But not everything
is great for all Californians, with Breitbart
News reporting that
Silicon Valley has the highest
income
inequality
in the nation and the U.S. News &
World Report naming California as the worst
state for “quality of
life,” due to the
high cost of living.
IBM’s purchase of Red Hat highlights growing power of technology giants
By Mike Ingram
10 November 2018
Red Hat and IBM officials announced a definitive agreement on October 28, under which IBM will acquire the open source enterprise Linux company for a cash value of $34 billion. IBM is paying $190 per share for Red Hat stock, a 63 percent premium to its closing price of $116.68 on the previous Friday. It is the largest acquisition by IBM in its 107-year history.
The acquisition is the latest case of giant corporations swallowing up previously independent open source companies and the community of developers around them as they grow ever larger and more powerful. Nowhere is this more prevalent than among companies competing in the so-called public cloud market, in which IBM trails behind Amazon, Microsoft and Google.
In the 10 years from 2007 to 2017, the number of Microsoft employees grew from 79,000 to 124,000. Google had 16,805 in 2007 compared to 57,000 in 2017. The number of employees in Amazon Web Services (AWS) is not available, but the total number of employees at Amazon grew from 17,000 in 2007 to 566,000 in 2017. IBM, the dominant tech company for much of the 20th century saw a slight reduction from 386,000 to 366,000 in wholly owned subsidiaries for the same period.
IBM hopes that the acquisition of Red Hat will give it a competitive edge in the so-called hybrid cloud, which combines public cloud offerings with private clouds in data centers run by a company. In a press release, Ginni Rometty, IBM chairman, president and chief executive officer, said, “The acquisition of Red Hat is a game-changer. It changes everything about the cloud market.” Rometty claimed that “IBM will become the world’s #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”
Jim Whitehurst, president and CEO of Red Hat, said, “Open source is the default choice for modern IT solutions, and I’m incredibly proud of the role Red Hat has played in making that a reality in the enterprise.”
IBM has had its own close relationship with open source software over the past 20 years, recognizing it as a superior development model to those of proprietary systems. With the open source model, IBM gains access to thousands of talented developers globally who would not necessarily work for the company.
Even Microsoft, whose former CEO Steve Balmer described open source as “a cancer that attaches itself in an intellectual property sense to everything it touches” and “communism,” has in recent years adopted the open source model for a number of projects. Sixty percent of instances running in Microsoft’s Azure cloud are Linux based. Last month Microsoft completed its acquisition of GitHub for $7.5 billion. The open source code repository and development platform has over 31 million users and hosts more than 96 million repositories from 2.1 million organizations.
Red Hat was founded in 1993 by Bob Young and Marc Ewing. Young ran a catalog service that distributed software while Ewing was developing his own distribution of the open source GNU/Linux operating system which he called Red Hat Linux. The distribution bundled together various application and utilities developed by the Free Software Foundation led by Richard Stallman and the Linux kernel developed by Linus Torvalds. Both the GNU and Linux were released as open source software that could be used by anyone free of charge. Most importantly, the GNU General Public License requires that the human readable source code be made available and gives users the right to modify that code. This was in stark contrast to the proprietary licenses of companies such as Microsoft, Apple and IBM.
Red Hat became the first commercial Linux distribution with a revenue model of distributing the software for free and charging a subscription service for support, updates and professional services. It has maintained a close relationship with the open source developer community and contributed to numerous projects.
Today Red Hat is a significant corporation in its own right, with over 12,000 employees worldwide. Utilizing the code developed by thousands of volunteer programmers, Red Hat quickly established itself as the main distributor of Linux software to enterprise companies. In August 1999, Red Hat went public, achieving the eighth-biggest first-day gain in the history of Wall Street. In 2000 the company opened Red Hat India and began a series of acquisitions, most recently buying the Linux Container distribution, CoreOS, for $250,000,000 in January this year.
A particular target of IBM’s cloud strategy is JEDI, the $10 billion Joint Enterprise Defense Infrastructure project of the Department of Defense. The project is intended to modernize and consolidate the defense department’s IT systems into an enterprise-level commercial cloud. IBM has issued a protest against the JEDI solicitation, stating, “Throughout the year-long JEDI saga, countless concerns have been raised that this solicitation is aimed at a specific vendor. At no point have steps been taken to alleviate those concerns.”
IBM are complaining specifically about a requirement that bidders meet the Defense Information Systems Agency Impact Level 6 security capabilities to handle secret-level military information. Two senior Republicans on the House Appropriations Committee, Reps. Steve Womack (R-Ark.) and Tom Cole (R-Okla.) have called for the Pentagon’s internal watchdog to open an investigation into the cloud procurement, raising the same concerns in an October 23 letter to Glenn A. Fine, the acting inspector general at the Department of Defense. At the time the proposal was announced, only AWS met this requirement. Microsoft announced last month that it will soon meet the requirement.
Google withdrew from the JEDI bid last month following protests from employees. Microsoft went ahead with the bid despite opposition from workers. Nextgov reports that CEO Satya Nadella appeared at the United States Naval Academy in Annapolis, Maryland, October 10. Nadella reportedly said Microsoft has a four-decades-old partnership with the Defense Department and added that the US “armed forces have a fundamental grounding on what it means to deploy any technology or practice which is ethically used.”
Amazon is also going ahead with its bid and criticized Google’s decision to pull out. Speaking at the WIRED25 summit on October 15, Amazon CEO Jeff Bezos said, “One of the jobs of a senior leadership team is to make the right decision even when [it] is unpopular.” He added, “If big tech companies are going to turn their back on the DOD, then this country is going to be in trouble.”
With its contribution to open source, Red Hat has maintained a certain respect among developers. But part of the attraction to IBM is the company’s close relationship with the US military. The headline of a 2012 blog post boasts of “Red Hat’s Decade of Collaboration with Government and Open Source Community.”
The authors cite a 2003 study that presented DOD-wide guidance on open source software, “which implicitly permitted its acquisition, development, and use.”
The blog post states that at this time Red Hat released the first version of Red Hat Enterprise Linux and that, “The Army deployed Red Hat’s operating system in its Blue Force Tracker system, which lived in jeeps and tanks on the battlefield.” It goes on to cite Major General Nicholas Justice, “the man responsible for Blue Force Tracker,” saying later: “When we rolled into Baghdad, we did it using open source.”
Retired general Hugh Shelton joined the Board of Directors of Red Hat Corporation in April 2003 and was elected that board’s chairman in 2010. Shelton served as chairman of the Joint Chiefs of Staff from 1997 to 2001.
A June 26 article in the Herald Sun states: “Red Hat leaders have been talking to defense officials about its JEDI cloud-services contract and think the company is ‘extremely well-positioned’ to supply the project’s back-end workings, Red Hat Chief Financial Office Eric Shander said in a recent interview.”
IBM is pushing for the DOD to adopt a hybrid cloud approach, utilizing multiple providers rather than a single vendor. In acquiring Red Hat they obtain control of the operating system that will run on whatever cloud infrastructure is ultimately selected, together with orchestration tools that make cloud deployments easier. If they can’t get the whole $10 billion JEDI cake, they at least have a possibility of a slice, together with more lucrative contracts down the road.
Silicon Valley’s corrupt nexus: War, censorship and inequality
On Wednesday, Amazon CEO Jeff Bezos, the world’s richest man, will give the keynote address to the US Air Force Association’s annual conference. Bezos will discuss “how industry can better partner” with the US military.
Bezos’ speech comes amid his Seattle-based firm’s lobbying to win a $10 billion contract, known as “Project JEDI,” to host large sections of the Pentagon’s operations infrastructure on the internet cloud. In a move that will likely win him points with the military brass awarding the contract, Bezos recently donated $10 million to a Virginia-based super PAC seeking to elect veterans to office and create a “less polarized government.”
The Amazon CEO will appear as the representative of the world’s second-largest company by market capitalization, the second-largest employer in the United States, the world’s biggest provider of cloud computing services, and America’s largest e-commerce retailer, with twice the sales of the next nine competitors.
Bezos, who also owns the Washington Post, is among America’s most powerful oligarchs. His speech to the Air Force Association embodies the corrupt nexus between the military, the financial oligarchy, the media and the high-tech companies, all of which are working to create a regime of censorship targeting left-wing, anti-war and socialist viewpoints.
This partnership expresses, in practice, the vision laid out in the Pentagon’s latest National Security Strategy, which calls for “the seamless integration of multiple elements of national power—diplomacy, information, economics, finance, intelligence, law enforcement and military.”
This is a formula for a society in which all of the mechanisms of social control are jointly harnessed to defend and expand the wealth and power of America’s financial oligarchy. Toward this authoritarian end, Bezos and company are mobilizing one of the critical mechanisms—the media.
Bezos’ Washington Post has prepared its owner’s appearance at the Air Force event with a series of op-eds and editorials calling for a closer partnership between the Pentagon and Silicon Valley. More than any other major US newspaper, the Post has argued for the fusion of America’s high-tech sector with its military, in line with the Pentagon’s so-called “third offset” strategy, which aims to regain America’s “military edge” by “harnessing a range of technologies, including robotics, autonomous systems and big data,” in the words of the Economist.
The Post’s campaign for a further integration of technology corporations with the military has been combined with attacks on tech workers who oppose the alliance of the firms for which they work with the US war machine.
Over the past two decades, hundreds of thousands of America’s brightest minds have gone to work in Northern California’s Silicon Valley and its offshoot in Seattle, lured by promises that “people with passion can change the world for the better,” in the words of former Apple CEO Steve Jobs, and the promise that they would help “organize the world’s information and make it universally accessible and useful,” in the words of Google’s mission statement.
But each year, more and more technology workers have found themselves involved in developing the means to carry out mass murder, censorship and political repression, prompting protests by workers at Google, Amazon and Microsoft.
In June, Amazon workers issued an open letter opposing the company’s provision of facial recognition technology to police forces as well as its cloud computing contracts with the agencies carrying out Trump’s Gestapo-style attacks on immigrants.
That same month, Google announced that it would end its involvement in a Pentagon program to build artificial intelligence capabilities for military drones after more than a thousand Google employees signed a letter demanding that Google swear off building “weapons of war.”
The Washington Post has opposed these protests. In an August 8 op-ed, two executives from Anduril Industries, a military defense contractor seeking to sell virtual reality systems to the Pentagon, condemned the protesting workers. “We understand that tech workers want to build things used to help, not harm,” the executives wrote. “We feel the same way,” they continued. “But ostracizing the US military could have the opposite effect of what these protesters intend: If tech companies want to promote peace, they should stand with, not against, the United States’ defense community.”
The authors added: “The world is safer and more peaceful with strong US leadership. That requires the US government to maintain its advantage in critical technologies such as AI. But doing so will be difficult if Silicon Valley’s rising hostility toward working with Washington continues.”
The Post reiterated these points in an editorial last week entitled “Silicon Valley should work with the military on AI.” Bezos’s newspaper made the cynical argument that the technology companies should partner with the Pentagon because the result might be technologies with applications outside of mass murder. “DARPA [Defense Advanced Research Projects Agency] contractors will probably develop products with non-lethal applications,” the Post declared.
The open secret of Silicon Valley’s collaboration with the Pentagon is that the wars to be fought with the help of artificial intelligence will not take place only beyond America’s borders—they will also include class and civil wars.
America’s financial oligarchy, whose wealth has more than doubled since the 2008 financial crash, is issuing warnings about the dangers posed to its wealth by an increasingly restive and angry working class. In a report published last week, JPMorgan Chase warned about the potential impact of a new financial crisis in fueling political opposition.
The report by the biggest US bank stated: “The next crisis is also likely to result in social tensions similar to those witnessed 50 years ago in 1968”—a year that saw urban rebellions and mass protests against the Vietnam war in the US, the May–June general strike in France, and a global radicalization of the working class.
“In 1968,” the report continued, “TV and investigative journalism provided a generation of baby boomers access to unfiltered information on social developments such as Vietnam and other proxy wars, civil rights movements, income inequality, etc. Similar to 1968, the internet today (social media, leaked documents, etc.) provides millennials with unrestricted access to information on a surprisingly similar range of issues. In addition to information, the internet provides a platform for various social groups to become more self-aware, polarized and organized.”
Such groups “span various social dimensions based on differences in income/wealth,” warned the bank. In other words, the looming financial crisis will likely spark a mass movement of the working class against social inequality.
Recognizing the immense power of the internet to mobilize opposition to the existing social order, under conditions where a mass audience for socialism is emerging among workers and young people, America’s leading technology companies, working with the state, are scrambling to impose political censorship.
At a congressional hearing last week, Facebook Chief Operating Officer Sheryl Sandberg pledged to replace “bad speech” with “alternative facts” in users’ news feeds. She boasted that her company now employs some 20,000 people to censor content.
Google, for its part, has continued and intensified its censorship of left-wing, anti-war and socialist websites. Since the World Socialist Web Site first reported last year that changes to Google’s algorithms had led to a sharp fall in the readership of 13 left-wing sites, the search traffic of these sites has plunged even further, hitting a combined decline of 50 percent.
The reactionary nexus between Silicon Valley, the CIA and the Pentagon must be—and will be—opposed. All over the world, workers are entering into struggle—from teachers and Amazon, UPS and postal workers in the United States, to pilots and cabin crew in Europe, to construction workers in Turkey. These workers must understand that they are the targets of censorship, and that they must mobilize to fight the drive to silence socialist and left-wing oppositional views.
US multinationals dodge $180 billion in taxes on foreign profits per year
By Barry Grey
10 November 2018
US multinational corporations are plundering the populations of the United States and the world to the tune of trillions of dollars by driving down and evading taxes on profits booked overseas. This is the conclusion that emerges from a recent study by University of California at Berkeley economist Gabriel Zucman and British economist Thomas Wright.
Their paper, titled “The Exorbitant Tax Privilege,” points to the use of US military violence to drive down taxes on American oil multinationals by oil-producing states and a massive expansion of non-oil US firms booking their overseas profits in tax haven countries to generate huge tax savings and increased profits. The statistics the authors provide translate into $180 billion a year in tax savings on US multinationals' overseas operations.
This is money diverted from government revenues in the US and around the world and funneled into the bank accounts and stock portfolios of the global financial oligarchy. In what amounts to an international extortion racket and swindling operation, the US government and both big business parties function as the enforcers of the American corporate elite.
Zucman and Wright note that oil-producing states in the Middle East and elsewhere slashed their tax rates on US oil companies from an average of 70 percent between 1966 and 1990 to an average of 45 percent following the first US-led Gulf War in 1990-1991.
They write: “The foreign tax rates of US oil multinationals fell significantly after the first Gulf War, during which the United States (and a number of other countries with significant investments in oil) intervened to protect Kuwait, a major oil producer.
“Although it is not possible to know for sure what caused this decline, a possible interpretation of the fall in the taxes collected by oil-producing countries… is that they reflect a return on military protection granted by the United States to oil-producing States.”
This is diplomatic language to suggest that the United States used its destruction of Iraq through military violence and deadly sanctions to extort foreign governments to lower their tax rates on American multinationals. To put it more bluntly, the super-profits obtained by ExxonMobil and other mega-monopolies are based in significant part on the blood and bones of millions of men, women and children killed and injured in Iraq, Libya and other Middle Eastern oil-producing countries, as well as tens of thousands of US soldiers.
Non-oil US multinationals have effected a dramatic reduction in taxes paid on overseas investments primarily by accelerating the shift of profit bookings to tax haven countries. Zucman and Wright report that American multinationals’ profits booked in offshore tax havens increased from 20 percent of total US overseas profits in the first half of the1990s to 50 percent today.
The write: “The effective foreign tax rate of US multinationals in sectors other than oil has collapsed since the mid-1990s. While part of this decline is due to the fall of corporate tax rates abroad, by our estimates almost half of it owes to the rise of profit shifting to tax havens.” These havens include countries such as Ireland, Luxemburg, the Netherlands, Switzerland, Singapore, Bermuda and Caribbean tax havens.
The authors note that US multinationals face effective corporate tax rates in non-haven countries of 27 percent as compared to 7 percent in haven countries. Since the late 1990s, the effective overseas tax rate for US non-oil multinationals has fallen by nearly half, from about 35 percent to 20 percent.
The sharp increase in the shift of overseas profit bookings to tax haven countries began with the removal in 1996 of US Treasury restrictions on tax avoidance by such means. The fact that the change took place under the Democratic Bill Clinton administration underscores the bipartisan character of the systematic reworking of tax laws to effect an ever-greater transfer of wealth from the working class to the financial elite.
Zucman and Wright point out that US multinationals use tax havens far more than multinationals based in other countries. They estimate that half of all global profits booked in tax havens are shifted by US multinationals. The practice is considerably less widespread in other major economies that comprise the Organization for Economic Cooperation and Development (OECD), where anti-tax avoidance laws remain in place. About 25 percent of profits from tax havens go to European Union countries, 10 percent to the rest of the OECD, and 15 percent to developing countries.
The $1.5 trillion tax cut signed into law last December by President Trump, the benefits of which go overwhelmingly to corporations and the rich, provides additional windfalls for US multinationals that have parked trillions of dollars in profits in foreign tax havens to evade US taxes. Besides cutting the legal corporate tax rate from 35 percent to 21 percent (the real, or “effective,” rate is much lower), the law allows companies such as Apple and Google to repatriate their overseas profits at a discounted tax rate of 8 percent to 15 percent, depending on the nature of the assets.
That law has already sharply reduced the amount of taxes being collected by the federal government from major corporations, leaving their rich shareholders wealthier and the government deeper in debt. Just between January and June of this year, government revenues from corporate taxes dropped by almost $50 billion from the previous year, a decline of one-third.
The cynical claim that corporations would use their tax savings to create more decent-paying jobs has already been exposed by record rates of corporate stock buy-backs and dividend increases. US big business is using its tax boondoggle to reward the bankers, big investors and CEOs with billions in additional wealth—to buy more and bigger yachts, private islands and personal jets—while squandering more resources produced by the labor of the working class on parasitic financial operations.
The estimated $180 billion a year in reduced taxes on foreign earnings by US multinationals is five times the $30 billion per year needed to eradicate world hunger.
These statistics shatter the lie, constantly recited to justify cuts in social programs and workers’ wages and benefits, that “there is no money” to pay for such things. They underscore the fact that no progress can be made in meeting elementary social needs without a frontal attack by the working class on the fortunes of the US and international oligarchs.
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