The Age of Acquiescence by Steve Fraser

The Age of Acquiescence by Steve Fraser

Author:Steve Fraser
Language: eng
Format: epub
Tags: History / Revolutionary, History / Social History, History / United States / 19th Century, History / United States / 20th Century, History / United States / 21st Century, History / North America
Publisher: Little, Brown and Company
Published: 2015-02-16T16:00:00+00:00


Fire in the Hole

Corporations in trouble, no longer able or willing to finance themselves with retained earnings, needed to please Wall Street to keep afloat. And they did so for two decades and more by the kind of ferocious cost-cutting “Chainsaw” Al Dunlap made famous at Scott Paper and Sunbeam. Dunlap had a bulldozer voice and a personality to go with it. He was apt to crow about his working-class parentage—his father was a union shop steward at a shipyard, his mother worked at a five-and-ten—to show his sympathies as he slashed and burned. Best-selling author of Mean Business, he earned his spurs by immediately laying off one-third of the blue-collar workforce (11,000 people) and shrinking the white-collar battalions from 1600 to 300 at Scott Paper.

Harley-Davidson, long practiced in this same art, was still at it during the Great Recession. The motorcycle maker stopped hiring in America and projected cutting loose more than one-fifth of its workforce, making up the lost capacity by ratcheting up the hours of those who remained. Practices of this kind were also common at corporations like Ford, General Electric, Alcoa, and Hasbro. Stock prices invariably soared as the mayhem descended. This strategy of deliberately wasting away was especially attractive to companies during the crisis periods of the dot-com collapse and the Great Recession.

Alternatively, a firm might look for new revenue not in manufacturing but by creating its own financial auxiliaries to speculate in everything from Eurobonds to currencies, credit cards and home mortgages, leases and insurance. Companies like General Electric and General Motors did this with a vengeance. GE Capital was responsible for 40 percent of GE’s revenue by 2008 and half its profits, dollops of which came from betting on collateralized debt obligations until they soured. Meanwhile, GE’s outlays for research and development dropped by 20 percent in the 1990s. Enron, before it became infamous, derived a similar share of its revenue not from power generation, but from lending, trading, and other financial activities, including fraud. It practiced a kind of commercial savagery. When a brush fire broke out in California, exacerbating that state’s summertime electrical energy crisis, an Enron trader, overjoyed that rates would rise, exclaimed, “The magical word of the day is ‘Burn Baby Burn.’ ” Another talked about the money they “stole from those poor grandmothers in California.”37

Investing in mergers and acquisitions was an appealing alternative only because the underlying assets of the companies being commingled or bought could then be pared down or liquidated, and pensions and health insurance obligations could be defaulted on, with the costs passed on to the public treasury. Devalued assets could in turn be picked up at bargain-basement prices and resold. Indeed, the point of most transactions was to buy in order to sell, which tended to leave long-term investment out in the cold.

It is only a slight exaggeration to say that the new corporations emerging out of this bazaar of buying and selling were in a new business: the fabrication of companies to trade back and forth.



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