[Senate Hearing 117-245]
[From the U.S. Government Publishing Office]
S. Hrg. 117-245
WARRIOR MET AND WALL STREET GREED: WHAT
CORPORATE RAIDERS ARE DOING TO WORK-
ERS AND CONSUMERS
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HEARING
BEFORE THE
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
February 17, 2022
__________
Printed for the use of the Committee on the Budget
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-229 PDF WASHINGTON : 2022
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COMMITTEE ON THE BUDGET
BERNARD SANDERS, Vermont, Chairman
PATTY MURRAY, Washington LINDSEY O. GRAHAM, South Carolina
RON WYDEN, Oregon CHARLES E. GRASSLEY, Iowa
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
SHELDON WHITEHOUSE, Rhode Island PATRICK TOOMEY, Pennsylvania
MARK R. WARNER, Virginia RON JOHNSON, Wisconsin
JEFF MERKLEY, Oregon MIKE BRAUN, Indiana
TIM KAINE, Virginia RICK SCOTT, Florida
CHRIS VAN HOLLEN, Maryland BEN SASSE, Nebraska
BEN RAY LUJAN, New Mexico MITT ROMNEY, Utah
ALEX PADILLA, California JOHN KENNEDY, Louisiana
KEVIN CRAMER, North Dakota
Warren Gunnels, Majority Staff Director
Nick Myers, Minority Staff Director
C O N T E N T S
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THURSDAY, FEBRUARY 17, 2022
OPENING STATEMENTS BY COMMITTEE MEMBERS
Page
Chairman Bernard Sanders......................................... 1
Senator Mike Braun............................................... 4
WITNESSES
Statement of the Honorable Elizabeth Warren, U.S. Senator from
the State of Massachusetts..................................... 6
Prepared Statement of........................................ 34
Statement of the Honorable Tommy Tuberville, U.S. Senator from
the State of Alabama........................................... 7
Prepared Statement of........................................ 36
Statement of Mr. Cecil Roberts, International President, United
Mine Workers of America........................................ 9
Prepared Statement of........................................ 37
Questions and Answers (Post-Hearing) from:
Senator Chris Van Hollen................................. 135
Statement of Mr. Braxton Wright, Mine Employee, Warrior Met Coal,
UMWA Local 2368................................................ 11
Prepared Statement of........................................ 105
Questions and Answers (Post-Hearing) from:
Senator Chris Van Hollen................................. 136
Statement of Dr. Nomi Prins, Economist and Author, Former
Managing Director, Goldman Sachs............................... 21
Prepared Statement of........................................ 108
Questions and Answers (Post-Hearing) from:
Senator Ben Ray Lujan.................................... 137
Statement of Mr. James Kwak, Research Fellow, University of
Connecticut School of Law...................................... 23
Prepared Statement of........................................ 110
Questions and Answers (Post-Hearing) from:
Senator Ben Ray Lujan.................................... 139
Senator Chris Van Hollen................................. 141
Statement of Dr. Douglas Holtz-Eakin, President, American Action
Forum.......................................................... 24
Prepared Statement of........................................ 119
Statement of Mr. Duncan Wood, PhD, Vice President for Strategy &
New Initiatives, The Wilson Center............................. 26
Prepared Statement of........................................ 123
WARRIOR MET AND WALL STREET GREED: WHAT CORPORATE RAIDERS ARE DOING TO
WORKERS AND CONSUMERS
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THURSDAY, FEBRUARY 17, 2022
U.S. Senate,
Committee on the Budget,
Washington, DC.
The Committee met, pursuant to notice, at 11:00 a.m., via
Webex and in Room SH-216, Hart Senate Office Building,
Honorable Bernard Sanders, Chairman of the Committee,
presiding.
Present: Senators Sanders, Warner, Kaine, Van Hollen,
Padilla, Grassley, Crapo, Toomey, Johnson, Scott, and Braun.
Staff Present: Warren Gunnels, Majority Staff Director; and
Nick Myers, Republican Staff Director.
OPENING STATEMENT OF CHAIRMAN SANDERS
Chairman Sanders. Okay. Let us get going. Let me thank
Senator Braun for serving as Ranking Member today, filling in
for Ranking Member Graham. Let me also thank our colleagues who
will be attending this hearing and our witnesses who will be
with us this morning.
Today we are going to discuss an issue of enormous
consequence but which, unfortunately, is not talked about
enough, not talked about enough here in Congress, not talked
enough about in the media, and that is the incredible
concentration of ownership and power that a handful of Wall
Street investment firms have over our entire economy and the
enormous impact they have on workers, consumers, and virtually
every person in our country.
Today, in America, just three--one, two, three--Wall Street
firms--BlackRock, Vanguard, and State Street--manage $22
trillion in assets. Let me repeat that. Three companies manage
$22 trillion in assets.
So what does that mean? Well, for starters it means that
the amount of money these three firms control is nearly equal
to the entire gross domestic product, the GDP, of the United
States. Three companies and more than five times the GDP of
Germany. These three firms--BlackRock, Vanguard, and State
Street--are major shareholders in more than 96 percent of S&P
500 companies. In other words, they have significant influence
over many hundreds of companies that employ millions of
American workers and, in fact, enormous impact over our entire
economy.
Let us talk about banking. We all remember that after the
Wall Street crash of 2008, there was a whole lot of discussion
about the wealth and the power of the major banks that were,
quote/unquote, ``too big to fail.'' You all remember that?
Well, these three Wall Street investment firms that we are
talking about today are the largest shareholders of some of the
biggest banks in America--JPMorgan Chase, Wells Fargo, and
Citibank. In other words, they have enormous influence over
enormous banks.
Let us talk about transportation. These three Wall Street
firms are among the top owners of all four major airlines--
American, Southwest, Delta, and United.
What about health care? Everybody is concerned about health
care, the cost of health care in America. Together these three
firms own an average of 20 percent of the major drug companies
in America. Wall Street firms, in general, have bought up
thousands of nursing homes. Everybody is concerned about the
cost of nursing homes. They bought up thousands of nursing
homes where profits have been soaring at the same time as
mortality rates have gone up as well.
These three firms are also responsible for the astronomical
prices and emergency rooms. Yes, three firms own emergency
rooms in hospitals all across this country, increasing prices
by over 60 percent and driving over half a million Americans
into bankruptcy each year. These three firms.
These three firms will tell you that they are passive
investors, that they are not involved in the day-to-day
decisions of the companies they own. But let us be clear. These
three companies control nearly one-fourth of votes at
shareholder meetings, leveraging their power to influence CEO
compensation, stock buybacks, and environmental commitments,
mergers, and pension benefits.
In addition to the big three, a small handful of Wall
Street vulture funds, so-called private equity firms, also have
an enormous control over industry after industry after
industry. Over the past two decades, private equity takeovers
have slashed nearly 1.3 million jobs and shut down nearly
20,000 stores in the retail industry, including Toys ``R'' Us,
Payless, and Dollar General.
Let us talk about housing. Last year a small number of Wall
Street firms and other extremely wealthy investors bought about
1 out of every 7 homes in some of the largest cities in
America, and now own over 1 million apartments, hiking rents by
as much as 30 percent and neglecting needed repairs on the
safety of tenants. Wall Street firms are responsible for the
astronomical prices in emergency rooms. Yes, these firms own
emergency rooms in hospitals all across this country,
increasing prices by over 60 percent and driving over half a
million Americans into bankruptcy each year. These wall street
firms.
And if, interestingly enough, you have not heard much about
the power of these Wall Street firms, that may have something
to do with the fact that a small number of Wall Street firms
control about half of the newspapers in America.
Now we are talking about a small number of Wall Street
firms that buy up companies, load them up with debt, and make a
huge amount of money by laying off workers, slashing wages,
shipping jobs overseas, and eliminating health care and pension
benefits. According to recent studies, after these Wall Street
firms take over companies as a result of leveraged buyouts,
jobs are slashed by 13 percent, wages fall by 6 percent, and
the companies that Wall Street firms take over are 10 times
more likely to declare bankruptcy.
When we talk about power in America many people think that,
you know, President of the United States, pretty powerful guy,
that he is the most powerful person in this country. Well,
frankly, I am not so sure. Given the enormous power that the
CEOs of these extremely large Wall Street financial firms have
over our economy, it may well be that these guys are more
powerful than the President of the United States.
And that brings us to where we are today with Warrior Met
Coal in Brookwood, Alabama, where workers have been engaged in
a strike for 11 months, fighting for economic justice, fighting
for dignity on the job. In 2016, a group of private equity
funds, led by Apollo and Blackstone, acquired Walter Energy and
formed Warrior Met Coal. As part of the restructuring, workers
were forced to take a $6 per hour wage cut, over 20 percent of
their wages, and massive cuts to their health care and
retirement benefits. The concessions the miners made five years
ago saved Warrior Met $1.1 billion.
Let us be clear. The workers agreed to these cuts with the
understanding that they would be restored when the company
returned to profitability. That is not what happened. While
Warrior Met has returned to profitability and could afford to
pay its CEO, Walter J. Scheller III, $4 million in compensation
each year, it has reneged on that deal and is offering workers
an insulting $1.50 raise spread over five years, about a $0.30
an hour increase over five 5 years, while refusing to restore
the health care and pension benefits that were taken away from
them in 2016.
Now, so everybody should understand this, I invited Mr.
Scheller, the CEO of Warrior Met, to testify at this hearing.
He was invited. I wanted to ask him how, over the last five
years, Warrior Met could afford to provide $1.5 billion in
stock buybacks and dividends to its wealthy shareholders and
huge bonuses to its executives but somehow could not afford to
treat its workers with the dignity and respect they deserve.
Once again, concessions made by the workers totaled $1.1
billion over five years. Stock buybacks and dividends over the
same period totaled $1.5 billion.
I invited, for this hearing, Larry Fink, the CEO of
BlackRock and the largest shareholder of Warrior Met to testify
at this hearing. My hope was, and my hope remains, that Mr.
Fink will do the right thing and demand that Warrior Met's
management sit down with their workers and negotiate a contract
in good faith. Unfortunately, Mr. Fink has declined to testify.
Further, I invited Stephen Schwarzman and Marc Rowan, the
CEOs of Blackstone and Apollo, to testify at this hearing as
well. Unfortunately, all of them declined to participate.
The good news is, however, that we have a number of
excellent witnesses who are not afraid to come before the
public and answer questions. They include Braxton Wright, a
worker at Warrior Met, and Cecil Roberts, the President of
United Mine Workers of America (UMWA). Our last panel will
include several economists who have studied and written
extensively on this issue.
Let me just be very clear about this. What is happening at
Warrior Met is not an aberration. It is not an exception to the
rule. At a moment of unprecedented corporate greed in this
country, attacks against working people are taking place in
company after company, industry after industry.
And here is a dangerous reality. Never before in the
history of the United States of America have so few owned so
much and had so much power over our economy. This extraordinary
concentration of ownership held by Wall Street over our economy
is an issue that Congress and the American people must deal
with.
And with that let me introduce Senator Braun and recognize
him for his opening remarks. Senator.
OPENING STATEMENT OF SENATOR BRAUN
Senator Braun. Thank you, Mr. Chairman. I appreciate how
far witnesses have traveled to come here today to discuss this.
It is a multi-faceted discussion. This is the Budget Committee.
And I think the whole issue of concentration in industry--I
came from Main Street America where we had no help from
government, and we did not have any of the crony capitalist
things that occur, largely through this place, that gives a leg
up to many industries.
I will cite that in the classic way the economy should work
you should have full competition, no barriers to entry. You
should have an engaged and informed consumer. Those are the
elements that make capitalism and free markets work. Sadly,
over time, they evolve in a different way. But I will go back
to my original point. This is the Budget Committee, and I am
not sure that this is the jurisdiction that we can discuss it.
Of course, the Chair can discuss whatever he wants to. I think
there is validity in looking at some of those issues.
I am going to focus on what I think we should be doing, and
that is talking about the fact that we have just recently
eclipsed $30 trillion in debt as a country. The Senator and I
have had a vibrant discussion on the floor, reaching about 26
or 27 minutes, 6, 7 months ago. And I know there is a
difference of opinion there too.
But when it comes to how any entity works you cannot borrow
from your kids and grandkids on things that you are consuming,
as much as we would like to do it, for whatever the benefit is
that might accrue. It is a bad business plan, it will run into
the ditch in a hard way, and we will have to reconcile it down
the road to where currently we ought to be looking at the
drivers of it, which would be Medicare, Social Security,
programs everybody would want to be there, and to be in sound
shape. If we keep plowing ahead now with $1.5 trillion deficits
baseline, taking us into that next tier of indebtedness, it
will not be a good ending for all the people that depend on it,
mostly elderly, for their retirement and their health care.
What I would like to do is get back to the essence of this
Committee, which means that we do regular order, discuss these
things, not talking about spending, a CR vote that we are going
to have later today, where we are talking about a budget that
should have been worked on last year, finished with all
appropriations done by September 30, 2021. That is not running
the place very well for all the people that depend upon it.
In this particular dispute with workers and mine, that is
probably not the domain of the Budget Committee, although I
understand the relevance of it. It probably should be kept in
the private sector because it is currently part of a legal
dispute.
Look at what the Biden administration did when it got the
reins. We had 1 percent inflation. We were raising wages in the
toughest places, the old-fashioned way. We were not making
government the centerpiece of our lives. I understand, through
frustration, how it is easy to go there.
But you look at some of the first moves, and now remember
we are asking OPEC to produce more oil when we shut down the
Keystone XL pipeline. We were stopping exploration and drilling
on our Federal lands. And I am the guy that started the Climate
Caucus here on the Republican side, and I believe in the long
run the cleanest, least-expensive fuel is going to win the day.
But we cannot ignore the things that we should be doing, like
budgets through regular order, like remaining energy
independent in the short run, so that we are not in positions
like we currently find ourselves.
We are 100 percent dependent for 17 key mineral resources
and a lot of the new technology that we will be addressing
climate issues with, who is cornering the market? It is China.
And when we get diverted and when we do not do budgets, when we
get down a trail that is unsustainable, we are going to end up
with problems and issues that are going to be far greater than
what we are talking about here today.
American families want us to get a few things right. They
want us to live within our means, they do not want us to borrow
money from their kids and their grandkids, and we should all be
working together, in the proper jurisdiction, to address these
issues. But when it comes to the Budget Committee I think we
ought to stay more focused on it, and I know that it has not
been popular to do it the old-fashioned way. We have only put a
budget together I think once in the last 20 years.
I will end with this quote from Admiral Mike Mullen, and
this is from Defense, and I think part of the problem here in
D.C. is that we roll over for each other's needs, Republicans
for Defense, when we hold it sacrosanct and we do not require
it to do audits. The other side of the aisle getting way ahead
of its skis when we cannot afford it, even though it might be
well intentioned.
He said, as it relates to defense, and we are looking at it
right now with Putin peering into Ukraine, ``I fear red ink
more than do the Red Menace.'' And I think that is a good
statement that ought to be put into practice and that we ought
to look at for across this Federal Government.
Chairman Sanders. Thank you, Senator Braun.
We are pleased today to have two United States Senators
with us who will be making remarks. We begin with Senator
Elizabeth Warren of Massachusetts who is the Chair of the
Senate Banking, Housing, and Urban Affairs Committee's Economic
Policy Subcommittee. She has spent years studying and writing
about all things relating to private equity and asset
management industries, and is a champion of working people in
this country.
Senator Warren, thanks so much for being with us.
STATEMENT OF THE HONORABLE ELIZABETH WARREN, A UNITED STATES
SENATOR FROM THE STATE OF MASSACHUSETTS
Senator Warren. Well, thank you very much, Mr. Chairman. I
appreciate you inviting me to participate in this hearing, and
I appreciate the powerful work that you have been doing on the
issue of economic concentration. You are an extraordinary and a
tireless leader, and I am honored to be in this fight with you.
So thanks to you, today we have the opportunity to discuss
the very real impact that private equity and Wall Street giants
have had on workers and communities across this country.
For nearly a year, more than 1,100 Warrior Met Coal miners
in Brookwood, Alabama, have been on strike. They are striking
for nothing more than what they are owed: fair pay, fair
benefits, and fair working conditions. All of these were
stripped away when giant, vulture private equity firms swooped
in to buy Warrior Met's predecessor company, Walter Energy, as
it went through bankruptcy.
Apollo, Blackstone, and the other private equity firms that
bought Walter Energy in 2016 presented themselves as saviors,
here to save the company, here to save jobs, here to save the
day. But it was all hype. They showed up because they smelled
profits, and they planned to boost those profits by crushing
the company's workers. These private equity firms terminated
the miners' collective bargaining agreement with the United
Mine Workers. They forced a pay cut of more than 20 percent on
workers. They cut medical, leave, and retirement benefits. And
just to juice their profits a little more, they ended the
company's pension and health obligations to 2,800 retired coal
miners and their families.
Private equity was the driving force behind all of this.
The private equity investors in Warrior Met dictated the terms
and conditions of the 2016 takeover of the company, and those
same private equity investors continue to bear responsibility
for the cuts in pay and benefits that have pressed workers to
the wall and led to the current Warrior Met miners' strike.
Coal mining is dangerous work. The hours are long, the
tasks are back-breaking. But when private equity took over,
miners were told that all that hard work just did not produce
enough revenue to give the workers the protection and the
security that they had earned.
Money was supposedly tight, but the investors--Apollo,
Blackstone, and the other private equity firms--what happened
to them? They made out like bandits. They ran the same play
that private equity has run over and over and over. They loaded
Warrior Met up with debt, and then they used that debt to pay
nearly $800 million in dividends to themselves and to other
shareholders. And then, after sucking as much cash for
themselves out as they possibly could, private equity sold off
their shares and moved along to the next victims.
Warrior Met miners are on strike today because private
equity ripped them off. What happened to Warrior Met workers is
what happens when these billion-dollar Wall Street firms come
to town. Private equity squeezes as much as they can out of the
companies and their employees, and when they think there is
nothing left to squeeze, they leave everyone else in the dirt.
Nationwide, private equity's takeover of retail has killed
more than 1.3 million jobs over the last decade. It is
responsible for jacking up prices for consumers in everything
from education to health care. The arrival of private equity
can even be a matter of life and death. Research even shows
that when private equity takes over a nursing home, short-term
mortality rates jump by about 10 percent.
But even as they keep raking in billions of dollars in
fees, the typical private equity fund has not managed to
outperform the stock market since at least 2006. Think about
that. They strip assets and squeeze workers with frightening
energy, but they do not actually make a better rate of return
than the average mutual fund. All that destruction comes with a
lot of high overhead costs and the result is only modest
returns to investors.
This is why I introduced my Stop Wall Street Looting Act in
2019, and why I reintroduced it a few months ago, so we can put
an end to predatory and dangerous private equity practices.
This is not about killing private equity. It is about
fixing the system and protecting workers and communities. My
bill would prevent private equity firms from walking away after
driving companies into the ground and leaving the workers in
the dirt. My bill prioritizes worker pay in the bankruptcy
process and strengthens rules so that workers are more likely
to receive severance, pensions, and other pay that they earned.
My bill creates incentives for job retention, so that workers,
like Warrior Met's, can benefit from a company's second chance
in bankruptcy. And my bill ends the immunity of private equity
firms from legal liabilities when those companies break the
law. When workers at a plant are shortchanged or residents at a
nursing home are hurt because private equity firms force it to
cut corners, private equity should be on the hook.
So Mr. Chairman, I thank you again for allowing me to
testify today, and I appreciate your partnership on these
issues. I am going to keep fighting to end the outrageous
practices of private equity firms. I am going to keep fighting
to turn the Stop Wall Street Looting Act into law. And I am
going to keep fighting to make sure that Warrior Met workers
get what they are rightfully owed. Thank you.
[The prepared statement of Senator Warren appears on page
34]
Chairman Sanders. Senator Warren, thank you very much.
Our next panelist is Senator Tommy Tuberville, who is the
junior Senator from the state of Alabama, the home of the
Warrior Met coal company. Senator Tuberville, thank you very
much for being with us today.
STATEMENT OF THE HONORABLE TOMMY TUBERVILLE, A UNITED STATES
SENATOR FROM THE STATE OF ALABAMA
Senator Tuberville. Thank you, Chairman Sanders and Ranking
Member Braun. Thank you for the opportunity to testify before
the Senate Budget Committee on an issue that directly impacts
my state of Alabama.
And with that I want to first welcome my constituent,
Braxton Wright, who will be testifying on the next panel.
Next I want to associate myself with the remarks made by
Ranking Member Braun. While this is not the first time the
Chairman has directly involved himself in union dealings in my
home state of Alabama, I want to make it clear and on the
record, I do not believe the Budget Committee has jurisdiction
over matters involving labor practices across our country. If a
hearing like this should take place at all it should be in
front of the Senate Health, Education, Labor, and Pension
Committee, better known as HELP, of which I am a member.
That being said, I think it is inappropriate for Congress
to weigh in on labor disputes which are properly being resolved
through the judicial system. Workers in private companies
across our nation have the right to decide whether they want to
join a union or not. My home state of Alabama is a right-to-
work state, and we are proud of that fact. Our workers are not
forced to join a union--they have the right to decide--and
there are some companies operating in Alabama that have
workforces who voted to have a union in place.
So to me it is clear that the purpose of this hearing is
for the majority to push a political agenda. This hearing is
what I call the dream Democrat political parlay, where members
can be pro-union, anti-Wall Street and anti-mining production
all in one hearing.
I want to make sure the record accurately reflects the
facts and figures of what is being discussed today with Warrior
Met Coal, located in Brookwood, Alabama. The jobs at Warrior
Met Coal pay an average wage of over $97,000 annually. This is
one of the top average wages in the state. Since Warrior Met
Coal was established in 2016, it has created an additional 600
jobs.
On April 1, 2021, Warrior Met workers initiated a strike.
Four days later, on April 5th, the International Union of Mine
Workers of America accepted a contract proposal by Warrior Met.
However, the local union membership took a vote and did not
ratify it. Since then it is my understanding that there have
been nine--I repeat, nine--contract proposals offered by
Warrior Met to union officials, but none of these offers have
been presented to the Alabama union workforce for a vote. How
can the workforce get back to work if they are not shown the
latest offers on the table? That does not make sense.
And again, neither does this venue. The Budget Committee or
Congress, in general, is not the proper place to litigate a
labor dispute between private companies and their workforce.
Clearly Congress has enacted laws and established agencies and
practices to handle these exact type of labor disputes.
Our Federal courts and the Department of Labor's National
Labor Relations Board, or NLRB, have already made multiple
decisions in this case. I strongly question the overt political
influence of this hearing and the strong pro-union stance of
this Committee. Actions, like holding this hearing, seek to
call into question the judicial system and labor ruling
decisions of the NLRB.
I want to make it clear: Congress does not have any
decision-making authority between Warrior Met Coal and union
members, nor should we get involved in how they work out their
own labor agreements. Congress has decision-making authority
over the Federal budget and how much money our government
spends. That is what I think the Committee should be paying
attention to, not the labor disputes in private companies in
Alabama.
We have to get our fiscal house in order. Inflation has
engulfed our economy. Families face bare grocery shelves and
gas is more than $5 a gallon in some places. Our national debt
has gone over $30 trillion. That amounts to a credit bill for
$240,000 per taxpayer in this country. We need to return to
free market enterprise with less government intervention.
In closing, it is my hope that Warrior Met Coal and the
union workforce can come to a beneficial agreement for all
involved and that Congress will not try to tip the scales in
one direction. We must get Americans to work so that our
economy can once again thrive.
I thank the Committee for their time and consideration of
my comments. Thank you, Mr. Chairman.
[The prepared statement of Senator Tuberville appears on
page 36]
Chairman Sanders. Thank you very much, Senator Tuberville.
And now we will hear from the second panel.
[Pause.]
Okay. This panel will consist of Cecil Roberts, who is the
International President of the United Mine Workers of America.
President Roberts is a six-generation coal miner, raised in
Kanawha County, West Virginia. He rallies with Warrior Met
workers on the picket line in Alabama every week.
Our second panelist is Braxton Wright, who is a mine
employee at Warrior Met and a member of the United Mine Workers
Local 2368. He has worked at the Brookwood mine for 17 years
and has been on strike since April 1, 2021.
We have also invited, as I mentioned earlier, to this
hearing the CEO of Warrior Met, Walter J. Scheller III.
Unfortunately, he has chosen not to be with us.
We will now hear from Cecil Roberts, the International
President of the United Mine Workers of America. Mr. Roberts,
thanks so much for being with us.
STATEMENT OF CECIL ROBERTS, INTERNATIONAL PRESIDENT, UNITED
MINE WORKERS OF AMERICA
Mr. Roberts. Thank you, Senator, for scheduling this
hearing and inviting us to participate. We appreciate the
willingness to hear from workers here today. And I want to
thank Ranking Member Braun also for allowing us to be here
today and the panelists here, the Senators here on this
Committee. My good friend, Senator Kaine, is here. This is an
opportunity that workers do not always have, to have their
voice heard here on Capitol Hill.
Today is the 323rd day of our strike in Alabama. I would
like to take this opportunity to invite Senator Tuberville to
stop by, at his convenience, and maybe he could be of some help
with respect to encouraging Warrior Met to join with the United
Mine Workers and fashion an agreement to end this strike.
Three hundred twenty-three days, but this did not start 323
days ago. I think it would be fair to say that not a single
coal miner ever caused a bankruptcy. No one ever asked a
shuttle car operator, ``Do you want us to invest some money
here or there?'' They do not ask the continuous miner that.
They do not ask the long wall operator that. All these
decisions that lead to bankruptcy are made by others than to
coal miners.
In 2015, there was a bankruptcy filing by Walter Energy,
and that hearing for that bankruptcy took place in Alabama. The
first thing that happened in this bankruptcy is something that
has been alluded to here by both you and Senator Warren.
Retirees, 2,700 of them, sitting at home, 75, 85 years old,
given their lives to this industry, get a notice. Well, the
bankruptcy judge decided you do not have health care.
The second thing that happens is the pension plan goes
away. The next thing that happens is that the collective
bargaining agreement that was ratified by an overwhelming
majority of these workers, that was in place at the time is
terminated. The next thing that happens is what? Most people do
not know this. You do not have a job here anymore.
So, in reality--people get discharged in bankruptcy court.
Now who decided that that was going to happen? How did that
come about?
At the time, these investors from New York, mainly, were
playing a role already with respect to what was going on in the
bankruptcy court. So now workers who had nothing, absolutely
nothing to do with the filing of this bankruptcy or the
creating of this bankruptcy, are now being told, ``Well, you
have got to fix this.'' The workers have to fix this. How in
the world is that going to take place?
The first thing that happens is we are told, by this
private equity group, ``We do not have to hire a single one of
your members back. They are unemployed, as far as we are
concerned. Now, if you want to get your members back to work
you have to deal with us and reach an understanding with us,
and if that understanding is not something we want then there
will be an opportunity for your members, who have got 40 years
in this coal mine, 30 years, 20 years, been there forever,
producing coal for this company that was there previously.''
Now they are telling us, ``You do not have any leverage.''
You know what? They are right. That is the truth. Can you
imagine trying to bargain with somebody that is taking coal
mines over, who came here from New York and do not even know
what color the coal is, do not have any idea of what happens in
a coal mine, but they are telling us, ``We are not hiring those
people back unless you do certain things,'' and they have
already gotten everything that you could ever ask for, as an
investor or an employer, out of the bankruptcy court. You have
cancelled health care for retirees. You have terminated the
contracted. You have now terminated the employees unless your
union bargains their way back in.
So now the union is at the bargaining table with this
group. And we do reach an agreement. It was a terrible
agreement, but the workers were told the truth. If we do not
reach an agreement with this group, they do not have to hire
us, if we will not be here to represent you, and who knows what
is going to happen to this place. No entity should have that
kind of power delegated to them by the laws that are passed
here in this location that we are sitting now. That is the law.
Bankruptcy laws are horrendous for working-class people. There
have been 60-some of these in the coal fields of Appalachia. No
group of workers should be treated like that.
And let me tell you what has happened since that contract
was ratified. It has been five-plus years. Senator Tuberville
said how much money they make. Yeah, you go in the mines and
spend 12 hours a day, 6 days a week, for a year, 2 years, 3
years, 4 years, 5 years. These workers are totally exhausted
and they are totally fed up.
About the contract that was voted on, the one thing that
this Committee should know, it failed, 95-5. These other
agreements he is talking about are the same agreement. They
changed this word. They changed that word. New proposal. That
is what we have been faced with for about a year now. I think
it is disgraceful that these workers have been on strike this
long of a time.
And you are going to hear momentarily from Braxton Wright,
who has been on this picket line daily, and he is one of the
leaders of our union on that level. His wife, Haeden, has
headed up our Auxiliary. But there are 800 of these families
that have not only suffered through this strike but they have
suffered for five-plus years because of what happened to them
when these investors rode into town and could not spell coal,
could not tell you what color it is. All they knew is there was
some money to be made here. And they are gone now. They are
gone now. And now we are tasked with how we keep this company
profitable.
Coal is selling, by the way, for about $500 a ton. This is
metallurgical coal. You would have to work at it to not make
money with respect to the price of coal being at that level.
With that I yield, Mr. Chairman.
[The prepared statement of Mr. Roberts appears on page 37]
Chairman Sanders. Mr. Roberts, thank you very much.
Our next panelist is Braxton Wright, who is a mine employee
at Warrior Met and a member of UMWA Local 2368. He has worked
at the Brookwood mine for 17 years. He has been on strike since
April 1, 2021.
Mr. Wright, thanks so much for being with us.
STATEMENT OF BRAXTON WRIGHT, MINE EMPLOYEE, WARRIOR MET COAL,
AND MEMBER, UMWA LOCAL 2368
Mr. Wright. Thank you for having me.
Chairman Sanders, Ranking Member Braun, distinguished
members of the Committee, my name is Braxton Wright and I have
worked at the mines in Brookwood, Alabama for over 17 years. I
come from a family of coal miners. My grandfather was injured
in a mining accident at Black Diamond Mines in West Blocton,
and later passed away due to his injuries. My father worked in
the coal mines a short time. My father-in-law is a retired UMWA
miner who retired at the time of the Walter Energy bankruptcy
with more than 30 years.
Today I would like to speak with you about how private
equity firms such as Apollo, Blackstone, and other private
equity who held stock in Walter Energy dictated the terms and
conditions of the 2016 takeover of Walter Energy, which was
renamed Warrior Met Coal, and what that means to workers,
families, and communities. These private equity investors bear
much of the responsibility for the cuts in pay and benefits,
and have led to the United Mine Workers' unfair labor practice
strike at Warrior Met.
The past five years working under this bankruptcy contract
has been difficult for the miners and their families. These
private equity groups have played a role in the exploitation of
the UMWA miners as well as numerous other workers who do not
have the benefit of a union contract.
Due to the Chapter 11 Bankruptcy filed by Walter Energy in
2016, miners took massive concessions in order to make the
company profitable again. Some of these concessions included a
$6-an-hour pay cut, depending on your pay grade. It, by itself,
placed a huge strain on workers and their families. When you
are required to work 12 hours a day, 6 to 7 days a week, you
are lucky if you see your spouse or children more than a few
hours a day.
Before the bankruptcy, many spouses did not have to work.
After the bankruptcy, many spouses were forced to work outside
the home while still being the primary caregiver. So children
saw both parents less as a result of the cuts in the bankruptcy
contract.
It would break your heart to hear how many times my oldest
daughter, Averi, would ask me, ``Why weren't you at my game?''
``Why didn't you come to my field trip or awards day at
school?'' ``Why can't you go with us to the park?'' Every time
I had to answer, ``I had to work'' or ``I had to sleep,''
knowing that my child deserved to have time with both her
parents. These have been the voices of hundreds of children
whose parents worked at Warrior Met Coal.
While Warrior Met claims to give us eight holidays, in
actuality the only dedicated holidays we spent with our
families were Thanksgiving, Christmas Eve, and Christmas Day.
The push to increase production and profits for investors
at the expense of workers was amplified more with the four-
strike policy implemented in 2016. All absences, late arrivals,
or early outs resulted in a strike. On the fourth occurrence
you would be fired. This policy was a huge source of stress and
worry for families. If you arrived a few minutes late you were
still required to work but you would still receive a strike. If
you were involved in an accident, had a medical emergency, your
child was sick or hospitalized, your spouse was in labor or
hospitalized, it did not matter. If you could not give 24-hour
notice you would receive a strike.
My brothers and sisters have been given strikes for having
accidents on the way to work and being late. Our spouses
learned to not call to tell us about accidents or emergencies
at home until after we were done with our shift, out of fear
that we would receive a strike. When my own daughter was in the
hospital and I was working my 12-hour overnight shift, my wife
was afraid to tell me she had been admitted until my shift
ended at 7 a.m., because if I left she knew I would receive a
strike. I worked my shift in Brookwood then drove to the
hospital and then drove back to the mines, back and forth for
three days in order to be with my family.
These unfair labor practices and conditions led the UMWA
rank-and-file membership to strike starting on April 1st of
2021. We are still fighting for a better contract for
ourselves, our families, and our communities. We are waiting
for Warrior Met, whose largest shareholder is BlackRock, to
come to the table and offer a fair contract to those of us
whose labor has been used to make them billions.
This is why I am asking that you support the Stop Wall
Street Looting Act, which will help to reform the private
equity industry. This bill would help workers, families, and
communities by forcing private investment firms like BlackRock
to take responsibility for the actions of the companies they
take over. Management at Warrior Met has stated, ``We will
starve them out'' and ``They aren't worth anything else.'' The
investment firms that own Warrior Met need to be held
accountable for these statements and the treatment workers have
endured not only while on strike but for the past five years.
While the company I have helped make billions of dollars
over the past decade has turned their back on the workers
during our strike, the UMWA has provided strike pay and
insurance for the miners while on strike. Other unions and
other workers across the country have provided solidarity and
direct support. The Auxiliary, made up of the families of the
mine workers, has worked tirelessly to bring in support for us
to provide food, clothing, baby items, and holiday gifts to
striking families.
All workers deserve respect in our workplace and fair
compensation for our labor. We will continue to fight for the
UMWA brothers and sisters and we will continue to speak out
against the exploitation of workers by companies funded by
private equity. We will continue to stand up for ourselves but
also for all the workers, families, and communities suffering
under the same circumstances.
I have traveled with the UMWA to New York City to bring the
strike to the doorstep of BlackRock and call on them to take
action to support the workers and communities they invest in.
BlackRock, Vanguard, and the other private equity owners have
responded with silence. I would like to ask Congress to take
action to ensure that workers and families do not continue to
be the victims of these private equity firms who do not care if
workers are pushed to the limits as long as they are receiving
the highest return on investment possible.
Thank you for allowing me to be here today and to share a
glimpse of why we are striking in Brookwood.
[The prepared statement of Mr. Wright appears on page 105]
Chairman Sanders. Mr. Wright, thank you very much for being
with us.
I would imagine that working people and their families who
have been without a regular paycheck for almost a year are
hurting. Can you talk a little bit about what it means to be on
strike for over 300 days? What does it mean to the workers who
are on strike, their kids, their families? Can you say a word
about that?
Mr. Wright. It has been difficult. I mean, we have had to
cut back on non-necessary items. We do not get to get out as
much as maybe we used to. You know, vacations are cut off or
ended. At times, when my wife was sick, her pay was even cut
out for a month. So it was kind of like, you know, playing
Russian roulette with bills. You would throw them out on the
table and pick up which one you are going to pay at the time.
But it is difficult to tell your children that you cannot
do things because you are not at work right now, that you are
on strike. You know, most of us have picked up other jobs at
other places to make ends meet, but it is not the same as what
we were accustomed to.
Chairman Sanders. How do folks feel about a company, as Mr.
Roberts mentioned, that knows very little about the industry,
making huge profits, providing stock buybacks at the same time
as workers are experiencing major cuts in wages and health
care? How do people respond to that?
Mr. Wright. It is not fair. I mean, they exploit our work.
They work us on skeleton crews with less than what we had
before the strike. And then we get to watch them, you know, sit
in the office and make $4 million a year, or $1.2 million as a
secretary, and say that we do not deserve what we make now. It
is tough. It is tough, you know. It is tough seeing their lack
of just care for their workers and their employees.
Chairman Sanders. Okay. Let me ask Mr. Roberts a question.
Mr. Roberts, has Warrior Met come back to the negotiating table
since you all went on strike in April of last year?
Mr. Roberts. Yes is the answer to that, but quite frankly
there has not been any progress made at the bargaining table.
The nine contracts that Senator Tuberville alluded to are
basically the same contract that was voted down 95-5 by our
membership, and if those contracts had been put to the
membership they would say, ``What is the difference in these
contracts?'' and you would really have to search for the
difference. They just continued to put the same contract on the
table over and over and over.
I think what is going on here, and there is some evidence
of this, by the way, they are trying to starve the union out.
They are trying to starve the workers out. And as we speak here
today, we are in a mess all over the United States, right now.
Advertising for workers, having job fairs, to come to Alabama
and take the jobs of Braxton and his brothers and sisters on
strike. So we have got the strikebreaker piece of this at work
also. They are paying those people more money and higher
benefits than they have offered at the bargaining table for
these workers. And it is clear, Senator, what is happening
here.
Jay Gold, an industrialist from the 1920s, said, ``I could
hire half the working class to kill the other half.'' That is
apparently what is going on here. There is a job fair that is
being held either today or this week in Pennsylvania. You can
drive through the coal fields of West Virginia and Appalachia,
and you will see billboards, ``Come to Alabama and work for
Warrior Met. This is the number you call.''
So this is eliciting people to come to Alabama, drive by
these folks on the picket line, and to take their jobs.
Chairman Sanders. Remind us again what kind of pay cuts and
health care benefit cuts have workers experienced in this
process.
Mr. Roberts. Originally, those pay cuts were $6 to $8, in
that range. Somewhere in the second, third year of the contract
Warrior Met realized that people are not going to stay here and
work for those kinds of wages, so they increased the wages of
the two top classifications. They raised the wages for the
lower classifications, but they are still $2 or $3 below what
everybody else is making in neighboring mines that are
organized. So they realized they had to do that.
But here is the thing that we need to mention. The health
care plan that was part of the original contract, and it still
is, there is a $7,000 out-of-pocket cost that each family might
have to pay. So you take a wage cut, take money out of the
household, and if you happen to have a sick child, as was just
alluded to by my brother here, then you are reaching into the
savings you had before to try to provide health care for your
families.
Chairman Sanders. What kind of wage increases are they
offering now?
Mr. Roberts. The contract that was voted down had about, I
think, $1.50 over five years.
Chairman Sanders. $1.50 over five years.
Mr. Roberts. Five years.
Chairman Sanders. Averaging $0.30 an hour at a time when
inflation is at 7 percent.
Mr. Roberts. That is correct.
Chairman Sanders. Okay. Senator Braun.
Senator Braun. Thank you, Mr. Chairman.
I come from the southwestern part of Indiana, where it is
the only real mining in our state. I have been underground
mines. Surface mining is probably more dominant there.
Braxton, you have got one of the hardest jobs that would be
out there. When I looked, especially in the underground mines,
at what you put up with, that is something most people would
choose not to do.
I think today we are talking about the issue that you are
wrestling with, with the company. I think you have got to be
careful, too, that you do not homogenize big corporations and
private equity in with the rest of what drives this country,
which would be businesses like mine, where you treat employees
like you are a family.
And in what we are going through currently, I think it has
given due attention to issues, and you have got this tug-of-war
between more and more concentrated industries, and you are in a
particular pickle with it.
I want to be on the record citing that.
My question is for Mr. Roberts. How many of the workers
that you represent are coal miners, roughly, by percentage and
number if you have got it handy.
Mr. Roberts. Probably 80 percent.
Senator Braun. Eighty percent. And then when you look at
what has beset the industry--businesses, owners, and workers
themselves--current policies to me look like, especially in
light of China building a coal-fired plant weekly over there,
that we are trying to deconstruct the industry. I had the issue
of pulling permits at the Twin Metals facility up in Minnesota.
Mr. Roberts, does that bother you, in a broader sense, in
terms of where mining is headed, and how much do you think the
current Administration is kind of pushing you over the edge?
Mr. Roberts. Thank you for the question, Senator. The
number of coal miners that have lost their jobs in the last 10
years we put at about 40,000. Every coal mining job,
particularly in Appalachia, also supports about four other
jobs, and if you do the math on that you are talking about
200,000 people have lost their jobs.
There are a variety of reasons people have lost their jobs.
I worked in a metallurgical coal mine myself, and I was
fortunate enough to leave that mine in 1977, and membership has
chosen to allow me to continue doing what I am doing since
1977, by vote of the membership.
But the first big hit to the coal industry was not
regulations having to do with the generation of electricity.
The first big hit was the closures of most of the steel
industry in the United States and moving that offshore. And we
have spoken about that. If we wanted to bring jobs back to the
coal fields, if we had a steel industry in the United States of
America--we have spoken repeatedly here on Capitol Hill about
how you bring jobs back to Appalachia. That is one way you
could do that. Because when the steel industry shut down in
America, the marketplace moved to China, Brazil, and other
locations. And if we had those jobs back here we would be able
to reopen many of these metallurgical coal mines.
Where I am from, I was born as far up the holler as you
could get on Cabin Creek. The blacktop ended and the dirt road
started. Shamrock Holler is a suburb of Cabin Creek Holler, so
that is where I am from. And all that coal, K4 coming down the
holler, so to speak, up to Dakota, that is all metallurgical
coal. Winterford was all metallurgical. They were gone. The
coal is not gone. They just cannot ship that coal economically
across the ocean and compete.
So we have spoken out. So this is how you get jobs back in
Appalachia.
With respect to the generation of electricity in this
country, we never denied for one minute the existence of
climate change, because I think that debate has been settled.
What we argue for is a way to allow people to keep their jobs
as long as possible, use technology and investment in
technology to generate electricity. And we realize--and I think
you do not have to much more than look around--that as time
goes on, less and less coal is being utilized to generate
electricity in this country.
So we are not just sitting and watching these things
happen. We have ideas, and I know that might shock some people
that a union has got ideas about the economy. And we have
testified to those concepts here on Capitol Hill many times.
So, you know, it bothers me any time somebody loses their
job, but one of the things that has repeatedly happened in this
nation--and you can go back 100 years if you want--whenever an
industry winds down we do not have a program that exists in
this United States on how to deal with those workers losing
their jobs. And we have spoken out on that too. We think there
should be some kind of supplemental pay for those workers as
you transition, some opportunities to be trained, and those
jobs to be here.
For example, right now two-thirds--I do not mean to get so
long-winded but you asked, and I will shut up here in a
moment--but two-thirds of all the windmills in the world are
made in China, and they ought to be made here. And I would say
that same thing for solar panels.
Senator Braun. Well, thank you, and very briefly, I think
that you have got to always be aware of where you want to go in
the long run. And I said it earlier. The cleanest, the least-
expensive fuel is going to win the day. But you have got to be
careful that you do not do things in the short run that
actually accelerate what has already been a process for coal
miners in the wrong direction.
I think this Administration needs to pay more attention on
distinguishing between the two. And I think the coal miners
ought to speak up, because in my opinion, they are not
distinguishing between what we may need to do to keep the
industry alive so it could survive in the long run when other
technology might make it relevant. Thank you.
Chairman Sanders. Thank you. Senator Kaine.
Senator Kaine. Thank you, Mr. Chairman and Ranking Member
Braun, and thanks to our witnesses, one of whom is a friend and
one of, even though, Mr. Wright, I have not met you, I know an
awful lot of Virginians just like you in Tazewell, Buchanan,
Russell, and Wise counties. I have worked with them for many,
many years, and I am really happy you are here today.
I will say, about President Roberts, doing what we do, all
of us, is not easy. If you are doing this kind of work and you
are in politics it is more than a 9-to-5. It is a nights and
weekends job. I am in my 28th year since I ran for City Council
in Richmond, and you sometimes wonder like is it worth it? It
is worth it to have the chance to help folks every day, but it
is also worth it because I have met people that I never would
have met had I not done this. And I consider President Roberts
just, you know, it is almost worth the price of admission of
being in public office 28 years that I met you and we are
friends, and I am so inspired by your leadership.
I also just, you know, want to say, I am sitting here
listening to this hearing today and I am thinking about my
father who ran an ironworker-organized welding and metalworking
shop in the stockyards of Kansas City. And I just grew up in a
house that was a management house that did not hate labor but
actually really liked labor. You know, he had six employees in
a good year, and in a really good year, seven or eight, plus my
two brothers and me and my mother. And the fact that so much of
corporate America just seems to hate unions, I just did not
come up in a household like that.
You know, my dad told me that his workers' training and
skill were going to put my brothers and I through college and
that my dad's business acumen was going to put his workers'
kids through college. It was a team. And there could be
disagreements, just like there can be disagreements within any
family, but it was a team. And it was not that the union was
our enemy, and we have got to bust the union, and we have got
to grind them to nothing, and we have got to bankrupt out their
contracts and bring in people. It was never about that.
My dad got asked to be on the board of the Ironworkers
Pension Fund. There were three employer reps and three employee
reps on that board, and I remember when they asked him to do it
he was like, ``I only have six employees. This is a big union.
You have got big employers all over the country. Why would you
ask a guy like me, with a small, little shop in the stockyards
of Kansas City?'' They said, ``Because you treat people with
respect.''
Why would we not treat people with respect? Why would we
not treat union workers with respect? I mean, yeah, it is about
dollars. Yeah, it is about benefits. But underneath all of that
it is about respect. It should be about respect. And I just
thank God I was raised in the kind of house I was raised in,
and I am just so puzzled at the behavior of those who would
want to grind down people because they want to exercise a right
that is protected in the law to act collectively.
President Roberts, you and I, we worked on some important
issues in the last few years--saving miners' health care. I
remember being around a table in Castlewood, Virginia, with a
lot of mining families who were really worried because they
were about a week away from losing health care benefits. We
worked together to save them. Saving pensions of UMWA members--
we worked on that together. But there is an issue pending right
now with us that we have got to work together on and that is
the Black Lung Disability Trust Fund. And I just want to ask
you about this.
The black lung issues are not getting easier. They are
getting tougher. The treatment is getting tougher in a time of
COVID, where people have respiratory issues from COVID. The
coincidence of COVID and black lung is much more potentially
damaging and fatal to people.
Congress did not act at the end of the calendar year, and
the elevated excise tax that funds the Black Lung Trust fund,
to take care of people who are doing this extremely hard work
is now challenged.
Mr. President, I would like you to just address this
question. What is the importance of us fully funding this Black
Lung Disability Trust Fund with a coal excise tax, and what are
the implications if we do not resort to the level it was until
December 31, 2021?
Mr. Roberts. Well first of all, thank you for the kind
remarks, Senator, and you have been a friend probably 40 years
ago. I am getting older and I want to thank both you and
Senator Sanders for helping save the pensions and the health
care of, I guess at the time was 85,000 to 90,000 people. That
has been one of the most remarkable pieces of legislation ever
passed here, in this Congress, as far as I am concerned. And it
led to others having their protection also.
But getting to your point, I would point out this industry
and this government never recognized pneumoconiosis is an
occupational illness until 1969, and it took an explosion in
West Virginia, killing 78 miners, before they ever did.
But to answer your question, if we do not come up with a
funding mechanism here--which there is one that exists but we
have just let it terminate, for all intents and purposes. It is
half of what it was. Even at full funding levels it was not
adequate to keep up with the number of people who are suffering
from pneumoconiosis and dying in this country. There have been
probably 100,000 people die since 1969, from this disease.
And in your area, southwest Virginia, eastern Kentucky, and
southern West Virginia, silica is running wild there. That is
the other thing we would ask Congress to think about. Young
people are getting pneumoconiosis mainly from silica, and we
need a silica standard to save their lives, but we need to fund
this program. If we do not fund it, at some point in time
Congress is going to say we are not taking any more money out
of the general Treasury to pay these benefits. That is our
fear, and that is why we need to deal with this.
Senator Kaine. Thank you. Thank you, Mr. Chairman.
Chairman Sanders. Thank you, Senator Kaine. Senator Toomey
I believe is with us virtually. Senator Toomey, are you there?
Okay. I believe Senator Warner is with us virtually.
Senator Warner. Thank you, Mr. Chairman, and I am glad you
are hosting this hearing. I want to first of all echo what my
friend and colleague, Senator Kaine, said to President Roberts
that we need those black lung benefits. And as President
Roberts just indicated, you know, the incidence of this disease
hitting much, much younger miners is stunning. Tim and I both
see it in southwest Virginia, and I know our colleagues in West
Virginia see it as well.
I know we are talking about private equity in a large way.
I just want to bring to the Committee's attention--and I do not
want to shock the Chairman on this because he knows that I have
been viewed as sometimes to be pro-business. I am, but some of
these private equity firms--I am going to raise a question
about bankruptcy.
But I just wanted the Committee to know that, you know,
over the last couple of years the Intelligence Committee has
been hosting a series of classified briefings to alert business
and academia and others about the challenges posed by the
Communist Party in China. When we criticize China I want to
make clear my beef is with the Communist Party, Xi Jinping's
leadership, and their intellectual property theft, their
authoritarian behavior. It is not against the Chinese people,
and obviously not against Chinese Americans.
But the practices of the Communist Party in China, we have
shared on a regular basis with venture capital, with banks,
with manufacturers, with the Chamber of Commerce, with college
presidents. The only group--and I hate to give Chairman Sanders
more ammunition--but the only group that would not even sit and
listen was private equity, because these private equity
companies were making so much money investing in Chinese
technology firms--the Alibabas, the Huaweis, the Tencents--that
were then being used to create an Orwellian surveillance state
in China that they did not want to hear the truth.
Now finally we are restarting these classified briefings.
We actually met with counties from around the country
yesterday. NACo was in town--again, bipartisan-just to lay out
these challenges. The private equities indicated they would
finally sit and hear the truth, maybe because finally the
Chinese government is clapping down on some of these tech
companies where they made so much money. But it was
embarrassing that this part of our financial network would not
even hear some of the challenges posed by the Communist Party
in China.
That brings us to the question of the hearing, though.
President Roberts, one of the things we have seen--I remember
Westmoreland Coal when it went in--we have got bankruptcy
provisions that allow workers and their pension benefits--I
think Category 4. I know there was a case in Alabama that you
all worked on.
But a bankruptcy code, and I have been trying to work with
Joe Manchin on, re-establishing a higher priority for workers
and their pensions, if a company goes under. That is going to
take some changes under both Chapter 11 and Chapter 7
bankruptcy.
I know this is something your members have had to deal
with, unfortunately on way-too-often a basis, but can you speak
to this issue about how we can make a bankruptcy code that
takes care of creditors but it actually is fair to workers and
pensioners as well?
Mr. Roberts. Thank you, Senator, and I thank you for your
friendship to not only me but to coal miners for many, many
years.
Yes, the problem with bankruptcy--there are multiple
problems, but for workers that have to get into the back of the
line and even fight for their jobs, I found that very
offensive, I found that to be morally wrong, and I think
Congress needs to deal with that aspect of it, if they do not
deal with anything else.
Pensions and health care that people who have earned should
be protected in bankruptcy. And I support the efforts that
Senator Warner and Senator Manchin are trying to make any
bankruptcy laws in this country a little more fair.
But one of the things that invites these people to come in
and try to do, like what happened here at Warrior Met and has
happened 60-some times in the coal fields over the past couple
of years, is the fact that workers do not have a chance in
bankruptcy. And it goes to what I said in my opening statement,
is that workers never create bankruptcy but they are asked to
pay for it, and that should not be the way things work in the
United States of America.
Senator Warner. Thank you, President Roberts, and thank
you, Mr. Chairman, for this hearing.
Chairman Sanders. Thank you, Senator Warner.
Senator Toomey, are you there?
[No response.]
Okay. I think with that let me thank the panel, and now we
will hear from Panel 3. Gentlemen, thanks very much.
Mr. Roberts. Thank you very much, Senator, for the hearing.
[Pause.]
Chairman Sanders. Okay. This is our third and last panel.
Two of our guests are virtual and two are here in person. Our
virtual guests are Nomi Prins, who is an economist and author
and a former managing director at Goldman Sachs. She is a
former Wall Street banker. Dr. Prins' work sheds a light on the
manipulation and unethical practices of the banking industry.
We will hear from her in a moment.
James Kwak is a research fellow at the University of
Connecticut School of Law. He researches business law and
corporate finance. He is the author of the book ``13 Bankers:
The Wall Street Takeover and the Next Financial Meltdown.''
Douglas Holtz-Eakin, who is with us here in person, is the
President of the American Action Forum. He is the former
Director of the Congressional Budget Office and served on
President George H. W. Bush's Council of Economic Advisors.
And Duncan Wood, who is also with us, is Vice President for
Strategy and New Initiatives at the Wilson Center. His work
focuses on North American politics and Mexico and U.S. Mexican
ties. He lectures and publishes on hemispheric issues and
relations. And we thank all of our panelists for being with us.
Why don't we begin virtually with Nomi Prins.
STATEMENT OF NOMI PRINS, PH.D., ECONOMIST AND AUTHOR, FORMER
MANAGING DIRECTOR, GOLDMAN SACHS
Ms. Prins. Thank you, Chairman Sanders and Senator Braun
for the privilege and opportunity to speak before you today. I
am a former managing director of Goldman Sachs. Before that, I
ran the international analytics group as a senior managing
director at Bear Stearns in London. I have held positions at
Lehman Brothers and the Chase Manhattan Bank.
After years on Wall Street, the levels of greed,
unparalleled influence, and unethical practices in the industry
caused me to step away. Since then, I have worked to uncover
the manner in which the global economy and our financial system
has become so unequal, unjust, and fractured.
In 2008, two of the investment banks that I had once worked
for went bankrupt and saw their risky bets and bad practices
nearly tank the global economy. Those banks no longer exist.
However, the economy remains on edge.
Today, nearly a decade and a half later, we sit at another
precipice of grave risk. Asset management behemoths and private
equity institutions have amplified the distortion in financial
markets. The magnitude of their influence over securities and
companies has no historical comparison. Their unfettered access
to policymakers and major institutions spans the world. These
new financial giants are leaving smaller market participants
from all parts of the economic spectrum exposed to concentrated
systemic risk and diminished representation.
Yes, it is true that Wall Street banks remain as powerful
and influential as ever. But now asset management firms, with
trillions of dollars at their disposal, have become more
influential than governments and the regulatory entities
responsible for keeping them in check.
It is important to understand that at the top of this
financial hierarchy stands BlackRock. The financial goliath
manages $10 trillion in assets. That is more money than the
size of any other country's GDP besides China or the United
States. BlackRock's meteoric rise has seen its assets triple
since 2012, and nearly double from five years ago.
The world's largest asset manager acts as a money manager,
private equity fund, institutional investor, trading software
platform, and government partner. What has truly made it
untouchable is its ability to produce and attract capital to
Exchange Traded Funds or ETFs. ETFs are attractive because they
offer intraday liquidity for both buyers and sellers in
financial markets. But what the shock from the early days of
the pandemic in 2020 showed us was that frenetic ETF activity
can intensify panic in the markets. Quick outflows executed in
bulk can exacerbate a falling market, which can hurt those that
can afford it least, the most.
Ultimately, leveraging its government connections,
BlackRock was awarded a no-bid contract to manage the Federal
Reserve's corporate bond buying program. The contract allowed
BlackRock the opportunity to essentially support its own
investment grade bond ETFs in the midst of a pressurized
environment.
BlackRock and its executives had access to confidential
information and the ability to formulate business decisions for
themselves and their large clients. No other institution in the
world has or had such access during or since that crisis.
Currently, BlackRock, Vanguard, and State Street manage
more than $22 trillion in global assets. For comparison, U.S.
GDP stands just shy of $24 trillion. The asset management
industry has only grown more concentrated at the top over the
past decade.
These Big Three dominate the market. Their growing
stranglehold on U.S. equity participation provides them greater
chances to hold veto power or directly influence business
strategies for nearly all major corporate decisions.
As these institutions expand further into the world of
private equity, their ability to dictate corporate control and
outright ownership in every sector of the economy will have a
greater human cost. Private equity business practices are
largely designed to extract capital, not build it. As a result,
small businesses and communities caught in the private equity
crossfire will come under greater control of big finance that
puts cost and job cutting ahead of worker stability.
Today, BlackRock and these other institutions have expanded
to such a magnitude that they effectively are the market. This
represents a monopoly sort of influence over competition,
assets, and transactions. It elevates the systemic risk that
the global financial system faces. This renders everyday
people, retail investors, workers and anyone with a 401(k)-
retirement plan exposed to the risk that these massive
trillion-dollar institutions pose. These individual
shareholders of ETFs or other funds, seeking to invest their
hard-earned money in the markets and build for retirement, have
had their ability to obtain a seat at the financial table
reduced.
By creating a shareholder pass-through structure, similar
to the kind that Wall Street has used for decades, we can
strive to even the playing field and reduce the immense power
of mega money managers. This would enable participants invested
in ETFs or other funds to hold shareholder rights with respect
to the corporations in which these vehicles are invested.
Currently, these rights are retained by the asset management
companies themselves.
We should enact policies focused on reducing the sheer size
and concentration of asset-management institutions and private
equity firms to establish a more efficient, transparent, and
equitable marketplace. The risk of corporate wrong-doing,
fiscal mishaps, unfair tax advantages, and conflicts of
interest is too great to ignore. So is the possibility of
extreme price movements due to the leverage and trading
patterns of these mammoth asset management institutions. Our
financial stability and security depends on addressing this.
Thank you.
[The prepared statement of Ms. Prins appears on page 108]
Chairman Sanders. Thank you very much, Dr. Prins.
Our next panelist is James Kwak, a research fellow at the
University of Connecticut School of Law. Mr. Kwak, thank you
very much for being with us.
STATEMENT OF JAMES KWAK, PH.D., RESEARCH FELLOW, UNIVERSITY OF
CONNECTICUT SCHOOL OF LAW
Mr. Kwak. Thank you. Thank you, Chairman Sanders, Ranking
Member Braun, and the entire Committee for your time today.
I apologize I cannot be with you today. For the past 10
years I taught corporate law and corporate finance as a
professor at the University of Connecticut. Previously I co-
founded Guidewire Software, which has been a public company
since 2012.
My topic today is the concentration of economic power.
There are three major types of concentrated economic power in
the United States. One is technology giants, such as Amazon or
Facebook, and we know all about them. The second is large
private equity firms, each of which can control well over 200
companies. Senator Warren already spoke about how private
equity firms use their power.
The third is large asset management firms, primarily, as
Dr. Prins said, BlackRock, Vanguard, and State Street. As she
said, these three companies are major shareholders of virtually
every large public corporation. This type of concentrated
economic power is probably the least known of the three, so I
focus on it here.
Our economy is based on the principle of shareholder
capitalism. The idea is that a corporation is controlled by its
shareholders, who have the power to elect the board of
directors. The basic idea is that the people who invest their
money get to make the decisions. Now this system is neither
necessary nor is it ideal, but it is how most people think
about corporate governance today.
Today, BlackRock, Vanguard, and State Street effectively
own more than 20 percent of most large corporations and they
cast about 25 percent of the votes in elections for directors.
So why do they have this power? Because investors have been
shifting their money into index funds, and the Big Three have a
90 percent market share in U.S. stock index funds. And, as Dr.
Prins said, the manager of an investment fund gets to cast the
votes, not the investors in that fund, even though it is the
investors whose money is at stake.
Now corporate executives tend to listen to the view of
their largest shareholders, in part because those shareholders
can vote them out of their jobs. So this means that a handful
of executives, at a handful of asset management companies, have
influence over virtually every large company.
So the next question is what are they doing with that
power, and different observers have identified at least four
different problems. Some people think that the Big Three
actually do not provide enough oversight of corporate directors
and executives, and the reason is that all the funds that track
the same index--so, for example, all of the S&P 500 index
funds--get the same returns. So if you manage an index fund you
have no incentive to pressure companies to do anything really.
So that is number one.
Number two is that some people, including Senators Toomey
and Johnson, think that Larry Fink, the CEO of BlackRock, is
using his company's power to push his personal political agenda
on the corporate sector. Fink has recently been very outspoken
about the need for corporations to take climate risk seriously.
Number three. Some people think, on the contrary, that the
Big Three, despite Larry Fink's statements, are not doing
enough about climate risks and other environmental, social, and
governance concerns.
Number four, and perhaps most concerning, some scholars
think that large asset managers are facilitating collusion
between companies in the same industry. The idea is that if you
own 10 percent of every airline, for example, you want them to
collude instead of competing with each other, and economic
studies have found that greater common ownership by asset
managers leads to higher prices in both the airline and the
banking industries.
Now not all of these criticisms can be true at the same
time in the same company, but they point to the problems that
the economic power of large asset management firms creates. Now
I do not want to overstate the point. Larry Fink today cannot
give orders to corporate CEOs and expect them to be followed
100 percent of the time, but his power is increasing every
year.
So, in summary, I would say this is not really shareholder
capitalism anymore. This is financial intermediary capitalism,
where the decisions are made by companies that accumulated
other people's money, and they accumulated it because they are
very good at administering and selling low-cost index funds.
And I doubt that this is the best way to allocate power over
our economy.
So let us take the example of climate change. Again, some
people think that BlackRock should not do anything about
climate change. Others think it is doing too little. But I
think both sides should agree that how our nation's
corporations respond to this challenge should not depend on the
personal opinions of one man.
Just this week, Charlie Munger, who was Warren Buffett's
lieutenant for decades, said, and I quote, ``We have a new
bunch of emperors and they are the people who vote the shares
in the index funds. I think the world of Larry Fink, but I am
not sure I want him to be my emperor.''
Thank you very much.
[The prepared statement of Mr. Kwak appears on page 110]
Chairman Sanders. Thank you very much, Mr. Kwak.
Our next panelist is Douglas Holtz-Eakin, who is the
President of the American Action Forum. Mr. Holtz-Eakin, thanks
a lot for being with us.
STATEMENT OF DOUGLAS HOLTZ-EAKIN, PH.D., PRESIDENT, AMERICAN
ACTION FORUM
Mr. Holtz-Eakin. Well thank you, Chairman Sanders, Ranking
Member Braun, and members of the Committee for the privilege of
being here today. Let me make a couple of points very quickly
and then I look forward to answering your questions.
The first point is to just remind us that it is useful in
these circumstances to step back from the particulars of this
case and remember that financial markets have a very important
role to play in the U.S. economy. Financial markets are the
mechanism by which we take the savings of each household, pool
them together, and provide the capital that businesses need to
start up, to expand, to improve their technologies, and that
intermediation is a crucial function.
It is financial markets that allow people to diversify
their financial holdings, and thus get away from the risk of a
particular holding. It allows them to mitigate health risks,
longevity risks, disability risks, all sorts of risk management
to make their lives more secure and more safe.
And it is the way by which we separate ownership and
management. So we can specialize in management while having the
owners control the shares in publicly traded companies and
other arrangements like that.
And the U.S. has been successful, largely because it has
the deepest, most liquid, best capital markets on the planet,
and the beneficiaries of that success have been the American
households who, from the end of World War II to the Great
Recession saw the standard of living double every 35 years. And
you could imagine a family like mine, where my father came out
of the Navy and went to work for the steel industry, and in
those 35 years rose into the middle class and was very
successful.
Point number two is within those financial markets there
are many different business models. We have banks. We have
insurance companies. We have mutual funds. We have pension
funds. We have a myriad of business models that are competing
to provide those services that households value in the
financial area. And private equity is one of those business
models, and at least, to my eye, the rule that one ought to
adhere to is that policies, whether they be tax or legal or
regulatory, bankruptcy, those policies should tilt the playing
field as little as possible among those business models so that
they have to deliver on the basis of their performance, not on
having an advantage in a policy arena.
Private equity does appear to be successful in that
competition. In my written testimony we have a variety of
measures of the success--10-year average rate of return at 12.3
percent in the decade leading up to 2020, 11.7 million workers.
And point three, they are probably more successful than
that because the basic model is to take entities that need
restructuring, that are performing below average, and delivery
higher returns. And so getting the market rate of return is
actually quite an accomplishment in those circumstances. So I
think we have reason to believe the private equity model is a
successful model on the whole and across the economy.
And so my last point is simply that particular policies,
whether it is legislation like Senator Warren's Stop Wall
Street Looting Act, which contains provisions that are targeted
on just one entity--in this case, 100 percent tax on fees from
portfolio companies and increasing the tax on carried
interests, limited interest deductibility, restriction on
dividends, special treatment of workers in bankruptcy, special
liability rules for primary equity--those kinds of provisions
are not going to satisfy the neutrality dictum and are not the
way I think Congress ought to pursue whatever issues do arise.
I would prefer instead, as Senator Warner mentioned,
rethinking bankruptcy law as a whole if there needs to be a
higher priority placed on workers, health insurance, pensions,
whatever it might be. Do that in a neutral fashion across all
entities and do not discriminate against a single business
model.
But I thank you for the chance to be here today, and I look
forward to answering your questions.
[The prepared statement of Mr. Holtz-Eakin appears on page
119]
Chairman Sanders. Thank you very much.
Duncan Wood is a Vice President for Strategy and New
Initiatives at the Wilson Center. Dr. Wood, thanks for being
with us.
STATEMENT OF DUNCAN WOOD, PH.D., VICE PRESIDENT FOR STRATEGY &
NEW INITIATIVES, THE WILSON CENTER
Mr. Wood. Thank you so much, Chairman Sanders, Ranking
Member Braun, distinguished Committee members. My remarks today
will focus on the challenges facing the critical minerals
supply chain and the need for concerted action by government
and the private sector to address a significant and growing
deficit in the availability of these resources as the global
energy transition brings a dramatic increase in demand.
In the summer of last year, the Wilson Center convened a
Critical Minerals Working Group, made up of stakeholders from
industry, academia and civil society, to examine the
vulnerabilities that exist in the supply chain and to discuss
how the private sector and government can address them. The
working group produced a report, titled ``The Mosaic
Approach,'' which identified three main vulnerabilities.
The first, namely to meet its climate goals, the United
States must face rapidly and dramatically rising demand for
critical minerals while constrained by chronic underinvestment
in mining, processing, infrastructure, and human capital.
Current trends show that demand for critical minerals outpaces
that of supply and will continue to rise, particularly
considering the key role the critical minerals will play in the
clean energy transition.
An International Energy Agency (IEA) assessment found that
to reach the Paris Agreement goals of less than a 2 degrees
Celsius rise in global temperature clean energy technologies
would demand four times the current mineral input by the year
2040. The IEA foresees mineral demand specifically for electric
vehicles and grid storage for EV batteries to increase by at
least 30 times by 2040.
The second challenge the United States faces is from China,
intense competition from China for access to critical minerals,
and we must recognize the intense geographic concentration of
both the extractive and processing activities for critical
minerals. China's dominant position in the supply chain stems
not only from its ownership and control of critical minerals
mines, but also processing facilities.
In the maps I have included in my written testimony you can
observe the impressive geographical concentration of resources
and processing facilities that leaves the U.S. at a huge
geopolitical and competitive disadvantage. China has assumed a
dominant position in the processing of cobalt, around 50
percent of global processing capacity; rare earth elements,
around 80 percent; and lithium, around 50 percent, all of which
are essential minerals for the clean energy transition. The
United States must invest in both extraction and processing to
meet the challenge.
Third, there is a governance challenge that impacts the
first two vulnerabilities in which mining firms from the United
States, unlike their Chinese counterparts, must adhere to
justifiably stringent compliance measures in the areas of
environment, society and transparency disclosure regulations,
regardless of whether they are operating domestically or
internationally. Permitting requirements on U.S. mining firms
place them at a competitive disadvantage compared to Chinese
competitors and provide a strong disincentive for developing
resources within the United States.
As this challenge becomes clear, it is also obvious that
the United States has fallen behind in the extractive
industries. In part, this is because we have not invested
enough in mapping our resources, in part because we rely too
heavily on sourcing from other countries, and in part because
it is overly costly and time-consuming to develop these
essential mineral resources here in the U.S.
One of the biggest impediments to the development of new
mineral resources here is to be seen in the permitting process.
Whereas permitting in Australia and Canada, countries that have
suitably high standards, typically takes between 2 to 3 years
for a new mine, here in the U.S. it takes between 7 to 10
years, with companies subject to 30 or more local, state, and
Federal regulations and programs.
It is important to emphasize here that I am not suggesting
a lowering of standards. Strong environmental protections
remain a priority for mining companies, in part due to the
demands of investors, in part due to the demands of end users
to green the value chain, and in part due to increased public
oversight.
Rather than lowering standards, it is the regulatory and
permitting process that requires review. Regulatory innovation
that takes firm competitiveness and national geopolitical and
climate objectives into consideration is desperately needed to
provide more transparent timelines for permitting, clearly
define the roles of different agencies to avoid regulatory
duplication, and to allow for shared responsibility between
regulators and the firms they regulate.
Alongside that revised permitting process the United States
must seek to internationalize these higher standards. An effort
on the part of the U.S. government, alongside its partners, to
raise Environmental and Social Governance (ESG) standards
around the world will help to protect the environment and level
the playing field to help U.S. firms compete domestically and
globally.
In conclusion, as America moves towards a clean energy
future, with massive investment in renewable energy and
electrification of the vehicle fleet, we must address a deeply
concerning reality. The lack of investment here in critical
minerals extraction and processing leaves the country
vulnerable to supply shortages and interruptions in the
production of batteries, vehicles, and advanced technologies.
Whereas countries such as China have invested heavily, the
United States has for too long neglected its own natural
endowments and has failed to engage with foreign allies and
partners to guarantee supply.
The clean energy transition cannot happen without critical
minerals. To secure that supply chain, the U.S. government must
work with the extractive industries at home and abroad to
facilitate responsible and environmentally conscious extraction
in as efficient a manner as possible.
Many thanks.
[The prepared statement of Mr. Wood appears on page 123]
Chairman Sanders. Dr. Wood, thank you very much.
Senator Braun has another appointment and has asked to go
first. Senator Braun.
Senator Braun. Thank you, Mr. Chairman. Mr. Wood, I just
heard what you said, and earlier I was talking to Mr. Roberts
about coal. Of course, oil and gas would be theretoo, where, to
me, especially in that case, there is a difference between your
long-term goals and what you need to do in the present if we
were energy independent. Now you are asking OPEC, you know, to
pump more.
So here, though, it seems to me to be just a blatant
contraction, when you are pushing electric vehicles, and a lot
of the things that lower greenhouse gasses and where critical
minerals are a component of all that.
Do you think there is an inherent contradiction coming from
the Biden administration, and do you think that in the short
time that we need to get there with supply chains and 18 find
these critical minerals, in many cases in the U.S., is the
Administration helping or hurting?
Mr. Wood. Thank you for the question. My take on this is
that we have set an ambitious goal. Right now we are not in a
position to be able to reach that goal. Many of the critical
minerals that are required for the energy transition are to be
found here in the United States, but we have not developed
those resources for a number of reasons.
A lot of the critical minerals are not found here in the
United States, and that means that we do have to engage with
allies and partners overseas to make that happen. And that is
why I keep coming back to the point. This is not something that
government can do alone. This is not something that industry
can do alone. There does have to be a much more collaborative
approach to identify where the resources are, to identify the
impediments to their extraction, and to try to make sure that
these are aligned with United States' geopolitical and
competitiveness goals.
At the current point in time, I see a future where we have
built factories that will produce an electric vehicle fleet but
we simply do not have the critical minerals that we need for
the battery technology to make those electric vehicles
functional.
Today we live in a world where we look out and we see
massive inflation of car prices because of a lack of
semiconductors. In the future we might be in a similar
situation where we simply do not have enough lithium coming
through to U.S. automobile manufacturers. The consequences of
that are going to be massive unemployment, massive inflation,
and really a failure to meet our ambitious goals.
Senator Braun. Thank you. And I would suggest to President
Biden that if you are going to put the rhetoric out there that
you want to convert electric vehicles for those critical
minerals that lay within our own country you cannot have your
cake and eat it too. And you at least need to make sure we open
that up if we are going to go there with policy and then try to
get the relationships built with other countries where we do
not have them here.
Thank you. Thank you, Mr. Chairman.
Chairman Sanders. Thank you, Senator Braun.
Let me go virtual here to Dr. Prins. Dr. Prins, tell me
what I am missing when I think that the American people should
be very worried when three huge Wall Street investment firms
control assets of $22 trillion, nearly the entire annual GDP of
the United States. Are you concerned that this extraordinary
concentration of ownership might be a danger to our economy,
and, in fact, with so much power in so few hands a danger to
democratic society? Dr. Prins.
Ms. Prins. Yes I am--and here is why. Any time the
disconnect between the American people's accessibility to money
and power relative to that of mega-financial institutions
grows, we lost a piece of our democratic society. In this
particular case, what we are seeing is a precipice of a highly
concentrated amount of cheap capital. So this is not even
because of the leveraging of capital that is coming through,
say, the Federal Reserve or other elements externally. This is
people's capital. It is institutional capital, and it can be
used, and has been used, to affect corporate decisions.
And as Mr. Kwak mentioned, it has also been used to
effectively consolidate the decisions of entire industries,
whether explicitly or implicitly. The problem with that is when
you have so much concentration of power and capital in the
hands of such a small amount of asset management companies,
there is too much potential for systemic risk because of that
concentration to default on the entire market system as well
as, therefore, on the economy. And it is always the people in
the economy that are most hurt when market disruptions or
crises happen, because it impacts them the most.
And secondarily, if people believe that they are invested,
for example, through their retirement funds, in exchange-traded
funds within these large, concentrated, few players have
amassed, and believe that, therefore, they are investing in
companies that they perchance have some influence over, even to
see the ability to proxy vote, to be real shareholders in these
companies they are mistaken in that.
So what these three companies have done, they have taken
away power from anyone who has invested in the markets at a
smaller level and they have concentrated power to influence
mostly all of the companies in the country.
Chairman Sanders. Okay. Thank you very much. Let me ask Mr.
Kwak a question, and that is, given that Wall Street money
managers and private equity firms are nearly entirely
unregulated, what ideas do you have for congressional action?
Mr. Kwak. Thank you for the question, Senator. I think
there are two types of issues that have been raised regarding
private equity firms. One is essentially what Senator Warren
talked about, which is what private equity firms do to their
portfolio companies, such as causing the company to take on a
lot of debt, taking the cash out as a special dividend to
themselves, and so on. I think that the act introduced by
Senator Warren would be a very good first step.
The second issue with private equity firms is that a lot of
people think that private equity firms are not entirely above
board with the investors in private equity funds. That is a
topic which the Securities and Exchange Commission (SEC)
recently promulgated a proposed rule to address. The issue here
is, for example, private equity firms may charge fees to the
fund, meaning that they have to be paid by all the investors,
when they should be absorbing those fees because the private
equity firms are paid a management fee by the private equity
fund. I know that is a little complicated, but essentially it
is possible that private equity firms are playing a little bit
fast and loose with their investors' money.
Turning to the large asset management firms, I think the
issue that Dr. Prins and I have been discussing is the
concentration of voting power in the hands of these companies.
Various scholars have proposed a number of different solutions.
I will mention a few, and I will try to be brief.
Some legal scholars think that because of the competition
effects, the anti-competitive effects that have been noticed,
this kind of accumulation of shares in all of the leading
companies in one industry could be prosecuted under the Clayton
Act. So that is one possibility.
Some people have suggested that index funds should be
limited in the amount that they can own of any individual
company, or that limit would have to be applied at the fund
family level. So for example, there would be a limit on how
much BlackRock's index funds could own of any company.
The last suggestion I will mention is one that Dr. Prins
has also mentioned, which is essentially allowing the
shareholders in the funds to vote the shares instead of having
the fund manager vote the shares. The issue there is that we
would have to have a mechanism for those shareholders to
express their preferences about how they want their shares to
be voted. I think that could be done, and I will spare you the
details. Thank you.
Chairman Sanders. Okay. Thank you very much. Senator
Padilla.
Senator Padilla. Thank you, Mr. Chairman, for holding this
hearing to put the spotlight on how corporate greed is, in
critical sectors especially, leading to higher prices for
consumers and harming workers and families.
There are a number of issues I would like to raise and ask
questions about, but let me set the stage by also acknowledging
that the American economy has come roaring back. With the
greatest year of job growth in our nation's history, in 2021,
corporate greed still casts a large shadow over our recovery.
Mr. Chairman, as you know, Angela and I are raising three
boys, three growing boys, and so I can assure you I have seen
first-hand how price increases are affecting families, families
across the country, whether that is at the gas pump, at the
grocery store, when it comes to paying for childcare, at the
pharmacy, and elsewhere.
These price increases are not just because of rising costs
or small businesses just trying to get by. Many corporations
are posting record profits. Estimates show that the earnings of
S&P 500 companies rose nearly 50 percent over the past year,
while they cited increased costs to justify increased prices
for American families. It should be unthinkable that during a
global health pandemic, while so many working families were
struggling to get by, that billionaires got richer, but they
did.
So as we continue our recovery we need to both upgrade our
nation's infrastructure and pass the President's plan to reduce
the cost of essentials, like prescription drugs, health care,
childcare, housing, and more. We must also ensure that wealthy
corporations are not just using the pandemic and the supply
chain as excuses to exploit consumers and increase their
profits. So I am proud to be part of this Committee's efforts
to fight for solutions that help us build a more equitable,
inclusive economy and hold corporate interests accountable.
The first issue I want to ask about deals with the
agricultural industry and the dynamics of consolidation. Not
only have mergers and acquisitions changed the landscape of the
agricultural industry but financial investments, including from
equity-related funds in this sector has grown significantly in
recent years. At the end of 2016, the top five asset management
firms owned at least 10 percent, upwards of 30 percent of the
shares of the top firms in the agricultural and food sector.
Given this common ownership across the industry, these
firms have little incentive to bolster competition and
innovation between individual firms. Instead, they can
encourage inexplicable price increases to make even more
profits across the entire sector, and the end result is higher
prices at the grocery store for American families.
Mr. Kwak, why is addressing the common ownership of
companies important to keeping down the cost of food for
American families?
Mr. Kwak. Thank you for the question, Senator. You are
absolutely right that the food sector is highly concentrated.
For example, in poultry, hog, and beef processing I believe the
top four companies in each of those industries has more than 50
percent and up to 85 percent of the market share. The same is
true in agricultural inputs, such as seeds, herbicides, and
pesticides.
And to give you one example, in the agricultural input
markets the largest companies are Bayer, which bought Monsanto,
BASF, Corteva, and Syngenta. Syngenta is owned by a Chinese
company. BlackRock is the largest shareholder of Bayer and
BASF, and Corteva's three largest shareholders are Vanguard,
BlackRock, and State Street.
I am not aware of economic research that has been done
specifically on this question and this industry, but I think it
is very possible that what is happening is what has been found
to be true in banking and airlines, which is that the CEOs of
those companies know who their largest shareholders are, and
they know that their largest shareholders will benefit from
anti-competitive behavior, and therefore they engage in that
anti-competitive behavior.
So I cannot prove it but I think that the large ownership
stakes of these asset management firms could very well be
leading to higher prices in the food sector.
Senator Padilla. Thank you, Mr. Kwak. Clearly more research
to be done in this area.
Mr. Chair, let me shift for a minute from talking about
putting food on the table to those who give us food for
thought. Preserving local journalism is important to keeping
Americans informed about what is going on in their communities,
encouraging civic engagement, and countering today's rampant
disinformation campaigns, as well as the dangerous spread of
misinformation.
Unfortunately, in regions across the country, private
equity firms have bought newspapers with no intention of
ensuring long-term stability. Instead, we see instance after
instance of these firms gutting newsrooms to maximize short-
term profits. And I will give you one of many, many examples. A
hedge fund bought the Vallejo, California's Times-Herald
newspaper. As soon as that happened, the number of newsroom
staff was slashed, the remaining staff's ability to cover and
investigate local stories obviously dwindled, and its final
reporter was fired after criticizing the extreme cost-cutting
measures.
These types of acquisitions have contributed to the decline
in newspaper newsroom employment by 57 percent since 2008,
leaving more than 3 million Americans without access to a local
paper.
So the question is for Dr. Prins. Dr. Prins, how can we
ensure that corporations are held accountable for gutting
essential American institutions like our newspapers?
Ms. Prins. Thank you, Senator. That is an excellent
question. All of the points that you have made in your
statement related to this question are very important to
answering it.
First of all, we need to make sure--and this is largely a
private equity-driven execution of journalism in terms of the
takeover patterns, and as you mentioned, the short-term gain
interest versus the longer-term information outflow or
democratic journalism interest. That is not the point of what
private equity institutions do. They want short-term
turnaround.
And so in the field of journalism, or really even
agriculture, the idea is we need to restrict the ability of
these sort of hits on a concentration, above say a certain
percentage, in those industries, whether it is related to
journalism, whether it is related to agriculture, however it
winds down on the different industry levels. Because otherwise
we basically open the field to the sense of capital only
striving to really destroy rather than to build up. Certain
institutions like journalism, as well as certain businesses and
sectors like agriculture that, you know, work towards all of
the American people in terms of if we do not concentrate them
and get rid of the competition within them, then we can have a
better price competitive nature and that will reduce prices.
So I think it is all connected to reducing the influence of
that private equity sector.
Senator Padilla. Thank you very much. Thank you, Mr. Chair.
Chairman Sanders. Senator Padilla, thank you for your
excellent questions. And let me thank each of our witnesses for
appearing before the Committee today. Their full statements
will be included in the record. As information for all
Senators, questions for the record are due by 12 noon tomorrow,
with signed hard copies delivered to the Committee clerk in
Dirksen 624. Email copies will also be accepted. Under our
rules, each of our witnesses will have seven days from receipt
of our questions to respond with answers.
With no further business before the Committee, this hearing
is adjourned, and I thank everybody for attending. Thank you.
[Whereupon, at 12:55 p.m., the hearing was adjourned.]
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
[Prepared statements and responses to written questions
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