An Indifferent Congress
From 'Dismantling The Middle Class' part of 'America:What Went Wrong'

Congress has done little to curb the abuses of the 1980s. Consider for a moment Congress's response to the leveraged-buyout and corporate-restructuring craze of the 1980s that led to the loss of millions of jobs. As mergers, acquisitions, hostile takeovers and buyouts swept corporate America in the 1980s, defenders of the restructuring process contended it was merely another stage of the free-market economy at work.

During an appearance before a congressional committee in April 1985, Joseph R. Wright, Jr., then deputy director of President Reagan's Office of Management and Budget, summed up the prevailing attitude:

"There is substantial evidence that corporate takeovers, as well as mergers, acquisitions and divestitures are, in the aggregate, beneficial for stockholders and for the economy as a whole."

It is true that the restructuring of business is as old as business itself. So, too, the demise of corporations that are mismanaged or that manufacture products for which there is no longer any demand. Once, the Baldwin Locomotive Works sprawled over twenty acres in Philadelphia and more than 600 acres in Eddystone, Pennsylvania. At the company's peak, it employed 20,000 persons. When the market for steam locomotives disappeared, so, too, did Baldwin.

In those days, when factories and technologies died out — and workers lost their jobs — new factories, new technologies replaced the old. Always at higher wages. But what sets the current era apart from the past is this: There are no new manufacturing plants to replace today's Baldwins. And the remaining jobs pay less. While the government rule book encourages deal-making over creating jobs and rewards those who engineer new pieces of paper to be traded on Wall Street rather than those who engineer new products that can be manufactured and sold, Congress has displayed little interest in making changes.

From the mid-1980s on, lawmakers distributed news releases decrying corporate excesses. They made speeches deploring the loss of jobs. They conducted hearings exploring the possibility of enacting legislation to curb abuses. They issued reports reciting their findings.

At one point, the flurry of activity stirred concern on Wall Street. An article in a January 1989 issue of the Wall Street Journal, under the headline, "Wall Street Fears That Congress Will Put Brake on LBOS," began:

"Fears are mounting on Wall Street that Congress may actually do something to slow down the gravy train of takeovers and leveraged buyouts."

The fears were misplaced. Lawmakers were content with giving the appearance of action: News releases. Speeches. Hearings. Reports. But nothing else. Especially no legislation.

As one congressional staff member put it when he explained why committee hearings trailed off: "There simply is no interest among lawmakers in this."

Indeed not. But Congress was merely following the lead of the White House and Presidents Reagan and Bush.

President Bush summed up his attitudes on corporate takeovers in a question-and-answer interview with Business Week magazine:

"To the degree that there are egregious offenses in these short-term takeovers that result in increased debt, I think we ought to take a look. But I have no agenda on that. I'm always a little wary about the government trying to solve problems when, historically, the marketplace has been able to solve them."

Members of Congress, for their part, seemed satisfied with the arguments mounted by the experts who insisted that all was working well and that new laws were unnecessary. To Capitol Hill they came to testify, from the Harvard Business School, from Wall Street investment houses, from law firms specializing in mergers and acquisitions, from the offices of corporate raiders. People like Carl C. Icahn, who spoke on the virtues of corporate takeovers during an appearance before a House Energy and Commerce subcommittee in March 1984.

Icahn had already made hundreds of millions of dollars in raids on such companies as Texaco, Inc., Hammermill Paper Company, Uniroyal, Inc., and Marshall Field and Company .

It was the year before he would take over Trans World Airlines, Inc. , a company from which he would personally extract millions of dollars, firing thousands of employees, and which he would pilot into bankruptcy court.

Downplaying concerns about layoffs that follow mergers and acquisitions, Icahn told lawmakers:

"Generally, if the company is doing pretty well ... there are not an awful lot of layoffs, and the layoffs that do occur are really getting rid of some of the fat that is not productive for society."

Similar views were expressed by Icahn's fellow raiders and others who profited from the restructuring of business — Wall Street investment advisers, bankers, lawyers, accountants, brokers, pension fund managers, arbitrageurs, speculators and a close circle of hangers-on. This army of deal-makers turned the government rule book to its own advantage, seizing on provisions that place a higher value on ever-larger profits today at the expense of long-term growth, more and better-paying middle-class jobs and larger profits in the future. In doing so, they made billions of dollars.

Popular wisdom has it that the worst has passed, that it was all an aberration called the 1980s. The age of takeovers and leveraged buyouts. The decade of greed. And greed has been officially declared dead by trend trackers. A higher economic morality is supposedly in for the 1990s. Popular wisdom is wrong. The declining fortunes of the middle class that began with the restructuring craze will continue through this decade and beyond.

There are, an analysis suggests, two reasons: First, there is the global economy — the current buzz-phrase of politicians and corporate executives. As will be described in a later chapter, the global economy will be to the 1990s and beyond what corporate restructuring was to the 1980s.

Influences (Insanity) and Outcome (Poverty)
Through the last decade, decisions that produced short-term profits at the expense of jobs and future profits were justified because they increased "shareholder value." In the 1990s, the same decisions are being made with the same consequences — only this time the justification is "global competition."

Second, the fallout from the 1980s will drag on for years, as more companies file for protection in bankruptcy court, more companies lay off workers to meet their debt obligations, more companies reorganize to correct the excesses of the past.