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Financialization and Corporatization as the End of Union Democracy

Financialization and Corporatization as the End of Union Democracy
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  11/25/13 10:29 PMFinancialization and Corporatization as the End of Union DemocracyPage 1 of 6  Search Follow @StateNature   Summer 2010Labour Movements Contents David Correia Financialization andCorporatization as the Endof Union Democracy Kenneth Couesbouc On the Persistence of Hierarchy Cal Winslow California Labor’s CivilWar: Huge Elections Set atKaiser Permanente Steve Early SEIU Funds New Book toRewrite History  Yonatan Preminger  Sandwiched betweenZionism and Capitalism Michael Barker  Liberal Elites and thePacification of Workers Paula Cerni Review of Matthew B.Crawford, Shop Class asSoulcraft: An Inquiry intothe Value of Work Little Big Pine Labor, My Savior  Cihan Aksan & JonBailes Disaster Politics in Haiti –Pacifying the People: AnInterview with Peter Hallward HomeAbout UsSubmissionsArchivesContributors Like 193 Send   Financialization and Corporatization as the End of UnionDemocracyBy David Correia “What has been the consequence of labor’sembrace of conservative politics and financialization? Pension fund values havecollapsed, public sector employees are under assault, benefits have disappeared and layoffs arecommonplace.”  Well, it seems to me that a union is not a private, profit-making enterprise,not completely, at any rate. [1]In 1925, labor leaders, including the AFL’s (American Federation of Labor) SamuelGompers, formed The Union Labor Life Insurance Company (Ullico). Gompersbelieved that providing union workers with affordable life insurance would finallysecure an economic stability long elusive to rank and file union members.Gompers wouldn’t recognize the Ullico that exists today. It grew into a financialpowerhouse through speculative investments in increasingly complex financialsecurities and instruments funded through millions of dollars of union paymentsand workers’ premiums. It was a slow but steady, and ultimately strange, transitionfor a union organization from basic life insurance provider to Wall Streetheavyweight. Ullico’s modest beginnings in the 1920s were expanded in the 1930sto include retirement annuities. A decade later, Ullico expanded its insuranceofferings to include health insurance. By the 1970s, union pension plans became alarge part of Ullico’s bottom line along with additional investments in real estatedevelopment and capital projects, built always of course with union labor. TheUllico Casualty Co., launched in the 1980s, expanded into trust fund liabilityinsurance and portfolio management services. By 2008 Ullico, with more than $30billion in assets, completed its metamorphosis from a basic workers’ cooperativelife insurance provider to one of the largest financial service firms in the U.S. [2]Ullico was swept up into capitalisms shift from production to the increasedpower of finance capital. The financialization of the global economy over the pastfifty years has resolved a key crisis in capitalism: the troublesome investmentquandary for institutions with surplus capital. “Their main solution from the 1970son” argued John Bellamy Foster, “was to expand their demand for financialproducts as a means of maintaining and expanding their money capital. On thesupply side of this process, financial institutions stepped forward with a vast array Like 0 Special Extract from: Weapon of the StrongConversations on USState Terrorism The Discourse of Terror  An Interview withJudith Butler  Photo source Weapon of the StrongConversations on USState Terrorism  Available now Click below for 20% off: Please click here  tocomplete our Readership Survey.  11/25/13 10:29 PMFinancialization and Corporatization as the End of Union DemocracyPage 2 of 6 Cihan Aksan & JonBailes Revolution Stalled?Venezuela and Bolivia: AnInterview with MikeGonzalez Cihan Aksan & JonBailes Keynesianism –Capitalism’s Cure? AnInterview with EsmeChoonara Cihan Aksan & JonBailes The Changing Face of Imperialism Today: AnInterview with JonathonShafi Matt Fisher  The Politics of SocialIntelligence Ismael Hossein-zadeh Iran’s Presidential ElectionOne Year Later – Why theGreens Failed an online journalof radical ideas of new financial instruments: futures, options, derivatives, hedge funds, etc. Theresult was skyrocketing financial speculation that has persisted now for decades.”[3] Surpluses were placed not in fixed capital investments with long turn aroundsplagued by inflexibility and instead invested in financial products that offered quickreturns and enormous flexibility.The financial sector quite obviously benefited from the process of financialization, and firms, particularly pensions funds and firms like Ullico,benefited the most. With enormous sums of real money, banks and finance sector actors became the dominant players in the economy. While the investment returnsrealized by workers’ pension funds and financial actors like Ullico in financializedinvestments has increased real wealth for workers it has occurred at the expenseof growth in the productive economy. And herein lies the real irony in labor’s madscramble for a piece of the finance capital bonanza. The money machine of financialization has been a Faustian bargain for unions. While financializationoffered unions new ways to put pensions to work, the investment growth inspeculative financial instruments and exotic derivatives has been at the expense of investments in production and the jobs that go with those investments. Thegrowing chasm that has separated finance capital from production has appeared acompelling enough reason for Ullico to move increasingly more and more moneyinto Wall Street’s version of casino capitalism.Despite nearly universal exuberance, the last few years have illustrated anumber of the risks financialization poses for the labor movement. Oneconsequence of the BP Deepwater Horizon spill, for example, has been a dramaticreminder of the enduring connection between productive and finance/speculativecapital. The collapse in BP’s stock value has cost pension funds $1.4 billion in fundvalues at 42 state retirement accounts. [4] Pension funds have over invested incompanies like BP, forever awash in Wall Street speculation. The financialimplosion of the past two years has demonstrated even more risks to labor whenunions actively pursue financialization as a wealth management strategy at theexpense of investments in production. Prior to the financial collapse,financialization appeared to have in very real ways reinvented value. Theenormous surpluses produced through investments in exotic financial instrumentslike credit default swaps and investment-backed securities have shown greater returns than investments in productive activities. The increased financialization of value has strengthened the political power of the financial sector. In other words, if value is produced through financialization and not production, it is bankers and notworkers who become the source of all wealth. This is a fact not lost on workerswho find themselves increasingly in a strange position vis-à-vis capital and thecapitalist state. [5] As Rosenfield has noted, the “decades-long trend in private-sector labor negotiations has now confirmed collective bargaining as havingshifted from demands by workers to demands on workers.” [6] Ullico appeared tooffer one way for workers, in an economy increasingly uninterested in production,to protect their shrinking share of surplus value.That Ullico ignored the contradictions of financialization and pursued a strategythat advanced the interests of the financial class over workers demonstrates thefar-reaching power of what Marx called the “bankocracy.” While many havecommented on the shift from production to financialization as having resolved anumber of crises of capitalism over the last twenty-five years, Marx providedperhaps the clearest description and analysis of finance capital fifty years beforeUllico’s birth. As Marx described it, finance capital was controlled by a“bankocracy” that arranged the usual suspects in familiar arrangements. As hewrote in Capital “the newly-hatched haute finance” depended on an alliance withthe landed aristocracy, industrialists and a bourgeois political class that providedthe necessary political protection. The consolidated power of finance capitaldictated the terms of access to surplus capital. This is true today as it was inMarx’s time. What is new in this arrangement has been the replacement of thelanded aristocracy with financial actors such as production-cum-trading houseslike BP, huge public-sector pension fund like Calpers and insurance giants likeUllico. an online journalof radical ideas  11/25/13 10:29 PMFinancialization and Corporatization as the End of Union DemocracyPage 3 of 6 But of course the crises financialization appeared to resolve did only byengendering a new set of contradictions and antagonisms. The shift in the srcin of value from labor to financialization was accomplished through, among other things,the temporal fix provided by exotic financial instruments that extended nearlyunlimited capital in the form of credit to more and more investors, and workers-turned-consumers, seeking greater and greater returns in rates that alwaysexceeded the returns possible through production. For labor, the shift from lifeinsurer to Wall Street financial services provider has meant more than merely ashift in fiduciary responsibility to unions and their members but moreover has beenbased on a fundamental shift among the largest unions from democratic tocorporate unionism. In other words, financialization moved into the labor movement when rank and file decision-making moved out.Douglass McCarron, more than any other figure, has come to represent labor’snew class of corporate leader: conservative and authoritarian – a union leader for profit only. McCarron assumed the Presidency of the United Brotherhood of Carpenters and Joiners (UBCJ) in 1995 and quickly remade the UBCJ in theimage of Wall Street, one with the organizational and administrative flexibility totake full advantage of the economic possibilities of financialization. [7] It has beena swift transformation. Less than a year after his election he embarked on a far-reaching restructuring program designed, as McCarron described it, to “streamline”the union. A rank and file member of local 120 in New Jersey described theopening salvo of McCarron’s reforms.On June 25th in 1996, the International Carpenters and Joiners of  America, otherwise known as the International, under the direction of Douglas McCarron ordered the emergency takeover of the New YorkDistrict Council. The takeover happened in the middle of the night with nowarning or due process. Armed guards along with representatives of theInternational took possession of our building, and then the Internationalremoved our duly elected officers of which I was privileged to vote for inthe first referendum election held for district council officers in my union’shistory. The election was also certified and supervised by a federallyappointed investigating review officer, Kenneth Conboy. On July 18th, I,along with 22 other instructors of the Labor Technical School, were firedone week after the hearings on July 10th and 11th of 1996 held by theInternational concerning the emergency removal of our elected officers.On the 24th, by the order of the U.S. southern district court of New York,special hearings were set up. However, unlike the International’sorchestrated hearings, they were not open to the membership. Thesehearings were closed, and I, along with the other 22 members, wereescorted out by these armed guards.Over the next few years, McCarron’s “streamlining” included the expulsion of dissident members, the unilateral dissolution of troublesome locals and the merger of others into larger and larger administrative units. He purged elected officials andrewrote bylaws for locals in California, Nevada, New England, Pennsylvania, andNew Jersey. In the middle of union elections in Michigan, McCarron closed all thelocals and the three district councils and appointed a McCarron partisan asexecutive secretary treasurer with consolidated authority over all dissolved localsin a new Michigan Regional Council. Always the corporate shill, McCarron has reveled in the attention lavished onhim by the capitalist press. In a Business Week article from the late 1990s heexplained his authoritarianism as the only way to reform rank and file unionism.“We have a product to deliver,” he told the magazine “and we have to do it moreefficiently.” McCarron has curried favor with corporate executives and republicanpoliticians. And while his enthusiastic embrace of conservative politics has seemedout of step in even the mainstream labor movement, it’s old hat for the UBCJ, the“Big Bully” of American labor.During the Depression, the Carpenters actively opposed industrial unionism,came out against workers who organized in mass production industries and  11/25/13 10:29 PMFinancialization and Corporatization as the End of Union DemocracyPage 4 of 6 refused to allow any to affiliate with the American Federation of Labor unless theyagreed to transfer their skilled members to the UBCJ. Union President at the timeWilliam Hutcheson opposed FDR and actively campaigned for Alf Landon.McCarron has pursued similar tactics. He cozied up to George W. Bush andcarried out political purges. Echoing Hutcheson’s red baiting tactics, for example,he expelled a British Columbia local after they publicly opposed the corporatizationof the carpenters union, saying of its members, “There is a high influence of thecommunist party” in the BC local. In almost every way imaginable, McCarron hasreturned the UBCJ to its conservative roots, but in one significant way, McCarronhas transformed the union in ways that would have given even William Hutchesonpause. After his election as UBCJ President, Douglass McCarron became an influentialmember of Ullico’s board of directors. Beginning in the late 90s, Ullico leaderspursued a series of investment schemes designed to enrich board members andWall Street insiders at the expense of its union subscribers. The scheme workedlike other familiar Wall Street scandals: officers and directors purchased shares inone company, in this case the telecommunications company Global Crossing,based on insider information offered by a CEO, in this case Global Crossing’sCEO. Nearly all of Ullico’s board members gobbled up 33 million preferentiallypriced shares. When Global Crossing went public and the stock soared to morethan $60 a share in 1999, board members enjoyed a $1 billion windfall.When the bubble burst and the stock tanked, board members distributed their golden parachutes. In an exit scheme of Ullico CEO Robert Georgine’s design,board members dumped Global Crossing and bought up Ullico stock in an evenmore advantageous purchase plan than the one that got them in trouble in the firstplace. The stock sell-off and price manipulation of Ullico’s stock more than madeup for the disastrous Global Crossing investment. Less than a year later, Ullico’sboard established a new price for Ullico stock nearly $100/share higher than theprice they paid in the exclusive purchase plan. Board members made more than$13 million. When the board later dropped the price, the company started postingastounding losses: more than $20 million in 2001 and nearly $75 million in 2002.[8] The unions and their members paid the price of the collapse in Ullico.The scheme and subsequent scandal bankrupted Ullico and led to a shake upin Ullico’s leadership. [9] Georgine was forced out while numerous other boardmembers resigned. McCarron jumped ship in March of 2003. His presence on theboard, however, proved to be pivotal. The corporate-connected and Republican-friendly McCarron had become an important political ally of the “bankocracy.”Despite pressure from rank and file union members to fully investigate Ullico andthe scandal, The GOP-controlled Congress refused. As Roll Call reported “partyleaders didn’t want to embarrass Bush or United Brotherhood of Carpenters andJoiners President Douglas McCarron, one of Bush’s best friends in organizedlabor.” [10]The financialization meltdown of which Ullico was a part did not arrive unseen.Even John Maynard Keynes years before questioned the social value of financialization. As Foster has written, “Keynes saw even in his day, theadvantages of the liquidity and negotiability of financial instruments come at thecost of facilitating nth-degree speculation which is short-sighted and inefficient.”[11] If others saw it coming, why not labor? The new “bankocracy”, after all, hasbeen obviously a cabal of finance capitalists out to enrich themselves throughspeculation. The health of unions however, whether radical like the Wobblies,reformist like SEIU or corporate like the Carpenters, has required a struggle with,not an embrace of, bourgeois values like efficiency, faith in technology and fiscalausterity. Ullico’s embrace of financialization has therefore reflected a profoundbetrayal of worker solidarity.What has been the consequence of labor’s embrace of conservative politicsand financialization? Pension fund values have collapsed, public sector employeesare under assault, benefits have disappeared and layoffs are commonplace. Withincreased unemployment has come a deluge of home foreclosures and auto  11/25/13 10:29 PMFinancialization and Corporatization as the End of Union DemocracyPage 5 of 6 repossessions. Nearly $25 billion in auto loans were past due as of October 2008.Nearly two million vehicles were repossessed in 2007. Personal bankruptcy levelshit 1.25 million for the one-year period ending June 30, 2008, a 34% increase over the previous year. Bank seizures of homes doubled in January of 2009 when morethan 233,000 properties were in various stages of default. Workers, union andnon-union alike, have paid the price of financialization and the corporatization of the labor movement made much of this possible.McCarron assumed the Presidency of the Carpenters and joined Ullico’s boardat a defining moment for the labor movement. The percentage of unionized American workers was near a historic low point. In the 1950s, 30% of all workerswere members of a union. By the year 2000, that number had collapsed to lessthan 12%; among private sector employees, only 8% of workers are members of aunion. The corporatization of the UBCJ and the financialization of Ullicocontributed to nothing more, it seems, than the complete abrogation of anystrategic defense or principled struggle of labor vis-à-vis capital. As a result, with job losses over the past two years in excess of eight million workers, more unionmembers today queue in unemployment lines than gather in solidarity at unionhalls.Endnotes 1. Opening Statement of Representative Harris Fawell, Chairman of the House Subcommittee onEmployer-employee relations commenting during a 1998 hearing on Carpenter’s union restructuringand impediments to union democracy.2. Chris Phelan, William Green: Biography of a Labor Leader  , (New York: State University of New YorkPress, 1989); ULLICO Web site ( John Bellamy Foster, ‘The Financialization of Capitalism’, Monthly Review  , (58) 11, 2007, 1.4. Dunstan McNichol, ‘BP Oil Spill Costs U.S. State Pensions $1.4 Billion’, Business Week  , June 28,2010.5. See R Marens, ‘Going to War With the Army You Have: Labor’s Shareholder Activism in an Era of Financial Hegemony’, Business & Society  , (47) 3, 312-342, 2008.6. Herman Rosenfeld, ‘The North American Auto Industry in Crisis’, Monthly Review  , (61) 2, 2009.7. David Correia, ‘Welcome to the Business-Friendly Carpenter’s Union’, Counterpunch Weekend Edition , September 11-13, 2009.8. Greenhouse, ‘Ex-Governor to Look into Union Stock Deal’, New York Times , May 1, 2002.9. Jane Slaughter, ‘Is Sweeney Losing Clout? – ULLICO Scandal Sows Disunity at the Top’, Labor Notes , January 1, 2003.10. John Bresnahan, ‘Boehner Targets Ullico’, Roll Call  , March 20, 2003.11. John Bellamy Foster, ‘The Financialization of Capitalism’. Like 0
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