Corporate management is supposed to make money for shareholders. So says the centuries of case and statutory law. Sure, corporate management can diverge from this primary focus to do things like "protect the corporate" bastion from raiders. But they need not. On the other hand, if corporate management exhibits enough negligence and bad faith to cause a drop in stock price, they may face liability to shareholders (who sue, ostensibly, on behalf of corporate interests).
Before globalization -- of securities and product markets -- this charge on corporate management did not necessarily harm workers. A rising stock price generally indicates (or so says the common wisdom) a successful company. A successful company hires lots of workers and pays them well.
When a corporation can pick up anchor and move operations overseas, this fragile balance unravels in devastating fashion.
Suddenly, management faces a conundrum: shareholder profits will increase if they hire lower-paid foreign labor. Likewise, they increase if the company can avoid corporate income tax. Indeed, without moving abroad for cheaper labor and lower tax rates, many argue that management would lose their entire business to the vagaries of free trade. Certainly they would face derivative suits from disgruntled shareholders.
No where does this tension resonate more than with that grand old blue chip GE, who, according to Tax Analysts, enjoys a 3% effective U.S. corporate tax rate (for those taking notes, it's technically supposed to be 35%) because it moved enough of its operations overseas. Because the U.S. doesn't tax income on foreign subsidiaries, so long as those subsidiaries are stuffed with a minimum amount of genuine business operations.
Meaning, the kind of operations that require the retention of workers. Foreign ones.
And, if they move those operations to the right places, they don't even have to pay income tax to the foreign governments. Who generally, to lure jobs and industry, are liberal with their tax rates.
But GE is such a great, stable investment for US workers saving for their retirement -- or at least it used to be, before the advent of GE Capital -- and many American pension funds benefitted from its global footprint.
It's all a bit perverse, no?
What can we do?
We could tax the income on all subsidiaries of any U.S. corporation, no matter where they are and what they do. And pray the companies don't re-incorporate elsewhere.
We can demand corporations adopt fiduciary duties to corporate stakeholders. And pray the companies don't re-incorporate elsewhere.
Obviously, a coordinated global response is necessary.
But, not the kind that advances the cause of unrestrained free trade. Whoops.
