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Corporations Killing Off Employees

  I ran across this article and I thought that you may be interested in seeing how corporate America is fucking its workers.

Corporate America’s Counter-Stimulus Strategy

Firms decide to shut profitable plants while spurning buyers.

By Roger Bybee

This article is from the March/April 2009 issue of Dollars & Sense: Real World Economics available at http://www.dollarsandsense.org/archives/2009/0509bybee.html

“Is it too late? I hope not,” said an exasperated Anthony Fortunato, president of the 260-worker United Steelworkers (USW) Local 2604 at an ArcelorMittal steel mill in Lackawanna, New York, as he and his members watched the mill being systematically taken apart.

An eager buyer has been pressing the company for at least two months to sell the mill and thus keep the profitable operation open and the jobs alive. Fortunato is hoping the buyer will remain interested despite ArcelorMittal’s aggressive drive to gut the mill. ArcelorMittal is rushing to dismantle complex, custom-built ovens and other equipment that will take months to replace.

Day by day, the dismantling continues relentlessly, with each step reducing the value of the mill. “Our members are getting sick watching this happen,” said Fortunato.

Arcelor’s plans to close the Lackawanna mill are occurring against a backdrop of a widely supported effort by President Barack Obama to stimulate the nation’s flat-lining economy with the $787 billion “American Recovery and Reinvestment Act.” But even as Obama is moving to counter the nation’s economic free-fall, major corporations are moving in the opposite direction when it comes to maintaining employment and consumer demand. A recent survey showed 71% of CEOs expecting more layoffs in the coming six months.

Not only are they accelerating the pace of outsourcing to low-wage nations like China, but there have been several recent instances of corporations closing profitable plants in the United States and then refusing to sell them to other companies interested in keeping the plants open and retaining the current workforce.

“These jobs aren’t coming back”

The Lackawanna mill isn’t ArcelorMittal’s only closure. ArcelorMittal is also shutting down its Hennepin, Ill. steel mill, even though other firms have expressed strong interest in buying that mill, reports USW Local 7367 president David York.

At a moment when unemployment around Hennepin—about 100 miles west of Chicago—has hit 10%, ArcelorMittal is preparing to discard the 285 USW members who have performed the hard work of steel production.

The plant has been consistently profitable, earning $48.4 million even in a recessionary year like 2008. Yet ArcelorMittal is intent on shipping one product line to low-wage Brazil and another to France. Moreover, ArcelorMittal has rebuffed a proposal by another major steel company to buy the Hennepin mill and keep it running.

The Hennepin workers have little prospect of finding jobs paying anywhere close to the $70,000 their old jobs averaged, including overtime and productivity bonuses, says Local 7367 President David York. Few family-supporting jobs are available nearby.

And ArcelorMittal’s strategy is not unique. Last fall, the Cerberus private equity group, through its NewPage subsidiary, shut down a highly profitable, technologically advanced paper mill in Kimberly, Wis. Cerberus is headed up by John Snow, former Treasury secretary under George W. Bush; Dan Quayle, former vice president under George HW Bush; and Richard Feinberg, who personally raked in $330 million in compensation from Cerberus in 2007. USW Local 2-9 President Andy Nirschl speculates that Cerberus (the name is derived from the mythological dogs who guard the gates of Hades) essentially wanted to raise paper prices by reducing capacity, regardless of the human cost to 600 workers and their families.

“This wasn’t like the usual scenario we’ve seen again and again,” says Nirschl, “where a corporation move jobs to Mexico or China to increase their profits by paying less than a dollar an hour. This was a case of a corporation taking a productive, profitable plant and closing it, refusing to sell it to anyone.” The paper mill turned a profit of $66 million in 2007, says Nirschl. Four firms showed interest in buying the plant, but Cerberus and NewPage remained uninterested, frankly admitting that it had no plan at all to market the plant to another buyer.

From Manufacturing to Finance

While America’s productive base suffers from under-investment or is lost to off-shoring to Mexico, China, and other low-wage countries, U.S. corporations have engaged in speculation, using supposedly more profitable paper assets such as mortgage-backed derivatives. “The only thing that has kept the economy going since Reagan is one sort of artificial bubble or another, because Corporate America has been destroying real production,” declares UE Western Regional President Carl Rosen.

One stunning symptom of America’s declining productive capacity: the contrast between the nature of the imports and exports clogging the mammoth West Coast port of Long Beach. On the import side, warehouses and parking lots around the port are filled with imported cars and electronic products from mainly China and Korea—an enormous backlog due to the current crisis in the world economy. On the export side, the profound shift in the U.S. economy from production to finance is reflected in the leading U.S. export from Long Beach: recycled paper and cardboard.

At the same time that capital has flowed away from U.S. factories to low-wage sites abroad, it has also been increasingly channeled into the financial sector. This has occurred within major manufacturing corporations like General Motors and General Electric, which had been extracting a growing share of profits from their financing arms as investments have increasingly shifted away from production to finance.

Reflecting this shift, the U.S. financial sector produced $313 billion in profits in 2003, compared with just $119 billion for American manufacturing, as economist William K. Tabb has pointed out. Where the financial sector accounted for less than 2% of total domestic corporate profits in the mid-1950’s, in 2007 it provided close to 40% of all domestic corporate profits.

Tabb aptly describes the seemingly “magical” process behind the expansion of the financial sector:

Money could be made solely out of money, without the intervention of actual production. The new secret was presumed to be leverage and risk management, which allowed the purchase of assets that promised higher returns even if they carried a higher risk.

This was both a an economic and political development, as the financial sector gained leverage over the rest of the economy, in effect gaining the power to dictate priorities to debtors, vulnerable corporations, and governments. As its power grew, it could demand greater deregulation, allowing it to grow still further and endangering the stability of the larger financial system.

Meanwhile, many major firms are adopting what can best be described as a “counter-stimulus” economic program, precisely following what Nirschl called “the usual scenario.” The New York Times reported on a massive wave of job offshoring and wholesale divesting of product lines.

“These jobs aren’t coming back,” John E. Silvia, chief economist at Wachovia in Charlotte, N.C. told the Times. “A lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, and fewer financial services operations. Firms are making strategic decisions that they don’t want to be in their businesses.”

“The decimation of employment in legacy American brands such as General Motors is a trend that’s likely to continue,” said Robert E. Hall, an economist at Stanford University’s Hoover Institution.

Productive Base Goes out the Window

Mark Meinster, a representative of the United Electrical Workers (UE) international, said that this latest round of job destruction is simply an intensification of trends visible in recent decades, but made all the more galling because of the wanton closing of profitable plants at a time when good jobs are increasingly scarce. “We see this every day,” said Meinster. For the past 20 years, you have everything from out-and-out trickery to private equity firms transferring debt from a money-losing operation to a profitable plant, and then shutting down the plant and stripping its assets. “Meanwhile, our productive capacity completely goes out the window.”

Meinster helped to coordinate the December sit-down strike at Chicago’s Republic Windows and Doors (see “The Real Audacity of Hope,” Dollars & Sense, Jan/Feb 2009). Workers there faced both an employer secretly moving equipment to a new non-union plant in Iowa and the Bank of America—which received $20 billion in grants and $118 billion in loan guarantees from the bank bailout—cutting off the firm’s line of credit, which, in turn, deprived workers of vacation and severance pay.

With the plant already closed, the workers decided to take over the plant, thereby taking control of Republic’s valuable inventory and holding it hostage. The result: Bank of America re-opened the financial spigot, the workers were paid, an environmentally oriented firm bought the plant and will be rehiring the workers, and the sit-down achieved worldwide fame.

The Republic sit-down also inspired non-union workers, faced with a plant closing at the Colibri Group jewelry factory in East Providence, RI to stage a sit-in. The action resulted in 15 arrests while intensifying pressure on the firm’s owner, the Founders’ Group private-equity firm.

UE Western Regional President Carl Rosen, who played a leading role in backing the sit-down strike, noted that the action—both illegal and highly unusual in the United States—ignited enormous support, including from President Obama. “We made our message everybody’s message,” explained Rosen. “This economy is failing because workers cannot buy back what they are making. Corporations are being bailed out and workers are being sold out.”

Corporations claim “We’re willing to sell”

As a Luxembourg-based firm owned by an Indian-born billionaire living in London, ArcelorMittal is clearly following the “take the money and run” model of Anglo-American capitalism. This system is far harsher than the Western European model in which employers’ incentives have been more influenced by social-democratic traditions and the ongoing strength of the labor movement.

In Lackawanna, ArcelorMittal’s foot-dragging on a potential sale could soon mean the loss of 260 jobs. “Until yesterday [March 26], the company was not admitting that they even had heard of any interested buyers,” said USW Local 2604 president Fortunato. But the forceful intervention of Sen. Chuck Schumer (D-NY) finally produced a meeting between ArcelorMittal’s U.S. CEO James Ripley and one interested buyer.

“At this point, we don’t know the results of the negotiations,” Fortunato told Dollars & Sense, the frustration and anxiety evident in his voice. The outcome of the negotiations may depend on whether ArcelorMittal’s decision to aggressively dismantle the steel operation has made purchasing the existing, hollowed-out plant and re-starting production far more difficult and costly than simply beginning production from scratch.

The involvement of members of the U.S. Congress at Lackawanna—as at Hennepin and Kimberly—has forced the corporations to claim that they were willing to sell the plants and retain jobs. But once the meetings were concluded, corporate interest in selling and saving the jobs of local workers rapidly melted away. For example, a Cerberus/NewPage official was asked recently whether the company had any plans in place to market the Kimberly plant. The response: “No.”

Cooperation: A One-Way Street

Particularly frustrating for Local 2604 is the fact that the union made such extensive efforts to assist the corporation. It lobbied successfully for a two-thirds reduction in their electricity costs, lined up training grants, and supported reductions in sales and property-tax rates for the corporation. “We as a union have done a lot to help the company. They’ve tried to tell us we’re not competitive as a plant. If that’s the case, why not sell us?”

Rather than being grateful for the union’s efforts to lower its costs, ArcelorMittal instead changed its internal accounting procedures so that the Lackawanna plant actually booked a loss, by charging that plant more for shipping and supplies from other ArcelorMittal plants around the United States. In that way, ArcelorMittal aimed to evade New York’s higher corporate taxes, Fortunato suspects. Until ArcelorMittal made that shift in accounting, the plant had been consistently showing a profit of about $6 million a month.

With annual wages typically running in the $40,000-to-$50,000 range, his members will have a hard time finding comparable-paying work. Fortunato believes the real unemployment rate in Lackawanna, near the similarly hard-hit industrial city of Buffalo, is about 25% to 30%. “Our guys will have to work two or three jobs to make what they earn here,” he said.

The process of watching the Lackawanna mill being slowly dismantled, with custom-made parts being wrecked by being disassembled or simply scrapped, is difficult for the workers who invested their lives in the plant, says Fortunato “Our guys are getting sick at what they’re scrapping.”

The steelworkers in Illinois also complain of the corporation’s indifference to commitments by the public to subsidize ArcelorMittal. ArcelorMittal’s decision to locate its U.S. headquarters in Chicago unleashed a flow of incentives, including $2 million in assistance for furnishing corporate offices.

At the Hennepin plant, the union’s current contract commits ArcelorMittal to keeping the plant open through the agreement and maintaining its viability through adequate investment. The union has taken the case to arbitration.

Corporate Royalty Ignores Workers’ Years of Loyalty

Corporations are often accused of having an imperious, Marie Antoinette-style attitude toward their workers, unaware and uncaring about their daily struggles to provide for their families.

Marie Antoinette, wife of Louis XVI, was informed that the poor of Paris were too poor to afford bread. Her supposedly infamous response: “Let them eat cake.” She was later beheaded in 1793 during the French Revolution.

But in the case of ArcelorMittal, the world’s largest steel firm that is preparing to shut down steel mills in Hennepin, Ill. and Lackawanna, N.Y., the comparison to Marie Antoinette may not be much of an exaggeration. The workers and local communities have been bewildered by the corporation’s commitment to closing the profitable mills despite offers from other firms that wanted to keep them open.

Meanwhile, corporate CEO Lakshmi Mittal lives in near-royal grandeur in London in a $125 million home right next to the posh Kensington Palace. Mittal’s home was constructed by combining the former Russian and Egyptian embassies. The swimming pool is inlaid with jewels, and the estate includes a 20-car garage. Lakshmi Mittal has a personal fortune estimated at $25 billion.

For the wedding of his daughter Vanisha, who is also a member of the corporation’s board of directors, Mittal shelled out $55 million. If you’re wondering how even the super-rich could manage to spend such a sum on a wedding, it might help to know that the five-day celebration was capped by a party—at Versailles.

That’s right—Versailles, the magnificent and legendary palace that King Louis XVI gave to his 19-year-old bride, Marie Antoinette, as a wedding present. Plus ça change...

What Compensation? What Retraining?

As major corporations continue to undermine the impact of Obama’s stimulus efforts by slashing jobs, the conventional wisdom among leading economists and elected officials in both parties is that worker retraining is the best public-policy response. As the New York Times put it recently, “For decades, the government has reacted to downturns by handing out temporary unemployment insurance checks, relying upon the resumption of economic growth to restore the jobs lost. This time, the government needs to place a greater emphasis on retraining workers for other careers.”

But this approach, while conveniently allowing elected officials to sidestep an uncomfortable confrontation with corporations’ unilateral control over the fate of workers and communities, has little empirical support as a successful strategy for “adapting” to deindustrialization and the offshoring of jobs. As the supply of family-supporting jobs is reduced, workers are essentially losing at a game of musical chairs in which good jobs are disappearing and not being replaced. When displaced workers successfully complete retraining programs, they are generally unable to find jobs comparable in pay and benefits to the ones they lost.

“Out of a hundred laid-off workers,” says New York Times economics writer Louis Uchitelle in his book The Disposable American: Layoffs and Their Consequences, “27 are making their old salary again, or more, and 73 are making less, or not working at all.” But even if retraining were an effective strategy, the very politicians who tout it as a solution have been unwilling to fund training in a serious way. Funding for training has plummeted from $20 billion in 1979 to just $6 billion last year (in constant dollars), according to one expert cited by the Times. These cutbacks in funding would seem to indicate that leading politicians, especially in the Bush era, were never quite sincere in their willingness to match their proclaimed faith in the power of retraining with an equivalent level of funding.

Further, the traditional unemployment-compensation safety net has been shredded over the past four decades, reaching a much smaller percentage of workers than in past, less severe recessions. During the 1975 recession, unemployment compensation reached 75% of the jobless and thus was a significant factor in restoring consumer demand. But thanks to radical cuts in unemployment compensation eligibility rammed through by the Reagan administration, only 45% of the unemployed received any benefits during the much more severe recession of 1982-83. The National Association of Manufacturers was delighted with the cutbacks in eligibility, crowing that under the old rules, “there was no incentive to go back to work under that program.”

By 2003, the number of unemployed workers eligible for benefits had fallen further from the 1982 level of 45% down to just 41%, according to the Ohio-based group Public Policy Matters. While Obama’s American Recovery and Reinvestment Act may begin to reverse some of cutbacks in eligibility, it remains to be seen how widely these changes will positively affect the fates of the jobless.

Needless Job Losses

The toll of unemployment extends far beyond a drop in family income, access to health care, and a loss of self-esteem for the displaced work. Peter Dreier, a political scientist at Occidental College, recently released a study showing that each 1% increase in the national U.S. unemployment rate produces an additional 47,000 deaths, with 26,000 of the fatalities cardiac-related, 1,200 due to suicides, and 831 due to homicides.

Given these grim realities about passively accepting the consequences of deindustrialization, coupled with growing resentment about the greed and malfeasance of Wall Street, the egregious damage to workers and communities imposed by firms like Cerberus and ArcelorMittal may raise corporate investment decisions to a high-profile political issue. Corporations are closing profitable, productive plants in the midst of a severe economic crisis, and then capriciously refusing to seriously consider selling the plants to keep them open.

This would be unthinkable in a number of Western European democracies like Germany and Sweden that have long required that corporations provide a compelling rationale for shutdowns to regional government labor-market bodies. Most other Western European nations offer workers and communities some degree of protection from the effects of shutdowns, although not as extensively as in Germany or Sweden, nor with the same degree of worker and community participation in decisions about the company’s plans.

In the United States, the increasingly destructive impact of arbitrary corporate decisions to close plants amidst a severe economic crisis of unknown depth may finally unleash public demands to place corporations’ conduct under democratic constraints previously unimaginable for America’s private economy.

Roger Bybee is the former editor of the union weekly Racine Labor and is now a consultant and freelance writer whose work has appeared in Z Magazine, The Progressive, Extra!, The Progressive Populist, In These Times, commondreams.org, and other national publications and websites. Visit his webpage at www.zmag.org/zspace/rogerdbybee.

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