One man’s perspective on stories that matter. Look for these posts every week on ILSR.org and the landing page for my work, From the Desk of David Morris.
Table of Contents:
Instead of making Medicare universal we should make Medicare prices universal. “You’ve heard of single-payer,” the authors of the proposal, Paul S. Hewitt, an economic adviser to the Council for Affordable Health Coverage and Phillip Longman, a policy director at the Open Markets Institute write in the Washington Monthly.“This is the case for single-price.”
They note that the Affordable Care Act tightened existing price controls on how much doctors and hospitals can charge Medicare, Medicaid, and other federal health care programs for performing specific services.
The result? “At a time when the price of health care paid for by commercial insurance has been increasing two to three times faster than the wages earned by most Americans, the price of health services delivered through the federal programs—which account for 37 percent of all health care bills—has actually been declining relative to the average wage.”
Simply extending these cost controls to commercial plans, the authors maintain, would reduce the total cost of health care for a typical middle-class family by about a third, without having to pass any new taxes and without forcing anyone to change their health care plan.
According to the Congressional Budget Office, the price for a one-day hospital stay is 89 percent higher when charged to commercial insurance plans and their customers than when a Medicare patient stays in the same bed for the same amount of time. Overall, the discounts Medicare and Medicaid receive are in the 20 to 40 percent range.
A “Medicare prices for all” regime would offer many benefits. By eliminating the haggling and gamesmanship involved in setting thousands of complicated fee schedules for patients on different plans it would dramatically reduce administrative costs.
Since all employers would pay the same amount for healthcare, it would shrink the advantage large employers have when it comes to attracting workers by offering generous plans.
Large insurance companies would no longer have any advantage over smaller ones in negotiating contracts with providers for care. They would have to find more creative ways to compete for customers.
According to Hewitt and Longman, hospitals that disproportionately serve low-income and elderly patients—typically found in rural or poor, urban locations—would be the least affected. Unable to pass inflated costs along to patients with commercial insurance, they’ve had to learn to be more efficient and learn know how to break even or even earn a surplus at Medicare and Medicaid prices.
“These hospitals might even welcome a move to universal Medicare prices because it would help level the playing field with monopolistic competitors when it comes to recruiting and retaining doctors,” the authors note.
Monopolist hospitals would scream the loudest because they could no longer charge monopolist prices. That would affect much of the country since, according to the Federal Trade Commission, 40 percent of all hospital stays now occur in areas where a single corporation controls all hospitals. Another 20 percent occur in regions where only two competitors remain. Where health care consolidation is strongest, hospital prices run roughly 20 percent higher than in markets where some real competition remains.
“A major political benefit of the single-price system is that it could split the interests of providers, isolating price-gouging, monopolistic networks from smaller, community-minded hospitals and doctors,” Hewitt and Longman maintain. “At the same time, by preserving a role for commercial insurance, it spares health care reformers from being pitted against the entire medical industrial complex.”
While sympathetic to Bernie Sanders’ “Medicare for All” bill, which would shift every American onto Medicare, the authors note that, according to Sanders, the plan would require a 7.5 percent payroll tax on employers plus a 4 percent income tax surcharge on individuals. The plan would bring down overall health care spending, but “almost all of those savings will come from money that voters don’t know they’re currently spending. More than 150 million Americans have employer-sponsored group health care plans. They can see what they are forking out directly for premiums, deductibles, and co-pays, and they don’t like it..(But) In a typical employer-sponsored family plan, two-thirds of the premiums are nominally paid by the employer …So selling a single-payer system involves promising to save people money on costs they don’t know they pay, while at the same time telling them that they’ll have to share more of their paycheck with Uncle Sam. Not easy.”
The 2017 elections brought the New Democratic Party (NDP) back into power in British Columbia in a coalition government with the Greens. In Policynote, Marc Lee analyzes the NDP’s budget, which aims to damp down housing prices while raising revenue for affordable housing.
Starting in 2019, BC will introduce two new progressive tiers on top of the basic property tax, the first in North America to do so. For assessed property valued above $3 million, the additional rate will be 0.2 percent. A home worth $4 million would pay an additional $2,000 per year. A house with an assessed value exceeding $4 million will pay an additional tax of 0.4 percent. So a home assessed at $5 million would pay an additional $4,000 on the last million, plus the $2,000 described above, for a total increased property tax of $6,000.
The NDP estimates the new progressive tiers will raise $200 million per year. It has yet to determine how much of that will go for building affordable housing. For comparative purposes, British Columbia’s population is about that of the city of Los Angeles.The NDP will also make the existing progressive property transfer tax paid by the buyer when a property is sold more progressive. The previous top rate was 3 percent on property valued at over $2 million. The new top rate will be 5 percent on the value above $3 million. The new rate is applicable immediately, and is expected to raise about $80 million annually.
In August 2016, the previous BC government imposed a 15 percent foreign buyer tax. As Lee writes, “In the wake of the tax, the market stalled, and some of the air was let out of the top end of the market. But by mid-2017, real estate price inflation came thundering back (albeit more concentrated in the condo market than pricier single-family homes).”The NDP will increase the foreign buyers tax to 20 percent and impose it beyond Metro Vancouver to include the surrounding districts. The additional tax could raise $40 million a year.
Finally, the province will adopt a version of Vancouver’s Empty Homes Tax, which is aimed at properties that are either vacant or held by owners with suspiciously low incomes. A Statistics Canada study found that 7.6 percent of housing units in the City of Vancouver are owned by non-residents, 4.8 percent region-wide. Close to 20 percent of new condos are bought by non-residents. The new tax, Lee points out, fall “on those who are using BC real estate as a safety deposit box for their capital.”
The tax will start at 0.5 percent on assessed value in 2018, and rise to 2 percent in 2019. Principal residences and long-term rental properties will be exempt but Airbnb or other short-term rentals will not.
The speculation tax will bring in an estimate $200 million per year, although this will depend on how absentee owners react to the new tax provisions.
The speculation tax may become a powerful incentive to rent out a vacant property since owners of a $5 million home would have to pay $100,000 annually to keep it vacant. In addition to powerful incentives to not leave homes vacant, high taxes on more expensive properties will encourage densification and the creation of smaller, more affordable units.
Those who do not pass the up-front screen would have to pay the tax, but they would get a non-refundable credit against BC income tax payable. Thus, in practice, the tax will fall narrowly on a small number of owners who do not declare much or any income in BC.
The prospect for non-residents to have to declare their worldwide income to BC authorities (this is listed as an information collection item for the purposes of the speculation tax) is likely to put a chill on many transactions.
Across India, women constitute more than 50 percent of the agricultural workforce but they are not legally recognized as farmers in their own right. Men have opted to abandon food crops and instead plant cash crops like sugar cane. In Marathwada, which is in south central India, sugar cane cultivation grew from 300,000 to one million hectares between 2004 and 2014, taking 70 per cent of the region’s irrigation water.
The drought and mounting debts led to widespread bankruptcies and the suicide of thousands of farmers.
Reporting in Le Monde diplomatique, Jack Fereday describes how women have stepped in. He talks to Shaila Shikrant, 38, a new leader in Masla, a village of 800 households in the Marathwada region of mahaarshtra, 300 miles from Mumbai. She is sitting, “the shade of her small house with her neighbors around her, filling bowls with rice, wheat, corn, peas, peanuts, sesame, chickpeas, lentils and fenugreek. They represent a small revolution, since she grew them herself…We had five hectares of land, and that was all we grew. So when we ran short of water, we lost everything – we had no money to eat.”
“I asked my husband to let me have one hectare where I could grow crops that didn’t need so much water. I wanted to have something to feed my family in case the cane crop failed, and I wanted to go back to traditional methods, using natural fertilizers. He was skeptical at first, but in the end, he agreed. And when he saw the results, a year later, he let me have half of our land.”
Shikrant was able to feed her family and sell the surplus to buy livestock, which provides fertilizer, and sell organic seed in Mumbai. She has now registered her agricultural enterprise: “It’s all in my own name,” she proudly informs Fereday.
According to the NGO Swayam Shikshan Prayog (self-education for empowerment, or SSP), 40,000 women amongst the 2.3 million rural households in Marathwada have taken charge of at least one hectare of land to grow food crops. A third of the women farmers SSP has counted now own part of their family’s land and, importantly, have gained social recognition. “Before, nobody respected me,” said Rekha Shinde, from the village of Hinglajwadi. “If I wanted 10 rupees, I had to plead for five days, and I wasn’t allowed to leave the house. Now, I bring home 10,000 rupees [US$155] a month, and I’ve helped 40 women set up their own businesses.”
At the start, some received training from the Indian government’s Agricultural Technology Management Agency. But the movement has become self-propagating through the creation of thousands of women farmers’groups, mutual aid organizations whose members pool their expertise and part of their savings.
In the village of Chiwri, 24 miles from Masla, Fereday reports, the DeltaSakhi Farmers’ Group saved more than US$1,600 in a joint bank account in less than two years. The husbands of the group’s 25 members used to have to borrow from pawnbrokers at interest rates of up to 12 per cent. “Now, when the women need cash for a project, they can turn to the group, which is able to secure a loan from a local bank. The moneylenders have shut up shop.”
“Men are more individualistic: they all work their own fields, alone, but we operate as a team,” says Vanita Balbhim, chair of DeltaSakhi,. “And we’re better with money,” adds Lakshmi Brirajdar another member of the group.
Since Balbhim began growing organic fruit and vegetables two years ago, she has been able to feed her family and make enough to put a new roof on the house, buy a refrigerator and pay for the education of her four daughters. Her eldest daughter told Fereday, “I’m so proud of her. She decided to get out of the house and work on her bit of land, and now she’s the head of a farmers’ group. No woman round here had ever done that.”
Asoma Parthasarathy, a founding member of Mahila Kisan Adhikaar Manch (Makaam), a network of organizations campaigning for women farmers’ rights, said: “In practice (women) are already in charge, whether their husbands have gone off to the city to find work, or have died. But they have no legal status, so they don’t have access to the necessary resources – bank loans, insurance and government subsidies.”
Makaam is pressing for the adoption of a bill that would allow municipal authorities to give women who rent and work land recognition as farmers, and would invalidate property deeds that do not mention the name of the holder’s wife. Last November, women farmers from across India attended a large demonstration outside parliament to demand passage of this bill.
In 2012, after nearly 50 years in the U.S. territory of American Samoa, the Bank of Hawaii announced its intention to cease operations. It agreed to hang on until a successor could be found but scaled back its services.
By 2016, Andrew Van Dam reports in the Washington Post, no new loans had been issued for four or five years. Consumers who couldn’t afford to travel to Hawaii or the mainland resorted to backyard lenders and paid usurious rates. American Samoans had no access to credit cards, loans or the other financial tools other Americans take for granted. Islanders living on the mainland faced wire-transfer fees over $150 to send money back home.
The seven islands of American Samoa lie about six hours southwest of Honolulu by air. The territory is slightly larger than the District of Columbia and home to 60,000 American nationals. Its largest export is processed tuna under the Chicken of the Sea and StarKist brands.
Van Dam reports that in 2013 American Samoa turned for advice to Drew Roberts, general partner at the Utah financial services consulting firm Burton, Roberts and Meredith. Roberts worked with government and business leaders to charter a new bank. When that fell through he looked at the very impressive century-old state-owned Bank of North Dakota (BND) as a model.
For a detailed examination of the BND’s impact on local economies, small businesses and community banks, see this report by Stacy Mitchell, Director of ILSR’s Community Scaled Economy Initiative. For a discussion of the farmer-led political movement that took power in North Dakota and created publicly owned enterprises like the BND to enable the state to take back control from out-of-state banks and corporations, see my own report.
Phil Ware, former President of the Celtic Bank, based in Salt Lake City became the first chief executive of the Territorial Bank of Samoa (TBAS), which served its first customers in October 2016.
Ware had first encountered Samoan language and culture on his mission for the Church of Jesus Christ of Latter-day Saints in New Zealand.
TBAS was soon lending money and opening accounts. But it couldn’t offer basic services such as direct deposits or bank transfers until the Federal Reserve signed off on its routing number.
That usually takes a couple of weeks. This time, it took a couple of years. Few federal regulators had approved a new bank in a U.S. territory before, let alone one owned by a territorial government.
Van Dam writes, “The team behind the public bank pressed their case all the way up to the vice president’s office, but it took a meeting with the freshly appointed Federal Reserve vice chair for supervision, Randal Quarles, who came from Salt Lake City-based Cynosure Group, to break the logjam. Roberts said. “All of a sudden, we get a call [from regulators] saying ‘we got the green light, let’s get this thing done.’”
TBAS now has a routing number and can offer cash transfers to the mainland, issue checks and provide card-swiping machines to merchants.
As with BND, the money customers entrust to TBAS is not guaranteed by the Federal Deposit Insurance Corporation. Instead, it’s backed by the full faith and credit of the territory of American Samoa.
Van Dam says that being non-federally insured might be a good thing for public banks like TBAS since it means one is not under FDIC oversight. “(It) be useful if your state has legalized marijuana and the attorney general is Jeff Sessions. It doesn’t bypass the Fed’s role, but it’s a step toward local independence.”
Because marijuana is a Schedule One drug, federal regulators view cannabis-related deposits and transfers as drug money. That has forced most of the legal marijuana industry to do their business in cash, which limits growth, increases operating costs and enables tax evasion.
Just as the Bank of North Dakota catalyzed the creation of the America Samoa Bank, the latter may well become a model for the several dozen U.S. states and cities who, according to the Public Banking Institute, are seriously investigating the prospect.
Last issue I introduced Charles Gaba of ACAsignups and his new video on risk pools. Those of you who have yet to watch Part I will be glad to know you can go straight to the even more impressive Part II and miss very little. Gaba begins with an excellent summary of the core issue.
Sick people cost more to treat. The sickest of all might have medical costs 500 times as high as those of a healthy person. Ten percent of us account for almost two-thirds of all medical expenses.
In the pre-ACA days, insurance companies could refuse to insure sick people or people in a high risk category. Or they could charge exorbitant premiums.
By refusing to insure the sickest of us, insurance companies reduced their premiums for the rest of us. Many states stepped into the breach to cover the rest by creating high risk pools.
But states have to balance their budgets and imposing taxes adequate to fund these pools was in most states political suicide. So they didn’t and likely couldn’t solve the problem.
Obamacare fundamentally changed the calculus. Insurance companies could no longer deny coverage. Almost everyone needed to be treated the same (older people can be charged higher premiums.)
This raised the premiums we all had to pay, but the federal government stepped in to provide handsome subsidies on a sliding scale to cover this additional cost.
Obamacare had one crucial flaw. The subsidies ended abruptly for those earning even $1 dollar over the 40 percent poverty level—$89,000 for a family of three in 2017. That represents millions of middle class families.
Majority of public now opposes insurers discriminating against people because of individual medical history, even 59 percent of Republicans do, almost two-thirds overall.
In 2017, Congress eliminated the penalty for those who refuse to be insured under the ACA. Gaba projects about 9 percent of the insured population will drop coverage. Almost all are healthy, low risk individuals whose medical costs are very modest. That means premiums will rise for the other 91 percent. The CBO estimates these will rise by about 9 percent, or an extra $720 for per year for those who don’t receive subsidies.
The ACA also allows for short term insurance policies that don’t meet its medical standards. These are designed to bridge gaps in one’s medical coverage. They can be for no longer than 3 months.
In April, Trump proposed a rule that would allow short term coverage for up to a year. Iowa just passed a law that allows anyone to sign up to the Farm Bureau, not a legal insurance company and thus unregulated at the state level, for coverage.
These policies will be very low cost because they do not meet ACA standards. Many more people, again primarily healthy people, may drop their coverage. Gaba estimates the increase could be 14 percent. This again will raise the cost of premiums for the rest of us, especially those hit hardest by the subsidy cliff.
Gaba ends with several suggestions for dealing with this problem. A key is to taper off rather than completely eliminate, subsidies after a family is above the 400 percent poverty level.
This is a very important video. It explains something that 99 percent of us probably don’t even know is happening and wouldn’t understand if we did. Watch it.
The inestimable group, In the Public Interest has issued a new path breaking report, Breaking Point: The Cost of Charter Schools for Public School Districts, that goes deep into the weeds to estimate the cost to local public school districts when charters open.
The report begins with an instructive quote from Robin Lake, Director of the Center on Reinventing Public Education.
As charter [schools] hit significant market share…School boards and superintendents are faced with a situation where…the only thing they can do is close schools, lay off teachers … increase class sizes, and slash their central office staffing and support levels. In some cities, districts also face an increasing concentration of the students hardest and most costly to educate, those with severe special needs, those who speak little to no English, those with the most severe behavior and mental health challenges and the least parental support. This combination of factors often triggers a slow death spiral…
The California Charter School Act does not allow school boards to consider how a proposed charter school may impact fiscal health of the district when considering an application, yet as the report notes, “When a student leaves a neighborhood school for a charter school, their pro-rated share of funding leaves with them, while the district remains responsible for many costs that those funds had supported.”
The loss of money forces the public school to cut core services, like counseling and libraries, or increase class size.
The report, written by Gordon Lafer, a Professor at the University of Oregon, Labor Education and Research Center calculates the fiscal impact of charter schools on three California school districts: Oakland Unified School District, San Diego Unified School District, and San Jose’s East Side Union High School District. It finds:
- Charter schools cost Oakland Unified $57.3 million per year. That’s $1,500 less in funding for each student that attends a neighborhood school.
- The annual cost of charter schools to the San Diego Unified is $65.9 million.
- In East Side Union, the net impact of charter schools amounts to a loss of $19.3 million per year.
In the Public Interest persuasively argues that these numbers make concrete the need for public officials at both the local and state levels to be allowed, and even encouraged, to take fiscal and educational impacts on neighborhood schools into account when deciding whether to authorize a new charter school.
In the 1990s cities around the world privatized public services, either out of necessity — driven by budget cuts — or desire, convinced that private companies could provide better services at cheaper prices. Water, transport, housing, energy, telecommunications, waste treatment, health, education and many other services were privatized
A decade later, after experiencing quality problems and spiralling prices, the citizenry rebelled. In the early years of the 21st century the pushback was modest. By its second decade it had become a tsunami.
Reclaiming Public Services, a recent study published by the Amsterdam-based Transnational Institute (examines this tsunami.
Since 2000, the report found 835 instances of what it calls remunicipalization. In the first decade there were only a handful each year. In the second decade, the number increased five-fold, to over 90 a year.
Remunicipalization has taken many forms.
In 2012, Heinsburg remunicipalized its ambulance service. In 2017, the Catalan city of Cabils took back maintenance of public spaces and cleaning and will soon insource 90 percent of its workers. In 2017, Oslo’s dismal experience with privatizing waste management services convinced city hall to bring the service back in-house. Bergen remunicipalized two elderly care homes. Spanish and Austrian cities started public funeral services.
Two-thirds of the remunicipalization efforts dealt with energy or water and initiatives. In each sector, initiatives were concentrated in one country. About 40 percent of the 267 identified examples occurred in France. Over 90 percent of the 311 energy initiatives took place in Germany.
Remunicipalization is rarely just about a change of ownership. After the French city of Montpelier took back its water system, it gave almost one third of its seats on its new Board of Directors to civil society representatives. The new Parisian water utility began to work with farmers in water catchment areas to protect water and water quality.
The chapter on energy, written by Soren Becker, co-author of the Energy Democracy in Europe focuses on Germany, especially the dynamics of remunicipalization in Hamburg.
In 2000, Hamburg sold its shares in its electric, district heating and gas utilities. At the same time popular mobilizations convinced the German federal government to introduce feed-in tariffs for renewable energy, which led to massive buildup of citizen and farmer owned renewable energy.
The Big Four energy utilities remained unresponsive. In 2009 Hamburg established Hamburg Energie as an autonomous subsidiary of its public water company. By 2015 the new energy utility had built more than 13 MW of wind energy and 10 MW of community solar. About 100,000 citizens were buying renewable or locally produced energy.
The Hamburg municipal government refused to move toward full remunicipalization of its energy infrastrucure, even though the energy franchises were expiring. This led to a fiercely contested referendum. Those in opposition included the Social Democrats, the Christian Democrats and the Liberal Party, plus the Chamber of Commerce and many trade organizations. Supporters were outspent possibly 100 to 1.
Nevertheless, in the fall of 2013, the referendum squeaked by, 50.1 to 49.9. In 2014 Hamburg became the full owner of its heating utility. In 2015 its electric grid became public and its gas network will be in 2018.
For those who believe there are significant economies of scale in delivering cost-effective services, Lavinia Steinfort a researcher at the TNI responds in an interview with New Europe, “Economies of scale can also be achieved through cross-subsidization between public services and the clustering of metropolitan, intermunicipal and provincial services… In response to the failing Public Private Partnerships (PPPs)…, public utility companies have been experimenting with Public Public Parnterships (PUPs) to exchange expertise, reduce unit cost and increase productivity. The logic of cooperation is underpinned by peer-to-peer solidarity rather than profit.”
Despite the success in cities taking back their utilities, two significant roadblocks remain. One regards how much the city will have to pay for recovering previously public assets. When the city of Terassa in eastern Catalonia decided to remunicipalize its water supply the municipality’s valuation of the company was $2.4 million while the operators’ was $70 million. In 2013, Berlin remunicipalised its water supply and sewage treatment company at the cost of almost $1.5 billion, which Steinfort notes, will take three decades to pay off via tariff and limit the scope for innovation and social policy.
The other obstacle is the new legal framework contained in trade agreements, like the right of foreign investors to sue governments in international tribunals often comprised of former corporate lawyers when cities decide to reclaim, or even just regulate, a public service. Reclaiming Public Services reports that decisions to deprivatize public services have triggered at least 20 international arbitration cases (ten in the water sector, four in telecommunications, and three each in energy and transport).
About a decade ago, the U.S. Postal Service decided to sell scores of architecturally distinctive historic buildings, many boasting New Deal murals honoring the community and its workers. In 2013 Robin Pogrebin reported in the New York Times that eleven historic post offices were already on the market. Despite vigorous community opposition, one post office built in 1937 had been demolished to make room for a Walgreens.
In 2010 the National Trust for Historic Preservation identified these USPS sales as one of the most significant threats to the country’s architectural heritage.
Opposition arose in scores of communities. In Berkeley, California in 2013 the Postal Service announced plans to sell the 104-year old neoclassical style building which had been listed as a National Historic Landmark in 1981.
In September 2014, the USPS struck an agreement to sell the building. That same month, Berkeley passed an overlay restricting nine parcels of downtown land, including the post office, to civic and nonprofit uses.
The developer backed out of the deal. In 2016 the Postal Service sued Berkeley, claiming the overlay was unconstitutional.
In a January 2018 hearing on the issue, Julie Berman, a Justice Department attorney raised the Postal Service’s principal concern, “If this overlay ordinance is upheld, other municipalities would follow suit.”
Harvey Smith, author of “Berkeley and the New Deal” and president of the National New Deal Preservation Association’s board pointed out the civic center overlay predates its 2014 enactment by more than 100 years as part of a “City Beautiful Movement-style central park area.” In 1915, Berkeley’s first city-planning act drafted by Charles Henry Cheney envisioned a space called “Liberty Square,” and included the newly built post office.
“If they don’t want the buildings they should revert back to the people who paid for it,” said Smith.
On April 2, 2018 a bench trial began. On May 13th the City of Berkeley won its lawsuit.
The court’s verdict means that other municipalities may also adopt Berkeley’s zoning strategy to protect their historic post offices and downtown neighborhoods, which could interfere with the Postal Service’s plans to dispose of more post office buildings.”
Read the Court’s decision here.
On April 30th the California Supreme Court delivered a blow to gig companies everywhere.
The decision could eventually require companies to follow minimum-wage and overtime laws and to pay workers’ compensation and unemployment insurance and payroll taxes, potentially upending their business models.
In its 85 page ruling, the state’s highest court in essence, in a 7–0 ruling, the California Supreme Court ruled, in essence, that if it looks like an employment relationship, it is.
They rejected the multi-part existing standard for determining when a worker is an employee in favor of a simpler “ABC” standard used in Massachusetts. The ruling puts the burden of proof on companies to show that their relationship with a worker satisfies all of the three prongs of this “ABC” test for them to be deemed to be an independent contractor
(A) the worker must be free from control in the performance of the services
(B) the work must be performed outside the employer’s usual course of business
(C) the worker must be engaged in an independently established trade or business
As Yves Smith writes in the Naked Capitalism blog, this last requirement means, “did the worker independently establish this business, or did their ‘business’ consist of filling out a job application on the company’s website and suddenly becoming an ‘independent businessperson’.” Besides the date of creation of the “business,” the court will look to other factors to determine whether an independent business really exists: Do they advertise their services? Do they have a website describing their business? Do they have multiple clients, or have they attempted to obtain other clients?
This is a nightmare for the “gig economy” because, while they can argue all day about control, they unambiguously fail prongs B and C.
Payroll taxes and other expenses associated with converting contractors to employees could increase an employer’s costs by about 25 to 40 percent per worker says Andrei Hagiu, a visiting associate professor at the MIT Sloan School of Management.
Thousands of California workers may now bring claims that they have been misclassified as independent contractors.
The ruling will likely trigger a flood of class action lawsuits against a variety of firms that use workers classified as contractors these include FedEx and McDonald’s. Indeed, Indeed in June 2015 FedEx settled a California class action suit by its drivers for $226 million. In May 2017 it settled class action lawsuits across 19 states regarding independent contractor misclassifications for $227 million.
According to Lawrence Katz of Harvard and Alan Krueger of Princeton, as of 2015, 8.4 percent of Americans—or roughly 12.5 million people—work as independent contractors, up from 10.3 million in 2005.
The California Department of Industrial Relations has estimated, “The misclassification of workers results in a loss of payroll tax revenue to the State, estimated at $7 billion per year, and increased reliance on the public safety net by workers who are denied access to work-based protections.”
In a video and an article in Truthdig, Robert Reich observes, “You may think you have lots of choices, but take a closer look.” Seventy percent of all of the brands of toothpaste come from just two companies. One company owns nearly all the eyeglass retail outlets.
Farmers buy high priced seed from Monsanto, which owns the key genetic traits to more than 90 percent of the soybeans and 80 percent of the corn planted by U.S. farmers and sell their crops at reduced prices to the few remaining mega-food processors.
Health insurers are consolidating. So are hospitals and doctors’ businesses.
And with the coming of the Internet, we have witnessed concentration on an unprecedented scale.
Google and Facebook are now the first stops for many Americans seeking news and information. Amazon is where more than half of American consumers begin their product search.
Reich briefly reviews the 20th century history of public reaction to concentrated private power.
In the first two decades, political leaders agreed on the evils of economic concentration but disagreed on the best strategies for combating it. Teddy Roosevelt believed large corporations achieved efficiencies, but wanted the firms tightly regulated by experts. Woodrow Wilson, and his adviser and late Supreme Court Justice Louis Brandeis, saw regulation as problematic. They wanted to break up monopolies.
For the next 60 years, Reich observes, both views dominated: strong antitrust enforcement along with regulations that held big corporations in check.
Indeed for much of this time corporate size itself could be deemed an anti-trust violation. In 1966 the U.S. Supreme Court held that a merger between two grocery chains violated the Clayton Antitrust Act by creating a firm with a combined market share of just under 8 percent. (In 2011, according to Stacy Mitchell of ILSR, Walmart accounted for more than 50 percent of the grocery market in more than two dozen metro areas.)
The focus on size quickly changed in the 1970s and 1980s, especially after Bork wrote the highly influential book, The Antitrust Paradox, which argued that the sole purpose of the Sherman Act is to keep prices low. And since mergers and large size almost always create efficiencies that bring down prices, they should be legal.
For a generation, courts, the regulators and political leaders, both liberal and conservative, have embraced Bork’s position. Reich argues it’s time for this to stop. “There’s only one answer: It is time to revive antitrust.”