Verizon’s Greedy Corporate Businesss Model Is Exactly
What Is Wrong With Our Economy
Continuing our “What’s wrong with the economy” series using Verizon as a case study…
You can read about Verizon’s decision to lay off 4,800 American workers in yesterday’s NH Labor News. (You might have missed it in the mainstream press, under all the election headlines.) The cuts include seven call centers as well as some retail stores.
How is Verizon going to serve its customers, once all those call centers are closed? The company “is offshoring customer service calls to numerous call centers in the Philippines, where workers are paid just $1.78 an hour and forced to work overtime without compensation.” (Wow. Not exactly a living wage.)
Guess what else was in the news yesterday. Verizon’s agreement to buy Yahoo for $4.83 billion. So…right now, Verizon is laying off thousands of American workers while it’s spending billions to acquire another company. Does that make any sense to you?
And I’m feeling déjà vu.
Remember that Verizon workers had to strike, earlier this year, after working without a contract for eight months while the company demanded employee concessions? That was at the same time Verizon was buying AOL for $4.4 billion. Does that make any sense? Why would a company that can afford to buy another company need draconian cuts to employee pensions, health care, and benefits for workers injured on the job?
And when Verizon “buys” another company, what, exactly, does it purchase? AOL and Yahoo sell ads on the internet, they don’t have much in the way of bricks-and-mortar assets. So, Verizon is spending billions of dollars to… buy another company’s stock. After spending $5 billion to buy back its own stock.
Doing the math here? Looks to me like… between 2015 and 2016, Verizon will spend a total of $14 billion on shares of corporate stock. At the same time it is closing US call centers, laying off American workers and demanding concessions from its unions. Money coming out of workers’ pockets, going into the pockets of stockholders.
While you’re getting mad, remember how Congress has structured our tax system. Investment income is taxed at about half the rate of wage income; and it’s completely exempt from Social Security and Medicare taxes. So the next time you hear a politician talking about how those systems are “going bankrupt”… ask them what would happen if they taxed investment income the same way they tax our wages. I’m guessing it would fully fund Social Security and Medicare, as well pay down a good chunk of our federal debt. But back to Verizon.
This is what’s wrong with our economy: CEOs and directors would rather purchase stock than pay workers. And so workers’ pay has been stagnant since the 1970s… even as our productivity has kept rising.
Meanwhile, the stockmarket is in the stratosphere. And Verizon’s stock price keeps rising.
And Verizon’s corporate officers are doing just fine. (Read the rest of our Verizon series, starting here.)
And the Federal Trade Commission has already signed off on Verizon’s offer to purchase Yahoo … so it looks like Yahoo stockholders will be getting all those billions of dollars, while Verizon’s American workers face unemployment and its Philippines employees work unpaid overtime.
Because the folks who make corporate decisions would rather buy stock than pay workers.
Things weren’t always this way. Once upon a time, it was illegal for corporations to repurchase their own stock. But in 1982, the SEC created a regulatory “safe harbor” — and since that time, stock buybacks have skyrocketed. Last year, corporations spent more than $650 million buying back their own stock. All of that is money that could have been used for job creation or wage increases or facility expansion. Sadly, some of that money came from the pockets of workers who were laid off, had their wages cut, or were forced to accept benefit cuts. (Read more about what Verizon “bought” with their 2015 $5 billion buyback program here.)
Once upon a time, corporate mergers and acquisitions were more closely regulated; but once the regulations were loosened again, mergers have risen to an all-time high. Last year, corporations spent $5 Trillion buying up other corporations. Again, that’s money which is not being used for job creation, wage increases or new plants and equipment. And, again, some of that money came from the pockets of employees declared “redundant” when their company was acquired. (Read more about AOL layoffs when Verizon acquired the company here. Read more about Yahoo layoffs expected when Verizon acquires that company here.)
Do the math yourself. It adds up to more than $5.5 Trillion that corporations spent — just last year — buying stock rather than creating jobs.
And some folks wonder why our economy is in such a mess.