The Betrayal of the American Dream (5 page)

The list of companies whose employees were cast aside after their company was acquired by Blackstone is long and depressing. In what was the largest technology company buyout of its time, Blackstone in 2006 acquired Freescale, the huge maker of semiconductors based in Austin, Texas. Financed largely by debt, the $17.6 billion acquisition was a prelude to a string of job cuts of skilled workers. In 2009, again using borrowed money, Blackstone took over one of America’s most venerable names in processed food, Birds Eye Foods. Blackstone instituted job cuts, axing the corporate staff of Birds Eye in Rochester, New York, and closing a processing plant in Fulton, New York, that had been a fixture of the town for a century.

To conservatives and free-market zealots, job cuts by private equity companies such as Blackstone and Bain, while causing pain, are absolutely essential and have a positive effect on the economy. Writing in the
New York Times
in 2012, columnist Ross Douthat argued that the “private equity revolution was necessary” and that “our economy became more efficient” as a result of often brutal restructurings. To Douthat and like-minded thinkers, the “competitiveness revolution,” as he called it, has reinvigorated the economy.

But has it? It depends on what you mean by the economy.

There is no hard evidence that all this buying and selling has helped the economic welfare in communities across the country so that money flows from one enterprise to another, supporting other businesses and local services. What is absolutely certain is that the deal-making has been a boon to the bank accounts of Schwarzman and his fellow private equity moguls.

The managers of the largest equity and hedge funds have become immensely wealthy—many are billionaires—even though some of the companies they bought and sold later foundered. In addition to the rich fees they harvest, private equity fund managers rake in millions more courtesy of U.S. taxpayers. Thanks to Congress, a portion of their annual income is taxed at 15 percent (rather than 35 percent) under an obscure provision called “carried interest.” This puts that income in the same tax bracket occupied by the janitors who clean their buildings. Using the proceeds from their deals and the money they save on taxes, private equity and hedge fund managers have lavish lifestyles featuring multiple residences, private planes, and ostentatious parties.

THOSE HIGH-PRICED AMERICAN WORKERS

The ruling class thinks that the average American earns too much money. This is an unspoken belief, and one that most of them would no doubt vehemently deny. But the evidence is compelling. The elite show their hand in many ways:

• When they oppose raising the pay of the lowest-paid workers, those covered by the minimum wage

• When they encourage the export of good-paying jobs in fields such as information technology

• When they resist changes in the tax code that would protect American workers

Corporate executives contend that they are forced to relocate their operations to low-wage havens to remain competitive. In other words, their domestic workers earn too much. Never mind that manufacturing wages are lower in the United States than in a dozen other developed countries.

Thanks to the rules, many of which are written by corporations, a company can pull up stakes and use cheap foreign labor to make the same product it once did in America. It no longer has to meet environmental standards. It no longer has to abide by U.S. labor laws. It no longer has to pay a decent wage. Then the company can ship the product back to the United States where, courtesy of the rules, it will pay little if any duty. How can American workers hope to compete against that? They can’t.

Lisa Gentner worked at a company called Carrollton Specialty Products, housed in a one-story warehouse in Moberly, Missouri, a town of 15,000 in central Missouri. Carrollton was a subcontractor for Hallmark Cards, the global greeting card giant based 125 miles west in Kansas City, Missouri. The largely female workforce of 200 provided the hand assembly for a variety of Hallmark products. They tied bows and affixed them to valentines and anniversary greetings. They glued buttons, rhinestones, and pop-ups inside birthday cards. They made gift baskets.

As in many towns across the country, the plant was an economic anchor for Moberly. Manufacturing is often pictured as a big-city enterprise, but a substantial number of plants are the lifeblood of small to medium-sized cities.

Gentner started working on Carrollton’s production line when the plant opened in 1995. She earned $4.25 an hour, or just under $10,000 a year based on a forty-hour workweek. She gradually took on more responsibilities. When a supervisor was out, she would fill in. When the plant manager was off-site, other employees came to her for help. She never had the title of assistant manager, but it was a role she often filled. A single mom raising three small children, she did nearly every job in the plant over time. “The best way I can describe myself was, I was a jack-of-all-trades and a master of quality,” she said.

She had worked her way up to quality control manager in 2009 when Hallmark dropped a bombshell: the contract that had provided steady work for the women of Moberly for years was canceled and the work would be sent to China.

Gentner was earning less than $35,000 a year. By then, the pay of women on the production line had risen to just $7 an hour, essentially minimum wage, or less than $15,000 a year. But that was apparently too much for Hallmark Cards.

“We didn’t earn a lot of money,” Gentner said, but she was learning a lesson that many Americans have had to absorb in recent decades. “The heads of businesses are in it for what they can put in their pocket,” she said, “and the less they can give me, the more they have in their pocket.”

With jobs scarce in the Moberly area, Gentner did what so many who are thrown out of work do: she enrolled in school, the Moberly Area Community College. With the help of federal retraining funds, she studied business technologies with a goal of earning an associate’s degree two years later. She had no idea whether she’d find a job, but she felt that if she had a grasp of business software she’d have a better chance.

“My theory was, if there are any businesses left in the United States, they’re going to have an office,” she said. “So it was job security.”

On the eve of her graduation, the college offered her a full-time position in student services. That job, coupled with a temporary appointment to teach two night courses a week in Microsoft Office programs at the college, brought her income almost to where it had been nearly three years earlier.

Even though Gentner never expects to make back the money she lost after her job was sent to China, she feels that she’s one of the luckier ones because many of her coworkers still have not found steady work. She’s baffled by government reports indicating that the economy is improving. “I don’t know where they live,” she said.

In the Moberly area, as in many communities today, things are still rough. Good jobs are only becoming scarcer. As companies ship more and more work offshore, people who do find new jobs usually earn less than they once did.

“If it keeps up like this, within twenty to thirty years we’re going to be like Africa,” she said. “We’re going to be living in little mud huts, drinking whatever water we can find floating across the road.”

Lisa Gentner and her coworkers were put out of work not because the rest of the world’s economy was catching up with America, but directly because of policies put into place by the powerful who rewrote the rules to serve their own interests.

They hired lobbyists and bought Congress to do their bidding, and they did something else that may have been even more important: they created a powerful propaganda machine.

The very rich have never liked the federal government, because it occasionally enacts broad programs such as Social Security, Medicare, and now health care reform that they regard as interfering with the private market. While that’s long been their credo, during the last three decades they’ve acted aggressively to convert those beliefs into national policies by funding foundations and think tanks that agitate for lower taxes, smaller government, and less regulation—policies that benefit them. Authoritative-sounding research reports, studies, and news releases issued by these groups under the guise of scholarship are peddled to the media, receive wide distribution, and influence national policies on taxes, jobs, and benefits in ways that adversely affect the middle class. Among the super-rich, few have been more active and influential in shaping national policy for the elites than two brothers whose fortune is rooted in the plains of Kansas, and there’s no sign that they think their task is anywhere near complete yet.

Charles and David Koch are two of the richest men in the world.
Forbes
calculates their net worth at $25 billion each, which, if combined, would rank them only behind Bill Gates on the list of richest Americans. They head Koch Industries, the second-largest private company in America with annual revenue of about $100 billion. They have holdings in oil refining, pipelines, and forest products, but the Kochs are also major investors in consumer products, from Brawny paper towels to Dixie cups.

The company was started by their father, Fred, who built oil refineries in Russia for Joseph Stalin before returning to the United States to build Koch into a profitable regional energy company based in Wichita, Kansas. He later helped found the right-wing John Birch Society and instilled in his sons a burning hatred of governments of all types. After his death in 1967, his sons took the company to new heights through expansion, acquisitions, and aggressive business practices.

Like many rich people, Charles and David Koch believe fervently in unrestricted free enterprise and as little government regulation as possible. But they aren’t content to exchange their ideas with fellow plutocrats at their private clubs: they turn them into policy decisions that enrich themselves to the detriment of America’s middle class.

The Kochs have contributed $12.7 million to candidates (91 percent Republican) since 1990 and spent more than $60 million on lobbying Washington in the last decade. But their greatest impact is the millions they have poured into foundations, think tanks, and front groups to mold public opinion in their favor by promoting positions that in almost every case benefit the few.

The rise of these conservative think tanks and foundations directly coincides with the economic decline of the middle class. Among the more prominent of these organizations are the Cato Institute, which Charles cofounded in 1974, and Americans for Prosperity, which David launched in 2004 as a successor to a similar group that he had helped found earlier called Citizens for a Sound Economy. Dozens of other groups receive Koch money at the national or regional level. In early 2012, a rift developed between the Kochs and Cato, sparking litigation by the Kochs and charges by Cato president Ed Crane that Charles Koch was trying to gain full control of the think tank to advance his “partisan agenda.”

The environmental group Greenpeace, which in 2010 examined just one issue on the Kochs’ agenda—their efforts to discredit scientific data about global warming—identified forty organizations to which the Koch foundations had contributed $24.9 million from 2005 to 2008 to fund what Greenpeace called a “climate denial machine.”

The Investigative Reporting Workshop at American University has calculated that various Koch foundations contributed at least $143 million to more than two hundred groups in the three-year period 2007 to 2009. Many were colleges and cultural institutions, but others were think tanks and foundations. Based on its own research and information culled from other foundations, the Workshop estimated that the Koch foundations have contributed no less than $275 million to various groups since 1986.

One of the most significant, ongoing recipients of the Koch largesse is the Mercatus Center at George Mason University in Arlington, Virginia, just across the Potomac from Washington, D.C. Mercatus, which describes itself as “the world’s premier university source for market-oriented ideas,” has become one of the most powerful voices in the country for right-wing economic policy. It was founded in the 1970s by Richard Fink, a long-time Koch operative who heads the brother’s multimillion-dollar operation in Washington. Charles serves on the Mercatus board, but the brothers’ chief contribution has been money. The Investigative Reporting Workshop estimated that the Koch foundations gave Mercatus and its parent, George Mason University, $11.9 million in the years 2007 to 2009. Mercatus was one of the earliest and most strident opponents of President Obama’s economic stimulus plan adopted early in 2009.

Interest groups supported by the Kochs spew out a steady stream of position papers, congressional testimony, and public pronouncements about public policies that are detrimental to the middle class. They back unrestricted free trade and oppose even the slightest government actions that might be interpreted as protectionist, a position that has helped destroy millions of domestic manufacturing jobs. They oppose any increase in the minimum wage. In 1970, before the Kochs and right-wing groups began railing about the evils of raising the minimum wage, it was $1.60. In 2012, it was $7.25, meaning the wages of those at the bottom have not even kept pace with inflation. Koch-funded groups have supported changes in bankruptcy law that make it much more difficult for average Americans to reorganize their finances when they are plunged into debt by medical bills or the loss of a job. That change has been especially harmful to women, usually single mothers, who for years have been the largest group of distressed Americans who file for bankruptcy.

The push by Koch-supported groups for the deregulation of industries such as airlines and trucking drove down wages and salaries in those fields and produced—in the case of financial deregulation—one of the most catastrophic financial bubbles in American history. Some of those groups contend that the housing crisis was caused by the federal government’s wrongheaded moves to promote homeownership, while dismissing the much larger role played by Wall Street, banks, and the private equity market, all of which made billions bundling and peddling junk mortgage securities. Koch-funded groups agitate to cut Medicare and limit Social Security and would love to abolish both. In lieu of that, their goal is to privatize Social Security by turning average Americans’ retirement savings over to Wall Street to invest in the stock market. Making Social Security benefits the equivalent of a 401(k) would further enrich stockbrokers but put most working people at even greater risk of poverty in their old age.