The COVID-19 virus is upending commerce as we know it. From small restaurants in South Succotash to giant multi-national corporations, business as usual is now a thing of the past. People are struggling to adjust to the new normal, whatever that may be. In the US capital, politicians and policy makers are working feverishly to find ways to help those facing health related and financial risks — which is most people. At the same time, some of America’s largest business corporations have already begun submitting their requests — some would say demands — for public money to preserve their private interests.
Ayn Rand, Where Are You When We Need You?
Ayn Rand, author of The Fountainhead and Atlas Shrugged, is the patron saint of the conservative movement. Most Republican leaders readily admit to having a copy of one of both on their bedside table so they can remind themselves daily of Rand’s praise for rugged individualism, the wonders of the free market, and the old aphorism that God helps those who help themselves.
Much of the rage that underlies the loathing of big government, administrative regulations, and the “deep state” is based on the preachings of Rand. She built the spiritual foundation for Ronald Reagan’s attack on social welfare programs, the Tea Party, and the rabid, foaming at the mouth ravings of Fox News.
Yet when times of crisis occur, such as in 2008 and today, all of that piety and glorification of Rand goes right out the window as Corporate America’s leaders climb aboard their private jets and make a beeline for Washington, DC to pry dollars out of the federal treasury once again. They use words like “too big to fail” and “national security” to justify their actions but it is nothing more than self interest and greed that brings them knocking on Uncle Sam’s door.
Pay Us Now AND Pay Us Later
Now is always a good time to pry tax dollars from the deep pockets of Uncle Sugar. The Guardian reports that the airline industry, hiding behind the façade 0f something called Airlines For America, is already pressuring the government for a $50 billion bailout. On the surface, that sounds like a swell idea. But as The Guardian points out, the airlines, along with the rest of Corporate America, got a $1.5 trillion dollar gift from American taxpayers just 3 years ago and much of that money has gone into stock repurchase programs instead of being invested in the companies and their workers.
Its research shows Delta, American Airlines, United, Southwest, and Alaska spent $44.9 billion on share repurchase programs and shareholder dividends in the last five years. According to a separate analysis by Bloomberg, those five airlines have spent 96% of their free cash flow on buying back their own shares over the last decade.
Buying back shares helps to raise a company’s stock price. Decades ago, corporate executives figured out how to avoid billions in income taxes. Instead of getting paid in cash, they are compensated with stock options. Any profits are taxed at capital gains rates rather than as ordinary income. The tax rate on capital gains fluctuates, but it is always lower than regular tax rates, which allows those executives to cheat the system legally. In addition to those stock buybacks, the airlines ladled out nearly $750 million more in executive pay during the same time period.
The American Thing To Do
No one questions that many industries will be slammed by the coronavirus. In the past few days, the Center for Aviation warned that most of the world’s airlines will be bankrupt by the end of May this year without help from governments and industry action. Airlines for America says the industry will burn through $10 billion in cash every month the pandemic disrupts the airline industry.
Here’s a thought. Maybe while the airlines are cozying up to Uncle Sam, they could announce a program to help repatriate the tens of thousands of Americans trapped in foreign countries and unable to get home because of travel restrictions. Maybe instead of gouging people with exorbitant fares, they could offer free or reduced fare flights for those Americans most affected by the crisis.
Such a compassionate response might make the taxpayers more willing to open their wallets one more time to help the poor unfortunate corporations who spent all their cash on making their executives richer. Maybe if it was presented as less of a “heads we win, tails you lose” situation, people would be more willing to buy the “too big to fail” fiction that worked so well a decade ago.
Looking Out For The Little People
Sara Nelson, president of the Association of Flight Attendants, suggests that any government bailout package come with “significant conditions” that would not allow companies to “enrich shareholders or pad executive bonuses.”
“We have told Congress that any stimulus funds for the aviation industry must come with strict rules. That includes requiring employers across aviation to maintain pay and benefits for every worker; no taxpayer money for CEO bonuses, stock buybacks or dividends; no breaking contracts through bankruptcy; and no federal funds for airlines that are fighting their workers’ efforts to join a union,” Nelson tells The Guardian.
Senator Edward Markey, who has angered Tesla supporters by asking the company to stop calling its self-driving software Autopilot, has also called for “major strings” to be attached to any deal to help protect consumers, front line workers, and smaller industry firms, and to ensure carbon emissions are reduced in the future. What? How can anyone talk about carbon emissions at a time like this? Don’t they know the world is in crisis? The way humans are programmed, today’s crisis is much more important than tomorrow’s crisis. It’s baked in to our DNA.
A Test Of The Capitalist Model
The shorthand version of capitalism is that those who put their money at risk to create new businesses are entitle to reap the rewards that flow from their creation. The obverse of that proposition is that failure falls squarely on the shoulders of those who risk their capital in the first place. But as things have developed, capitalism now means investors can privatize the rewards while socializing the costs of their activities.
A corollary to capitalist theory is the notion of creative destruction. Just as in sports, someone younger and stronger is always coming along to challenge the champion. In business, new ideas and new technologies are always displacing existing businesses. It is apparent the coronavirus will upend “business as usual” thinking. Propping up businesses built decades or centuries ago is not an efficient use of capital. It distorts the system and leads to negative results for all concerned.
The airlines argue that they employ 750,000 people. If they go out of business, what will all of those people do for a living? There is rampant speculation that the hotel and cruise ship industries will collapse as a result of the coronavirus. Perhaps that is true, but that doesn’t mean new industries won’t be created to take their place — if they are allowed to.
Governments ought to be concerned about people having a roof over their heads and food in their stomachs. But corporations? Ayn Rand would say to let them fail so new businesses can replace them. Will all those so-called conservatives listen to their Muse and follow her commandments? “We’ll see,” said the Zen master. But if past experience is any guide, governments will bend over backwards to preserve the existing order and a chance to update our economic model to conform to current realities will be lost.
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