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Costco’s Dilemma: Is Treating Employees Well Unacceptable for a Publicly-Traded Corporation?

April 4, 2004 by staff

By Ann Zimmerman 
First published by the Wall St. Journal, March 26, 2004

Editor’s note: This article illustrates the challenges that face any corporate executives who attempt to resist market pressures to cut employee pay and, indirectly, why “corporate responsibility” initiatives have severely limited potential. Please see our article “Inherent Rules of Corporate Behavior” if you’d like to explore this topic further. 

When it comes to workers, companies can be accused of not paying enough — or paying too much.

Wal-Mart Stores Inc.’s parsimonious approach to employee compensation has made the world’s largest retailer a frequent target of labor unions and even Democratic presidential candidate John Kerry, who has accused the Bentonville, Ark., chain of failing to offer its employees affordable health-care coverage.

Unions and employees alike often cite a lack of trust as a major issue in the workplace, particularly when it comes to compensation and benefits. Building trust between management and employees is essential for creating a positive and healthy work environment. By creating open lines of communication and providing transparency in decision-making processes, employers can demonstrate their commitment to their employees’ well-being and create a culture of trust. Companies can also invest in training and resources to help managers learn how to build trust with their teams, which can ultimately lead to higher job satisfaction and better performance.

In contrast, rival Costco Wholesale Corp. often is held up as a retailer that does it right, paying well and offering generous benefits.

But Costco’s kind-hearted philosophy toward its 100,000 cashiers, shelf-stockers and other workers is drawing criticism from Wall Street. Some analysts and investors contend that the Issaquah, Wash., warehouse-club operator actually is too good to employees, with Costco shareholders suffering as a result.

“From the perspective of investors, Costco’s benefits are overly generous,” says Bill Dreher, retailing analyst with Deutsche Bank Securities Inc. “Public companies need to care for shareholders first. Costco runs its business like it is a private company.”

Costco appears to pay a penalty for its largesse to workers. The company’s shares trade at about 20 times projected per-share earnings for 2004, compared with about 24 for Wal-Mart. Mr. Dreher says the unusually high wages and benefits contribute to investor concerns that profit margins at Costco aren’t as high as they should be.

Costco, which opened its first store in 1983 and now has 432 locations, disputes the contention that it takes care of workers at the expense of investors. “The last thing I want people to believe is that I don’t care about the shareholder,” says Jim Sinegal, Costco’s president and chief executive since 1993, who owns about 3.2 million Costco shares valued at $118 million. “But I happen to believe that in order to reward the shareholder in the long term, you have to please your customers and workers.”

Costco vs. Wal-Mart 
Comparing some workplace statistics, as reported by the companies.

Employees covered by company health insurance 
Costco  82%
Wal-Mart 48%

Insurance-enrollment waiting periods (for part-time workers)
Costco 6 months
Wal-Mart  2 years

Portion of health-care premium paid by company 
Costco 92%
Wal-Mart 66%

Annual worker turnover rate 
Costco 24%
Wal-Mart 50%

Worker pay, benefits and job quality have been hot topics in the retail industry. While employees in many fields are worried about generally stagnant job growth and spiraling health-care costs, already-meager retail wages also are threatened by retail-pricing pressure, partly fueled by Wal-Mart’s growing dominance in toys, electronics, groceries and other categories. Grocery workers in California recently waged a brutal four-month strike to protest health-care cuts that large supermarket chains were imposing to stay competitive with Wal-Mart.

Hourly retail pay grew only 1% in the 12 months ended last month, according to the Bureau of Labor Statistics, compared with a 1.7% gain for private-sector jobs overall.

Wal-Mart last year added 99,000 jobs in the U.S., making it the country’s biggest job creator, and nearly all those positions pay by the hour. And since Costco and Wal-Mart’s larger Sam’s Club warehouse chain increasingly are competing head-to-head on everything from turkeys to tires, the companies have to pay close attention to each other.

Editor’s note: Numerous studies show nearly the same number of jobs are eliminated as are created by Wal-Mart. To call the company a “job creator” requires counting only one side of the ledger.

Wal-Mart spokeswoman Mona Williams says the company’s “entire package of wages, benefits and career opportunities is at least as good as that offered by Costco,” including bonuses, company-paid life insurance and a discounted Wal-Mart stock-purchase program. Sam’s Club has a “cost advantage” over Costco, she adds, because it can “leverage efficiencies” from Wal-Mart in areas such as merchandise sourcing and logistics, keeping basic membership fees a third cheaper than Costco’s.

Costco has won a reputation for having the best benefits in retail, a sector where labor costs account for about 80% of a typical company’s total expenses. [Editor’s note: we’re unsure of the source for this claim, but we question its accuracy] Costco pays starting employees at least $10 an hour, and with regular raises a full-time hourly worker can make $40,000 annually within 3½ years. Cashiers are paid $10.50 to $17.50 an hour.

Wal-Mart doesn’t disclose its wage rates, since they vary by location. According to a recent study funded by Wal-Mart, cashiers at its Supercenters in Las Vegas were paid $7.65 to $11.45 an hour. Supercenters are Wal-Mart’s discount grocery and general-merchandise stores.

Costco also pays 92% of its employees’ health-insurance premiums, much higher than the 80% average at large U.S. companies. Wal-Mart pays two-thirds of health-benefit costs for its workers. Costco’s health plan offers a broader range of care than Wal-Mart’s does, and part-time Costco workers qualify for coverage in six months, compared with two years for Wal-Mart part-timers.

“From day one, we’ve run the company with the philosophy that if we pay better than average, provide a salary people can live on, have a positive environment and good benefits, we’ll be able to hire better people, they’ll stay longer and be more efficient,” says Richard Galanti, Costco’s chief financial officer.

Costco has several advantages over Wal-Mart that help it extend such unusually generous pay and benefits. Costco has a more-upscale reputation than Sam’s Club, helping it attract shoppers with higher incomes. The average Costco store rings up $115 million in annual sales, almost double the Sam’s Club average. And Costco, which charges $45 to $100 for yearly memberships, doesn’t spend any money on advertising.

Costco says its higher pay boosts loyalty: Its employee turnover rate is 24% a year. Wal-Mart’s overall employee turnover rate is 50%, about in line with the retail-industry average. Wal-Mart doesn’t break out turnover rates at Sam’s Club. High turnover creates added expense for retailers because new workers have to be trained and are not as efficient.

Some critics still aren’t convinced that lower turnover is worth what it costs Costco in higher wages and benefits. “Their benefits are amazing, but shareholders get frustrated from a stock perspective,” says Emme Kozloff, a retail analyst at Sanford C. Bernstein LLC.

Surging health-care costs have forced Costco to make more aggressive moves to control expenses. Moreover, Costco last year raised employees’ contribution to about 8% of their health-care costs, up from 4.5%. It was the company’s first rise in employee health premiums in eight years. Mr. Sinegal, the Costco CEO, said the company held off from boosting premiums for as long it could, and didn’t give in until after it had lowered its earnings forecast twice last year.

Costco also is looking to employees for ideas that could improve efficiency. One suggestion that Costco implemented at stores was to install pneumatic tubes at check-out areas to speed the movement of cash to a store’s back office.

Mr. Galanti says company officials want to boost Costco’s pretax income closer to 4% of sales, compared with 3% now and 5% at Wal-Mart, without cutting pay. In its fiscal second quarter ended Feb. 15, Costco’s net income rose 25% to $226.8 million, or 48 cents a share. Revenue rose 14% to $11.55 billion.

Some longtime Costco fans say the company should stick to its generous wages and benefits. “Happy employees make for happy customers, which in the long run is ultimately reflected in the share price,” says John Bowen, an investment manager in Coronado, Calif., who has held Costco shares for eight years.

© 2004 Dow Jones & Company, Inc.

The New York Times also published an informative report on this topic.

  • See our huge collection of articles, studies, internal documents and more on Wal-Mart and big box stores.
  • Why those who care about the impacts of their purchases should first look to independent locally-owned businesses.

Filed Under: Labor and Economics, Walmart

The Powell Memo (AKA the Powell Manifesto)

April 3, 2004 by staff

The Powell Memo was first published August 23, 1971

Introduction

In 1971, Lewis Powell, then a corporate lawyer and member of the boards of 11 corporations, wrote a memo to his friend Eugene Sydnor, Jr., the Director of the U.S. Chamber of Commerce. The memorandum was dated August 23, 1971, two months prior to Powell’s nomination by President Nixon to the U.S. Supreme Court.

The Powell Memo did not become available to the public until long after his confirmation to the Court. It was leaked to Jack Anderson, a liberal syndicated columnist, who stirred interest in the document when he cited it as reason to doubt Powell’s legal objectivity. Anderson cautioned that Powell, “Might use his position on the Supreme Court to put his ideas into practice… in behalf of business interests.”

Though Powell’s memo was not the sole influence, the Chamber and corporate activists took his advice to heart and began building a powerful array of institutions designed to shift public attitudes and beliefs over the course of years and decades. The memo influenced the creation of the Heritage Foundation, the Manhattan Institute, the Cato Institute, Citizens for a Sound Economy, Accuracy in Academe, and other powerful organizations. Their long-term focus began paying off handsomely in the 1980s, in coordination with the Reagan Administration’s “hands-off business” philosophy.

Most notable about these institutions was their focus on education, shifting values, and movement-building — a focus we share, though often with sharply contrasting goals.

So did Powell’s political views influence his judicial decisions? Powell did embrace expansion of corporate privilege and wrote the majority opinion in First National Bank of Boston v. Bellotti, a 1978 decision that effectively invented a First Amendment “right” for corporations to influence ballot questions. On social issues, he was a moderate, whose votes often surprised his backers.

Powell’s Confidential Memorandum:
Attack of American Free Enterprise System

DATE: August 23, 1971
TO: Mr. Eugene B. Sydnor, Jr., Chairman, Education Committee, U.S. Chamber of Commerce
FROM: Lewis F. Powell, Jr.

This memorandum is submitted at your request as a basis for the discussion on August 24 with Mr. Booth (executive vice president) and others at the U.S. Chamber of Commerce. The purpose is to identify the problem, and suggest possible avenues of action for further consideration.

Dimensions of the Attack

No thoughtful person can question that the American economic system is under broad attack. This varies in scope, intensity, in the techniques employed, and in the level of visibility.

There always have been some who opposed the American system, and preferred socialism or some form of statism (communism or fascism). Also, there always have been critics of the system, whose criticism has been wholesome and constructive so long as the objective was to improve rather than to subvert or destroy.

But what now concerns us is quite new in the history of America. We are not dealing with sporadic or isolated attacks from a relatively few extremists or even from the minority socialist cadre. Rather, the assault on the enterprise system is broadly based and consistently pursued. It is gaining momentum and converts.

Sources of the Attack

The sources are varied and diffused. They include, not unexpectedly, the Communists, New Leftists and other revolutionaries who would destroy the entire system, both political and economic. These extremists of the left are far more numerous, better financed, and increasingly are more welcomed and encouraged by other elements of society, than ever before in our history. But they remain a small minority, and are not yet the principal cause for concern.

The most disquieting voices joining the chorus of criticism come from perfectly respectable elements of society: from the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences, and from politicians. In most of these groups the movement against the system is participated in only by minorities. Yet, these often are the most articulate, the most vocal, the most prolific in their writing and speaking.

Moreover, much of the media-for varying motives and in varying degrees-either voluntarily accords unique publicity to these “attackers,” or at least allows them to exploit the media for their purposes. This is especially true of television, which now plays such a predominant role in shaping the thinking, attitudes and emotions of our people.

One of the bewildering paradoxes of our time is the extent to which the enterprise system tolerates, if not participates in, its own destruction.

The campuses from which much of the criticism emanates are supported by (i) tax funds generated largely from American business, and (ii) contributions from capital funds controlled or generated by American business. The boards of trustees of our universities overwhelmingly are composed of men and women who are leaders in the system.

Most of the media, including the national TV systems, are owned and theoretically controlled by corporations which depend upon profits, and the enterprise system to survive.

Tone of the Attack

This memorandum is not the place to document in detail the tone, character, or intensity of the attack. The following quotations will suffice to give one a general idea:

William Kunstler, warmly welcomed on campuses and listed in a recent student poll as the “American lawyer most admired,” incites audiences as follows:

“You must learn to fight in the streets, to revolt, to shoot guns. We will learn to do all of the things that property owners fear.”2 The New Leftists who heed Kunstler’s advice increasingly are beginning to act — not just against military recruiting offices and manufacturers of munitions, but against a variety of businesses: “Since February, 1970, branches (of Bank of America) have been attacked 39 times, 22 times with explosive devices and 17 times with fire bombs or by arsonists.”3 Although New Leftist spokesmen are succeeding in radicalizing thousands of the young, the greater cause for concern is the hostility of respectable liberals and social reformers. It is the sum total of their views and influence which could indeed fatally weaken or destroy the system.

A chilling description of what is being taught on many of our campuses was written by Stewart Alsop:

“Yale, like every other major college, is graduating scores of bright young men who are practitioners of ‘the politics of despair.’ These young men despise the American political and economic system . . . (their) minds seem to be wholly closed. They live, not by rational discussion, but by mindless slogans.”4 A recent poll of students on 12 representative campuses reported that: “Almost half the students favored socialization of basic U.S. industries.”5

A visiting professor from England at Rockford College gave a series of lectures entitled “The Ideological War Against Western Society,” in which he documents the extent to which members of the intellectual community are waging ideological warfare against the enterprise system and the values of western society. In a foreword to these lectures, famed Dr. Milton Friedman of Chicago warned: “It (is) crystal clear that the foundations of our free society are under wide-ranging and powerful attack — not by Communist or any other conspiracy but by misguided individuals parroting one another and unwittingly serving ends they would never intentionally promote.”6

Perhaps the single most effective antagonist of American business is Ralph Nader, who — thanks largely to the media — has become a legend in his own time and an idol of millions of Americans. A recent article in Fortune speaks of Nader as follows:

“The passion that rules in him — and he is a passionate man — is aimed at smashing utterly the target of his hatred, which is corporate power. He thinks, and says quite bluntly, that a great many corporate executives belong in prison — for defrauding the consumer with shoddy merchandise, poisoning the food supply with chemical additives, and willfully manufacturing unsafe products that will maim or kill the buyer. He emphasizes that he is not talking just about ‘fly-by-night hucksters’ but the top management of blue chip business.”7

A frontal assault was made on our government, our system of justice, and the free enterprise system by Yale Professor Charles Reich in his widely publicized book: “The Greening of America,” published last winter.

The foregoing references illustrate the broad, shotgun attack on the system itself. There are countless examples of rifle shots which undermine confidence and confuse the public. Favorite current targets are proposals for tax incentives through changes in depreciation rates and investment credits. These are usually described in the media as “tax breaks,” “loop holes” or “tax benefits” for the benefit of business. As viewed by a columnist in the Post, such tax measures would benefit “only the rich, the owners of big companies.”8

It is dismaying that many politicians make the same argument that tax measures of this kind benefit only “business,” without benefit to “the poor.” The fact that this is either political demagoguery or economic illiteracy is of slight comfort. This setting of the “rich” against the “poor,” of business against the people, is the cheapest and most dangerous kind of politics.

The Apathy and Default of Business

What has been the response of business to this massive assault upon its fundamental economics, upon its philosophy, upon its right to continue to manage its own affairs, and indeed upon its integrity?

The painfully sad truth is that business, including the boards of directors’ and the top executives of corporations great and small and business organizations at all levels, often have responded — if at all — by appeasement, ineptitude and ignoring the problem. There are, of course, many exceptions to this sweeping generalization. But the net effect of such response as has been made is scarcely visible.

In all fairness, it must be recognized that businessmen have not been trained or equipped to conduct guerrilla warfare with those who propagandize against the system, seeking insidiously and constantly to sabotage it. The traditional role of business executives has been to manage, to produce, to sell, to create jobs, to make profits, to improve the standard of living, to be community leaders, to serve on charitable and educational boards, and generally to be good citizens. They have performed these tasks very well indeed.

But they have shown little stomach for hard-nose contest with their critics, and little skill in effective intellectual and philosophical debate.

A column recently carried by the Wall Street Journal was entitled: “Memo to GM: Why Not Fight Back?”9 Although addressed to GM by name, the article was a warning to all American business. Columnist St. John said:

“General Motors, like American business in general, is ‘plainly in trouble’ because intellectual bromides have been substituted for a sound intellectual exposition of its point of view.” Mr. St. John then commented on the tendency of business leaders to compromise with and appease critics. He cited the concessions which Nader wins from management, and spoke of “the fallacious view many businessmen take toward their critics.” He drew a parallel to the mistaken tactics of many college administrators: “College administrators learned too late that such appeasement serves to destroy free speech, academic freedom and genuine scholarship. One campus radical demand was conceded by university heads only to be followed by a fresh crop which soon escalated to what amounted to a demand for outright surrender.”

One need not agree entirely with Mr. St. John’s analysis. But most observers of the American scene will agree that the essence of his message is sound. American business “plainly in trouble”; the response to the wide range of critics has been ineffective, and has included appeasement; the time has come — indeed, it is long overdue — for the wisdom, ingenuity and resources of American business to be marshaled against those who would destroy it.

Responsibility of Business Executives

What specifically should be done? The first essential — a prerequisite to any effective action — is for businessmen to confront this problem as a primary responsibility of corporate management.

The overriding first need is for businessmen to recognize that the ultimate issue may be survival — survival of what we call the free enterprise system, and all that this means for the strength and prosperity of America and the freedom of our people.

The day is long past when the chief executive officer of a major corporation discharges his responsibility by maintaining a satisfactory growth of profits, with due regard to the corporation’s public and social responsibilities. If our system is to survive, top management must be equally concerned with protecting and preserving the system itself. This involves far more than an increased emphasis on “public relations” or “governmental affairs” — two areas in which corporations long have invested substantial sums.

A significant first step by individual corporations could well be the designation of an executive vice president (ranking with other executive VP’s) whose responsibility is to counter-on the broadest front-the attack on the enterprise system. The public relations department could be one of the foundations assigned to this executive, but his responsibilities should encompass some of the types of activities referred to subsequently in this memorandum. His budget and staff should be adequate to the task.

Possible Role of the Chamber of Commerce

But independent and uncoordinated activity by individual corporations, as important as this is, will not be sufficient. Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations.

Moreover, there is the quite understandable reluctance on the part of any one corporation to get too far out in front and to make itself too visible a target.

The role of the National Chamber of Commerce is therefore vital. Other national organizations (especially those of various industrial and commercial groups) should join in the effort, but no other organizations appear to be as well situated as the Chamber. It enjoys a strategic position, with a fine reputation and a broad base of support. Also — and this is of immeasurable merit — there are hundreds of local Chambers of Commerce which can play a vital supportive role.

It hardly need be said that before embarking upon any program, the Chamber should study and analyze possible courses of action and activities, weighing risks against probable effectiveness and feasibility of each. Considerations of cost, the assurance of financial and other support from members, adequacy of staffing and similar problems will all require the most thoughtful consideration.

The Campus

The assault on the enterprise system was not mounted in a few months. It has gradually evolved over the past two decades, barely perceptible in its origins and benefiting (sic) from a gradualism that provoked little awareness much less any real reaction.

Although origins, sources and causes are complex and interrelated, and obviously difficult to identify without careful qualification, there is reason to believe that the campus is the single most dynamic source. The social science faculties usually include members who are unsympathetic to the enterprise system. They may range from a Herbert Marcuse, Marxist faculty member at the University of California at San Diego, and convinced socialists, to the ambivalent liberal critic who finds more to condemn than to commend. Such faculty members need not be in a majority. They are often personally attractive and magnetic; they are stimulating teachers, and their controversy attracts student following; they are prolific writers and lecturers; they author many of the textbooks, and they exert enormous influence — far out of proportion to their numbers — on their colleagues and in the academic world.

Social science faculties (the political scientist, economist, sociologist and many of the historians) tend to be liberally oriented, even when leftists are not present. This is not a criticism per se, as the need for liberal thought is essential to a balanced viewpoint. The difficulty is that “balance” is conspicuous by its absence on many campuses, with relatively few members being of conservatives or moderate persuasion and even the relatively few often being less articulate and aggressive than their crusading colleagues.

This situation extending back many years and with the imbalance gradually worsening, has had an enormous impact on millions of young American students. In an article in Barron’s Weekly, seeking an answer to why so many young people are disaffected even to the point of being revolutionaries, it was said: “Because they were taught that way.”10 Or, as noted by columnist Stewart Alsop, writing about his alma mater: “Yale, like every other major college, is graduating scores’ of bright young men … who despise the American political and economic system.”

As these “bright young men,” from campuses across the country, seek opportunities to change a system which they have been taught to distrust — if not, indeed “despise” — they seek employment in the centers of the real power and influence in our country, namely: (i) with the news media, especially television; (ii) in government, as “staffers” and consultants at various levels; (iii) in elective politics; (iv) as lecturers and writers, and (v) on the faculties at various levels of education.

Many do enter the enterprise system — in business and the professions — and for the most part they quickly discover the fallacies of what they have been taught. But those who eschew the mainstream of the system often remain in key positions of influence where they mold public opinion and often shape governmental action. In many instances, these “intellectuals” end up in regulatory agencies or governmental departments with large authority over the business system they do not believe in.

If the foregoing analysis is approximately sound, a priority task of business — and organizations such as the Chamber — is to address the campus origin of this hostility. Few things are more sanctified in American life than academic freedom. It would be fatal to attack this as a principle. But if academic freedom is to retain the qualities of “openness,” “fairness” and “balance” — which are essential to its intellectual significance — there is a great opportunity for constructive action. The thrust of such action must be to restore the qualities just mentioned to the academic communities.

What Can Be Done About the Campus

The ultimate responsibility for intellectual integrity on the campus must remain on the administrations and faculties of our colleges and universities. But organizations such as the Chamber can assist and activate constructive change in many ways, including the following:

Staff of Scholars

The Chamber should consider establishing a staff of highly qualified scholars in the social sciences who do believe in the system. It should include several of national reputation whose authorship would be widely respected — even when disagreed with.

Staff of Speakers

There also should be a staff of speakers of the highest competency. These might include the scholars, and certainly those who speak for the Chamber would have to articulate the product of the scholars.

Speaker’s Bureau

In addition to full-time staff personnel, the Chamber should have a Speaker’s Bureau which should include the ablest and most effective advocates from the top echelons of American business.

Evaluation of Textbooks

The staff of scholars (or preferably a panel of independent scholars) should evaluate social science textbooks, especially in economics, political science and sociology. This should be a continuing program.

The objective of such evaluation should be oriented toward restoring the balance essential to genuine academic freedom. This would include assurance of fair and factual treatment of our system of government and our enterprise system, its accomplishments, its basic relationship to individual rights and freedoms, and comparisons with the systems of socialism, fascism and communism. Most of the existing textbooks have some sort of comparisons, but many are superficial, biased and unfair.

We have seen the civil rights movement insist on re-writing many of the textbooks in our universities and schools. The labor unions likewise insist that textbooks be fair to the viewpoints of organized labor. Other interested citizens groups have not hesitated to review, analyze and criticize textbooks and teaching materials. In a democratic society, this can be a constructive process and should be regarded as an aid to genuine academic freedom and not as an intrusion upon it.

If the authors, publishers and users of textbooks know that they will be subjected — honestly, fairly and thoroughly — to review and critique by eminent scholars who believe in the American system, a return to a more rational balance can be expected.

Equal Time on the Campus

The Chamber should insist upon equal time on the college speaking circuit. The FBI publishes each year a list of speeches made on college campuses by avowed Communists. The number in 1970 exceeded 100. There were, of course, many hundreds of appearances by leftists and ultra liberals who urge the types of viewpoints indicated earlier in this memorandum. There was no corresponding representation of American business, or indeed by individuals or organizations who appeared in support of the American system of government and business.

Every campus has its formal and informal groups which invite speakers. Each law school does the same thing. Many universities and colleges officially sponsor lecture and speaking programs. We all know the inadequacy of the representation of business in the programs.

It will be said that few invitations would be extended to Chamber speakers.11 This undoubtedly would be true unless the Chamber aggressively insisted upon the right to be heard — in effect, insisted upon “equal time.” University administrators and the great majority of student groups and committees would not welcome being put in the position publicly of refusing a forum to diverse views, indeed, this is the classic excuse for allowing Communists to speak.

The two essential ingredients are (i) to have attractive, articulate and well-informed speakers; and (ii) to exert whatever degree of pressure — publicly and privately — may be necessary to assure opportunities to speak. The objective always must be to inform and enlighten, and not merely to propagandize.

Balancing of Faculties

Perhaps the most fundamental problem is the imbalance of many faculties. Correcting this is indeed a long-range and difficult project. Yet, it should be undertaken as a part of an overall program. This would mean the urging of the need for faculty balance upon university administrators and boards of trustees.

The methods to be employed require careful thought, and the obvious pitfalls must be avoided. Improper pressure would be counterproductive. But the basic concepts of balance, fairness and truth are difficult to resist, if properly presented to boards of trustees, by writing and speaking, and by appeals to alumni associations and groups.

This is a long road and not one for the fainthearted. But if pursued with integrity and conviction it could lead to a strengthening of both academic freedom on the campus and of the values which have made America the most productive of all societies.

Graduate Schools of Business

The Chamber should enjoy a particular rapport with the increasingly influential graduate schools of business. Much that has been suggested above applies to such schools.

Should not the Chamber also request specific courses in such schools dealing with the entire scope of the problem addressed by this memorandum? This is now essential training for the executives of the future.

Secondary Education

While the first priority should be at the college level, the trends mentioned above are increasingly evidenced in the high schools. Action programs, tailored to the high schools and similar to those mentioned, should be considered. The implementation thereof could become a major program for local chambers of commerce, although the control and direction — especially the quality control — should be retained by the National Chamber.

What Can Be Done About the Public?

Reaching the campus and the secondary schools is vital for the long-term. Reaching the public generally may be more important for the shorter term. The first essential is to establish the staffs of eminent scholars, writers and speakers, who will do the thinking, the analysis, the writing and the speaking. It will also be essential to have staff personnel who are thoroughly familiar with the media, and how most effectively to communicate with the public. Among the more obvious means are the following:

Television

The national television networks should be monitored in the same way that textbooks should be kept under constant surveillance. This applies not merely to so-called educational programs (such as “Selling of the Pentagon”), but to the daily “news analysis” which so often includes the most insidious type of criticism of the enterprise system.12 Whether this criticism results from hostility or economic ignorance, the result is the gradual erosion of confidence in “business” and free enterprise.

This monitoring, to be effective, would require constant examination of the texts of adequate samples of programs. Complaints — to the media and to the Federal Communications Commission — should be made promptly and strongly when programs are unfair or inaccurate.

Equal time should be demanded when appropriate. Effort should be made to see that the forum-type programs (the Today Show, Meet the Press, etc.) afford at least as much opportunity for supporters of the American system to participate as these programs do for those who attack it.

Other Media

Radio and the press are also important, and every available means should be employed to challenge and refute unfair attacks, as well as to present the affirmative case through these media.

The Scholarly Journals

It is especially important for the Chamber’s “faculty of scholars” to publish. One of the keys to the success of the liberal and leftist faculty members has been their passion for “publication” and “lecturing.” A similar passion must exist among the Chamber’s scholars.

Incentives might be devised to induce more “publishing” by independent scholars who do believe in the system.

There should be a fairly steady flow of scholarly articles presented to a broad spectrum of magazines and periodicals — ranging from the popular magazines (Life, Look, Reader’s Digest, etc.) to the more intellectual ones (Atlantic, Harper’s, Saturday Review, New York, etc.)13 and to the various professional journals.

Books, Paperbacks and Pamphlets

The news stands — at airports, drugstores, and elsewhere — are filled with paperbacks and pamphlets advocating everything from revolution to erotic free love. One finds almost no attractive, well-written paperbacks or pamphlets on “our side.” It will be difficult to compete with an Eldridge Cleaver or even a Charles Reich for reader attention, but unless the effort is made — on a large enough scale and with appropriate imagination to assure some success — this opportunity for educating the public will be irretrievably lost.

Paid Advertisements

Business pays hundreds of millions of dollars to the media for advertisements. Most of this supports specific products; much of it supports institutional image making; and some fraction of it does support the system. But the latter has been more or less tangential, and rarely part of a sustained, major effort to inform and enlighten the American people.

If American business devoted only 10% of its total annual advertising budget to this overall purpose, it would be a statesman-like expenditure.

The Neglected Political Arena

In the final analysis, the payoff — short-of revolution — is what government does. Business has been the favorite whipping-boy of many politicians for many years. But the measure of how far this has gone is perhaps best found in the anti-business views now being expressed by several leading candidates for President of the United States.

It is still Marxist doctrine that the “capitalist” countries are controlled by big business. This doctrine, consistently a part of leftist propaganda all over the world, has a wide public following among Americans.

Yet, as every business executive knows, few elements of American society today have as little influence in government as the American businessman, the corporation, or even the millions of corporate stockholders. If one doubts this, let him undertake the role of “lobbyist” for the business point of view before Congressional committees. The same situation obtains in the legislative halls of most states and major cities. One does not exaggerate to say that, in terms of political influence with respect to the course of legislation and government action, the American business executive is truly the “forgotten man.”

Current examples of the impotency of business, and of the near-contempt with which businessmen’s views are held, are the stampedes by politicians to support almost any legislation related to “consumerism” or to the “environment.”

Politicians reflect what they believe to be majority views of their constituents. It is thus evident that most politicians are making the judgment that the public has little sympathy for the businessman or his viewpoint.

The educational programs suggested above would be designed to enlighten public thinking — not so much about the businessman and his individual role as about the system which he administers, and which provides the goods, services and jobs on which our country depends.

But one should not postpone more direct political action, while awaiting the gradual change in public opinion to be effected through education and information. Business must learn the lesson, long ago learned by labor and other self-interest groups. This is the lesson that political power is necessary; that such power must be assidously (sic) cultivated; and that when necessary, it must be used aggressively and with determination — without embarrassment and without the reluctance which has been so characteristic of American business.

As unwelcome as it may be to the Chamber, it should consider assuming a broader and more vigorous role in the political arena.

Neglected Opportunity in the Courts

American business and the enterprise system have been affected as much by the courts as by the executive and legislative branches of government. Under our constitutional system, especially with an activist-minded Supreme Court, the judiciary may be the most important instrument for social, economic and political change.

Other organizations and groups, recognizing this, have been far more astute in exploiting judicial action than American business. Perhaps the most active exploiters of the judicial system have been groups ranging in political orientation from “liberal” to the far left.

The American Civil Liberties Union is one example. It initiates or intervenes in scores of cases each year, and it files briefs amicus curiae in the Supreme Court in a number of cases during each term of that court. Labor unions, civil rights groups and now the public interest law firms are extremely active in the judicial arena. Their success, often at business’ expense, has not been inconsequential.

This is a vast area of opportunity for the Chamber, if it is willing to undertake the role of spokesman for American business and if, in turn, business is willing to provide the funds.

As with respect to scholars and speakers, the Chamber would need a highly competent staff of lawyers. In special situations it should be authorized to engage, to appear as counsel amicus in the Supreme Court, lawyers of national standing and reputation. The greatest care should be exercised in selecting the cases in which to participate, or the suits to institute. But the opportunity merits the necessary effort.

Neglected Stockholder Power

The average member of the public thinks of “business” as an impersonal corporate entity, owned by the very rich and managed by over-paid executives. There is an almost total failure to appreciate that “business” actually embraces — in one way or another — most Americans. Those for whom business provides jobs, constitute a fairly obvious class. But the 20 million stockholders — most of whom are of modest means — are the real owners, the real entrepreneurs, the real capitalists under our system. They provide the capital which fuels the economic system which has produced the highest standard of living in all history. Yet, stockholders have been as ineffectual as business executives in promoting a genuine understanding of our system or in exercising political influence.

The question which merits the most thorough examination is how can the weight and influence of stockholders — 20 million voters — be mobilized to support (i) an educational program and (ii) a political action program.

Individual corporations are now required to make numerous reports to shareholders. Many corporations also have expensive “news” magazines which go to employees and stockholders. These opportunities to communicate can be used far more effectively as educational media.

The corporation itself must exercise restraint in undertaking political action and must, of course, comply with applicable laws. But is it not feasible — through an affiliate of the Chamber or otherwise — to establish a national organization of American stockholders and give it enough muscle to be influential?

A More Aggressive Attitude

Business interests — especially big business and their national trade organizations — have tried to maintain low profiles, especially with respect to political action.

As suggested in the Wall Street Journal article, it has been fairly characteristic of the average business executive to be tolerant — at least in public — of those who attack his corporation and the system. Very few businessmen or business organizations respond in kind. There has been a disposition to appease; to regard the opposition as willing to compromise, or as likely to fade away in due time.

Business has shunted confrontation politics. Business, quite understandably, has been repelled by the multiplicity of non-negotiable “demands” made constantly by self-interest groups of all kinds.

While neither responsible business interests, nor the United States Chamber of Commerce, would engage in the irresponsible tactics of some pressure groups, it is essential that spokesmen for the enterprise system — at all levels and at every opportunity — be far more aggressive than in the past.

There should be no hesitation to attack the Naders, the Marcuses and others who openly seek destruction of the system. There should not be the slightest hesitation to press vigorously in all political arenas for support of the enterprise system. Nor should there be reluctance to penalize politically those who oppose it.

Lessons can be learned from organized labor in this respect. The head of the AFL-CIO may not appeal to businessmen as the most endearing or public-minded of citizens. Yet, over many years the heads of national labor organizations have done what they were paid to do very effectively. They may not have been beloved, but they have been respected — where it counts the most — by politicians, on the campus, and among the media.

It is time for American business — which has demonstrated the greatest capacity in all history to produce and to influence consumer decisions — to apply their great talents vigorously to the preservation of the system itself.

The Cost

The type of program described above (which includes a broadly based combination of education and political action), if undertaken long term and adequately staffed, would require far more generous financial support from American corporations than the Chamber has ever received in the past. High level management participation in Chamber affairs also would be required.

The staff of the Chamber would have to be significantly increased, with the highest quality established and maintained. Salaries would have to be at levels fully comparable to those paid key business executives and the most prestigious faculty members. Professionals of the great skill in advertising and in working with the media, speakers, lawyers and other specialists would have to be recruited.

It is possible that the organization of the Chamber itself would benefit from restructuring. For example, as suggested by union experience, the office of President of the Chamber might well be a full-time career position. To assure maximum effectiveness and continuity, the chief executive officer of the Chamber should not be changed each year. The functions now largely performed by the President could be transferred to a Chairman of the Board, annually elected by the membership. The Board, of course, would continue to exercise policy control.

Quality Control is Essential

Essential ingredients of the entire program must be responsibility and “quality control.” The publications, the articles, the speeches, the media programs, the advertising, the briefs filed in courts, and the appearances before legislative committees — all must meet the most exacting standards of accuracy and professional excellence. They must merit respect for their level of public responsibility and scholarship, whether one agrees with the viewpoints expressed or not.

Relationship to Freedom

The threat to the enterprise system is not merely a matter of economics. It also is a threat to individual freedom.

It is this great truth — now so submerged by the rhetoric of the New Left and of many liberals — that must be re-affirmed if this program is to be meaningful.

There seems to be little awareness that the only alternatives to free enterprise are varying degrees of bureaucratic regulation of individual freedom — ranging from that under moderate socialism to the iron heel of the leftist or rightist dictatorship.

We in America already have moved very far indeed toward some aspects of state socialism, as the needs and complexities of a vast urban society require types of regulation and control that were quite unnecessary in earlier times. In some areas, such regulation and control already have seriously impaired the freedom of both business and labor, and indeed of the public generally. But most of the essential freedoms remain: private ownership, private profit, labor unions, collective bargaining, consumer choice, and a market economy in which competition largely determines price, quality and variety of the goods and services provided the consumer.

In addition to the ideological attack on the system itself (discussed in this memorandum), its essentials also are threatened by inequitable taxation, and — more recently — by an inflation which has seemed uncontrollable.14 But whatever the causes of diminishing economic freedom may be, the truth is that freedom as a concept is indivisible. As the experience of the socialist and totalitarian states demonstrates, the contraction and denial of economic freedom is followed inevitably by governmental restrictions on other cherished rights. It is this message, above all others, that must be carried home to the American people.

Conclusion

It hardly need be said that the views expressed above are tentative and suggestive. The first step should be a thorough study. But this would be an exercise in futility unless the Board of Directors of the Chamber accepts the fundamental premise of this paper, namely, that business and the enterprise system are in deep trouble, and the hour is late.

Powell’s Footnotes
  1. Variously called: the “free enterprise system,” “capitalism,” and the “profit system.” The American political system of democracy under the rule of law is also under attack, often by the same individuals and organizations who seek to undermine the enterprise system.
  2. Richmond News Leader, June 8, 1970. Column of William F. Buckley, Jr.
  3. N.Y. Times Service article, reprinted Richmond Times-Dispatch, May 17, 1971.
  4. Stewart Alsop, Yale and the Deadly Danger, Newsweek, May 18. 1970.
  5. Editorial, Richmond Times-Dispatch, July 7, 1971.
  6. Dr. Milton Friedman, Prof. of Economics, U. of Chicago, writing a foreword to Dr. Arthur A. Shenfield’s Rockford College lectures entitled “The Ideological War Against Western Society,” copyrighted 1970 by Rockford College.
  7. Fortune. May, 1971, p. 145. This Fortune analysis of the Nader influence includes a reference to Nader’s visit to a college where he was paid a lecture fee of $2,500 for “denouncing America’s big corporations in venomous language . . . bringing (rousing and spontaneous) bursts of applause” when he was asked when he planned to run for President.
  8. The Washington Post, Column of William Raspberry, June 28, 1971.
  9. Jeffrey St. John, The Wall Street Journal, May 21, 1971.
  10. Barron’s National Business and Financial Weekly, “The Total Break with America, The Fifth Annual Conference of Socialist Scholars,” Sept. 15, 1969.
  11. On many campuses freedom of speech has been denied to all who express moderate or conservative viewpoints.
  12. It has been estimated that the evening half-hour news programs of the networks reach daily some 50,000,000 Americans.
  13. One illustration of the type of article which should not go unanswered appeared in the popular “The New York” of July 19, 1971. This was entitled “A Populist Manifesto” by ultra liberal Jack Newfield — who argued that “the root need in our country is ‘to redistribute wealth’.”
  14. The recent “freeze” of prices and wages may well be justified by the current inflationary crisis. But if imposed as a permanent measure the enterprise system will have sustained a near fatal blow.

At Reclaim Democracy!, a great frustration is the foundations and funders whose work is thwarted by corporate domination have failed to learn from the success of these corporate institutions and the Powell Memo. They decline to invest in long-term education and culture-shifting that we and a small number of allied organizations work to achieve. Instead, they overwhelmingly focus on damage control and short-term benchmarks, while making social change organizations plead for funding every year. Sadly, there is little to no investment in movement-building.

This approach stands no chance of yielding the systemic change that we need to reverse the trend of growing corporate dominance.

The growing movement to revoke corporate personhood is supported almost entirely from contributions by individual people. Please consider supporting groups that are devoted to movement-building work, rather than short-term projects and results.

We focus on long-term movement-building and systemic change, striving to shift energy and funding from reactive work against individual harms caused by corporations to proactive efforts that to revoke corporate power systemically. Our ultimate goals involve Constitution-level change. 

Additional Resources

  • Washington and Lee University has created this archive of subsequent communications regarding the Powell Memo.
  • On the Powell Memo’s 40th anniversary, Bill Moyers’ website posted useful background and commentary.

Filed Under: Corporate Accountability

Corporations Attempt to Gut the Nation’s Toughest Consumer Protection Law: California’s Unfair Business Practices Act

February 18, 2004 by staff

February 18, 2004

In 2003, Nike Inc. failed (Kasky v. Nike) to convince the California Supreme Court that California’s Unfair Business Practices Act infringed upon First Amendment “rights” claimed by the company. Now Nike has joined with many more corporate interests in attempting to weaken the law, using its financial power to run a 2004 ballot initiative. Nike’s $50,000 investment actually is a small part of the package. Auto dealers have kicked in $4.6 million and dozens of other corporations have joined the effort, including major utilities, insurance companies, banks and software manufacturers.

The corporations have hired lawyers and signature gatherers and launched a website (www.stopshakedownlawsuits.com) to place on the November 2004 ballot an initiative they package as “protecting small businesses from frivolous lawsuits.” The website says  “Thousands of small businesses — nail salons, auto repair shops, restaurants, and many others — have been hit by frivolous lawsuits filed by personal injury lawyers using a loophole.”

To be sure, there have been abuses of the law which need to be curtailed, but this initiative seems to bypass common-sense reform in favor of stripping away significant protections for California residents.

The ballot initiative itself does a good job of presenting the opposing arguments, which focus on frivolous lawsuits costing the public money and clogging the judicial system.

The proposed initiative would change the laws under California Business and Professions Code 17200 so that only government entities and those already harmed by a company can sue a corporation for practices illegal under the Unfair Competition Law. Currently, individuals, public interest organizations and others may sue. It would almost certainly eliminate lawsuits that are filed to prevent an injury or harm from happening and would stop almost every public interest or environmentally-based lawsuit. Paralelling Wal-Mart’s failed initiative in Inglewood, CA, the initiative would subsequently remove the entire issue from democratic control, prohibiting the legislature from further amending the law once changed.

Many of the corporate funders of the initiative have been held accountable for unfair business practices or currently are litigating cases brought under the law.

A reasonable solution to abuses under existing law would be to deter suits found to be frivolous with penalties. Eviscerating a law that has played a crucial role in protecting citizens from toxic drinking water, unsafe meat, fraudulent advertising, and other harms will create more damage than it relieves.

Update: The sponsors appear to have submitted enough signatures to qualify the initiative for the 2004 ballot. Governor Schwarzenegger has yet to take a position on the initiative. During his campaign, he reasoned that labor unions are “special interests,” and refused any campaign contributions from them, but accepted more than $750,000 from car dealerships.

Related features:

  • This July 6 cover story in the LA Times provides a good overview of the dispute.
  • Why do we allow corporations to engage in ballot initiatives?

More on Corporate Accountability

Filed Under: Corporate Accountability, Nike

Mainstream Marketing Services, et al. v. Federal Trade Commission: Resources and Legal Analysis

January 20, 2004 by staff

by Susan Bee
Last updated January 20, 2004

On November 10, 2003, the Tenth Circuit U.S. Appeals Court in Tulsa, OK heard oral arguments in Mainstream Marketing Services, et al. v. Federal Trade Commission. In this case, two telemarketing firms (Mainstream Marketing Services, Inc. TMG Marketing, Inc.) and a trade group (American Teleservices Association) challenged the constitutionality of the FTC’s Do Not Call Registry (DNCR). The judges are David M. Ebel, Stephanie K. Seymour and Robert H. Henry.

In MMS v. FTC, the Tenth Circuit consolidated four cases for an expedited hearing. The first two are appeals of rulings by two different District Courts: Mainstream Mktg. Servs. v. FTC,2003 WL 22213517 (D. Colo. Sept. 25,) and U.S. Security v. FTC, 2003 WL 22203719 (W.D. Okla. Sept. 23, 2003). The other two are separate reviews of the same FCC order: Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 18 FCC Rcd. 14014 (2003). The Tenth Circuit is expected to issue a ruling any time between January and May of 2004.

The primary disputes in the MMS case are whether the FTC crafted the DNCR narrowly enough to adequately protect corporate telemarketers’ “commercial speech” and whether the FTC’s failure to include non-commercial charitable organizations in the DNCR amounted to an unconstitutional “content-based” restriction on speech.

The term ‘commercial speech” describes speech used primarily by corporations to disseminate information about goods and services. Courts have held that commercial expression is valued because it helps consumers and furthers social interests by allowing the fullest possible dissemination of information regarding goods and services. Central Hudson Gas v. Public Service Commission of NY (1980). The courts have found that consumer interest in commercial information may be more keen than it is in the day’s most urgent political debate. Rubin v. Coors Brewing Co. (1976).

Evaluating the Constitutionality of Commercial Speech Restrictions

The prevailing standard used to determine whether a commercial speech restriction is constitutional was established by the U.S. Supreme Court in Central Hudson. The Court identified a three-step test to determine whether restrictions applied to lawful and non-misleading commercial speech are constitutional. Under the “Hudson test,” regulation of commercial speech is constitutional if, and only if:

  1. the government asserts a substantial interest to be achieved by the restrictions;
  2. the restriction directly advances that governmental interest; and
  3. the restriction is narrowly tailored to meet that interest.

Neither Judge Nottingham (Colorado District Court) nor the Tenth Circuit panel had trouble finding that the FTC has a legitimate and substantial interest in protecting citizens’ privacy, or the right to be left alone in their own homes. Both Courts ruled that the government’s interest in protecting in-home privacy is sufficient to justify a restriction on speech. The Courts seemed to virtually ignore one of the most egregious arguments the telemarketers made: that the DNCR is unconstitutional because it regulates speech based on the speech’s unpopularity. Brief for MMS, p. 22. This is an apparent attempt to ride the coattails of constitutional protections on political speech, which can be particularly important when unpopular. But the FTC clearly is not basing its regulation on the unpopularity of the speech, but rather on its invasion of in-home privacy, which makes the speech unpopular.

Both Courts made this ruling despite the telemarketers arguments that citizens should be left to protect themselves from unwanted telemarketing calls by using technological alternatives, such those offered by local telephone providers or caller ID. The FTC countered, arguing it is justified in creating the DNCR because these technological measures are too costly to citizens and do not approach the degree of protection the DNCR can provide. The FTC argued that far from being obvious alternatives to commercial speech regulation, these technologies demonstrate the magnitude of the problem. (Consolidated Opening Brief of Appellants, page. 43-44)

Turning to the rest of the second two prongs of the Hudson analysis, together, the final two factors require there be a “fit between the legislature’s ends and the means chosen to accomplish those ends.” (United States v. Edge Broad, 1993). The government bears the burden of demonstrating both a substantial interest and the fit between that interest and the challenged restriction. Utah Licensed Beverage Ass’n v. Leavitt (10th Cir. 2001). The Hudson test does not require that the regulation be the least restrictive means of achieving the interest asserted, but only that it be narrowly tailored to meet the desired objective. Board of Trustees of State University of NY v. Fox (1989).

The telemarketers advance several theories about why the registry does not directly advance the government’s interest in protecting privacy and is not narrowly tailored. The first reason is that it is numerically under-inclusive; it only affects unwanted commercial calls, even though charitable contribution calls are equally invasive and may be equally unwanted by many people. In the District Court, Judge Nottingham ruled that numeric under-inclusiveness is not constitutionally fatal. Governments are not required to fix all the problems before they can fix any problem.

In a related argument, the telemarketing industry honed in on a First Amendment principle that the government is not supposed to regulate communications based on the content of the communication. Drawing from this principle that content-based restrictions on speech are intolerable, telemarketers argued that the DNCR is unconstitutional because it restricts commercial telemarketing but not charitable telemarketing. Judge Nottingham agreed. He wrote that while governments may not be required to regulate on all fronts (fix all problems before they can fix any), the FTC may not base its failure to regulate on some fronts and not others on the content of the speech–commercial versus non-commercial.

In ruling against the FTC on this issue, Judge Nottingham refused to accept any of the FTC’s reasons for distinguishing between commercial versus charitable telemarketing, which included: 1. charities are less likely to engage in abusive telemarketing practices. 2. the FTC is not really restricting any speech; the citizens are doing it by signing the registry. Nottingham disagreed, writing that because the DNCR does not give citizens the opportunity to ban all telemarketing calls–commercial and charitable-the FTC has entangled itself in the decision of which speech is blocked, thereby regulating based on content.

The Tenth Circuit Appeals Court does not seem to agree with Nottingham’s analysis. On October 7, the three judge panel granted the FTC’s request to stay the Colorado District Court’s injunction, stating the “FTC shows substantial likelihood of success on the merits.” The Tenth Circuit judges do not seem to believe that the DNCR is content based. Sticking more closely to the Hudson test, they wrote that to show a reasonable fit between the FTC’s goal of the DNCR, the FTC must only “demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree.” Citing Rubin v. Coors Brewing Co. (1995). While the fit must be reasonable and in proportion to the interest served, it need not be a perfect fit or the best fit. Citing Fox, 492 U.S. at 480. “Within the bounds of the general protection provided by the Constitution to commercial speech, we allow room for legislative judgments.” Citing Edge Broad. Co. p. 434. The Courts do not require “that the Government make progress on every front before it can make progress on any front.” Id.

In its preliminary order, the Tenth Circuit found the FTC’s means of regulating commercial, versus charitable, telemarketing seems justified based on both Congressional and FTC findings. Congress expressly made factual findings in the 1991 Telephone Consumer Protection Act TCPA that telemarketing calls “conducted to induce purchases of goods or services” have subjected consumers to substantial fraud, deception, and abuse. Pub. L. 103-297 at ** 2,7. Consequently, in enacting a national do-not-call registry, the FTC “decided to limit coverage of the national registry to telemarketing calls made by or on behalf of sellers of goods or services.” 68 Fed. Reg. 4629

Furthermore, the FTC’s revised Telemarketing Sales Rule states that the agency relied on TCPA and FCC authority when it initially endorsed the distinction between commercial and non-commercial calls. Id. at 4591. The legislative history accompanying the TCPA, citing complaint statistics, found that commercial telemarketing intrudes upon personal privacy more than noncommercial telemarketing. Also, the FTC’s case was aided by its collection of evidence that commercial telemarketers ignored consumers’ requests to be put on the company-specific lists, or even hampered consumers’ efforts to be placed on such lists by hanging up on them. (Consolidated Opening Brief of Appellant, p. 37, citing 68 Fed. Reg. 4628-29; 18 FCC Rcd. 14030, Sec. 19)

The FTC’s case was also aided by the fact that, while it did not require charitable telemarketers to comply with the national DNCR, it still makes them comply with company-specific do-not-call lists. As the FTC found that charitable telemarketers do not try to thwart peoples’ ability to place themselves on do-not-call lists, the FTC and the Tenth Circuit apparently believe that citizens can still protect themselves from charitable telemarketing through company-specific lists.

Neither Judge Nottingham or the Tenth Circuit directly addressed one additional important argument made by the telemarketing industry–that the DNCR is not narrowly enough tailored because it was implemented without (1) consideration of its financial impact to the telemarketing industry, (2) considering less restrictive alternatives like educating consumers about the preexisting company-specific do-not-call lists, and (3) consider technological market-based solution, which incidentally are costly to citizens (MMS brief p. 20). These arguments are an attempt by the telemarketing industry to insert economic ramifications on corporations that result from governmental regulation into the analysis of whether the regulation on speech is sufficiently narrow.

Tenth Circuit Briefs and Legal Documents
  • Defendant’s (FTC) Memorandum of Points and Authorities in Support
    of Its Motion for an Emergency Stay Pending Appeal (to Colorado District Court)
Principal briefs
  • Consolidated Opening Brief of the FTC, FCC, and U.S.A. (Oct. 17, 2003)
  • Consolidated Reply Brief of the FTC, FCC, and U.S.A. (Nov. 7, 2003)

Our simplified introduction to the Do Not Call List dispute

Filed Under: Civil Rights and Liberties

Monsanto v. Oakhurst Dairy

December 31, 2003 by staff

Does Monsanto Corporation Have the Right to Keep You from Knowing the Contents of Your Food?

By Kristen Philipkoski
First published in Wired Magazine

Updates. April 3, 2007: Monsanto Inc. filed a complaint to the US Food and drug Administration, asking it to ban labels identifying products as coming from cows not injected with artificial hormones.

Dec. 24, 2003: Monsanto Inc. and Oakhurst Dairy settled Monsanto’s lawsuit out of court today. Under the agreement, Oakhurst will use labels that read, “Our Farmers´ Pledge: No Artificial Growth Hormone Used.” Its previous label did not have the word “used.” But the labels also will note that the FDA claims there is no significant difference in milk from cows treated with growth hormones.

In a prepared statement, the companies said the conditions and terms of their agreement are confidential. Company officials declined further comment.

The calls from distressed dairy farmers come nearly every day, and John Bunting does what he can to help.

A mother of 14 tells Bunting that her husband feels like a failure because he can’t provide for his family on milk sales alone. Another farmer says he had to sell one of his cows to repair a broken tractor. They know Bunting, who talks to them on a cordless phone while milking his cows, will lend a commiserative ear. He might also write about them in Milkweed, the dairy publication to which he is a contributor.

By some accounts, the past 18 months have been the worst in history for the U.S. dairy farmer. Milk prices have not increased enough to adjust for inflation in the past decade, and many family dairies have shut down. Sick cows don’t get treatment because farmers can’t afford a vet, or, worse, the vet won’t come anymore because he didn’t get paid last time.

Many small farmers place much of the blame on agribusiness giant Monsanto and a bovine drug called Posilac the company sells to increase the amount of milk a cow can produce.

Some farmers say that Posilac, also known as recombinant bovine somatotropin, only adds to an already glutted milk supply, which drives down the price paid to farmers. But Monsanto says the drug can get farmers out of a slump by helping them produce more milk.

“Producing more milk efficiently allows dairy farmers to make more money,” said Jennifer Garrett, technical services director for Monsanto’s dairy business. “The farms with the highest-producing cows are those that are making the most money. Posilac is a product that allows them to do that.”

Many dairy farmers say, however, that not using the hormone is one way they can get a competitive edge. Some milk distributors pay a premium for milk from cows not treated with rBST. Plus, even though studies show rBST is safe for humans, increasing numbers of consumers are drawn to “all-natural” products.

Farmers who don’t use rBST want to advertise that fact on their product labels. But Monsanto officials say labels like “No rBSTv” or “rBST-free” are misleading, unfair and deceptive. The company has recently sued one dairy for its labels.

Oakhurst Dairy in Maine labels its milk: “Our farmer’s pledge: no artificial hormones.” Monsanto’s lawsuit says the label implies Oakhurst’s milk is somehow better than milk from cows treated with rBST, and that unfairly harms Monsanto’s business.

A federal judge in Boston has set a trial date for Jan. 5, 2004, but denied Monsanto’s request for a hearing to argue that Oakhurst should stop its labeling immediately, pending the trial’s outcome. Monsanto isn’t seeking monetary damages; its lawyers just want Oakhurst to remove the label. Oakhurst officials say they have no intention of doing so.

“We intend to defend our right to, through our labeling, let consumers know what is and what is not used in the production of the milk they drink,” said Oakhurst President Stanley Bennet.

Approximately 17 percent of U.S. dairy operations use rBST, or 32 percent of all cows, according to the USDA– most of them large farms that house thousands of cows.

The drug is made of an isolated gene from the growth hormone that cows produce when they lactate. The gene is inserted into an E. coli bacteria to make it grow rapidly in vats. Injections of the product make the cows produce more milk each day and lactate longer. Farmers say the average increase in lactation time is about 30 days, but it can go much higher. One farmer milked a cow for 1,155 days straight. Most cows produce about 25 percent more milk than they would without injections.

Large dairy farmers like Don Bennink, owner of North Florida Holsteins in Bell, Florida, swear by rBST. He has about 3,700 cows.

“(Posilac) certainly requires a certain amount of management, but it’s been very beneficial to us,” he said, because even though the price of milk is low, he’s been able to sell more of it. “This has been a rough year for the dairy business, but on the whole I think we’re considered very successful.”

John Vrieze, who owns 2,600 cows at the Emerald and Baldwin dairies in Baldwin, Wisconsin, says rBST has even saved some cows’ lives, or at least extended them, because he can milk them longer before shipping them off to the slaughterhouse.

But many smaller farmers choose not to spend the time and $5.25 per injection to use Posilac, which must be administered every two weeks after a cow begins to lactate.

Besides the time and cost, they also forego rBST because they don’t like the side effects the hormone has on their cows. A 1999 Health Canada study found Posilac increased a cow’s risk of mastitis (udder infection) up to 25 percent, which leads to more somatic cells, or pus, in the milk.

The study also found the drug increased cow infertility by 18 percent, and lameness by up to 50 percent. Based on the data, Canadian officials did not to approve rBST.

For those same reasons, the hormone is not approved in the 15 European Union countries, Australia, New Zealand and Norway. It is approved in 19 countries including Brazil, South Africa, Pakistan and the United States.

The drug has increased the price of cattle, said Joaquin Contente, a dairy farmer and president of the California Farmers Union.

“When it came out in 1993 I predicted that this was going to make cattle prices high, because it’s something that is not very healthy for the cows themselves because it stresses them out,” Contente said.

Despite the proven side effects on cows, there is no reason to believe the hormone is harmful to humans. The FDA approved rBST in 1993. By then, various researchers had found the hormone was not biologically active in humans. In one study, scientists injected rBST directly into patients, hoping to cure dwarfism. It had no effect.

Citing this and other studies, the FDA said rBST was safe. The agency also said Monsanto was not obligated to provide a test to detect whether milk came from a cow treated with rBST.

To certify that its cows are rBST-free, Oakhurst relies on affidavits signed by farmers promising not to use the hormone on their cows. Oakhurst President Stanley Bennet thinks that’s enough assurance (“If you can’t trust a Maine dairy farmer, who can you trust?” he said), but others say a test would be a more concrete guarantee.

“You could see how (a test) could be useful,” said Susan Ruland, a spokeswoman for the Milk Industry Foundation, a section of the International Dairy Foods Association. “The irony is we have situations where there is actually no way to back up if a company (uses) a label saying ‘this is from nontreated cows.’ They’re going on the word from their farmers.”

Monsanto says it’s impossible to develop a test to determine if milk is from cows treated with rBST because the milk is exactly the same as any other milk. However, a Cornell researcher says he has the technology to do it.

Ron Gorewit patented the technology for a test in 1995. He says corporate politics have stifled his efforts to develop an FDA-approved test.

Sure, milk from rBST-treated cows may be perfectly healthy for human consumption, Gorewit said. But he also believes that savvy consumers have the right to know how their milk is produced.

“I strongly believe that people should know what they’re consuming,” Gorewit said. “Let them choose what they’re going to eat or drink.”

He has not, however, been able to raise the approximately $200,000 it would take to develop an FDA-approved version of the test.

The tenured Gorewit worked with Dale Bauman at Cornell in the early ’90s to develop rBST for Monsanto. Gorewit went on to develop a test to detect milk produced using the hormone. But his colleagues did not support his efforts, and his relationship with Bauman soured.

Bauman, who did not respond to a request to be interviewed for this story, wrote a memo to the press denouncing Gorewit’s test. Meanwhile, Monsanto officials also say they believe creating such a test is pointless.

“Even if there ever were a measurable amount of recombinant BST present in the milk, it has no biological activity in humans anyway,” Garrett said. “The milk is the same wholesome, nutritious product that it’s always been, with or with out the use of Posilac.”

Still, Gorewit stands by his work.

“A test for rBST can be developed,” he said. “The technology to do this is now available, whether Dr. Bauman wants to believe it or not.”

Scientific journals in the United States shied away from his research, Gorewit believes, for fear of irritating Monsanto. He eventually published his work on the test in a Pakistani medical journal. The study details the ability to measure the activity of a fatty-acid-binding protein in milk from cows receiving rBST.

Since no test is approved to detect a difference between milk from cows treated with hormones and any other milk, the FDA issued guidelines in 1994 stating that no dairy should claim its milk is better because it came from rBST-free cows. Monsanto officials say the Oakhurst lawsuit is based upon these guidelines.

But critics believe the FDA took its cue from Monsanto back in 1994 when Michael Taylor wrote the guidelines. Taylor came to the FDA from the law firm King & Spalding, which authored the Oakhurst lawsuit and still represents Monsanto. He went on to work for the USDA and later served for 16 months as vice president for public policy at Monsanto.

An FDA representative did not return phone calls requesting comment for this article.

Meanwhile, the appeal of using no-rBST labels is growing. Horizon, a large organic dairy producer in Boulder, Colorado, also employs “no rBST” labels, as does Berkeley Farms in California. Ben and Jerry’s ice cream, Stonyfield Farms, Whole Foods markets and Organic Valley Farms all label their non-rBST products as such.

Those four companies joined in a 1997 lawsuit against Illinois for the right to voluntarily label their products. The matter was settled out of court. They still label their milk, but they include a warning saying “the FDA has found no significant difference between milk from recombinant hormone-treated and untreated cows,” per the 1994 FDA guidelines.

On Friday, Sept. 12, the FDA warned several dairies to stop using “no hormone” labels, saying that all milk contains naturally occurring hormones and the product is therefore mislabeled.

Critics wonder whether Monsanto will also want to change kosher and organic labels. Monsanto says that’s different.

“The purpose of organic standards is to establish a set of production and processing criteria to market foods labeled as organic, not to suggest organic foods are ‘healthier,’ ‘safer’ or of ‘higher quality’ than other foods currently available on supermarket shelves,” Monsanto spokesman Lee Quarles said in an e-mail.

Oakhurst’s labels don’t specifically make such claims, but the Monsanto lawsuit says they’re implied.

“We make no claims at all as to other milk,” Bennett said. “All we state in our advertising on our trucks and on our labels is that our farmers pledge that they will not use artificial growth hormones on their cows.”

Meanwhile, Bunting believes the way to remain a dairy farmer and keep his sanity as well as the family farm is to sell milk products like yogurt and curd directly to customers rather than through stores. He will soon apply for a license from the state to do so.

“The price of milk is so ridiculously low you simply can’t wholesale your milk,” he said.

© 2003 Wired Magazine

Related Feature: Negative Free Speech for Corporations: Why Monsanto Can Prevent You from Knowing the Origins of Your Food

For those seeking more information on rGBH, ejnet.org has links to a wide array of information

Filed Under: Food, Health & Environment

Capsule Book Review: Overruling Democracy The Supreme Court vs. the American People

December 28, 2003 by staff

by Jamin B. Raskin (2003)

We were excited by this book because we work directly on many of the issues American University law professor Jamin Raskin highlights in this book, including amending the Constitution to deny corporations the status of persons, establishing a Constitutional right to vote, and creating open and democratic presidential debates.

Raskin provides sharp analysis and more detail on such issues that we’ve covered briefly in our online articles and newsletter, though Raskin does so from an unabashedly liberal perspective. He also covers several other engaging topics under the broad theme of the Court’s growing opposition to, and supression of, democracy in the past several decades.

The only major disappointment was the absence of direction to organizations and concrete actions for people to engage in constructive change. That’s no problem for visitors to our site, who can easily find such resources on our links and primers pages, but for casual readers it may be a significant omission we hope will be filled in future printings.

Overruling Democracy is informative and a fast read that provides a great introduction to many key constitutional issues.

Filed Under: Corporate Personhood

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