NOW traces the roots of the growing economic inequality in the US and illustrates the sometimes forgotten human toll of government policies that favor corporations over individuals through three compelling stories.
First, an examination of NAFTA’s role in the impending extinction of a cherished American way of life in the story of a once-thriving Pennsylvania mill town and the hardworking residents plunged into the desperate ranks of the working poor in ‘Winners and Losers.’ Then, NOW reports on the tangible human costs of financial deregulation laws passed in the late 1990s by corporate-friendly politicians and the WorldCom collapse that stole the future away from so many individual investors in ‘Rewriting the Rules.’ Finally, NOW tells the tale of the best intentions derailed by corporate greed in a profile of a Republican governor’s thwarted bid to reform the nation’s most regressive tax system and level the playing field for Alabama’s poor in ‘Tax Justice.’
MOYERS: Welcome to NOW. All of our stories in this broadcast concern one subject: fairness in America, especially what’s happening to people who live paycheck to paycheck. What’s happening is that equality of opportunity is shrinking, and they’re finding it harder and harder to get a good education, learn new skills, get good jobs, and pay their taxes.
Take a look at this front page headline in the NEW YORK TIMES: “Rich Colleges Receiving Richest Share of U.S. Aid.” The story says the federal government gives more money to wealthy private universities, a lot more, than it does to public colleges that actually enroll 80% of all students in this country. Higher education for middle class and poor kids is being put in jeopardy.
Now look at this: “Between 2000 and 2001, the average CEO compensation of FORTUNE 500 companies was $37.5 million, while the average worker’s salary of all companies was $38,000.”
And this: “Inequality Gap Widest Since 1929.” “So what?” you might ask. “Why should we care about inequality? Life’s unfair.” Well, that’s what we’re dealing with tonight.
And we begin in a place that isn’t all that different from many other places where people suddenly find their world turned upside-down because someone else changed the rules. Our report is produced by my colleague Peter Bull.
Across the country, many who think of themselves as middle class, like the members of this Lutheran congregation in Tamaqua, Pennsylvania, now feel they are being pushed down into the ranks of the working poor.
PASTOR FRED CRAWFORD: Everybody can’t own the company. So some people have to get very rich for other people to make a decent living. And we just don’t… we’re not those folks.
MOYERS: In fact, the gap between rich and poor in America has doubled in the last three decades. It’s wider today than it’s been since the Great Depression. One important factor in this growing inequality is the new global economy.
CRAWFORD: Around here you get the idea that no matter who wins, we’re somehow gonna lose. Because they’re gonna find some way to make something cheaper someplace else.
JOE HARVILLA: Back when I was growing up, everyone had a job around the area. Now it’s just everything is moving out of the area, it’s going down south or it’s going overseas.
MOYERS: Ask anyone around here what’s happened to the local economy and they’ll blame government policies like the North American Free Trade Agreement, or NAFTA, signed into law in late 1993.
CRAWFORD: I think NAFTA was the straw that broke the camel’s back. The jobs had been leaving by that time. Steel had been pretty much shut down in Bethlehem. Mac Truck had moved south, had gone down to the Carolinas. But we still, in spite of having huge losses, we had some major employers in the area and one of those was Morgan’s.
MOYERS: Today, the Morgan Knitting Mill, just outside town, is the last of twenty-five textile mills that sustained this community after the demise of the coal industry.
CRAWFORD: We had people in the parish who came out of high school 20, 30 years ago. Went to work at Morgan’s and I think they expected to work there until the day that they retired. And I think NAFTA simply hastened the fact that that was not gonna be true.
MOYERS: At its peak, J.E. Morgan Knitting employed over 1000 workers. They produced thermal underwear and other apparel, making what once was considered a modest but living wage. Carol Moyer worked there most of her adult life.
CAROL MOYER: The wages were low but I worked there for 44 years, and I lived within my means. I think that’s the whole thing. Living within your means.
MOYERS: Carol was laid off last winter. A total of 350 Morgan workers will be terminated by February. They’ve been told their jobs, which paid around $9 an hour plus benefits, are going to workers in Honduras, where the hourly rate is around 55 cents. Other work is said to be going to China, where the wages are even lower.
CAROL BOYLE: Offshore seems to be the thing with big business. We can’t compete with that here. We have benefits. We can’t live on 30, 40 cents an hour and no benefits. We can’t do that here.
MOYERS: What happened in Tamaqua was that the multinational Sara Lee company bought the Morgan Mill four years ago for its apparel division. Around here, workers are convinced Sara Lee mainly wanted the patent on the so-called “waffle weave thermal underwear” that was invented at the Morgan plant.
CRAWFORD: We were not what they wanted. We were just part of the package. And we were the expendable part of the package. They wanted the patent to make the material. And once they got that, then we became expendable.
MOYERS: Three years after buying Morgan’s, the Sara Lee company announced that the plant would be converted into a distribution center, with just a skeleton crew of employees.
JOAN GERBER: I fault Sara Lee because “Nobody doesn’t like Sara Lee.” Well, nobody in this area does. They pulled the rug out from under families. They left everybody in this insecure state and they don’t look back.
HARVILLA: I’m not knockin’ Sara Lee, but they don’t know what they’re giving up. Quality-wise, and everything else. I mean, it’s amazing. You got a group of people that work together, and really try to put out the product. And they’re not gonna do that over there.
MOYERS: The Sara Lee company declined to speak for this broadcast. But the company is hardly alone in sending manufacturing jobs overseas. Estimates of the number of jobs moved offshore vary widely, but range from half a million to as many as a million lost in the last 30 months alone.
ROBERT POLLIN: It is a deep problem. And the problem is that manufacturing jobs were good jobs. They were high paid jobs. You could lead a decent middle class life. A lot of them were unionized jobs. And those jobs are precisely the ones that are threatened by the fact that you can produce abroad.
MOYERS: Carol Moyer and other former Morgan workers once had jobs that placed them in the ranks of America’s middle class. Now they are struggling to remain above the poverty line.
I often thought, in the back of my mind, how could someone be on public assistance? How could someone… what they’d call relief in the old days. That’s a shame. They should go get a job. Well, I look at these people differently now.
GERBER: Well, you take a person like myself, who worked all her life, and I had my pension plan put aside. And I always assumed that I would retire from this company when I was of age and then collect my Social Security and use my investments to subsidize that. And now I’m looking down the barrel at surviving on unemployment and a small pension from my husband.
MOYERS: The last 30 years have seen dramatic changes. Manufacturing jobs were the backbone of our middle class in the post-World War II boom years. Up through the 1960s, the average worker got a raise every year and there was less inequality between rich and poor than at any time in the nation’s history.
THEA LEE, ECONOMIST: I think we’re entering a scary era in the United States where inequality is growing.
LEE [CONGRESSIONAL HEARING]: Current trade policies are destroying the American middle class…
MOYERS: Thea Lee is an international economist with the AFL-CIO.
THEA LEE: Wages for the vast majority of workers are stagnating or falling. And a lot of wealth has been concentrated at the very, very, very top of the income scale. And we’ve got a whole array of policies — trade, tax and others — that are exacerbating that trend instead of turning it around. And it’s something if we don’t confront soon, I think we’re gonna feel it pretty much in every piece of our daily lives.
MOYERS: Economist Robert Pollin says the very concept of free trade policy depends on government and society finding some way to make it up to the losers, since the loss of jobs at home to global competition is inevitable.
POLLIN: Orthodox economic theory tells us when you have free trade, you’re gonna have winners and losers. And the most basic theory says the policy implication is not just free trade. This is Economics 101. It is free trade plus compensation for losers.
MOYERS: The problem, says Thea Lee, is that free trade policies have mainly had the winners in mind.
LEE: If we want to set as a goal of trade policy to protect good jobs here in the United States, to protect workers rights all over the world, to protect the environment, to nurture democracy and protect human rights, we can do that. What we’ve done instead is written a set of trade policies that are totally corporate-dominated, corporate-oriented, that have helped the multinational corporations make more money, have more mobility, more flexibility. They’ve weakened national democratic governments at the expense of pretty much everybody else.
MOYERS: The first Bush administration negotiated the North American Free Trade Agreement, and President Clinton fought to get it passed by Congress in 1993. Clinton and Congress also granted permanent trade privileges to China in 2000.
PRESIDENT CLINTON [FROM TAPE]: I think that the evidence is clear that not just in the long run but in the near run we’ll have more job gains than job losses out of this —
MOYERS: The idea behind free trade is that corporations compete more efficiently when trade barriers and tariffs are lowered or removed. And as companies prosper, more jobs are created, both at home and overseas in places like Honduras.
But the net result is that agreements like NAFTA have encouraged companies to lay off American workers, produce goods more cheaply abroad, and then import the goods back into this country. Missing from the equation is what happens to the laid-off American workers.
GERBER: I mean, if they’re going to ship all these jobs to China and then ship all the goods back here to be sold, not too many people in Pennsylvania can afford to buy them. They’re unemployed.
LEE: That is exactly the dynamic, is that companies are firing their own customers. That they’re taking a good job with good pay, somebody who has a home and spends money, buys a lot of goods, they’re putting that person on the unemployment rolls, they’re moving the production to a place where a worker is paid maybe a tenth of what the American worker had been paid. Doesn’t really have enough money to consume the good that he or she is producing. And then they bring the goods back in.
POLLIN: It’s certainly bad for the workers in the U.S. that lose their jobs. It is not bad for a lot of the workers in the poor countries that get the jobs. And they’re poor. And it’s good for them to have more job opportunities. Now their jobs aren’t always good either. And I… they’re under, a lot of them are under terrible conditions. Sweatshop conditions. But if they have decent labor standards, these are good opportunities. So that’s the logic. You raise overall efficiency, meaning you have a bigger pie. And so out of that pie, you give a slice to compensate the workers that lose.
MOYERS: But how do you compensate a worker like Joe Harvilla? He’s getting laid off by Sara Lee next month, after working 18 years at the Morgan Mill.
HARVILLA: I’m scared. I’m very scared, because I don’t know what’s gonna come down out of this.
MOYERS: Joe is 54 and has had five bypass heart operations.
HARVILLA: Where do I find a job? You know, if you hit 40, 45, they look at you like, “I want the younger people. They’re gonna give me a lot of years.” You know, but they don’t realize that, like, people my age are harder working than the younger people. I put in 60 hours, 70 hours a week, I mean, constantly. I been working Saturdays and Sundays. You know what I mean? It’s just, I don’t know what I’m gonna do. I really don’t. You know, it’s stressful.
REP. TIM HOLDEN (D-PA): Pennsylvania has been the most adversely affected state in the union as a result of these trade agreements that we entered into.
MOYERS: Congressman Tim Holden, a Democrat, represents the district that’s home to the Morgan Mill now owned by Sara Lee.
REP. HOLDEN: We’ve had literally thousands of people, just in this county of 150,000 population, who lost their jobs as a result of these misguided trade agreements.
MOYERS: Congressman Holden says there’s evidence that the job loss is due to free trade policies. He points to a federal program called Trade Adjustment Assistance, or TAA, which provides money to retrain workers who lost their jobs to foreign competition.
REP. HOLDEN: We had 36 companies that were declared eligible for Trade Adjustment Assistance. Which means that the Department of Labor, which was pro-NAFTA and pro-permanent trade status for China, agreed that these jobs were lost as a result of these trade agreements.
MOYERS: In the last nine years, some 31,000 Pennsylvania workers qualified for retraining. But the funds are never enough and they keep getting cut back by Congress. Last year, Pennsylvania alone was $20 million short of what was needed to retrain workers under the program.
PAULA BREINER: They had more people that were out of jobs than they had anticipated.
MOYERS: Paula Breiner used to work at the Morgan Mill. She almost missed her chance to be retrained as a medical assistant.
BREINER: Three days before I was to report to school here, they received a phone call here and I received a phone call saying the state was out of money and I could not go to school. So, my thing was I had to pay for my first semester.
MOYERS: After being laid off by Sara Lee, Liz Mihalick missed getting any retraining money when her previous school cancelled classes with no explanation.
LIZ MIHALICK: The time limit was up that I had to be enrolled. So, I lost all my benefits. So, I had to get a job and I’m still working. I work third shift and I’m putting myself through school.
MOYERS: Liz works the night shift at a direct mail company to pay for her retraining. She gets barely four hours of sleep a night.
MIHALICK: The poor always can get help. The middle class… it’s like you make just a little over you can’t get any type of help, financial help, medical help. And the rich always… they have the money to take care of themselves. So, it’s like the middle class is kind of left out, I feel.
MOYERS: Even after being retrained, Paula and Liz can’t expect to make as much as they did at the Morgan Mill. While for the older laid-off workers, retraining is often simply impractical.
GERBER: My age limits what I can do. To be a CNA and have to move patients and lift patients, it’s not gonna work for me.
HARVILLA: I want to go to school, but I can’t. I have to find a job right away. I’ve got a family, wife and a daughter. And I have to find something to take care of my family.
CAROL BOYLE: If we still get out of school, where are we gonna go for a job? There won’t be any jobs. You see? You know where I’m coming from on that?
MOYERS: The real problem with retraining is that, increasingly, the jobs simply are not there, and it’s not only manufacturing that is going offshore.
LEE: Now we’re starting to see the service jobs and the high-tech jobs also start to move offshore as companies start to take their back offices, call centers, accounting, legal, financial, architectural services are beginning to move offshore. And I think that’s a very troubling trend.
PRESIDENTIAL CANDIDATE GEPHARDT [DEMOCRATIC CANDIDATE DEBATE]: Remember what Henry Ford said? “I gotta pay my workers enough so there is somebody to buy the cars they are making…”
PRESIDENTIAL CANDIDATE DENNIS KUCINICH: Cancel NAFTA, cancel the WTO.
MOYERS: We’ve been hearing many voices today being raised in favor of rolling back the clock on free trade and for revoking NAFTA and trade privileges for China. Economist Robert Pollin disagrees.
POLLIN: Because NAFTA has accelerated a process that’s gonna happen anyway. What we have to do is think of ways to expand those types of jobs that are not exportable and turn them into decent jobs. There’s no reason, for example, why working at Wal-Mart or the Wal-Mart equivalent has to be a lousy job. Historically, it’s a lousy job while working in a steel mill’s a good job because steel mills were organized and that took a long time. And so you had labor laws that promoted that. And if you had labor laws that promoted organizing at Wal-Mart, Wal-Mart could be a decent… why shouldn’t it be a decent job? Why shouldn’t it be a decent job to be a waitress? Why shouldn’t it be a decent job to clean my university office? Those are the kinds of jobs that aren’t going anywhere.
MOYERS: Pollin argues that the minimum wage needs to be a living wage and that labor laws need to be stronger and enforced so that it’s not only multinational corporations and their shareholders who end up with bargaining power, but workers as well.
POLLIN: Unions have been hurt by globalization because businesses can say, like Sara Lee, can say, “You know what? We’re moving to Honduras.” And even if they don’t move, they can say, “You know what? Unless you take lower wages and get these unions out of our hair, we’re gonna move to Honduras.” If we can create decent jobs through full employment policies and decent labor standards, then the needs for preventing the movement outward of jobs will be diminished.
MOYERS: Unless our political and business elites find a way to compensate globalization’s losers, the future of places like Tamaqua, Pennsylvania appears to be an empty one.
HARVILLA: This’ll be a ghost town in a few years. I really believe. You know, and it’s a shame to say.
CRAWFORD: There aren’t enough jobs to support all the people who are training. So they’re either going to be trained and then underemployed, or they’re gonna have to either drive a long way to work. Or they’re gonna move. So, just because they’re retrained is not necessarily going to be a big benefit for the local community.
BREINER: You have the shareholders, they do the free trade, they send everything over. They make the money while we lose our jobs.
MOYERS: When I was growing up in East Texas, a story made the rounds about a poker game in which the dealer says, “Play the cards fair, boy. I know what I dealt you.”
Well, the hand those people in Tamaqua, Pennsylvania, were dealt came from a stacked deck. Companies that say they must survive in a competitive world market lobby hard for arrangements like NAFTA and then throw workers overboard, along with their pension plans and health benefits, creating hard times for families and communities. Fairness doesn’t seem to enter the picture.
This decline of fairness was predicted 20 years ago in this very important book by Thomas Edsall. Edsall was one of the few journalists in America to make inequality a regular beat. He wrote this to describe as government functions as an economic marketplace where the powerful compete to control the distribution of benefits, where those with clout and access rewrite the so-called laws of economics to reward themselves.
The result, Edsall predicted, will be a country where fairness no longer governs, those with the power will stack the deck, and everyone else will play with the hand they’re given. Consider as a case in point our next story of how a change in one law produced opportunity for a few and a calamity for others.
VERBALEE WATTS: We had this fine corporation that had started in Mississippi and was doing so well…and we were so proud, so proud of it.
MOYERS: The company was WorldCom, and by the late 1990s the telecom giant that had been founded by a resident of the small town of Brookhaven was carrying the whole state of Mississippi on a wave of pride and optimism.
WILLIAM QUIN, ATTORNEY: Prior to WorldCom, we had no Fortune 500 company and to my knowledge, had no company even close to reaching the Fortune 500.
MOYERS: But by the summer 2002, WorldCom was staggering under revelations of the most massive accounting fraud in corporate history.
This is a story of how political decisions in Washington D.C. made scandals like WorldCom possible by weakening investors’ protections, enabling corporate insiders to become rich beyond belief while the savings of ordinary investors were wiped out…
Investors like Verbalee Watts, who runs an accounting business in Brookhaven. Like so many others here, Verbalee invested her savings in the company founded by Brookhaven’s favorite son, Bernard Ebbers.
CONGRESSMAN (FROM WORLDCOM HEARINGS): Do you sleep well at night, Mr. Ebbers?
BERNARD EBBERS: On the instruction of counsel, I respectfully decline to answer on the basis of my Fifth Amendment constitutional rights.
MOYERS: As WorldCom’s stock plummeted, so did Verbalee’s plans for retirement.
WATTS: I virtually lost all of my retirement and practically all of my savings.
MOYERS: She had bought in at around $12 a share in 1996. A certified public accountant, Verbalee had done her homework.
WATTS: I talked to financial advisers. I didn’t look at one set of financials on this company. I looked at several years’. I looked at the track record, okay? And had the track record been correct I wouldn’t have put my money in, okay? I was given false information.
MOYERS: False information from executives indicted for cooking the books and from analysts accused of colluding with them: fraud that was overlooked or ignored by accountants, boards of directors, and government watchdogs who had been muzzled and could neither bark nor bite.
WATTS: I think that we should have better laws that protects the shareholders, okay?
MOYERS: Once upon a time we did have strong government regulation intended to protect shareholders like Verbalee.
But a wave of deregulation weakening those protections began during the Reagan and first Bush administrations and continued during the Clinton era.
By the mid-1990s, corporate and Wall Street influence over both sides of Congress was at its zenith and the financial industry was clear about what it wanted, changing the security laws that had shaped our economy for 60 years.
WILLIAM S. LERACH, ATTORNEY: Federal securities laws had been passed in 1933 and ’34 in the wake of the Great Depression and Stock Market collapse. They were the most investor-protective laws in the world. And of course, they produced the greatest securities markets in the world over time. They made honesty the coin of the realm in the United States securities markets.
MOYERS: After the Crash of 1929 brought on the Great Depression, government set up the Securities and Exchange Commission as a referee to make sure Wall Street played fair. Laws like Glass-Steagall were passed to protect investors against fraud and conflicts of interest.
ROBERT POLLIN: You had divisions and so-called firewalls between investment banks — so-called investment banks like Merrill Lynch that take your money and they invest it in the stock market — and a commercial bank like Citibank that takes our deposits and then lends to businesses that wanna do business.
MOYERS: Just as the dot-com bubble of the 1990s started to inflate, many of those securities laws were recast by Congress. Proponents say it was for good reason; the laws, they say, were being abused in predatory lawsuits.
STUART KASWELL, ATTORNEY: The trial lawyers were abusing the way the securities laws were designed to work. The securities laws are designed to protect investors if somebody lies, cheats, or steals, if somebody lies on a statement filed with the SEC, lies on a financial statement. That’s what the securities laws are designed to protect. But what we found was in the ’90s, there were plaintiff’s lawyers, trial lawyers bringing cases just because a stock price fell.
MOYERS: Stuart Kaswell was general counsel for the Securities Industry Association at the time. Changing the laws was imperative, he says, because many of these lawsuits were not about securities fraud at all. They were a way for trial lawyers to enrich themselves.
KASWELL: They’d file a suit and then they’d extract a settlement from the company. And it was too expensive for the company to defend the case. They’d just write a check to try to make it go away and then get back to their business. Well, that is an abuse on the whole economy that punishes shareholders, that punishes job creation. It punishes investors.
MOYERS: To fix the problem, supporters of deregulation argued for passage of a bill called the Litigation Reform Act of 1995.
Connecticut Senator Christopher Dodd, a Democrat, was a leading sponsor of the bill. Without it, he said, ‘frivolous’ lawsuits could puncture the dot-com boom.
SEN. CHRISTOPHER DODD (D-CT): One-half of all the firms in Silicon Valley have been subjected to securities fraud suits in the last 4 or 5 years. That just gives you an indication of what is going on here. These new startup, high-tech firms, they are the ones who are victimized by this. Those are the firms of the future.
PAMELA GILBERT, ATTORNEY: Getting rid of frivolous lawsuits is a very good idea, but that’s not what the legislation was all about. The legislation was gonna protect criminals and swindlers and white-collar defrauders.
MOYERS: Attorney Pamela Gilbert is an advocate for investors’ rights. She fought the Litigation Reform Act. She says accounting firms were pushing it in order to limit their own liability.
GILBERT: One of its major elements was that it would relieve or very much limit the liability of people who assist in fraud. So they may not be the mastermind behind the swindle, but they are the accountants or the lawyers or the brokers who enable the fraud to go on. And what the bill did was, in some cases, say that those people couldn’t be sued at all, or when you could sue them, that it would limit their liability.
REP. BILLY TAUZIN (R-LA) [HOUSE HEARING, 1/19/95]: There ought not to be a debate anymore about whether we need reform, that ought to be behind us.
MOYERS: The powerful Republican Congressman Billy Tauzin of Louisiana argued for the Litigation Reform Act’s “Safe Harbor Provision.” This would protect corporate executives from lawsuits if they made inaccurate projections about their companies’ future performance.
REP. TAUZIN (R-LA) [HOUSE HEARING, 1/19/95]: It’s time to end this predatory system that is costing everybody in this country a loss of initiative, a loss of corporate initiative because everybody is afraid to disclose too much they’re gonna get sued.
MOYERS: To attorney Bill Lerach, the Safe Harbor rule protecting executives from lawsuits had the result of giving corporations free rein to lie to shareholders.
LERACH: Most investors have no idea that Congress eliminated the liability of corporate executives for even deliberate lies. I want to say that again. Even deliberate lies about future corporate performance. This was one of the most astonishing parts of the 1995 act.
MOYERS: Lerach is a class action attorney — one of those accused of making millions of dollars in settlements from those so-called frivolous lawsuits.
In 1995, Lerach told members of Congress that passing the Litigation Reform Act would be a big mistake.
LERACH: In 10 or 15 years, you will be holding another hearing with a debacle in the securities markets that will make you remember the S&L mess with fondness.
MOYERS: President Bill Clinton also opposed the Litigation Reform Act, even though his party chairman and chief fundraiser, Senator Dodd, was pushing for it. When the act passed both Houses of Congress, Clinton vetoed it.
He told Congress, quote: “Those who are the victims of fraud should have recourse in our courts. Unfortunately, this bill could well prevent that.”
But Republicans controlled both Houses of Congress, with an agenda virtually written by big business. They enlisted enough Democrats to line up a two-thirds majority, overriding Clinton’s veto and turning the Litigation Reform Act into law.
GILBERT: When this bill was being debated, two things were predicted. One is that the incidents of fraud would increase, and two was that victims would not be able to collect when that happened. And not just with Enron, but with many other situations, we are seeing that the incidents of securities fraud have been on the rise, the incidents of restatements of earnings have been on the rise.
MOYERS: Which brings us back to WorldCom. Two years before the company’s collapse as the stock was beginning to falter, institutional investors and analysts told Bill Lerach’s law firm something didn’t smell right. They were skeptical of the accounting procedures and not satisfied with the public assurances made by CEO Bernard Ebbers. Lerach’s investigators went to work.
LERACH: And what we found was shocking. We found that the company was engaged in a wide ranging falsification of virtually everything about its business that was important to investors. Its revenues were falsified. Its profits, its rate of growth, its business expenses were artificially depressed and hidden. And its stock was grotesquely inflated for a long period of time.
MOYERS: Six months later, Lerach’s firm filed a shareholder’s lawsuit in Federal Court in Mississippi. The dot-com boom was still going great guns, and no one seemed to take notice — not the financial press, not WorldCom’s board of directors, not the auditors or the government regulators.
LERACH: Nobody in the mix had an incentive for the truth to come out. The directors went along with it. Why? Because they’re flying around on corporate jets and getting all the handouts that Bernie Ebbers is giving them. Where’s the accounting firm, Arthur Andersen? Well, they’re sitting there collecting huge fees. Nobody listened because nobody wanted to hear.
MOYERS: Shareholders like Verbalee Watts were not even aware that fraud charges had been filed against WorldCom.
WATTS: I might have got out. But I didn’t know about it. No. I don’t know if anybody in Brookhaven knew about it.
MOYERS: After a year and a half of proceedings, the judge in Mississippi finally ruled on the WorldCom case. He dismissed it.
What were his grounds? The allegations in Lerach’s lawsuit, said the judge, did “…not attain the heightened pleading requirements of the Litigation Reform Act of 1995.”
KASWELL: Occasionally, judges get it wrong. That’s why we have a system of appellate courts in America. But the basic premise should be the court should let the good cases go through. That’s what the Litigation Reform Act was designed to do.
MOYERS: But Lerach claims that the law passed by Congress over Clinton’s veto was giving corporate insiders exactly the cover they wanted.
LERACH: It gives the judge the ability to look at the complaint and say, “Yes, I see there’s a lot of pages there. There are a lot of typewritten words there. But I just don’t see the kind of detail that I think Congress wanted to require for a securities case to go forward, therefore you’re dismissed.” It’s way too subjective.
MOYERS: Ironically, in March 2002 — the same month that Lerach’s allegations were dismissed — the Securities and Exchange Commission finally began its own investigation of fraud at WorldCom.
By the summer of 2002, news of accounting fraud at the company did hit the headlines. Within weeks, WorldCom filed for bankruptcy protection — the largest in U.S. History.
It wasn’t the only one, of course. Thousands of investors lost everything in scandals like WorldCom. Meanwhile, with their companies on the verge of collapse, some corporate executives enjoyed huge stock options that pumped salaries higher than ever.
POLLIN: The average corporate executive, even at the end of the George Bush I administration, was making a lot lot more than the average worker. 119 times more. But by the end of the Clinton administration, so that’s only over a course of eight years, the average corporate executive is making 449 times more than the average worker. So, an astronomical increase in inequality…
MOYERS: Other laws passed during the same period further lifted regulatory burdens from Wall Street and weakened corporate oversight, creating a climate in which conflicts of interest grew like Topsy.
The 1930s banking law Glass-Steagall was revoked, permitting the creation of superbank conglomerates like Citi-Group, in which Citibank — a commercial bank — could merge with Travellers Corp., an insurance and investment company.
LERACH: And when those banks were allowed to recombine their commercial and their investment banking lending operations, you saw Enron. You saw WorldCom. You saw whole host of fraudulent situations where the top bankers on the top floors manipulated the levers on the floors down below them, the commercial arm, and the analysts, hyping and pushing the stocks they knew were no good, pouring out the securities offerings for the huge fees the banks got.
MOYERS: Citigroup’s commercial arm had boosted WorldCom’s stock value by floating huge bond offerings and loaning Bernard Ebbers millions for his acquisitions.
Meanwhile, analysts working for Citigroup’s investment arm — like Salomon Smith Barney’s Jack Grubman — touted WorldCom shares as good buys for investors.
QUIN: Among the claims in our suits are that the analyst, Mr. Grubman, for Salomon Smith Barney was married to WorldCom and that his analyst reports were not exactly as they should have been.
MOYERS: Attorney Billy Quin represents Verbalee Watts and thousands of other investors who lost their retirement savings.
QUIN: Because there’s the WorldCom bankruptcy proceeding, the company’s not a defendant in our suits. We are seeking to obtain recovery from persons or entities that can pay.
MOYERS: Entities like the Arthur Andersen accounting firm and Citigroup itself and individuals like analyst Jack Grubman — all parties Quin charges either facilitated the fraud at WorldCom or looked the other way.
QUIN: They should pay because accountants like Arthur Andersen have an auditing function that they failed to perform. Banks like Citigroup had a due diligence requirement that they failed to meet.
LERACH: So, it was just a big money making machine for the banks, who were safe and secure, while ordinary people were chewed up by it when the end came, and the bubble broke.
WATTS: Different times Congress has loosened the law that allowed these people to do these things that have put us in this position today. Not just one, not just WorldCom. Several large corporations. And it’s wrong. They should be regulated ’cause if you don’t regulate ’em you think they’re gonna do it willfully? I don’t think so. I don’t think so.
MOYERS: Once upon a time in our modern era, in the years after the second World War, there was a lot of what economists call income mobility in America. Real wages grew steadily for working people and many of us from poor families soon passed our parents in earning power.
Then, in the 1970s, stagnation set in, followed by shifts in political values to favor the affluent, Wall Street and the corporate agenda. Despite some gains in the mid-’90s, real pay for U.S. workers today is lower than it was in 1973 and the minimum wage in real dollars is almost a third less than it was in 1968.
People just making ends meet feel the burden of taxes far more than the rich and greater inequality has led not only to regressive taxes, but to a catch-22 that has polarized and paralyzed democracy. How do we pay for the public services and the social safety net that is so crucial to fairness in America?
You see a microcosm of the quandary in the state of Alabama.
In the Montgomery state capitol this past September, some Alabama mayors and local politicians — most of them Democrats — threw their support behind a radical tax plan, one that would reverse 100 years of inequality in Alabama.
CHARLES HARDEN: We just wanna thank Governor Riley for the courage that he has taken in leading out in the state of Alabama to change the history of the state of Alabama with this tax package.
T.C. CODY: We, as a group, are collectively tired of always being 49th and 50th. And we applaud and support the Governor’s vision to move Alabama to the forefront.
JAMES PERKINS, JR: To vote yes. To vote yes. To vote yes in support of this progressive legislation.
MOYERS: What was surprising was the architect of the plan: a conservative, self-styled Reagan Republican, Alabama’s governor, Bob Riley.
GOVERNOR RILEY [MONTGOMERY 9/2/03]: It is the most comprehensive reform of state government this state has ever seen.
GOVERNOR RILEY [BIRMINGHAM [8/15/03]: We designed a program, ladies and gentlemen, that truly does address the needs of the least fortunate among us.
MOYERS: The recently elected governor wanted to reform the most unfair tax system in the nation with the biggest tax hike in Alabama’s history. He would do it by raising taxes on the wealthy and cutting taxes for the poor.
GOVERNOR RILEY [BIRMINGHAM 8/15/03]: There are too many working men and women in middle-to-lower-income families that are struggling every day. And we need to relieve the burden. And you do it by one way. You literally go in, and ask people who have not paid their fair share for 100 years to step up and finally pay what they should pay.
MOYERS: Inequality takes on special meaning in Alabama, where over forty percent of families earn less than $35,000 a year, and one fifth of the children live in poverty: here, the state tax system itself is weighted against the poor.
RICHARD BAILEY, AUTHOR & HISTORIAN: We’ve had extremely low property taxes in the state of Alabama on one hand. And secondly, we’ve had a regressive tax structure on the other hand. And that regressive tax structure has really penalized the poor.
MOYERS: The tax structure is regressive because the people with less money pay three times as much of their income in taxes as do those with the highest income.
ROBERT POLLIN, ECONOMIST: Most of the tax burden is a sales tax, and in Alabama, even food is taxed. People spend, you know, poor people spend 25 percent of their income on food.
MOYERS: When it comes to state income tax, the lowest-earners — two-thirds of Alabama’s population — pay 11 percent of their income in taxes. In contrast, the wealthiest one percent pay less than four percent.
Alabama’s been called an economic plantation: for example, trees cover more than 70 percent of the state, and forestry is Alabama’s leading industry. Yet timber and paper companies contribute less than two percent of all property tax revenues.
Meanwhile, Alabama’s families are taxed on earnings as low as $4,600 a year. Even by the standards of the poor Southern states, this is extreme. In Mississippi next door, you pay no income taxes until you earn $19,000.
RICHARD BAILEY: We have not changed that tax structure since 1933. Why would anyone in 2003 want to hold on to a Depression era tax structure?
MOYERS: Last May, after just five months in office, Governor Riley decided drastic changes were needed. He unveiled a tax reform plan that would ask the well-to-do to shoulder more of the state’s tax burden.
GOVERNOR RILEY [MOBILE 7/15/03]: Ladies and gentlemen, this is a defining moment in this history of Alabama.
MOYERS: Riley had served in Congress and been voted the “most conservative member of Congress” for his anti-tax record. Now, as governor, he said he had no choice; the state was facing a record-breaking budget shortfall.
GOVERNOR RILEY [MOBILE 7/15/03]: When we came into office, we inherited a budget that is $675 million in the hole.
MOYERS: Riley decided against cutting vital services to fill the hole in the budget. Instead, he proposed raising Alabama’s taxes to a record $1.2 billion a year, an amount he said would make up the shortfall as well as reform a state government infamous for pork barrel spending and inefficiency.
GOVERNOR RILEY: If you look at the package, there is more reform in this one vote than I think all of the reform that we’ve seen in Alabama over the last 40 years.
MOYERS: For Riley, improving education was key. $300 million would be used to revitalize schools in a state where funding for education ranks near the bottom of the 50 states. The state’s illiteracy rate is as high as 25 percent.
JAMES CARTER, SUPERINTENDENT: If you want to have a Cadillac program, you can’t operate on a horse-and-buggy budget.
MOYERS: James Carter is the Superintendent of Schools in Selma.
CARTER: We’re asking teachers and principals and certainly staff to do more with less. If this tax package doesn’t pass, every program will have to be cut including athletics, including band and choir, and these are extracurricular activities that we pay for now, we simply could not afford.
MOYERS: Under the governor’s plan, to be phased in over five years, if you own a home worth $80,000 — the average in Alabama — your state property taxes would go up around $80 a year. Taxes on a quarter of a million-dollar home would rise around $560. In contrast, homes valued at $50,000 or less would pay no property taxes to the state.
Income taxes, too, would go up, but only for individual incomes over $75,000 and family incomes over $150,000. Those with earnings under $47,000 a year — more than half of Alabama’s families — would pay less.
GOVERNOR RILEY: I don’t think this is a liberal or conservative policy. I think it’s just a matter of basic fairness— To charge someone an income tax that’s making less than $5000 a year I just think is disproportionate.
MOYERS: In a state where the Ten Commandments have been dragged into the Supreme Court, there were moderate Christians who agreed with Riley, saying the inequality of the state’s existing tax system was downright “un-Christian.”
SUSAN PACE HAMILL: Those of us blessed with more need to contribute a little more and need to be compassionate about it.
MOYERS: Susan Pace Hamill, a law professor and Methodist, argued in a widely-quoted essay that a system that, quote: “economically oppresses low-income Alabamians” while benefiting the wealthy was “immoral.” Governor Riley, a Southern Baptist, picked up on it.
GOVERNOR RILEY: In my New Testament, it says that there’s three things we should do, “Love God, love each other, and take care of the least among us.” I think this does that.
MOYERS: But Riley’s plan stunned his own Republican Party and his conservative base, including the Christian Coalition of Alabama.
JOHN GILES: It’s one of the tenets of our organization is to ease the tax burden on all families. Therefore you find us very much applauding and embracing the concept of giving tax relief to the poor. But we feel like that’s a separate issue.
MOYERS: The Christian Coalition’s John Giles said they didn’t need a billion-dollar tax hike but rather more accountability in the way existing money is spent.
GILES: The money has been there for services. I don’t know anybody that’s gone lacking. I don’t know of any unemployed person that has not gotten a check. I don’t know of anybody that didn’t get government services that were of a low income family. Nobody has ever suffered in this state.
MOYERS: State law required that the voters make the final decision. Riley’s supporters urged a vote “yes” for the plan. Opponents urged a “no” vote in the upcoming referendum.
STAN PATE, COMMERCIAL REAL ESTATE DEVELOPER: This is not a spiritual issue. This is a public policy issue about how to finance this state, how to pay the bills.
MOYERS: Opponents like commercial real estate developer Stan Pate fought the proposed tax hikes on large landholders. Some timber companies and cotton plantations claimed that under Riley’s plan they would face property tax increases as high as 400 percent.
PATE: You have to remember that it was the rich farmland and timberlands that brought the settlers to this part of the country and they’re still number one generator of revenue in this state. So, they need to be protected.
MOYERS: Governor Riley insisted the companies would still be getting a bargain. After all, now they were paying the lowest property taxes in the region, just $1.30 an acre, compared to $2.50 an acre in Mississippi, and $4.50 an acre in Georgia.
GOVERNOR RILEY: Even after the full phase in over the next five years, Alabama would still be charging less property tax than just about any other southeastern state.
MOYERS: The powerful interests opposed to Riley’s plan launched a media blitz.
OPPOSITION TV ADS: State property taxes can jump 397 percent — We hand over a billion dollars in new taxes, they spend it on what they want…
MOYERS: Funding the campaign were corporations like Alfa Mutual Insurance and South-Trust Banking and large landholders like the Alabama forestry producers, the Weyerhaeueser Paper Company, and the Alabama Farmers Federation…
OPPOSITION TV AD: Time to service your car? Montgomery will double their take…
RICHARD BAILEY: These special interest groups have used all sorts of demagoguery to make it appear as if the poor, the working poor in the state of Alabama, will bear an unfair burden of taxes if this proposal is passed.
SHELIA SMOOT, COMMISSIONER, JEFFERSON COUNTY: We got a high illiteracy rate in this state, very high. The big guys who are trying to defeat this plan are banking on that. However, they know that most families have one or two TV sets in the household so, they bank on that medium to try to get their point across because they know these folks can’t read.
OPPOSITION TV AD: 97 words. What will it mean to you? A $1.2 billion tax increase. And since the ballot wording for the amendment is confusing—
SMOOT: So, what do you do? You keep a population here, you keep them, well, you keep them stupid about the issues. Why? Because you can protect your own piece of the pie, you know? Well now, it’s just time to share that piece of the pie.
MOYERS: Riley’s team fired back with some ads of their own.
RILEY TV AD: They are laughing at us. The people who want you to vote no are laughing because they’ve tricked us into believing that family taxes will go up if we vote yes… most families’ taxes will go down and schools will get better— They are lying to make sure that we keep paying for their huge tax breaks. September 9th, vote yes so we get the last laugh.
MOYERS: On September 9th, 54 percent of Alabama’s voters showed up for the referendum. A two-thirds majority rejected the governor’s tax reform package. The opposition was elated.
JOHN GILES, CHRISTIAN COALITION: When the voters are educated on an issue, and they’re given all the facts, they make right decisions. And so we congratulate the citizens across this state for educating themselves on this very complicated issue.
MOYERS: Years of bitter experience had left many voters deeply suspicious of how the extra tax money would be used by a notoriously corrupt state legislature and many voters who get most of their information from television remained confused as to how Riley’s complicated tax plan would affect them.
Exit polls showed that Riley’s plan actually had less support among poor and working class blacks and whites — those whom the plan would have helped the most — than among Alabama’s wealthy.
Now some very tough cuts have to be made to achieve a balanced state budget.
RICHARD BAILEY: We will have to dismiss some teachers. We will have to release some inmates from our prisons. We will have to release about 1/3 of our state troopers from monitoring our highways. We will have to curtail some healthcare programs we’ve provided for the elderly.
MOYERS: The gap between rich and poor in Alabama, rather than being reversed, is destined now to become wider than ever.
SMOOT: I feel a sense of hopelessness more so than I’ve ever seen in this state. They just don’t feel like there’s any hope. I don’t care if you’re at the top of the food chain or the bottom. This state oughta be working for everybody.
ANNOUNCER: Connect to NOW WITH BILL MOYERS Online at pbs.org.
Read about the changing face of America’s workforce. The WorldCom scandal: where are they now? Compare your family’s tax rate to those paid by ten major American companies.
Connect to NOW at pbs.org.
MOYERS: So there are real life consequences to inequality. Those kids in Alabama, the states talking about cutting over 3,000 teachers and shortening the school days, those students could have a hard time catching up down the road.
We also know inequality affects health. The lower your income, the worse your health is likely to be and the greater the cost to other taxpayers.
Then there’s the effect of inequality on democracy. Those who can afford big campaign contributions get to write the laws, helping themselves to more representation than others.
Something basic’s at stake here. One of our nation’s founders, Alexander Hamilton, no foe of commerce and enterprise said it well, “There can be no truer principle than this: that every individual of the community at large has an equal right to the protection of government.”
That’s it for NOW. Over the next two weeks, many public television stations will take a break to ask for your support. If changes in schedules cause you to miss some or all of NOW you can see the program online.
Go to pbs.org for details. I’m Bill Moyers. Thanks for watching. Good night.
This transcript was entered on Apugust 13, 2015.