A Short History of American Capitalism
Footnotes: To see a footnote referenced in the text, click on the footnote number. The screen will automatically scroll to the footnote and display it at the top of the screen. To return to the same place in the text, click the "Back" button at the top of your browser window.
THE FADING TRIUMPHS OF AMERICAN CAPITALISM 1945-2000
American industry entered the postwar period under highly favorable conditions, most of them direct consequences of the war. Large-scale control of the economy was broadened, wartime profits facilitated payment of corporate debt, and many new plants and machines were obtained in postwar government surplus sales. Wartime taxes were quickly repealed and numerous firms received refunds achieved by balancing wartime and postwar earnings. Federal surplus supplies of industrial materials and machinery were disposed of with careful regard for the economic interests of industry. Not least important, industry links with federal governmental bodies were not dismantled. The emergence of the Pentagon in postwar policy-making depended in part upon strengthened industrial cooperation. This extended to the realm of foreign policy as well.
The Cold War matured during five years after the end of World War II. American influence in Europe was extended by the Marshall Plan (1948-1952) which assured the U.S. access to European markets and thereby minimized the possibility of an economic slump in the U.S. economy. In addition, exclusion of communist and other left-leaning elements from European governments was exacted as part of the price for Marshall aid. At first, Marshall funds were not to be used for rearming recipient countries. By 1950, however, the U.S. had reversed itself: rearmament became the central core of its European policy.1
In 1950, the U.S. National Security Council delivered to President Truman a comprehensive statement on foreign policy he had requested. Titled NSC-68, it defined the outlines of American policy for years to come.2 Fundamental conflict with the Soviet Union was regarded as ultimate reality, and rearmament of the U.S. and its allies was named as the basic means adopted to meet the threat as viewed by NSC-68. American military spending rose rapidly. As Michael Hogan writes: "During the first two decades of the Cold War the federal government invested $776 billion in national defense, an amount equal to more than 60 percent of the federal budget, and more if indirect defense and war-related expenditures are included."3
The scope of defense spending was enormous. As the following compilation shows, defense employment as a percentage of total durable goods employment between 1939 and 1969 expanded greatly because of the adoption of a rearmament policy in the early 1950s:4
During the late 1960s, U.S. defense expenditures in durable goods were at the same level as in 1945, a World War II year. The level had been at 15-17 percent between 1958 and 1969, in part the period of the Vietnam War. This followed a near-doubling during the Korean War (1950-1955). The Cold War was also a time of hot war. Rearmament proceeded in both cases.
To the writers of NSC-68, defense production promised to counteract economic slumps. During the immediate past, they cautioned:
The new policy of rearmament was as much an economic, as a political and military, measure. On the eve of a recession it proved persuasive. Between 1945 and around 1986, "the United States employed military force across its borders more than 200 times."6
Rearmament was welcomed by many large enterprises. "Between 1947 and 1963 the top two hundred industrial corporations boosted by defense business, increased their share of total value added in the economy from 30% to 41%."7 Many lucrative contracts were awarded without bidding. There being no civilian market for most defense goods, defense producers did not constitute competition to non-defense producers. Political connections were critical. In the absence of these, it would be difficult to discern whether a particular defense producer was a pioneer "in solid rocket work or just a firecracker factory with a long fuse into the Pentagon."8
Increasing federal support for research and development (R & D) contained commercial subsidies in disguise. As Mowery and Rosenberg point out:
We may add: whether financed by government or business.
In one way or another, federal patronage through research subventions or outright purchase proved decisive to the future of numerous critical products. This was especially the case in the electronic revolution after World War II. The transistor, a key innovation that emerged from the Bell Telephone Laboratories, and the integrated circuit, a product of Texas Instruments, were both non-military in origin. "Although the military market for IC's was rapidly overtaken by commercial demand, military demand spurred early industry growth and price reductions that eventually would create a large commercial market . "10 Similarly, "federal spending during the late 1950s and 1960s from military and nonmilitary sources provided an important basic research and educational infrastructure for the development of this new industry."11
Without federal sponsorship, the nuclear power industry could not have enjoyed even its short-lived success. Federal subsidies included the following: "Subsidy of uranium exploration and nuclear fuel enrichment, partial public assumption of uranium mining and fuel reprocessing waste disposal costs, extensive Export-Import Bank nuclear subsidies, government-guaranteed markets for plutonium production and fuel processing, government assumption of liability for serious nuclear accidents (Price-Anderson Act), and deferment of nuclear waste disposal costs."12 Between 1954 and 1979, development subsidies for nuclear power equaled $29 billion in 1987 dollars.13 Around the mid-1950s, when U.S. military planners were advocating the adoption of programmable automation in the machine tool industry, "the government had still to expend millions of dollars and actually create and guarantee a market for numerical control before wary industrialists would take the gamble."14
Increasingly, as the U.S. machine tool industry became consumed with specialized military and aerospace work, foreign producers (Japanese and West German) gained a large share of the U.S. market:
As Oskar Morgenstern explained nearly a half-century ago:
The passage of time has only moderated such a perspective. This envelopment by military considerations has left some ordinary non-military industries in the United States far behind in the world market. Gregory Hooks stresses that the "threat within the defense industries is that the defense program will push U.S. firms into esoteric production with few civilian applications."17 The years since the 1950s and 1960s have seen few spillovers from military to non-military commodities. (What are the peacetime uses of torpedoes or missiles? Compare these with computers and transistors.)
During the long period 1914-1975, "productivity growth was much faster than before or after."18 After the mid 1970s, average productivity fell by half from two percent to one percent near century's end. During much of the immediate postwar years (1945-1960) "invested capital per worker increased, in constant prices, at the rate of about 3.5 percent a year . "19 This robust growth provided the setting for the rise in productivity. Much of it, however, was economic shadow-boxing. As we saw above, a considerable part of the nation's production was war-spending, "the capitalization of war, death and destruction."20 High productivity in this area did not alter its uselessness to final consumers. Nor did it diminish in the least many social problems that festered during these years. (See Chapter 11.)
Once the Korean War ended in 1955, the economy began to slump.21 In manufacturing, writes Robert Brenner, "output grew at an average annual rate of only 1.4 percent between 1955 and 1961, compared to 5.1 percent between 1950 and 1955." Unemployment rose during 1950-1963: "During the second half of the [50s], the average rate of unemployment increased by more than one-third, compared to the first half (5.5 percent for 1956-61, 4.0 percent for 1950-55) and as late as 1963 remained at 5.7 percent." Between 1950 and 1958, "labor productivity in manufacturing grew at an average annual rate of 1.85 percent compared to 5.5 percent between 1946 and 1950." During the same period of the 1950s, real wages in manufacturing rose annually by 3.6 percent. As a result, the rate of profit in manufacturing fell by 41 percent. Large U.S. manufacturing firms started investing heavily in foreign, especially European, factories in an attempt to increase profitability. At the same time, U.S. producers "unleashed a powerful across-the-board assault on [American] workers and their institutions, and achieved what turned out to be a fundamental shift of the balance of class power and in the character of management-labor relations." The anti-labor period paid off handsomely: "Between 1958 and 1965, profitability in manufacturing rose by no less than 80 percent . "
The 1965 peak in manufacturing profitability soon led to a decline in profitability from 1965 to 1973. During this period the rate of profit in manufacturing dropped by 40.9 percent.22 The slump reflected growing competition in manufacturing exports from Japan and Germany. Increasingly, U.S. manufacturers were unable to match the relatively low unit labor costs in those two countries.23 The west European economies had undergone greater development during 1950-1973 than the United States. This was true regardless of political ideology: "Authoritarian governments, both right and left wing, achieved spectacular results during 1950-73 . "24 (The Marshall Plan played a very minor role in these developments.) In addition, European economic growth was accompanied by greater economic equality.25 The opposite was the case in the United States and England.
A special factor, operative primarily in the United States, was the growing prevalence of stock options in corporate executive compensation. They began spreading during the 1950s. In one study, covering 1955-1963, stock options made up one-third of executive after-tax compensation.26 As stock market prices rose during between 1940 and 1970, so, too, did the attractiveness of stock options. The reverse was also true: when stock prices fell, executives tended to depend for their compensation more on salary and related payments.
Lewellen studied changes in compensation of five top executives during 1950-1953 and 1960-1963. He found that stock ownership (via stock options) had risen from 76 percent of compensation income to 434 percent of compensation. In other words, they derived 20 times as much income from selling the optioned stocks (at rising prices) as they did from collecting dividends on those stocks.27 Thus, corporate executives were becoming far more concerned with short-run strategies on the stock market than they had ever been. The larger the profit that could be shown on their company's quarterly reports, the higher the stock market valued their (optioned) stocks, and the higher the executive income from sale of their stock. Where, however, did this leave the issue of developing long-range strategies for the development of their lines of business? As options became more important, the executives' attention was more deeply concerned with improving the sales potential of their stock. In the context of the mid-1970s and after, when U.S. manufacturing underwent heightened competition, was executives' attention less fixed on high stock prices a short-term problem than on enduring concerns of their firms a long-term perspective? As Lazonick points out: "There are no stock options in Japan, and even if the manager owns shares, his membership in the organization means the shares are not for sale."28
By 1945, American unions reached their highest level, 15 million members or 35 percent of the non-farm work force. Toward century's end membership stood at 13 million members or 10-11 percent of the non-farm work force.29 At the peak, strikes were widespread: "The 1946 strike wave was, in terms of number of strikes (4,985), number of strikers (4,6 million), and number of days of work lost (116 million), the largest that this country has ever seen."30 The closing years of the century, however, saw a level of union membership that was lower than before the Great Depression.31
The relative decline of American labor occurred in the context of unceasing attacks by industrialists whose political power did not flag: legislation, court decisions, and administrative rulings were brought to bear. American capitalists were a far more unified force at the end of the period, and they seemed not to have forgotten any trick which had been effective in the past. If employer violence receded somewhat, it was replaced by other approaches. None of these was completely new but they were more effective than earlier. Following is one example.
During times of business slumps, corporate firms increasingly demanded that unions agree to concessions or givebacks to companies. Targets of the changes were provisions in union-company collective-bargaining contracts negotiated in earlier periods. They included wage reductions, easing of work rules that would increase productivity, freezing of cost-of-living raises, early renegotiation of contracts, and other devices. Frequently, employers threatened alternatives of sweeping layoffs, plant closings, or even bankruptcies. It was under such circumstances that wages were cut in unionized garment and textile plants just after the Korean War (1950-1955). During the early 1960s, "decisions not to increase union wages were quite common."32 In 1960, the International Longshoremen Workers Union and the Pacific Maritime Association agreed to install automation and the handling of containerized freight. "The agreement yielded large increases in productivity and [labor] cost savings."33 The ILWU had earlier resisted pressures for such a turn of events but retreated under threats of widespread layoffs which would have penalized its older members. During the recession of 1979-1982, employers stepped up calls for givebacks.34 Economists pointed to heightened competition that was leading to pressures on profits in several deregulated industries and also to increasing foreign competition. James Duesenberry referred to a sharp drop in average hourly earnings late in 1981 and early 1982.35 The policy of givebacks was costing workers dearly.
In the steel industry, seven domestic integrated producers dominated the market. Harry and Linda DeAngelo studied how givebacks in the industry were affected by changes in managerial compensation, financial reporting, and corporate dividend policy. 36 Between 1980 and 1988, the total wage bill for all seven major producers fell to $8.6 billion from $16.1 billion. This almost 50 percent drop in wages was accompanied by a 62.9 percent cut in jobs, from 512,941 to 190,238 between 1979 and 1988. Unit labor costs, computed on those workers who remained employed, declined by some 31.9 percent.37 "Managers," write the DeAngelos, "used the threatened and actual layoffs and plant closings to back up their claims that labor concessions were essential."38 Meanwhile, during actual union negotiations "managers systematically depressed reported [company] earnings. "39 Certain charges against profits were postponed or hastened so as to fall into periods of union negotiations, thereby accentuating the appearance of drops in profits. In addition, managers timed reductions in their own pay so that executive compensation was "significantly lower during union negotiations than for the same firms in non-negotiation years."40 The payment of dividends to stockholders was also affected: "All seven firms reduced dividends during their financial difficulties, and all except U.S. Steel eventually omitted dividends altogether."41
Neither managerial compensation declines nor dividend reductions anywhere near matched the increase of corporate cash flow that resulted from worker wage reductions and consequent cuts in unit labor costs. By exaggerating the "material sacrifices" of executives and shareholders, it was hoped "to encourage organized labor to make (in the aggregate, much larger) concessions of their own."42 In the main, the strategy worked. It was, however, much more a response to threats of unemployment, hunger, and family deprivation than gullibility. Similar threats had become realities since the earliest days of industrial capitalism in the United States. (See chapters 4 and 6.)
Another avenue to lower costs of production in one industry after another was expansion of capital investment and technological change. The American copper industry was a prime example of this.
During the late 1960s and early 1970s, foreign-owned copper properties in Chile, Zaire, Zambia, and Peru were nationalized; a number of these had been owned by American companies. Anaconda, one of the largest of the American firms, lost 30 percent of its net worth by the Chilean nationalization.43 During the late 1970s and into the 1980s, profits dropped sharply. The entire U.S. industry was in a depression. Lowering of production costs was seen by the industry as the way out.
From management's viewpoint, the program was highly successful.
Between 1986 and 1992, the cost of producing a single ton of finished copper by Phelps-Dodge fell to $1,235 from $1,874.45 The productivity of Arizona's copper mines and plants rose by 150 percent.46 In 1986 alone, at the Magma plants, wages were cut by 20 percent and cost-of-living adjustments in wages were eliminated. A bitter strike in 1983 against Phelps-Dodge was lost by workers; the next year members voted to decertify the union. During the years 1988-1994, Phelps-Dodge earned an average annual profit of $311 million. Employment in Arizona's copper production fell by half between 1981 and 1992. The burden of these 13,000 lost jobs fell heavily on Mexican American and American Indian workers. A standard economic work on the copper industry hailed the seven biggest firms for their "marked industrial courage" for having "been relentless in actions necessary to cut labor costs."47
The 1980s witnessed a sharp decrease in strikes over the entire country, falling by more than half since the preceding decade.48 Many union contracts were simply extended without a strike and, presumably, lacked any union-requested changes.49 A study of the years 1984-1988 found that permanent strikebreakers were employed in nearly one-sixth of all strikes analyzed; in New York, the sample rose to nearly one-quarter.50 Temporary strikebreakers were employed less often, six and ten percent respectively. Cynthia Gramm observed that "the willingness of employers to hire permanent replacements increased during the 1980s."51 This shift in employer policy documented a sharp decline in worker rights. Workers' readiness to strike ebbed further. "On March 8, 1995, President Clinton signed an executive order banning the federal government from doing business with firms that use permanent replacements."52 The next year, a panel of the District of Columbia Court of Appeals struck down the presidential order. In 1999, the International Confederation of Free Trade Unions cited U.S. employers' use of permanent replacement workers during strikes as a denial of the right to bargain collectively.53
Job stability in the private economy was severely weakened during much of the last third of the 20th century. Layoffs were higher for blacks, workers recently hired, and workers in operative and construction jobs.54 During 1984-1992, Fairlie and Kletzer found, "black men experienced rates of job displacement that were 30 percent higher and reemployment rates that were 30 percent lower than the corresponding rates for white men."55 Samuel Farber found that upon reemployment, workers received wages about 13 percent lower than in their former jobs.56 Not only did such workers suffer wage losses, but also many also lost accumulated seniority and thus certain employee benefits such as pensions, vacations, health insurance, and others.57 Jacobson and others studied long-term losses of high tenure manufacturing workers in Pennsylvania over a period of thirteen years (52 quarters). Even five or six years after the initial job loss, these workers were earning only three-quarters of their predisplacement pay.58 The researchers observe that "there is little evidence that displaced workers' earnings will ever return to their expected levels."59
Daniel Polsky, studying two periods (1976-81 and 1986-91), found a new factor at work:
Polsky also reported that workers who lost jobs experienced less real-wage growth in the second than in the first period. All in all, Swinnerton and Wial conclude that increasing job instability had become the rule by the mid-1990s.61 Robert Valletta, in a separate study, "identified a long-run trend toward declining job security that probably continued through 1996."62 In a second study, Valletta, writing in 1998, declares that despite low unemployment:
Between 1976 and 1998, Valletta continues, "the expected duration of unemployment was 17 weeks for permanent job losers and 12 weeks for all unemployed."64 In Puerto Rico, joblessness during 1990 for men aged 20-29 rose to 24% from 7% in 1970; for women similarly aged the respective percentages were 29% and 8%.65
Real family income boomed during the earlier postwar years. Between 1949 and 1973, for example, it rose at an annual average rate of 3.2 percent. During the next period, 1973 to 1996, however, it slumped to 0.3 percent per year a drop of more than 90 percent.66 Productivity in the nonfarm business sector also slumped from 2.2 percent annually in 1948-1973 to 1.0 percent in 1973-1996.67 This lag between real income and productivity grew larger during the second period. Perhaps nowhere in the economy did this gap widen as in mining. As Madeline Zavdny notes: During the years 1977-1996, "productivity in the mining sector increased 65 percent while compensation rose about 8 percent in real terms, resulting in productivity increases that far outpaced real compensation gains."68 As we saw above, these were the years that copper mining underwent enormous growth in profitivity. The gap was smaller in unionized industries.
Only in 1996 did wages begin to outstrip the rate of inflation a trend that had last occurred in the early 1970s.69 In that same year 1996Congress raised the minimum wage which by 1999 stood at $5.15 an hourfar lower in purchasing power than in 1968 when it was worth $7.49 per hour in 1999 dollars.70 Low-skilled workers' earnings dropped by 13 percent per year during 1979-1989.71 Low-skilled immigrant workers fared worst: "The proportion of [such] workers living in poverty grew from 21 percent in 1980 to 36 percent in 1990.72 A study by the U.S. Department of Labor found that "a growing number of workers at the bottom of the pay scale have lost access to key employer-provided benefits."73 A former Secretary of Labor wrote that "most workers knowing how easily they can be replaced by technology or global `outsourcing' were their wages to rise dare not demand raises."74
Since the 1960s, two world-wide economic developments have impacted American wages: foreign trade and international investment.
Taking the electronics industry as an example, in 1972 there were 46,000 workers in 350 plants on the Mexican border; two years later, the figures were 83,000 and 527. All but a few of the plants were American-owned. In Taiwan, plants producing for U.S. electronics manufacturers began with single components but in time put out complete units. Between 1969 and 1973, electrical apparatus imports from developing countries rose from $339 million to $1.7 billion. Partial relief was afforded by passage of the Trade Expansion Act of 1962 which offered workers adjustment assistance as well as relocation allowances if increased imports were the cause of the unemployment.
Awards of aid to affected workers were administered by the U.S. Tariff Commission as Trade Adjustment Assistance (TAA). In fact, however, "the Commission rejected all worker petitions through fiscal year 1969, and less than 50,000 workers won benefits between then and 1974."75 The Carter administration increased TAA funds eight-fold, from $200 million to $1.6 billion in fiscal 1980. The program was cut sharply by the Reagan administration. A new chapter in this old story was written in 1992 with the signing of the North American Foreign Trade Agreement (NAFTA). The result was a further departure of relatively high-wage jobs to Mexico where they were transformed into comparatively low-wage jobs and high rates of profitivity for American and Mexican employers.
An entirely different outcome was experienced by aluminum workers who were members of a steelworkers' union in Ravenswood, West Virginia.76 In November 1990, when a union contract with the Ravenswood Aluminum Corporation expired, the company proclaimed a lockout which lasted until June 1992. In 1989, when new owners bought the plant:
Workers deeply resented this turn of events. During the 1980s, they had rejected tentative contracts negotiated by union leaders that contained givebacks they had earlier won. Solidarity was the keynote of their local organization. Of 1700 members, only one percent failed to respect picket lines during the 1990-1992 lockout.78
Instead, however, of simply picketing and intermittently bargaining with RAC, the union undertook a novel strategy: RAC was owned by Marc Rich, an American whose world-wide plants controlled about a third of the world aluminum market and who was a fugitive from U.S. law-enforcement authorities on various charges. The heart of Rich's empire was located in Switzerland where the RAC local union and its parent United Steelworkers Union sent representatives to pressure the Swiss legislature and Swiss unions into supporting their cause. The campaign extended into Czechoslovakia, Romania, Bulgaria, Russia, Jamaica, and Venezuela. Altogether Rich's properties in 28 countries felt the impact of the campaign. By April 1992, RAC had lost so much business that it was compelled to end the lockout. In addition, the local union filed a formal complaint with OSHA, a federal health agency, against RAC. Near the end of 1991, OSHA found RAC guilty of 231 safety and health violations and required the company to pay a fine of $604,500. A new contract was negotiated with the union, which embodied a number of workers' demands.
The years 1979-1994 have been called "undoubtedly the most turbulent period in U.S. banking history since the Great Depression."79 Industry assets experienced a fundamental redistribution between banks of under and over $100 billion in assets; the former called "small", the latter "megabanks". At the beginning of the period, the former represented 13.9% of industry assets, and only 7.0 percent at the end; the figures for the former were 9.4% and 18.8%. Berger and his colleagues note that "at the beginning there were typically fewer than ten [bank] failures per year, but by the end of the 1980s, more than two hundred banks were failing annuallya twentyfold increase. "80 Economic slumps and regional difficulties explained part of these failures. Another part, little discussed, was due to fraud and related events.
With respect to national banks, the Office of the Comptroller of the Currency (OCC) found:
The OCC also observed that "about a quarter of the banks with significant insider abuse also had significant problems involving material fraud."82 Of 3,596 defendants indicted or charged by U.S. attorneys, 2,243 pled guilty.83 The Department of Justice "convicted 2,603 defendants in major bank and thrift fraud cases."84 The Federal Deposit Insurance Corporation (FDIC) reported that charges of alleged criminal fraud by "former directors, officers, or principal shareholders were made involving nearly half of banks that failed in 1990 and 1991."85 The Federal Bureau of Investigation (FBI) investigated possible fraud or insider abuse into the early 1990s. In 1987, there were 11,555 investigations and 21,607 four years later, an increase of 87 percent.86
Staffing levels of the federal banking regulatory agencies were inadequate to examine the financial soundness of banks under their supervision. Between 1980 and 1985, there was a five-fold increase in the numbers of problem banks in FDIC's jurisdiction. But by 1985, 25 percent of FDIC vacancies were unfilled. Fewer banks could be examined: "Between 1979 and 1986, the mean examination interval in days for all commercial and savings banks increased dramatically from 379 to 609."87 Bank examiners unable to maintain current schedules of examinations were forced to depend on outdated information. As FDIC discovered later, "overall, 565 banks, or approximately 36 percent of those banks that eventually failed, held a satisfactory 1 or 2 rating [out of 5] two years before failure."88
In retrospect, it was learned that many failed banks, eager to earn profits, lent money all too readily to finance unnecessary or questionable projects. This was especially the case in commercial and industrial building. By 1990, "Manhattan [had] 25 million square feet of vacant office space . "89 In 1985, "Dallas had 34 million square feet of unleased office space more than the total office space in Miami."90 In Harris County (Houston): "In some communities, foreclosure rates were in excess of 60 percent."91 In many cases, the overbuilding of commercial and industrial properties was caused by defective appraisal policies: "Flawed and fraudulent appraisals were often used by federally insured financial institutions, both banks and savings and loan associations."92 A Congressional committee "found widespread evidence of incompetence and fraud with appraisal practices, primarily at thrift institutions but to some extent at commercial banks."93
During the 1960s through the 1980s a movement gained strength to compel banks to make mortgage money available in communities in which banks were located. Not until the 1990s, however, did "community reinvestment" become a significant movement. Thus, "more than 350 agreements totaling over $397 billion had been signed by banks and community organizations by the end of the first quarter of 1998, ninety-five percent of the total since 1992."94 Between 1991 and 1995, "conventional home-purchase loans to whites increased by two-thirds, loans to blacks tripled and those to Hispanics more than doubled."95
A large-scale wave of bank mergers and acquisitions occurred during the last five years of the century. Megabanks were the dominant movers in this wave. During the 1980s, the average number of such mergers per year was 385; during 1990-1998, the figure rose to about 510.96 Behind this movement lay not only an attempt to increase market control but also to obtain the blessings of deposit insurance without bearing the full cost. In order to avoid the failure of larger megabanks, authorities decided that such banks were "too big to fail". Therefore, deposit insurance was extended to depositors even though deposits exceeded the upper limit of $100,000 per account. Such banks did not have to pay insurance premiums to the FDIC.97
During the years 1980-1994, there were 1,617 bank failures. In the quarter preceding failure total assets of these banks were over $316 billion.98 In 1999, the New York Times estimated editorially that "the bill for cleaning up the savings and loan mess [was] already at $480 billion."99 This sum far exceeded the total of deposit insurance paid by covered banks. The remainder was provided from federal revenues paid by the general public. In 1999, the nation's eighth largest bank, Bankers Trust Corporation of New York "pleaded guilty to criminal charges of illegally diverting $19.1 million in cash and other assets that the law requires to be turned over to states."100 This may be compared to the previous year's case of the Bank of America Corporation agreeing to pay $187.5 million "to settle California charges that it had mishandled hundreds of millions of dollars over more than 15 years."101 Bankers Trust was ultimately acquired by a German bank, while Bank of Americaone of the nation's largesttripped merrily on.
Between 1927 and 1956, according to Victor Perlo, the percentage of the U.S. population that were stockholders ranged from 3.4 to 8.9.102 He found further that "stock ownership is still occasional, rather than typical, for workers, and rare for industrial workers."103 Concentration of shareholding was extreme at the other end in 1952: "Less than one percent of all American families owned over four-fifths of all publicly held stocks owned by individuals."104 Perlo estimated that about 10 percent of Americans owned stock. By 1998, nearly a half-century later, 85 percent of all stock was owned by the top 10 percent of the population105 and forty-three percent of the people owned some stock.
A survey in 1999 found that the typical owner of stock and other equity instruments
Stockholdings were highly concentrated.
Except for a small number of stockholders who owned large amounts of stock, very few could support their customary level of living with dividend income alone from stockholdings. During the late 1950s, for example, a person who owned about $1,000 worth of stocks might expect dividend income of about $40 per year, or the equal of wages for two days' work.108 For most small stockholders, owning stock constituted a marginal recreational enterprise. In 1952, individuals and families owned 92 percent of corporate equity but by 1994 only 48 percent; pension funds and mutual funds had increased their shares of corporate equity to make up the difference.109
An expanding stock market meant little to the corporations whose stock was traded on the market, especially in relation to their funds for capital investment. These funds were obtained from the corporations' accumulated profits, depreciation reserves, and long-term bonds issued by the corporations. (Together, profits and depreciation were known as "retained earnings". In other words, they were derived from internal sources of the corporation.) Unlike a half-century or so ago, individual corporations were not dependent on banks and other financial institutions for their capital funds. During 1921-1929, internal funds of 84 large manufacturing corporations were just enough to cover all their fixed capital expenditures. During the years 1970-1985, retained earnings provided 86 percent of net capital funds for non-financial corporations.110 U.S. corporations endured and succeeded handsomely in a financial sense. At the same time, many neglected the task of innovation, and as a consequence by the 1980s a number failed to compete effectively in world markets:
Volume of trading on the New York Stock Exchange in 1950 was puny by later standards: "Trading volume for all of 1950 totaled 525 billion shares, equal to about two average days' trading in 1993, and a vigorous day in 1996."112 By century's end, daily volume was double that of the annual 1950 total.
In 1992, as the stock market registered enormous gains, Louis Lowenstein, a professor of both law and finance at Columbia University, wrote in the Columbia Law Review: "The stock market ... is now, and, has always been a hotbed of manic-depressive pricing, manipulation, and outright fraud."113 To what degree did the rising market of the 1990s resemble Lowenstein's "hotbed"?
An axiom of financial reporting is that "stocks soar on good news, no matter how expensive they already are."114 No news is almost as good, but bad news must be avoided altogether. When Procter & Gamble's profit dropped only moderately, the stock lost $40 billion in market value.115 To managers of stock funds of various sorts, profit drops and consequent stock price drops are simply unacceptable. In the 1990s, this pressure on corporations, stock brokers, and others led some to claim success even when this was contrary to the facts. There was outright falsification or various invented versions of reality.
The chief accountant of the Securities and Exchange Commission warned against "trying to put a better spin on "numbers that may be in fact misleading."116 She noted that "more than half of the cases of financial reporting fraud involved an overstatement of revenue."117 S.E.C. chairman Arthur Levitt declared that "too many corporate managers, auditors and analysts are participants in a game of nods and winks."118 He labeled some corporate revenues as "fictional". Baruch Lev, professor of accounting at New York University, stated that "there is no doubt that, on average, reported profits are overstated."119 The editor of The Technology Review comments on "the remarkable degeneration in the quality of earnings reporting that we have seen in the last two or three years."120 Warren Buffett, a large-scale finance capitalist, attacked CEO's for having "worked purposefully at manipulating numbers and deceiving investors."121
Financial writer Gretchen Morgenson reports that "there is growing concern among some accounting professionals that many companies are relying on financial alchemy to burnish their results."122 A veteran bank stock analyst comments: "There have always been companies willing to do this, but the practice is now more widespread and is being seen at even the most respected of firms. The actions are getting more desperate."123 The New York Times declared editorially: "Investors lost a lot of money, in part because they relied on fraudulent or misleading financial reports issued by companies and certified by their auditors."124
Two extremely large cases of stock fraud were concluded in the year 2000.
One concerned CUC International which had been purchased earlier by Cendant Corporation. Cendant soon discovered that CUC's earlier financial reports had been falsified for a number of years. Over a period of three years, "more than $640 million in profits had been fictional."125 In the words of a report by the S.E.C.:
Three top managers pleaded guilty to criminal fraud. Investors had lost $19 billion in the form of stock prices that fell after discovery of the falsification. Cendant agreed to pay a $2.85 billion settlement of a lawsuit by stockholders against the company.
Ernst & Young, one of the world's largest accounting firms, which had served as Cendant's auditor, was the object of another lawsuit. It was settled as follows: "Ernst & Young agreed to pay $335 million to settle accusations that it failed in its responsibilities when it certified financial statements that fraudulently inflated the earnings of the Cendant Corporation. "127
Another case of stock fraud concerned Centennial Technologies. Its C.E.O., Emanuel Pinez, was sentenced to five years in federal prison and directed to make restitution of nearly $150 million. In 1996, Centennial had been the leading stock on the New York Stock Exchange. Pinez and two other officials of the firm "had `cooked the books', creating a phony list of receivables."128
The country's leading drug wholesaler, McKesson HBOC, announced that it had unknowingly recorded higher earnings than were warranted over the past three years via the former HBO firm which it had acquired. McKesson stated it would reduce its operating income for the past three years by $191.5 million. Upon this announcement, McKesson's stock fell by 48%. Apparently, the earnings problem emerged during a regular audit by Deloitte & Touche.129
Following are several more examples of problematic corporate treatments of profits:
Organized crime in New York was found to be behind a $50 million stock fraud "led by the Bonanno and Colombo families with cooperation from the Genovese, Gambino and Luchese families."134 Personnel of the scheme included "57 licensed and unlicensed stockbrokers, 12 stock promoters, 30 officers or other executives of firms issuing stocks involved in the frauds, three recruiters of corrupt brokers, two accountants, an attorney, an investment adviser, and a hedge fund manager."
As Louis Lowenstein warned in 1992, manipulation and fraud were rife in the contemporary stock market. So, too, were they in banks and savings and loan associations during the 1980s and into the 1990s. Where were the thousands of governmental regulators while these conditions were maturing? The rate of fraud and other crime in the banking field during the 1980s possibly matched robbery and burglary in other more conventional places and times.
Recessions of varying severity made up one-fifth of the post-World War II years. Writing in 1992, Vatter and Walker state that "there have been no extended periods of rapid economic growth in this century without rapid growth in government purchases."135 In the 1980s, when the U.S. machine tool industry experienced a 60 percent drop in sales,"U.S. military orders [for machine tools] rose 65 percent, thus taking up a large part of the slack owing to collapse of civilian markets."136
During the Carter-Reagan era (1977-1987), defense purchases in constant dollars rose from $180 to $292 billion or from 5.3 to 6.5 percent of gross domestic production (GDP).137 Such defense spending created 2.1 million private jobs.138 Peak defense funding under Reagan was reached in 1987, the approximate "end" of the Cold War. During the next seven years, defense spending dropped 36 percent.139 By 1998, the military procurement budget was "effectively 69 percent lower than in 1985."140 As Leslie Wayne indicated, however, "the 1998 military budget of $255 billion with around $100 billion a year for procurement and research makes the Pentagon one of the biggest customers around."141
With falling military budgets, jobs related to defense production also declined:
In 1996, defense-related employment was responsible for 255,000 fewer jobs than the previous post-Vietnam War low in 1977. Of the decline in employment, 42 percent, or 1 million jobs, was in Government including the Armed Forces, and civilians in the Department of Defense and nondefense agencies. The remainder of the decline in employment (1.5 million jobs) occurred in the private sector.142
Compared with defense spending in Russia, American reductions were comparatively shallow:"The annual rates of defense expenditure cuts in Russia have been 6.5 to 9 times greater than in the United States."143 By 1999, however, the Clinton administration and its Congressional allies were projecting "the first major increase in military spending since the mid-1980s."144 Weapons procurement was to rise from $53 billion in fiscal 2000 to $75.1 billion in fiscal 2005.145
Over one-third of California's unemployment during 1990-1993 was attributable to cuts in defense procurement and research and development contracts.146 Between 1987 and 1991, employment in the aerospace industry of metropolitan Los Angeles fell by one-seventh. ("Los Angeles, not Detroit is the biggest manufacturing center in the United States.")147
When the modern federal income tax was initiated in 1916, it was intended to apply primarily to the country's rich. It was thus a largely progressive tax. As late as 1940, barely one-quarter of the country's workers filed income tax returns.148 When, however, in 1943, during World War II, the income tax was extended to the population at large, "political elites [were] enabled to reduce tax rates on high income groups."149 Income tax rates on corporations were eased, especially after the Korean War (1950-1955).150 By 1956, the corporate income tax constituted 28 percent of all federal tax revenues, but 30 years later the figure had declined to only eight percent.151 Even when corporate rates were raisedwhich happened from time to timethe companies increased prices to protect their profits.152 Stockholders, who were primarily upper middle-class, were taxed heavily in theory but only moderately in practice. In 1963, for example: "The nominal tax rate for families with incomes of $280,000 was 72.76 percent, but the effective rate for families with incomes of $280,000 or more was only 42.53 percent.".153
Taxing by ability to pay changed over the years:
Allen and Campbell, in their review of tax policy in the years 1916-1986, observe:"The ideological differences between Republicans and Democrats regarding tax policy are more a matter of partisan rhetoric than substantive policy preferences."155 At the same time, "political elites [of both parties] try to satisfy the demands of special interest groups while providing symbolic assurances that placate the general public."156 After their detailed examination of the 70-year period Allen and Campbell concluded that "it is not clear that the Democratic Party is any more inclined than the Republican Party to tax capital."157
According to an Internal Revenue Service (IRS) audit in 1988, "about 40 percent of U.S. households underpaid their taxes for that year."158 IRS audits are the primary avenue to recapture omitted tax payments and overall they are highly successful in attaining their goal. Among farmers and sole proprietors of businesses, understatements of taxes are "substantially more than other taxpayers."159 In 1965, the rate at which individual returns were audited was 4.75 percent.160 Starting in 1968, the rate of audits for corporate returns started to diminish; by 1990, it had plummeted to 0.8 percent.161 Similarly, in 1986, the IRS audited 21 percent of all estate tax returns, paid mostly by the very rich. By 1995, the figure was only 14 percent.162
As the stock market sped upwards in the second half of the 1990s, the tax position of the very rich eased greatly. "Since 1998," reported the New York Times in 2000, "audit rates for the poor have increased by a third, from 1.03 percent, while falling 90 percent for the wealthiest Americans, from 11.4 percent."163 The newspaper also reported that "among the largest corporations, those with more than $250 million of assets, the audit rate was 34.5 percent . . . [in 1999], down from 54.6 percent in 1992."164
Meanwhile, the poor were being squeezed by the tax burden. Between 1975 and 1985, poverty expanded to 16.7 percent from 11.4 percent. In the earlier year personal taxes made up 1.3 percent of poor persons' income. A decade later, the figure had risen to 10.5 percent.165 Danziger and Gottschalk note that the increase "offset the value of any food stamps the family might have received."166 Another study, embracing local and state taxes, found that in 1988, "the average burden of taxation on poor families and individuals was 15.3 percent in Massachusetts and 18 percent in New York."167 When, in 1986, Congress actually reduced the federal tax burden of the poor, state and local governments did not follow suit.
Political mobilization of corporate business paid high dividends. As Cathie Jo Martin put it:
This trend, which had reached previously unattained heights at the end of World War II, now, a half-century later, swept to new, higher altitudes.
Foreign economic policy became a major safeguard against a repetition of the Great Depression. By 1950, a new policy of rearmament led to extraordinary levels of defense spending which were viewed as an anti-depression factor. Federal sponsorship of nuclear power and other expensive technical innovations were disguised subsidies. Military applications became crucial in a number of industries with the result that the U.S. was overtaken by Germany and Japan in peacetime products such as machine tools. Productivity was at high levels. The growth of stock options in American industry led to less interest among executives in meeting foreign competition. Unionization reached new heights by 1945 and strikes were widespread. Within a few years, however, the labor movement started to ebb. During the early 1980s, industry was increasingly able to enforce a policy of union givebacks or concessions. Particularly in the steel industry givebacks bulged large. In the same period, some industries _ copper, especially _ initiated programs of automation and other new technology that undermined wage standards. Unionization stalled.
Job stability was severely weakened during much of the last third of the 20th Century. Between 1973 and 1996, real family income rose by only 0.3 percent per year _ a drop of over 90 percent from the average of 1949-1973. Wages lagged behind inflation between the mid-1970s and the mid-1990s. Trends in foreign trade and investment affected U.S. wages negatively. The years 1979-1994 were "the most turbulent period in U.S. banking history since the Great Depression." Insider abuse and outright fraud produced many bank failures, numbering 1,617 in the years 1980-1994. The cost of savings and loan failures neared half a trillion dollars. The expansion of the stock market since the early 1980s also stimulated manipulation and fraud. This included large-scale misrepresentations of the level of profits reported by large corporations. Defense expenditures slumped from the 1980s onward but remained quite massive.
Federal income taxes were eased especially for the very rich with both major parties waging rhetorical rather than substantive attacks on the wealthiest. The frequency of I.R.S. audits was reduced for the richest and for the largest corporations.
1. See Imanuel Wexler,"Marshall Plan (1948-1951)," pp. 113-117 in Bruce Jentleson and Thomas G. Paterson, eds., Encyclopedia of U.S. Foreign Relations, III(N.Y., 1997); Charles S. Maier, "The Politics of Productivity: Foundations of American International Economic Policy After World War II," pp. 23-49 in Peter Katzenstein, ed., Between Power and Plenty (University of Wisconsin Press, 1978); and Fred Block, "Economic Instability and Military Strength: The Paradoxes of the 1950 Rearmament Decision," Politics and Society, 10 (1980) pp. 35-58.
2. The entire text of NSC-68, marked "Top Secret," can be found in U.S. Department of State, Foreign Relations of the United States, 1950, vol. 1 (Government Printing Office, 1977), pp. 235-292. The text was only made public in 1975, twenty-five years after being approved by President Truman.
3. Michael J. Hogan, A Cross of Iron. Harry S Truman and the Origins of the National Security State, 1945-1954 (Cambridge University Press, 1998), pp. 473-474.
4. Gregory Hooks, Forging the Military-Industrial Complex. World War II's Battle of the Potomac (University of Illinois Press, 1991), pp. 258-259.
5. U.S. Department of State, Foreign Relations . . . 1950, p. 258.
6. William I. Robinson, Promoting Polyarchy. Globalization, U.S. Intervention, and Hegemony (Cambridge University Press, 1996), p. 14.
7. Michael Reich and David Finelhor, "Capitalism and the `Military Complex': The Obstacles to `Conversion'," Review of Radical Political Economics, 2 (Winter 1970), pp. 10-12.
8. Testimony of Dan A. Kimball, formerly president and executive vice-president of Aerojet-General, Assistant Secretary of the Navy for Air, and Secretary of the Navy, meeting of August 28, 1959, U.S. Congress, 86th, 1st session, House of Representatives, Committee on Armed Services, Subcommittee for Special Investigations, Employment of Military and Civilian Personnel by Defense Industries, p. 1020. A rare inside look at illusory competition in defense contracting is contained in testimony by Admiral Hyman G. Rickover, February 25, 1980, U.S. Congress, 97th 1st session, House of Representatives, Committee on Armed Services, Subcommittee on Procurement and Military Nuclear Systems, Vinson-Trammell Act of 1934 and the Necessity for Profit Limitations on Defense Contracts in the Current Contracting Environment. Hearings . (Wash., D.C.: Government Printing Office, 1981), pp. 64-68.
9. David C. Mowery and Nathan Rosenberg, Paths of Innovation. Technological Change in 20th-Century America (Cambridge University Press, 1998), p. 173. See also Ralph Landau and Nathan Rosenberg, "Innovation in the Chemical Processing Industries," p. 119 in H. Dale Langford and Melvin Gipson, eds., Technology and Economics (National Academy Press, 1991).
10. Ibid., p. 13.
11. Ibid., p. 136.
12. Steve Cohn, "The Political Economy of Nuclear Power (1945-1990): The Rise and Fall of an Official Technology," Journal of Economic Issues, 24 (September 1990), p. 790.
13. Ibid., p. 793.
14. David F. Noble, Forces of Production. A Social History of Industrial Automation (Knopf, 1984), pp. 138 and 200.
15. Ibid., p. 222.
16. Oskar Morgenstern, The Question of National Defense (Random House, 1959), p. 294.
17. Hooks, Forging the Military-Industrial Complex, p. 273.
18. Robert J. Gordon, "U.S. Economic Growth Since 1870: One Big Wave?" American Economic Review, 89 (May 1999), p. 123.
19. Jacob Morris, "Monopoly, Inflation and Crises in Postwar America," Science and Society, 28 (1964), p. 131.
20. Jacob Morris, "Spurious Capital and the Rate of Profit," Science and Society, 31 (1967), p. 318.
21. Data and quotations in this paragraph are taken from Robert Brenner, "The Economics of Global Turbulence," New Left Review, No. 229 (May-June 1998), pp. 49, 52-53, and 58.
22. Ibid., p. 95.
23. See the analysis in ibid., pp. 102-108.
24. Gianni Toniolo, "Europe's Golden Age, 1950-1973: Speculations From a Long-run Perspective," Economic History Review, 51 (May 1998), p. 256.
25. Ibid., p. 257.
26. William Lazonick, "Controlling the Market for Corporate Control: The Historical Significance of Managerial Capitalism," Industrial and Corporate Change, 1 (1992), p. 461.
27. Ibid., p. 462.
28. Ibid., p. 483.
29. Michael Goldfield, "The Failure of Operation Dixie: A Critical Turning Point in American Political Development?" p. 167 in Gary M. Fink and Merl E. Reed, eds., Race, Class, and Community in Southern Labor History (University of Alabama Press, 1994).
30. Michael Goldfield, The Color of Politics. Race and the Mainsprings of American Politics (New Press, 1997), p. 236.
31. Goldfield, "The Failure of Operation Dixie," p. 167.
32. Daniel J.B. Mitchell, "Recent Union Contract Concessions," Brookings Papers on Economic Activity, 1 (1982), p. 174. [CHECK PAGE #]
33. Ibid., p. 175.
34. Ibid., p. 188.
35. Ibid., p. 203.
36. Harry DeAngelo and Linda DeAngelo, "Union Negotiations and Corporate Policy. A Study of Labor Concessions in the Domestic Steel Industry During the 1980s," Journal of Financial Economics 30 (1991), pp. 3-43.
37. Ibid., pp. 12-13.
38. Ibid., p. 14.
39. Ibid., p. 18.
40. Ibid., p. 21-22.
41. Ibid., p. 27.
42. Ibid., p. 30.
43. George H. Hildebrand and Garth L. Mangum, Capital and Labor in American Copper, 1845-1990 (Harvard University Press, 1992), p. 150.
44. Ibid., p. 198.
45. Breandán Oh Uallacháin and Richard A. Matthews, "Restructuring of Primary Industries: Technology, Labor, and Corporate Strategy and Control in the Arizona Copper Industry," Economic Geography, 72 (April 1996), p. 202.
46. Ibid., p. 206.
47. Ibid., p. 170.
48. Peter Cramton and Joseph Tracy, "The Use of Replacement Workers in Union Contract Negotiations: The U.S. Experience, 1980-1989," Journal of Labor Economics, 16 (1998), p. 667.
49. Ibid., p. 668.
50. Cynthia Gramm, "Employers' Decisions to Operate During Strikes: Consequences and Policy Implications," p. 33 in William Spriggs, ed., Employee Rights in a Changing Economy. The Issue of Replacement Workers (Economic Policy Institute, 1991).
51. Ibid., p. 35.
52. Cranton and Tracy, "Use of Replacement Workers," footnote 2, p. 668.
53. International Confederation of Free Trade Unions, "Internationally-Recognized Core Labour Standards in the United States, Report for the WTO-General Council Review of the Trade Policies of the United States," Geneva, July 1999, cited in Martin Hart-Landsberg, "After Seattle: Strategic Thinking About Movement Building," Monthly Review, 52 (July-August 2000), p. 110.
54. Johanne Boisjoly and others,"The Shifting Incidence of Involuntary Job Losses from 1968 to 1992," Industrial Relations, 37 (April 1998), p. 229. See also Francis X. Diebold and others, "Job Stability in the United States," Journal of Labor Economics, 15 (1997), pp. 231-232.
55. Robert W. Fairlie and Lori G. Kletzer,"Jobs Lost, Jobs Regained: An Analysis of Black/White Differences in Job Displacement in the 1980s," Industrial Relations, 37 (October 1998), p. 460.
56. Henry S. Farber, "The Incidence and Costs of Job Loss: 1982-91," Brookings Papers on Economic Activity: Microeconomics (1993), p. 110.
57. Michael Podgursky and Paul Swain, "Job Displacement and Earnings Loss: Evidence from the Displaced Worker Survey," Industrial and Labor Relations Review, 41 (October 1987), p. 20.
58. Louis Jacobson and others, "Earnings Losses to Displaced Workers," American Economic Review, 83 (September 1993), pp. 687 and 697.
59. Ibid., p. 697.
60. Daniel Polsky, "Changing Consequences of Job Separation in the United States," Industrial and Labor Relations Review, 52 (July 1999), p. 573.
61. Kenneth A. Swinnerton and Howard Wial,"Is Job Stability Declining in the U.S. Economy?" ibid., 48 (January 1995), p. 303.
62. Robert G. Valletta, "Declining Job Security," November, 1997, unpublished paper, p. 26, Economic Research Dept., Federal Reserve Bank of San Francisco.
63. Robert G. Valletta, "Changes in the Structure and Duration of U.S. Unemployment, 1967-1998," Federal Reserve Bank of San Francisco Economic Review (1998), p. 29.
64. Ibid., p. 39. See also Louis Uchitelle, "Survey Finds Layoffs Slowed in Last 3 Years," New York Times, August 20, 1998, p. C1. This U.S. Bureau of Labor Statistics study covering 1995-1997 reported a rate of layoffs greater than during the late 1980s.
65. Francisco L. Rivera-Batiz and Carlos E. Santiago, Island Paradox. Puerto Rico in the 1990s (Russell Sage Foundation, 1996), pp. 5-6.
66. Madeline Zavdny, "Unions and the Wage-Productivity Gap," Federal Reserve Bank of Atlanta Economic Review, 84 (Second Quarter 1999), p. 44.
67. Ibid., p. 45.
68. Ibid., p. 46.
69. Louis Uchitelle, "The Sounds of Silence," New York Times, December 19, 1999, p. WK4.
71. Maria E. Enchautegui, "Low-Skilled Immigrants and the Changing American Labor Market," Population and Development Review, 24 (December 1998), p. 819.
72. Ibid., p. 821. See also Julie A. Phillips and Douglas S. Massey, "The New Labor Market: Immigrants and Wages After IRCA," Demography, 36 (May 1999), 233-246.
73. Cited in Peter Passell, "Benefits Dwindle Along with Wages for the Unskilled," New York Times, June 14, 1998, pp. 1 and 23.
74. Robert B. Reich, "Talking Back to Greenspan," New York Times, January 28, 1999, p. A27.
75. I.M. Destler,"Trade Politics and Labor Issues, 1953-95," p. 392 in Susan Collins, ed., Imports, Exports, and the American Worker (Brookings Institution, 1998).
76. The fullest account is Tom Juravich and Kate Bronfenbrenner, Ravenswood. The Steelworkers' Victory and the Revival of American Labor (ILR Press, 1999). A short account is Andrew Herod, "The Practice of International Labor Solidarity and the Geography of the Global Economy," Economic Geography, 71 (1995) 341-363.
77. Herod, "The Practice of International Labor Solidarity," p. 348.
78. Juravich and Bronfenbrenner, Ravenswood, p. xi.
79. Allen N. Berger and others, "The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been," Brookings Papers on Economic Activity, 2 (1995), p. 57.
80. Ibid., p. 81-82.
81. Comptroller of the Currency, Bank Failure. An Evaluation of the Factors Contributing to the Failure of National Banks (Office of the Comptroller of the Currency, June 1988), p. 2.
82. Ibid., p. 9.
83. U.S. General Accounting Office, Bank and Thrift Criminal Fraud. The Federal Commitment Could Be Broadened. GAO/GGD-93-48 (General Accounting Office, 1993), p. 20.
84. Ibid., p. 41.
85. Ibid.,p. 117.
86. Ibid., p.37.
87. FDIC Division of Research and Statistics, History of the Eighties. Lessons for the Future. Volume 1. An Examination of the Banking Crises of the 1980s and Early 1990s (Federal Deposit Insurance Corporation, 1997), p. 428.
88. Ibid., p. 434.
89. Ibid., pp.345-346.
90. Ibid., p. 303.
91. Ibid., p. 309.
92. Ibid., p. [check page, 156?]
93. Ibid., footnote 25, p. 156. FDIC's account of the savings and loan crisis is contained in ibid., chapter 4, pp. 167-188.
94. James T. Campen, "Neighborhoods, Banks, and Capital Flows: The Transformation of the U.S. Financial System and the Community Reinvestment Movement," Review of Radical Political Economics, 30 (1998), p. 52.
95. Ibid., p. 53. For slightly different figures, see Robert E. Litan with Jonathan Rauch, American Finance for the 21st Century (U.S. Department of the Treasury, November 17,1997), p. 142.
96. Elijah Brewer III and others, "The Price of Bank Mergers in the 1990s," Economic Perspectives (Federal Reserve Bank of Chicago), 24 (2000), p. 2.
97. See ibid., pp. 4-5. See also FDIC Division of Research and Statistics, History of the Eighties, p. 42.
98. FDIC Division of Research and Statistics, History of the Eighties, p. 19 [or 15?] [check page number]
99. "Costs of Ignoring a Financial Mess," New York Times, April 14, 1999, p. A28.
100. Timothy L. O'Brien, "The Deep Slush at Bankers Trust," New York Times, May 30, 1999, p. BU1. See also Timothy L. O'Brien, "Worries About Loans Revive Ghost of 1980s Bank Debacle," New York Times, July 16, 1999, p. 1.
101. Timothy L. O'Brien, "The Deep Slush at Bankers Trust," p. BU1.
102. Victor Perlo, "`People's Capitalism' and Stock Ownership," American Economic Review, 48 (1958), p. 335.
103. Ibid., p. 337.
104. Ibid., p. 339.
105. Edward N. Wolff, quoted in R.C. Longworth,"Mutual Fund Milestone: Stocks Overtake Bonds," Chicago Tribune, June 2, 1998, p. 1.
106. Equity Ownership in America. Fall 1999 (Investment Company Institute and the Securities Industry Association, 1999), p. 6.
107. Ibid., p. 16.
108. Perlo, "People's Capitalism," p. 338.
109. William Lazonick and Mary O'Sullivan,"Finance and Industrial Development, Part 1: The United States and the United Kingdom," Financial History Review, 4 (1997), p. 20.
110. Ibid., p. 14.
111. William Lazonick and Jonathan West, "Organizational Integration and Competitive Advantage: Explaining Strategy and Performance in American Industry," Industrial and Corporate Change, 4 (1995), p.257.
112. Doug Henwood, Wall Street. How It Works and for Whom (Verso, 1997), p.14.
113. Louis Lowenstein, "Is Speculation `The Essential Native Genius of the Stock Market?'" Columbia Law Review, 92 (January 1992), p.237.
114. Floyd Norris, "When the News Turns Bad, Valuation Suddenly Matters," New York Times, March 10, 2000, p. C1.
116. Gretchen Morgenson,"In Efforts to Please Investors, Reports Too Good to Be True," New York Times, December 21, 1999, p. 1.
117. Floyd Norris, "S.E.C. Takes Aim At How Companies Report Revenue," New York Times, December 4, 1999, p. B4.
118. Melody Peterson, "`Trick' Accounting Draws Levitt Criticism," New York Times, September 29, 1998, p. C8.
119. Louis Uchitelle, "Corporate Profits Are Tasty, but Artificially," New York Times, March 28, 1999, p. BU4.
120. Larry Woods, quoted in Gretchen Morgenson, "Financial Engineering 1.0" New York Times, November 22, 1998, p. BU1.
121. Richard A. Oppel, Jr.,"Buffett Deplores Trend of Manipulated Earnings," New York Times, March 15, 1999, p. C2.
122. Gretchen Morgenson, "Levitating Earnings: An Act, or a Fact?" New York Times, May 14, 2000, p. BU1.
123. Charles Peabody, quoted in Gretchen Morgenson, "In Efforts to Please Investors," p. 1.
124. "Unbiased Accounting," New York Times, July 18, 2000, p. A24.
125. Joseph B. Treaster, "Ernst & Young Says It Will Pay Millions to Settle a Dispute," New York Times, December 18, 1999, p. 1.
126. Reed Abelson, "The Road to Reviving a Reputation," New York Times, June 15, 2000, p. C1.
127. Treaster, "Ernst & Young," New York Times, December 18, 1999, p. 1.
128. Reuters, "Jail and $150 Million Restitution for Fraud," New York Times, May 18, 2000, p. C13.
129. See David J. Morrow, "McKesson to Restate Earnings for 4 Quarters and Stock Falls 48%," New York Times, April 29, 1999, p. C1; Morrow, "Once Again, McKesson Is Revising Its Earnings," New York Times, May 26, 1999, p. C2; and Morrow, "McKesson Sets Costly Charges in Restatement," New York Times, July 15, 1999, p. C1.
130. Floyd Norris, "Rite Aid, Its Profitability in Doubt, Sells PCS Unit," New York Times, July 13, 2000, p. C1.
131. Floyd Norris, "Micro Strategy Shares Plunge on Restatement," New York Times, March 21, 2000, p. C1.
132. Floyd Norris,"AOL Pays a Fine to Settle a Charge That It Inflated Profits," New York Times, May 16, 2000, p. C6.
133. Associated Press, "Aurora Foods Appoints Chief and Restates Some Earnings," New York Times, April 4, 2000, p. C2.
134. Lisa Anderson, "Feds Charge 120 in Stock Fraud Scheme," Chicago Tribune, June 15, 2000, p. 1. See also John Sullivan and Alex Berenson, "Brokers Charged With Crime Figures in Complex Fraud," New York Times, June 15, 2000, p. 1.
135. Harold G. Vatter and John F. Walker,"Stagnation and Government Purchases," Challenge, 35 (November-December 1992), p. 56.
136. California, Staff of the Commission on State Finance, Impact of Defense Costs on California (Sacramento, California, Fall 1992), p. 4.
137. Seymour Melman, "From Private to State Capitalism: How the Permanent War Economy Transformed the Institutions of American Capitalism," Journal of Economic Issues, 31 (June 1997), p. 320.
138. Norman C. Saunders, "Employment Effects of the Rise and Fall in Defense Spending," Monthly Labor Review, (April 1993), p. 3.
139. Ibid., p. 4.
140. Ron L. Hetrick, "Employment in High-Tech Defense Industries in a Post Cold War Era," Monthly Labor Review, (August 1996), p. 58.
141. Leslie Wayne, "The Shrinking Military Complex," New York Times, February 27, 1998, p. 1.
142. Allison Thomson, "Defense-Related Employment and Spending, 1996-2006," Monthly Labor Review, 121 (July 1998), [p. 14?, p. 15?]
143. Michael V. Alexeev and Raymond C. Sikorra,"Comparing Post-Cold War Military Conversion in the United States and Russia," Contemporary Economic Policy, 16 (October 1998), p. 510.
144. Kenneth N. Gilpin, "Where Have All the War Dividends Gone?" New York Times, April 11, 1999, p. BU7. See also Hugh Rockoff, "The Peace Dividend in Historical Perspective," American Economic Review, 88 (May 1998) 46-50.
145. Gilpin, "Where Have All the War Dividends Gone?" p. BU7.
146. Stephen S. Cohen and others, From Boom to Bust in the Golden State: The Structural Dimension of California's Prolonged Recession, Working Paper 64 (UC at Berkeley, Berkeley Roundtable on the International Economy, September 1993), p. 18.
147. Ibid., p. 6.
148. Michael P. Allen and John L. Campbell, "State Revenue Extraction from Different Income Groups: Variations in Tax Progressivity in the United States, 1916 to 1986," American Sociological Review, 59 (April 1994), p. 172.
149. Ibid., p. 182.
150. John L. Campbell and Michael P. Allen, "The Political Economy of Revenue Extraction in the Modern State: A Time-Series Analysis of U.S. Income Taxes, 1916-1986," Social Forces, 72 (March 1994), p. 664.
151. Michael J. McIntyre, "Implications of U.S. Tax Reform for Distributive Justice," Australian Tax Reform, 5 (Spring 1988), p. 221.
152. Campbell and Allen, "The Political Economy of Revenue Extraction," p. 663.
153. Allen and Campbell, "State Revenue Extraction," p. 174.
154. Ibid., pp. 176-177.
155. Ibid., p. 183.
157. Campbell and Allen, "The Political Economy of Revenue Extraction," p. 649.
158. James Andreoni and others, "Tax Compliance," Journal of Economic Literature, 36 (June 1998), p. 820.
159. Ibid., p. 821.
160. Ibid., p. 820.
161. Ibid., p. 820.
162. Christopher Drew and David Cay Johnston, "For Wealthy Americans, Death Is More Certain Than Taxes," New York Times, December 22, 1996, p. 14.
163. David Cay Johnston, "I.R.S. More Likely to Audit the Poor and Not the Rich," New York Times, April 16, 2000, p. 1.
164. Ibid. See also Merrill Goozner, "Audits by IRS Down Sharply," Chicago Tribune, April 12, 1999, section 1, p. 4.
165. Sheldon Danziger and Peter Gottschalk, "Target Support at Children and Families," New York Times, March 22, 1987.
167. Howard Chernick and Andrew Reschovsky, "The Taxation of the Poor," Journal of Human Resources, 25 (Fall 1990), p. 712.
168. Cathy Jo Martin, "American Business and the Taxing State: Alliances for Growth in the Postwar Period," pp. 405-406 in W. Elliot Brownlee, ed., Funding the Modern American State, 1941-1995. The Rise and Fall of the Era of Easy Finance (Cambridge University Press, 1996).