Union Dissension Won’t Affect Kerry–But After?

We wrote previously about SIEU boss Andy Stern’s comments regarding Kerry’s stance on unions and its roots in the strategy sessions of the business-friendly DLC. A story in today’s NYT explains some of the background in the split between traditional unionists and the new breed that Stern represents.

BOSTON, July 30 – The nation’s labor unions have rallied behind John Kerry after being openly divided just a few months ago when many unions backed Representative Richard A. Gephardt for president while others supported Howard Dean, the former Vermont governor.

But behind their newfound unity in politics, the nation’s unions are in turmoil, with some labor leaders maneuvering to become the A.F.L.- C.I.O.’s next president and some hinting that they might pull out of the organization. Some union presidents, alarmed that the labor movement is shrinking, are calling for a radical overhaul of organized labor, while others angrily accuse them of trying to dictate policies and of washing labor’s dirty laundry in public.

“Turmoil” is way too strong a word at this point–the unions all remain united about defeating Bush–but the growing disagreements between older and newer style unions are undeniable. Stern–who represents the workers of the New Economy, traditionally lower-wage service and clerical jobs–has been unhappy with the DLC’s emphasis on attracting corporate contributions by pandering to its greed for a while now. He has been equally unhappy with the traditional unions’ refusal to become more aggressive in their tactics, accusing them once of protecting their own positions by making agreements that hurt their memberships.

He has a point, though his timing may have been less than ideal.

“It’s time that we all pull together,” said Mr. Schaitberger, president of the International Association of Firefighters, the first major union to endorse Mr. Kerry. “What’s at stake is the very existence of the labor movement. I think the movement will be damaged, will be set back for decades, if George Bush wins again.”

He complained that Mr. Bush had stripped many federal workers of their right to unionize, had watered down overtime and job safety protections and had appointed a National Labor Relations Board that had made it harder for unions to organize workers.

But appeals for labor unity stumbled badly during the convention. Andrew Stern, president of the Service Employees International Union, the nation’s fastest-growing union, gave interviews in which he asserted that the Democrats lacked an economic message and that Mr. Kerry was not pro-worker enough. Mr. Stern, whose union has 1.6 million members, also said organized labor was in crisis.

“The Democrats have to decide where they stand on economic issues,” Mr. Stern said in an interview on the convention’s first day. “John Kerry’s positions are fine, but they don’t go far enough to deal with the issues that are facing people who go to work every day.”

Mr. Stern’s comments angered and confounded other labor leaders, especially because the service employees say they plan to spend $65 million this year to help elect Mr. Kerry, more than twice the level in 2000 and far more than any union has ever spent in a campaign. Indeed, the nation’s unions plan to spend more than $160 million on politics this year, up from an estimated $100 million four years ago.

Mr. Stern’s comments were the latest sparks generated by his faction within the A.F.L.-C.I.O. That four-union grouping, the New Unity Partnership, has called for overhauling the A.F.L.-C.I.O., creating fewer and bigger unions and redefining which unions can recruit which workers. Some leaders in this group have even hinted that they might pull out of the A.F.L.-C.I.O. if the federation, comprising 60 unions, shunned their calls for change.Thomas Buffenbarger, president of the International Association of Machinists, said that if the partnership’s leaders continued trying to dictate to other unions, the labor federation might split into competing halves, like the old American Federation of Labor and old Congress of Industrial Organizations before they merged a half century ago. Mr. Buffenbarger said several industrial unions resented the way the partnership was trying to dominate the labor federation.

“The way they talk, it’s my way or no way,” Mr. Buffenbarger said. “If the rhetoric doesn’t calm down, you’ll see old alliances form and that might lead to recreating the old A.F.L. and old C.I.O.” Mr. Buffenbarger said some union leaders felt that the partnership’s leaders – three of the five are Ivy League graduates – talk down to them.

Bruce Raynor, president of Unite Here, a union representing textile, hotel and restaurant workers and a member of the New Unity Partnership, said Mr. Stern and the partnership were right to push for far-reaching changes. He said the structure of organized labor was outmoded, asserting that unions were too fractured, small and poorly structured to contend with global corporations.

“The labor movement needs to confront these issues, but not in a backroom,” Mr. Raynor said. “We’re not the Kremlin. It’s not like people don’t know that our ability to protect American workers has been weakened. We have to turn that around, and to some degree that debate has to be done publicly.”

“There’s no question that the labor movement should talk about and focus on change, but our emphasis right now has to be on the election of John Kerry,” [AFL-CIO President John] Sweeney said. “We have had some terrible times over the last four years with the anti-worker, anti-union policies of the Bush administration.”Yes, they have, and the point dissidents like Stern and Raynor are trying to get across is that too many tradirtional union leaders sat back and let it happen rather than fight it as they have. Stern’s SIEU isn’t just “the fastest-growing” union, it’s one of the few that hasn’t lost membership, and its success is a direct result of both its aggressiveness and its understanding of the weaknesses in the corporate global market, weaknesses it has been very smart about exploiting to get record gains for its membership.

The brouhaha is just a bump in the road on the way to the election, but after November, it’s liable to become a real dogfight, and the DLC is going to be smack in the middle of it whether it likes it or not. If Stern and the other dissidents win, the DLC is going to be facing a harsh choice: either give up their dancing seduction of corporate money or lose union support, which will instead go to Demo dissidents like Pelosi and–hopefully–Obama. And that choice will have to be made whether Kerry wins or not.

Pension Fund Bail-Out

In a raft of trouble due to mismanagement, United Airlines wants to bail out of its pension obligations as the first step to getting out of bankruptcy. The NYT reports that the repercussions could be devastating for the economy–and taxpayers.

Bailout Feared if Airlines Shed Their Pensions

Published: NYT, August 1, 2004

In an echo of the savings and loan industry collapse of the 1980’s, the federal agency that insures company pensions is facing a possible cascade of bankruptcies and pension defaults in the airline industry that some experts fear could lead to another multibillion-dollar taxpayer bailout.

“The similarities are incredible,” said George J. Benston, a finance professor at Emory University in Atlanta who has written extensively on the regulatory failures that led to the costly savings and loan bailout.

Deposits in savings institutions are, like pensions, guaranteed by a federal insurance program. The savings industry first sickened because changes in market conditions made the traditional way savings and loans operated unprofitable, but government delays and policy missteps then made the situation much worse. In the end taxpayers bailed out the industry — at a cost, according to various estimates, of $150 billion to $200 billion.

Now experts say they see similar forces gathering in the pension sector, with United Airlines perhaps the first to go down the path. Operating in bankruptcy, United is striving to attract the lenders and investors it needs to survive. It said last month that it would no longer contribute to its pension plans; United also seems intent on shedding some or all of its $13 billion in pension obligations as the only way to succeed in emerging from bankruptcy proceedings.

If United manages to cut itself loose from the costly burden of its pension plans, it might force others determined to keep their costs similarly under control to emulate its move. “Rivals may feel they are at a competitive disadvantage and follow suit, raising the specter of a domino effect in the industry,” said Bradley D. Belt, the executive director of the government’s Pension Benefit Guaranty Corporation, which insures pensions. If every airline with a traditional pension plan were ultimately to default, the government would be on the hook for an estimated $31 billion. Its insurance coverage is limited, so some employees would have their benefits reduced.

“The pension insurance program is there to protect workers’ benefits,” said Mr. Belt, who took over the agency in April. “It shouldn’t be used as a piggy bank to help companies restructure.”

Already, some airline employees are taking steps to protect themselves against future pension losses.

Each month, for example, about 30 pilots normally retire from Delta Air Lines. But in June, almost 300 did.

Andrew Dean, one of the new retirees, said he and his colleagues watched in dismay as the financial debacle unfolded at United. He said that he and many of his fellow pilots decided they had better grab their pensions right away – while the money was still there.

“These are very scary times right now for someone in my position,” said Mr. Dean, who at 58 walked away from his job just as he was reaching the peak earning period of his career. His pension was also reduced because he retired early.

But his decision now looks prescient. On Friday, Delta asked its pilots for a 35 percent pay cut and proposed a smaller pension plan.

Foremost on the minds of the departing pilots, Mr. Dean said, were arcane pension rules that can offer advantages to workers who quit before a pension plan fails. At Delta, for example, as long as the pension plan stays afloat, pilots are allowed to take half of their benefit in a single check when they retire. But if the plan fails, the pilots lose their chance to take a big payout.

“What I’ve managed to do is secure half of my retirement,” Mr. Dean said. He may still lose the rest if the government takes over the program and limits future payouts. “I really lose sleep over that,” he said.

The Pension Benefit Guaranty Corporation is already hobbled by debt, having picked up the pieces of more than 3,200 failed pension plans in its 30-year life. The scale of the failures has risen sharply in the last three years, but the agency has few tools at its disposal to prevent the situation from becoming worse.

Now it faces a possible $5 billion default by United – which would be a record – and the possibility of more big airline defaults after that.

“The agency can’t take a lot of $5 billion hits, multiple times per year, year after year, and survive,” said Steven A. Kandarian, the pension agency’s immediate past director. “Eventually, you’ll run out of money.”

It is impossible to predict the exact size of any pension bailout, although economic projections by the agency suggest that in the worst case, a bailout within the next decade involving failures beyond the airlines could cost taxpayers up to $110 billion.

But because pension obligations, unlike bank deposits, do not have to be paid off all at once, it is difficult to raise alarms about the threat.

“The real blowup doesn’t happen right away; it happens over time,” Mr. Kandarian said. “You’ve got to address it now, but it doesn’t look like a crisis now. The crisis is always over the next hill.”

The risk is that the longer the problems are avoided, the worse they can get.

The airlines, who have been in trouble constantly since Reagan broke PATCO and the Pubs passed de-regulation over the objections of practically everyone who knew anything about the industry, have been engaging in price wars as a way to attract consumers. The wars have been good for fliers but have prevented the airlines from making a profit without dry-gulching employees.

In the late 80’s and early 90’s, airline unions agreed to serious cuts in pay rates, benefits and payments into their pension funds in order to keep the airlines afloat during the First Bush Recession. The companies made empty promises in return that they would go back to the original levels as soon as things picked up. But when times got better in the mid-90’s, they reneged on those promises and instead used the new money to invest in ever-tightening rounds of price cuts.

Most of what the airlines have done has been in almost total denial of reality: they’ve ignored rising fuel prices, discounted the impact of fewer passengers, overcrowded their routes, forced growth by competing for new routes before their core financial instability was completely under control, and so on. Now, as that reality crashes down around their heads, they want to bail out of obligations to their employees as the first line of defense against a bankruptcy they brought largely on themselves, and dump those obligations on taxpayers who will undoubtedly blame the unions for their “greed”.

And why not? A lot of corporations followed the same pattern in the late 80’s and early 90’s, stealing from their employees’ pension funds to boost their bottom lines, and even though what they did was blatantly illegal, they all got away with it–not one pension fund manager or corporate decision-maker was ever charged with the theft they engineered, let alone went to jail over it. The corporations–many of them making a healthy profit at the time–made $$hundreds of millions$$ by looting the funds and millions of workers, after 20 or 30 years of paying into an account that was supposed to protect their retirement, found that the accounts had been drained and their retirement along with them.

Belt summarizes the corporate attitude toward pension funds exactly right: they think employee funds are their own piggy bank they can draw from whenever they feel like it. Somebody needs to take them aside and explain to them patiently that the money belongs to their employees, not them. And while whoever it is is at it, they might also explain that highly-trained people won’t work for minimum wage and that the airlines had better stop setting their price structure as if they will.

Unfortunately, it’s probably too late at this point for a conversation like that to do any good for most of them. Well, never mind. They can always hire pilots from Calcutta and Sri Lanka cheap and run their reservation desks from Indonesia…can’t they?

Business Press Tells Investors the Truth If Not Us

Along with every other major newspaper, LAT current-events/political reporters are treating Junior’s insistence that the economy is booming as if it were an open question: this one says Yes, that one says No. But in the business pages all that pussyfooting disappears.

The blue-chip Standard & Poor’s 500 stock index’s return is exactly flat year-to-date, counting dividend income.

The average domestic stock mutual fund is down 1%, according to Morningstar Inc.

The Pimco Total Return fund, the nation’s biggest bond mutual fund, is up a mere 1.2% this year. You’ve earned even less than that in the typical money market fund.

Gold? It’s down 6% this year.

No wonder people still are paying ridiculous prices for residential real estate. There doesn’t seem to be much incentive to look anywhere else.

“A slough of despond” is how Wall Street veteran Jeffrey Applegate, chief investment officer at Fiduciary Trust Co. International in New York, characterized the stock market’s mood in July — a month in which the S&P 500 dropped 3.4% in price and the Nasdaq composite index slid 7.8%.

When strategists like Applegate start quoting from “The Pilgrim’s Progress,” you know it’s a tough market. (emphasis added by me)

If you’ve been following FTT, you know that wages are depressed and have been for 20 years, and that the “new jobs” Bush brags about are mostly in the lowest possible wage-zone, barely above minimum wage. Corporate earnings, however are generally up, in some cases waaay up. So here’s the question:

If all this profit isn’t going to higher wages–and it isn’t–and it isn’t going to investor dividends–which it appears it isn’t–then where the hell is it going? Let’s see if I can guess.

# NPR’s Marketplace reports that executive salaries have increased 22% just this year.

# The German newspaper Deutsche-Welle reported last week that the Daimler-Chrysler Board have raised their own salaries more than 30% a year for each of the past four years at the same time they were announcing pay cuts and lay-offs of workers due to “the slow economy”.

# Two years ago, in the depths of the recession, Doug Conway & Kylie Walker noted in a book called Corporate Paradise on executive compensation that:

IN corporate paradise, company credit cards come without spending controls. Bosses can have one for themselves, one for the wife and another for the kids. They enjoy interest-free home loans of up to $400,000 that may or may not be repaid.

They are given $10,000 watches and a $1.1 million Christmas party, limos all round, to lighten a year when they lose $2.1 million.

An executive living in his own apartment collects rent from the company. The top dog enjoys a marble and gold bathroom, including spa, in his office.

He spends $9000 on restaurant meals in one month, $2000 of that in tips.

His wife racks up $50,000 worth of first-class air travel a year.

In this business paradise, the head honcho’s personal assistant lives on the Gold Coast but he flies her to Sydney for the working week and puts her up a the Intercontinental hotel.

The annual cost: $63,000, but who’s counting?

He gives an old mate $486,000 of company money as an interest-free, unsecured loan. After seven years without a single repayment, the friend also receives a $1600 box of cigars.

At HIH, none of this was a dream. It was all reality.

The book is Australian but everything it says about Australian corporate greed goes double for here, sometimes more: In the last two years, corporate executive salaries in Oz have averaged 75X the salaries of workers–a divide that was considered scandalous Down Under. But in America, exec salaries in the same period are 300-400X workers’ salaries.

I think I’m getting a pretty good idea where the profits are going.