Caught In A Machine That Grinds Us Up

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
This is Part II of Companies As Buy-And-Sell Commodities. See Part I, Companies As Buy-And-Sell Commodities – Workers, Customers and Country As Costs.
In Part I I wrote about a pattern we see over and over again: buying up good companies, shedding and outsourcing the workers, cutting their pay and benefits, outsourcing and cheapening the product or service, fleecing and mistreating the customers, closing the offices and factories and running up debt. If you want to make a few hundred million, here is the game:

  1. Find a good company that still respects its workers, paying decent wages and benefits, still respects its customers and produces a quality product or service, still respects and has ties to its community and keeps a plant open, maybe sponsors a little league team, etc. These are all “costs” to cut.
  2. Use other people’s money: Work with an investment bank to finance the buyout, with the company itself as collateral, and pay the banking fees from the financing.
  3. Cut. Cut costs, including the quality of the product or service and customer support operations. Externalize environmental costs onto the community. Wait for the union contract to expire and offer wage cuts and elimination of benefits and refuse to negotiate (where are they going to get other jobs?), fire union organizers, threaten to close the operations and move them overseas, and don’t worry about labor laws – they aren’t enforced anymore.
  4. After breaking the union and cutting costs, close the plant. outsource production to China.
  5. Now the books look better because of reduced costs, so take on new financing and pocket it.
  6. Further stoke up the books for a couple of quarters using gimmicks like pushing product into distribution channels to make sales look better than they are, find another buyer and pass what’s left to them to repeat the cycle – there are always more costs to cut.
  7. Pocket your millions, then go back to step 1 and repeat the process with another company.

This is the buyout game and it is part of the story of what has happened to our economy, our jobs, our communities and our country. It has become a machine, with profits fueled by tax and social incentives. These incentives create a formula that follows the steps described above, with an inevitability to the consequences. Because it CAN be done, of course it IS done. It is a great game for short-term profits for a few. It is justified as “finding efficiencies” and the ideology behind it insists that the profits prove the market demands the behavior.

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