A report out from a coalition of community members, students, union members and activists claims California's 1% are hurting the state's economic recovery.
April 10, 2012 1:19 p.m.
David Lagstein, Alliance of Californians for Community Empowerment (ACCE)
Dan Seiver, SDSU School of Business, Finance
Related Story: Report: California's 1% Hurting State's Recovery
CAVANAUGH: It's been documented by wage and wealth statistics that the gulf between the very rich and the rest of us has increased dramatically in years. This gap has given rise to the Occupy Movement slogan, defending most regular wage earning Americans as the 99%. But just who are the 1% in California? And are they helping get us out of our economic downturn or are they contributing to the downturn? A new report out today names some of the richest corporate CEOs across the state. Activists say they intend to hold these members of the 1% accountable for their actions that hurt the economy. Earlier today, I spoke with David Lagstein, with the alliance of Californians for community empowerment about the new report. David, this report is titled "meet California's 1%." Tell us about this report and how it came about and its purpose.
LAGSTEIN: Yeah, so the report which is called meet California's 1%, what it really does is it calls out the rich Californians and their corporations that are stopping the economic recovery dead in their tracks.
CAVANAUGH: Go ahead, I'm sorry.
LAGSTEIN: They're really benefiting and having large profits at the expense of working people and the middle class.
CAVANAUGH: How are they doing that? How does your report outline that?
LAGSTEIN: So it actually gives some examples. We've looked at CEOs at California companies that didn't pay their fair share of taxes like Walmart. Banks who threw millions of people out of their homes like bank of America. We looked at companies that put thousands and thousands of dollars lobbying against sensible consumer protections like Chevron. These are companies that are profiting at the expense of families that are trying to make it and fulfill the American dream.
CAVANAUGH: Now, part of this report too claims that the corporations and CEOs that you focus on in this report are killing the economic recovery. How are they impeding the rest of California from getting on its financial feet?
LAGSTEIN: I think a critical part of this is that they don't pay their fair share of taxes. And what that does is it slows down the economy because there's deep cuts to schools, to healthcare benefits, to public safety. And this has a spiral effect on the economy and the welfare of everyday Californians.
CAVANAUGH: How did you go about choosing the corporations and CEOs that you focus on in this report?
LAGSTEIN: We looked at the CEOs that are California residents, looked at some of the corporations that had the largest impact on the economy and took a look if they were doing the right thing. And unfortunately it's the case that people that were chosen they were not doing the right thing. They were hurting everyday California apps, and they were hurting the economy.
CAVANAUGH: This report is largely sponsored by unions, the teachers' union, the service employees' union, the state employees' union, and it seems aimed at some of the unions' longtime enemies like Walmart and the California Chamber of Commerce. So is this really a new battle or just the continuation of an old one?
LAGSTEIN: You know, I think it's a continuation of an old one where power and wealth is concentrated in the hands of the few, and there's a broad coalition of students and activists and union members and teachers and public safety workers that want to see themselves get a fair shake.
CAVANAUGH: The group of 12 in the report breaks down into three categories. You separate them by housing recovery, fiscal killers, and the environment. What would you like to see these corporations and these individuals do to help the recovery in these areas?
LAGSTEIN: I think there's a couple key recommendations that are coming out of the report. And both corporations can change their policies, and their CEOs have the ability to impact the decisions that their corporations are making. So certainly we'd like them to support to increase taxes on the wealthiest Californians so they can pay their fair share so that California's economy can be moving. They should voluntarily support to close the corporate tax loopholes that are in some cases having large multimillion dollars companies not even paying any taxes. We'd like them to support restoring funding to public education and vital services. And in the case of the banks and mortgage companies, we would like them to support resetting mortgages to fair market value so that underwater homeowners have a chance to stay in their homes
CAVANAUGH: You list some of the CEOs of the corporations and you list what they -- sometimes what they make, and sometimes what their corporation has paid in taxes, many times that's zero for some certain years. Do you think this kind of information is surprising to people, or do you think people already have a feeling that a lot of people who are very wealthy have found's way around taxes so to speak?
LAGSTEIN: I mean, that's part of the problem is that it's unfortunate in our political system campaign contributions allow corporations to basically write their own policies, which are protecting them from responsible regulation, and often protecting them from paying their fair share of taxes. And it's really unfortunate. I think people are starting to understand this more. And our hope is that by shining a light on some of the irresponsible practices of these corporations and their leadership that people are going to be ready to stand up and push for some changes.
CAVANAUGH: Now, the report says that activists will protest outside of the homes of some of the millionaires included in the report. And I'm wondering, how do you justify that kind of personal action against these men and their families?
LAGSTEIN: Well, I think part of the reason is we're actually going to their homes and we're actually asking them to sign onto the 99% agenda. Perhaps they haven't thought of it. In classes that have over 30 people of people that are losing their jobs because of their policies, and we're actually asking them to rethink their policies and rethink their positions to say you can make money but you can also do it in a way that supports the community and supports an agenda that helps the rest of the 99%.
CAVANAUGH: Now, none of the people in the report actually live here in San Diego. So how are people protesting here in San Diego?
LAGSTEIN: What's happening is that people are going to some -- four of the companies that are highlighted in the report and we'll be asking to send them messages to their CEOs in the different places throughout California, and also asking people that work there to sign onto the agenda to support the 99% agenda.
CAVANAUGH: And what are those companies?
LAGSTEIN: The companies are the Irvine company, Wells Fargo, bank of America, and Charles Schwab. These companies are all in the same neighborhood as where Mitt Romney has his home, and it's a place where a lot of the 1% are living and working, and we thought that was a good place to highlight this message.
CAVANAUGH: What would you like to see happen result of this report?
LAGSTEIN: The goal of this report is to shine a light on the rich Californians and their corporations that are stopping the economic recovery. And our hope is to bring attention to this behavior and to challenge people to make decisions to change what they're doing. They can be a responsible business and conduct themselves in a way that they're paying their fair share of taxes so the rest of California can benefit from a strong economy and rebuildingingly the middle class.
CAVANAUGH: David, thank you very much. Joining me now is professor Dan Seiver who teaches in the finance department at San Diego state. And professor Seiver, thank you, and welcome back to the show.
SEIVER: Happy to be here.
CAVANAUGH: Now, are you just heard David talking about this report called meet California's 1%. Are the 1% to blame for standing in the way of our state's economic recovery as you see it?
SEIVER: I think that's a gross exaggeration. There are serious concerns about how unequal incomes are in the U.S. because they've gotten more unequal. And I think that protests tap into that sense. For a long time, incomes were becoming less unequal in the U.S., and that trend has been reversed. And that is a serious problem. I think it needs to be addressed. Of but the economic recovery continues, and I don't think that any particular large firms are attempting to derail it. I think if the economy grows, large firms will make larger profits. I don't think they object to that in and of itself. Now, the tax issue is also important. And I think what is true is that the U.S. tax code, a corporate individual, and the state tax code is way too complicated. It's filled with loopholes, exceptions, and so on. Of it's not designed for ordinary people. It's designed for people who can hire lobbyists. And I think that's a shame. So we really need serious tax reform. There's no doubt about it. But I don't see asking somebody to voluntarily pay a lot more. We have to get rid of all the loopholes and exceptions, and then we could have lower tax rates as part of that. Of
CAVANAUGH: One way this report tries to document the fact that the super wealthy and their corporations are standing in the way of economic revival in California is they mention certain things that lobbyists oppose. For instance, the California Chamber of Commerce, which is mentioned in this report works with the oil company lobby to insure that California remains the only state that does not tax oil production. Now, is that working against the economic health of California?
SEIVER: Well, there's nothing obviously wrong with taxing oil. It could be done elsewhere. And if California needs more revenues, which it really seems to, that's one possibility. I think California certainly restricts oil exploration off its coasts more than some states do. And that's a choice that's been made, to not really explore. So I don't see anything economically wrong saying we could tax this. But it would be a shame to just add more taxes rather than reforming the entire tax code, which I think would be a superior alternative.
CAVANAUGH: This report, and a lot of the activism that's been generated recently, is against banks. Banks like Wells Fargo, and bank of America, which are specifically named in this report because of things like questionable foreclosure procedures, how the subprime mortgages were basically marketed before the economic collapse, how they made loan modifications difficult, they've worked against principled reduction reforms. I'm wondering, are those valid criticisms against the banks here in California and across the nation? Or are there reasons that the banks are standing in the way of that type of reform?
SEIVER: Well, the banks certainly are entitled to a significant portion of the blame for the credit collapse that we had. There are plenty of bad actors, and that included regulators who didn't do their job, greedy members of the public. But the banks certainly did their part. And in some sense they essentially walked away from the wreckage. And a lot of Americans are still mad about that, and I could see why that's the case. But for example, I can't see -- I'd love to have my bank knock $100,000 off what I owe them and say your house isn't worth as much, we'll take 100 grand off. But that's not going to happen in this universe. If the banks did something like that, it would destroy their profitability. They just barely returned the profitability from, in part the mistakes they've made, and the loans they've made in the past. So I think we could improve the foreclosure process. We have to get -- I think we've done some of that in terms of of getting rid of some of the abusive nature of it. It's not so simple to just say the banks could just write down all those loans. They can't afford to do that.
LAGSTEIN: There is some principle reduction included in that settlement that the banks recently came to with California and other states. Critics say that it's too little and too late.
SEIVER: Yeah, but there are limits to how much you can write down. What do you do about somebody who bought way more house than they should have? And they knew it, and so now they're feeling, well, I don't want to have to pay.
SEIVER: So we're going to decide who's justified and who isn't? Who's deserving and who isn't? That's very difficult to do.
CAVANAUGH: Recommendations call in this report call for a change to policies at these companies where this group says the CEO can make an impact. And I wonder, how much of an impact can a CEO make on a corporation's policies?
SEIVER: I don't know. They probably can make some. I think we've seen evidence that a number of CEOs seem woefully ignorant of how their firms actually operate and what they were doing. MF global is a great example of that. Their CEO claimed not to know that they were illegally using customers' money to cover some of their debts. MF global went into bankruptcy. And that's not the first CEO that has said over the last ten or 15 years that they had no idea what was going on after having been featured on the cover of business magazines as top CEOs. But they could have some impact, but I think it still makes more sense for them to be concerned with the runs of the business, and if we want to change the way businesses behave, we have to change the loss.
CAVANAUGH: It sounds as if you think about what David said, knocking on CEOs' doors and saying, by the way, did you know that your corporation was doing this, might actually be helpful.
SEIVER: Right. Although I suspect that they will be aware of that. The other point I wanted to make is that this is -- this represents pretty much the view of big labor in the United States. And big labor and big business have been going at it, back to the days of the dinosaurs maybe. But the problem is that these large institutions have corrupted the whole political process on both sides. And we get overwhelmed by lobbyists of all stripes. And it's hard to see how we could make good public decisions when the noise level is so high. And those with funds on both the right and the left can try and influence us very heavily. And that's a problem with elections too.
CAVANAUGH: Well, I have to say thank you once again.