General Electric, along with General Motors, is the prototype of Big Business in the Age of Obama. GE bills itself as the world’s largest industrial company; currently it ranks #4 in the Fortune 500, with revenues in 2010 of around $156 billion. All has not been well at GE, however. Since 2002, the company has laid off around 20 percent of its work force in the U.S., while expanding its overseas operations. And the company’s financing arm, GE Capital, sustained massive losses and had to be bailed out by the federal government:
General Electric, the world’s largest industrial company, has quietly become the biggest beneficiary of one of the government’s key rescue programs for banks. …
The company did not initially qualify for the program, under which the government sought to unfreeze credit markets by guaranteeing debt sold by banking firms. But regulators soon loosened the eligibility requirements, in part because of behind-the-scenes appeals from GE.
A consistent feature of GE’s symbiotic relationship with the federal government is that its greatest successes have been gained through lobbying rather than innovation.
Public records show that GE Capital, the company’s massive financing arm, has issued nearly a quarter of the $340 billion in debt backed by the program, which is known as the Temporary Liquidity Guarantee Program, or TLGP. The government’s actions have been “powerful and helpful” to the company, GE chief executive Jeffrey Immelt acknowledged in December.
GE’s finance arm is not classified as a bank. Rather, it worked its way into the rescue program by owning two relatively small Utah banking institutions, illustrating how the loopholes in the U.S. regulatory system are manifest in the government’s historic intervention in the financial crisis.
GE’s executives fared well compared to those who worked for banks that got bailouts under TARP:
Unlike other major lenders participating in the debt guarantee program, including Bank of America, Citigroup and J.P. Morgan Chase, GE has never been subject to the Fed’s stress tests or its rules for limiting risk. Also unlike firms that have received bailout money in the Troubled Assets Relief Program, or TARP, GE is not subject to restrictions such as limits on executive compensation.
So GE owes the federal government a major debt of gratitude. But that isn’t all. How does GE plan to rebuild its business for the future? In great part, by focusing on “green” technology:
GE chief Jeffrey Immelt hopes to keep the momentum going. He’s investing $6 billion to develop new medical products and technologies, and is making big bets on green technologies, from fuel-efficient turbines to “thin film” solar panels.
Windmills, too. Those “green” investments are largely in technologies that cannot compete on the merits with more efficient sources of energy like fossil fuels, so GE is lobbying on behalf of cap and trade legislation, which will make its own investments more profitable by hobbling its more efficient competition.
2010 was a good year for GE. The New York Times reported that the company earned over $14 billion in 2010, $5.1 billion from its U.S. operations. (The tens of billions GE has received from the federal government in bailout guarantees were obviously a big help.) Yet GE paid no federal income taxes in 2010. On the contrary, it claimed a $3.2 billion “tax benefit.”
The Times says that GE’s low taxes are a tribute to its close, personal relationship with the federal government:
Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. … The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress. …
Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines.
Again: GE strives for business success through lobbying for special privileges, not through open competition. President Obama has acknowledged the special relationship that GE has with the federal government by anointing GE’s CEO, Jeff Immelt, as his favorite businessman. Earlier this year, Obama appointed Immelt to head the President’s Council on Jobs and Competitiveness. Many considered the appointment ironic in view of GE’s layoffs in the U.S., and in view of the fact that Immelt seemingly prefers lobbying over competition.
The Times story on GE’s taxes was a bombshell. (GE responded here. As I parse the response, the company doesn’t claim that the Times story was inaccurate.) Obama spokesman Jay Carney was asked whether the Obama stands by Immelt’s appointment in view of the GE tax revelations:
Carney was asked why, if the president wants corporate tax reform, he appointed “to the head of the Competitiveness and Jobs Council a person who is now the poster child for abusing the system to get out of paying taxes.”
“The jobs and competitiveness council is designed for just that,” Carney responded. “And he has brought together a lot of voices on that. And he wants to hear the opinions of every member of that council. And we have said, with regard to questions about other members who have been appointed, that the president obviously doesn’t want a council of people who agree with him on every issue; he wants to hear diversity of opinion.”
Apparently no one asked whether a person whose company has laid off 20 percent of its American employees is ideally suited to head a commission on job growth.
It is easy to understand why the Obama administration is so loyal to GE and its CEO. GE has become a major supporter of Democratic Party candidates. Open Secrets says that GE’s PACs and individuals make it a political “heavy hitter.” In recent years, its contributions have tilted heavily toward the Democrats: in the last two cycles, GE’s PACs and individuals have contributed $3.9 million to Democrats and $2.3 million to Republicans. And that doesn’t count the much larger $40 million GE spent on lobbying in 2010, much of it devoted to cap and trade and other “green” initiatives that cement the alliance between Big Business and Big Government, in opposition to the interests of consumers and taxpayers.
And even more important than all of that may be the fact that G.E. owns NBC, which in turn co-owns MSNBC with Microsoft. NBC and, especially, MSNBC–the home of Chris Matthews, Rachel Maddow, Ed Schulz and until recently Keith Olbermann, has essentially been a house PR organ for the Obama administration and Congressional Democrats. (Last month, GE made a deal to sell NBC to Comcast.)
So the symbiosis between GE and the federal government, in particular the Obama administration, is obvious. GE strikes us as a “modern” company, in that its business strategy consists largely of exercising political influence. In truth, however, the concept is not new: the virtual merger of Big Government and Big Business has long been a hallmark of national socialism.
One can hardly resist comparing GE with another American company–one that has steadily increased its American workforce, rather than cutting it. One that has never gone to the federal government for a bailout. One that lobbies out of self-defense, as all companies do, but not to secure special privileges for itself at the taxpayers’ expense. One that pays lots of taxes. One that not only advocates free enterprise, but lives by it, competing for business with superior products and services.
A number of companies would fit that description, but I have in mind Koch Industries. Koch is smaller than GE, although not radically so–$100 billion in revenues vs. $150 billion–but it pays a whole lot more in taxes. One might think that a company like Koch would be honored and respected compared with a company like GE, but that is not the case–not on the left, anyway. On the contrary, it is Koch’s very integrity that makes it public enemy number one for the Democratic Party.
The left has not only failed to acknowledge Koch’s virtues, but has relentlessly slandered the company and its owners. The Obama administration, shamefully, has taken the lead in this regard. In August 2010, Austan Goolsbee, the Chairman of Obama’s Council of Economic Advisers, slandered Koch Industries by claiming falsely that the company doesn’t pay taxes:
[W]e have a series of entities that do not pay corporate income tax. Some of which are really giant firms, you know Koch Industries is a multibillion dollar businesses. So that creates a narrower base because we’ve literally got something like 50 percent of the business income in the U.S. is going to businesses that don’t pay any corporate income tax.
The administration quickly backtracked when it was pointed out that Koch Industries, in fact, pays large amounts of taxes. But there is another wrinkle: since Koch is privately owned, any knowledge that Goolsbee could have of its tax returns could only come by accessing them in violation of federal law. Whether the Obama administration committed a crime in connection with this episode is now under investigation.
So the questions are posed rather starkly. Which company should Americans respect, the company that lays off more and more Americans, or the one that keeps hiring them? The company that dodges taxes, or the one that pays them? The company that makes money by partnering with government to force uneconomic products on an unwilling public, or the one that sells top-notch products that consumers want, without any compulsion from Washington? The company that stands for a Big Business-Big Government partnership, or the one that stubbornly defends, and practices, free enterprise?
I don’t think it is an exaggeration to say that America’s future will be determined in large part by which of these two companies’ business models proves more successful.