one.

But that was not the case. Financial advisers were only required to recommend "suitable" investments, meaning they could sell you a more expensive product that paid them a higher commission, say a mutual fund, when an identical and cheaper fund might have been an equal or even better choice for you, the client.

Now, thanks to actions of the U.S. Labor Department earlier this month, financial advisers have a legally-binding "fiduciary" responsibility to put their client's interests first, including the client's interest in saving money. In issuing the rules, the Secretary of Labor declared that putting customers first "is no longer a marketing slogan. It's the law."

For now, these fiduciary rules pertain only to investments in retirement accounts. But potentially they could alter the entire financial industry. As one consumer advocate said of the new rules, "It is a really big deal. Revolutionary, even."

Again, the monetary stakes are enormous: At the end of 2015, individual retirement accounts held $7.3 trillion, while 401(k)-type plans held $6.7 trillion. It's reassuring to know your retirement money is now more secure.

Three: A corporate executive responsible for employee deaths can go to prison---finally

From Main Street's point of view, not only is American capitalism short on economic justice, but the criminal justice system is perceived as favoring white-collar criminals while meting out tough sentences for middle- and working-class citizens.

That's not necessarily so anymore: On April 6, the chief executive of Massey Energy Company, Donald L. Blankenship, was sentenced to prison for conspiring to violate federal mine safety laws at West Virginia's Upper Big Branch coal mine, creating the conditions that resulted in an explosion in 2010 that killed 29 workers---the worst coal-mining disaster in modern times.

Thanks to a Federal District Court judge, this sentence sets a precedent: It is the first time in U.S. corporate history that a C.E.O. is convicted of conspiring to violate industrial safety standards. That's the good news. The bad news is: This C.E.O. is going to prison for only one year---one year for 29 deaths. Why the leniency? Because the Mine Safety and Health Act, under which Blankenship was convicted, prosecutes the worst criminal violations as mere misdemeanors, not felonies. (Other bad news: Blankenship retires with a $12 million golden parachute.)

The stakes in this instance are less monetary than moral: Corporate recklessness resulting in death is now punishable. And this C.E.O. richly deserves punishment: Blankenship prioritized profit over safety so fanatically that he demanded progress reports every 30 minutes---"This game is about money," he said. Hundreds of safety citations from regulators---and the deep foreboding expressed by his miners and managers alike---were dismissed. His contempt for government and regulators was notorious throughout Coal Country. Will other corporate executives take note and reform?

Congressional action is needed to make permanent, as law, the advances heralded by these three developments---reforming the corporate tax code; requiring fiduciary responsibility in all investments; upgrading violations of industrial safety standards as felonies, also increasing the sentences available to judges for white-collar crime. The odds of a Republican-controlled Congress taking such "anti-business" steps is almost nil, but if Democrats regain control of either house, the odds improve.

Absent corporate enlightenment---we are waiting, waiting---American capitalism's inequities and harshness can best be ameliorated by strict protective regulation and active government enforcement. These three developments show how. Let's hope they start a trend. Capitalism is not just a money game, it is a human game.

And, finally, Main Street: Say "Thank you" to the dedicated government bureaucrats who render this fine service to you, the public.

Carla Seaquist's latest book is titled "Can America Save Itself from Decline?: Politics, Culture, Morality." An earlier book is titled "Manufacturing Hope: Post-9/11 Notes on Politics, Culture, Torture, and the American Character." Also a playwright, she published "Two Plays of Life and Death" and is at work on a play titled "Prodigal."

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