Socialism for the Rich!
Free Market Apostates
By BINOY KAMPMARK
We have heard it for some time now: the market is divine, lending its magical corrective qualities to sort out the good from the bad. A character portrait of George Bush by a former teacher of his, Professor Yoshi Tsurumi (1 March 2004), recalled a pupil's suspicion of such monitoring bodies as the Federal Trade Commission and Securities Exchange Commission. These bodies were 'unnecessary hindrances to "free market competition".' The New Deal received characteristic opprobrium it was 'socialism'. As for poverty: it was the simple result of a poor work ethic.
Someone supposedly more qualified to assess the levers of the market, Alan Greenspan, added a few pointers to this bald-faced view of market forces. In the late 1990s, when the hedge fund Long-Term Capital Management was registering losses in the billions, Greenspan, as Federal Reserve chairman, attempted to initiate a rescue package that would still keep the free marketeers happy. After all, the economy would, in time, re-order itself.
But not even Greenspan was willing to let things float. As he put it in his testimony to the House Committee on Banking and Financial Services (1 October, 1998), the Federal Reserve had taken some measures to facilitate 'private-sector refinancing' of LTCM. With characteristic opaqueness, he argued that the Reserve's measures 'were designed solely to enhance the probability of an orderly private-sector readjustment, not to dictate the path that adjustment would take.' Despite some tinkering, free-market orthodoxy would remain.
As Professor of political economy at Harvard, Benjamin M. Friedman notes (New York Review of Books, 20 March) various attempts at regulating heated economic activity in this decade were rebuffed. The US Treasury suggestion in 2001 that subprime lenders subject themselves to monitoring, with a 'best practices' code, and the Department of Housing and Urban Developments attempt to control real estate transactions, all came to nought.
A suspicion of regulating agencies on the part of the Bush administration (by no means the only one) and a system of buccaneering capitalism has led to one sad truth: the private sector is inviolable when it produces; and a needy cripple when it doesn't. When it performs, there is a rush to praise executives and line their wallets they made the right decisions, and did the company good. Company profits are a result of business acumen, the genius of market capitalism.
When the company fails, we must all fail with it. Corporate success is the success of the few; corporate failure, a collective one. This is the underlying message of salvaging measures by governments and their regulatory bodies. The global subprime crisis has triggered bailout strategies across several countries. This suggests a grand admission: the market is not magical in its self-corrective wisdom, and its harmful effects must be neutralised.
The list of free market apostates is growing. Governments, after peddling the wonders of robust competition, are now viewing it with fear, even panic. Previously feted market ideologues are either shedding their skin or going into hiding.
Consider the most recent example of apostasy: the Federal Reserve's actions regarding Bear Stearns. With the demise of the mortgage securities specialist, Ben S. Bernanke and his fellow governors decided to ditch the policy of non-interventionism. Bloomberg correspondent Craig Torres provided a précis of the action: treasury notes would effectively be swapped for 'privately issued mortgage-backed securities held by Wall Street firms' (15 March). Willem Buiter, economics professor at the London School of economics shuddered at the policy shift. This was 'socialism for the rich, which is both inefficient and morally objectionable.'
The Reserve had become creditors of the otherwise doomed enterprise. In the words of Vincent Reinhart, former director of the Division of Monetary Affairs, such actions were 're-drawing the relationship of the Federal reserve with the rest of the financial system' (15 March).
In Britain, Gordon Brown, with Chancellor Alistair Darling at the helm of the Exchequer, took a pseudo-socialist path An ailing Northern Rock, the Newcastle-based lender, has been, for all intents and purposes, nationalised. Offers by such giants as Virgin were dismissed as providing insufficient 'value for money to the taxpayer' (BBC News, 17 February).
Darling attempted to minimise the significance of the move, hoping to hide the British government's new love for market control. 'The bank will be run at arm's length and on a commercial basis.' With inverted logic, the protection of Northern Rock has now become a collective duty tax payers are to foot the bill of failed private speculations because it's in their best interest to do so.
Some banks on the continent have faced similar problems, with now familar government responses. The German banking system suffered the jitters last summer when IKB Deutsche Industriebank fell on the sword of American subprime speculation. A third bailout of the dying beast was assured in February this year by German finance minister, Peer Steinbrück. While private banks were expected to foot some of the bill, the government would provide two-thirds of the $2.2 billion dollars. The list of bank welfare recipients continues to grow.
The consequences of such bailouts are gradually coming to the fore. The Federal Reserve is finding its resources depleted. Numerous governments, despite a previously pathological aversion to regulation, are suddenly nervous by unfettered competition. While the Free Market deity is far from dead, it is expiring.
Greenspan, amidst the economic carnage, is unrepentant. Writing in his memoir The Age of Turbulence, he argues that 'the benefits of broadened home ownership are worth the risk.' Given the current crisis, with a shrinking base of homeowners, Greenspan may have been a little too optimistic. For that, we are left with a socialism tailored for the wealthy.
Binoy Kampmark was a Commonwealth Scholar at Selwyn College, University of Cambridge. He can be reached at: bkampmark@gmail.com
If It's Not Dead on Arrival, Someone Should Shoot It Quick
Paulson's Fixit Plan for Wall Street
By MIKE WHITNEY
It is being billed as a "massive shakeup of US financial market regulation", but don't be deceived. Treasury Secretary Henry Paulson's proposals for broad market reform are neither "timely" nor "thoughtful" (Reuters) In fact, its all just more of the same free market "we can police ourselves" mumbo jumbo that got us into this mess in the first place. The real objective of Paulson's so called reforms is to decapitate the SEC and increase the powers of the Federal Reserve. Same wine, different bottle. Paulson's motive is to preempt any regulatory sledgehammer that might descend on the entire financial industry following the 2008 election. There's growing fear that an incoming Democrat may tote a firehose down to Wall Street.
If Paulson's plan is approved in its present form, Congress will have even less control over the financial system than it does now and the same group of self-serving banking mandarins who created the biggest equity bubble in history will be able to administer the markets however they choose without the inconvenience of government supervision. That's exactly what Wall Street, the Treasury Secretary and the folk at the Fed want; unlimited power with no accountability.
Paulson is expected to lay out guidelines and principles that are intended to help regulators supervise the financial markets. According to AFP:
"The President's Working Group on Financial Markets said the current regulatory structure is working well despite calls by some US lawmakers."
In other words, the failing banking system, the housing meltdown, and the frozen corporate bond market are all signs of a robust financial system? This may be the most ludicrous statement since "Mission accomplished". The system is imploding and people are being hurt by the fallout. Thirty years of industry-led lobbying has dismantled the (admittedly frail ad porous) regulatory regime which made US financial markets the envy of the world. Whatever credibility and transparency once existed were washed out in the Clinton era, as with Glass-Steagall and government oversight of the explosive growth of over-the counter derivatives instruments. Now the system is prey to all types of dodgy debt instruments, suspicious "dark pool" trading and off-balance sheets operations which further reinforce the belief that cautious investment is no better than casino gambling.
"The regulatory line of sight today is by the counterparties," the official said, adding that the guidelines should be "beneficial to industry." (AFP)
How is that different than saying, "Caveat emptor"? That's not a motto that inspires confidence. Many people still naively believe that planning their retirement should not have to be a Darwinian tussle with a crafty junk-bond salesman.
Under Paulson's plan, the Federal Reserve will be granted new regulatory powers, but whatever for? The Fed doesn't use the powers it has now. No one stopped the Fed from intervening in the mortgage lending fiasco, or the ratings agency abuses or the off-balance sheets shenanigans. They had the authority and they should have used it. The folks at the Fed knew everything that was going on---including the mushrooming sales of derivatives contracts which soared from under $1 trillion in 2000 to over $500 trillion in 2006---but they decided to cheerlead from the sidelines rather than do their jobs. The fact is, they were worried that if they got involved they might upset the gravy-train of profits that was enriching their bankster friends.
Former Fed chief Greenspan used to croon like a smitten teenager every time he was asked about subprime loans or adjustable rate mortgages. And, as New York Times columnist Floyd Norris points out, (Greenspan) "praised the growth in the derivatives market as a boon for market stability, and resisted calls to use the Fed's power to increase regulation." Of course, he did. It was all part of Maestro's "New Economy"; trickle-down Elysium, where the endless flow of low interest credit merged with financial innovation to create a Reaganesque El Dorado. There are no regulations in this version of Eden, not even "Don't bite the apple". Anything goes and to heck with the public, they can fend for themselves.
Now its Paulson's job to keep the neoliberal flame lit long enough to make sure that government busybodies and bureaucratic do-goodies don't upset the cart. That means concocting a wacky public relations campaign to convince the public that Wall Street is not just a pirate's cove of land-sharks and bunko artists, but a trusted ally in maintaining a strong economy through vital and efficient markets.
The Times' Norris summed up Paulson's sham reforms like this:
"The plan has its genesis in a yearlong effort to limiting Washington's role in the market. And that DNA is unmistakably evident in the fine print. Although the proposal would impose the first regulation of hedge funds and private equity funds, that oversight would have a light touch, enabling the government to do little beyond collecting information - except in times of crisis. The regulatory umbrella created in the 1930s would grow wider, with power concentrated in fewer agencies. But that authority would be limited, doing virtually nothing to regulate the many new financial products whose unwise use has been a culprit in the current financial crisis. ("In Treasury Plan, a Reluctant Eye over Wall Street", Floyd Norris, New York Times)
What nonsense. The house is on fire and hyperventilating Hank is still wasting our time with this rubbish. The real problem is that Paulson and his buddies at the Federal Reserve think of the financial system as their personal fiefdom so they refuse to loosen their \ grip even though the economy is listing starboard and the water is flooding into the lower decks.
Once again, the New York Times:
"All the checks and balances in the plan reflect the mindset of its architect, Treasury Secretary Henry Paulson, who came to Washington after a long career on Wall Street. He has worried that any effort to substantially tighten regulation could hamper the ability of American markets to compete with foreign rivals."
No one elected Paulson to do anything. He has no mandate. He is an industry rep. who has worked exclusively for a small group of wealthy investors who have put the entire country at risk with their toxic mortgage-backed bonds, their reckless Ponzi-type speculation, and their off-book chicanery. Paulson should be removed immediately and returned to his wolf's lair at G-Sax. If Bush is serious about straightening out Wall Street, then bring in Eliot Spitzer. He's probably available, at least in daytime hours. And he'll do what it takes to clean house, that is, put a truncheon-wielding robo-cop in every trading-pit at the NYSE, and dispatch government accountants to every office of every CFO making sure they have a Big Red Pen in one hand and a taser in the other. That's the only way to get the attention of the bandit-class.
"I do not believe it is fair or accurate to blame our regulatory structure for the current turmoil," says Paulson.
Paulson is wrong. The current turmoil is all about the lack of regulation and he'd better prepare himself for some big changes. The pendulum is already in motion and tighter regulations will soon follow. There needs to be an accounting process for all transactions and capital requirements for every financial institution that creates credit. No exceptions. All of these businesses pose a real danger to the overall system and, therefore, must conform to clearly articulated and strictly enforced rules; no off-balance sheets operations, no dark pool trading, no unregulated derivatives contracts, no level 3 assets, no "mark to model" garbage bonds where CFOs unilaterally decide what they are worth by picking a number out of a hat. Its time to restore order to the markets so retirees and working class families can feel safe investing in their futures. They are the ones who are most hurt by Wall Street's endless trickery.
Paulson's plan is a non starter. The era of sandbagging, supply-side banditry is over. Good riddance.
RESEARCH IN MOTION (RIMM)
Beloved product + Lack of competition + Heady subscription fees = $66 BILLION market cap.
Reports Q4 earnings Wednesday 4/2 at about 405p ET - 415p ET. Conference call at 5p ET.
WHAT WILL MOVE THE STOCK: 
SUBSCRIPTION, DEVICE GROWTH - Two key figures for Research in Motion [RIMM 115.79 
-1.6901 (-1.44%) 
] are the number new subscribers added and the number of devices sold. Last quarter, RIMM gained 1.65 million net new subscribers for a total of "approximately" 12 million subscriptions. CNBC's Silicon Valley Bureau Chief Jim Goldman says most analysts have posted estimates of around 2 million net new subscribers added and about 5 million devices sold. However, he's also hearing "whisper" estimates north of 2.1 million new subs.
NOW THIS IS A GROWTH STOCK - You don't often see numbers like these from a company as big RIMM: Q4 earnings are expected to shoot up 113% and revenues are forecast to double. Over the next year, analysts expect profits and revenues to jump "only" 55%. Do RIM's subscription figures and revenue opportunities support these fantastic growth expectations?
GUIDANCE - Analysts think RIM's guidance for Q4 is a touch conservative. On February 21st, RIM said EPS would be in the $0.66 to $0.70 range. Current consensus is $0.70. Recently, analysts at several firms raised estimates based on their bullish read of March sales and inventory levels. The company also said quarterly revenues would be between $1.8 billion and $1.87 billion. The consensus estimate is near the top of that range at $1.858 billion. Are investors pricing in good numbers? Probably. Perhaps more important: What will RIM say about next quarter?
NEW STUFF - On Tuesday, RIM showed off a new Blackberry at the CTIA Wireless show in Las Vegas that adds Wi-Fi support. Check out Jim Goldman's blog (below) for more on CTIA and his take on RIM. The company is also rolling out the Blackberry EV DO Curve this month. The analyst at RBC thinks it will sell well. However, is it enough to deal with...
Tech Check with Jim Goldman: |
COMPETITION AND THAT IPHONE THING - Apple's iPhone isn't serious competition... yet. A lack of security features kept corporate IT departments from endorsing the original iPhone, but Apple and others are working on fixing that. Is RIM doing enough to keep its business customers from lusting for (and buying) iPhones or other smart phones?
ESTIMATES:
Q4 Estimates: EPS up 113% to $0.70, revenues up 100% to $1.858 billion
Q1 Estimates: EPS up 94% to $0.76, revenues up 86% to $2.017 billion
FY 09 Estimates: EPS up 55% to $3.49, revenues up 55% to $9.256 billion
Source: Thomson Financial
Year-ago actuals: Q4 EPS $0.33, Rev. $930 million
FACTOIDS:
CRAMER LIKES IT - On March 24th, Mad Money host Jim Cramer said he expects RIM will report good Q4 earnings numbers. Since then, RIM shares are up about 5%.
UNCHANGED IN A WILD MARKET - While the overall stock market has fallen in recent months, Research in Motion shares have held their ground. The stock is virtually unchanged since the company last reported earnings. The day after its last earnings release (December 21st), RIM closed at $118.63. Over the same period, the Dow Industrials have fallen 6%, the Nasdaq Composite dropped 12% and the S&P 500 lost 8%.
NO REALLY, UNCHANGED IS GOOD - If unchanged still doesn't sound impressive, look at what's happened to other tech giants since December 21st: Apple is down 23%[AAPL 147.49 -2.0401 (-1.36%) ], Microsoft has fallen 18% [MSFT 29.16 -0.3399 (-1.15%) ] and oh yeah, Google is down 33% [GOOG 465.7 -0.01 (0%) ]. Still, RIM's revenues and earnings are expected to double year-ago results, but the stock hasn't gone anywhere since December. What's wrong with this picture?
Industry Summits
Mexico's Walmex sees rough ride in 2008
MEXICO CITY (Reuters) - Mexico's Wal-Mart arm sees a tough 2008 due to an economic slowdown but the company, Mexico's leading retailer, expects good first-quarter results. Full Article | Video
Brazil growth to slow after strong 2007: investor
NEW YORK (Reuters) - Brazil's economy is unlikely to expand as rapidly as last year when the stars lined up to offer the country a dreamlike growth scenario, the investor and former World Bank economist who coined the phrase "emerging markets" said on Wednesday. Full Article
Colombiana de Inversiones eyes energy
MEDELLIN (Reuters) - Diverse Colombian investment fund Colombiana de Inversiones said on Wednesday it will focus its portfolio on energy generation with a future eye on holding 20 percent of the local electricity generation market. Full Article
Mexico sees Telmex in TV market in 2008
MEXICO CITY (Reuters) - Mexican fixed-line phone giant Telmex will be allowed to offer television services later this year, once it has complied with some competition conditions, Communications and Transport Minister Luis Tellez said on Wednesday. Full Article
Colombia's Chocolates to restart buying
MEDELLIN (Reuters) - Colombia's Nacional De Chocolates will restart its Latin American acquisitions program this year, the company told the Reuters Latin America Investment Summit on Wednesday. Full Article
BRASILIA (Reuters) - Brazil's government will announce a spending freeze of 14 billion reais to 20 billion reais ($8.1 billion to $11.6 billion) focused on congressional amendments, Planning Minister Paulo Bernardo said on Wednesday. Full Article
Chile eyes $700 mln '08 telco investment
SANTIAGO (Reuters) - Chile will likely see investment of between $600 million and $700 million in its telecommunications sector in 2008, mostly in wireless Internet and mobile phone networks, the government said on Wednesday. Full Article
Aurelian confident as Ecuador plans mining reform
QUITO (Reuters) - Aurelian Resources Inc is confident it can develop alone its Fruta del Norte gold deposit, considered one of the world's largest, but that will depend on Ecuador's overhaul of its nascent industry, Chief Operating Officer George Bee said on Wednesday. Full Article
New Mexico port could open in 4 years
MEXICO CITY (Reuters) - Mexico will open a tender by mid-year for a huge new Pacific coast container port that would be connected by rail to the United States, Communications and Transport Minister Luis Tellez said on Wednesday. Full Article
Colombiana de Inversiones eyes energy sector
MEDELLIN (Reuters) - Diverse Colombian investment fund Colombiana de Inversiones said on Wednesday it will focus its portfolio on energy generation with an eye on holding 20 percent of the local electricity generation market. Full Article
What You Need To Know
Before Filing Your Taxes
The taxman giveth, and the taxman taketh away.
As millions of taxpayers scramble to meet the April 15 filing deadline, they need to pay attention to several new tax-law twists -- and watch out for a few classic blunders.
![[Vote]](http://s.wsj.net/public/resources/images/it_taxes-104006292005183453.gif){kind=small}
Among the new provisions: a deduction for mortgage-insurance premiums and special relief when a lender forgives a debt on your home. There's even a new break for people who work for the Central Intelligence Agency, the National Security Agency and other similar organizations -- and it's not top secret.
But there are also new restrictions, such as a new record-keeping rule for cash donations. Separately, the Internal Revenue Service issued a long-awaited ruling last year shooting down an investment idea that some accountants had recommended to their clients.
Even if you've mastered all the new rules, it's easy to trip over a few old ones. For example, most married couples probably realize they're better off filing jointly, rather than separately. But for some people, filing jointly can be a major error. Separately, many upper-income taxpayers who worked for two or more employers last year may have paid too much in Social Security taxes.
If you can't finish your return by April 15, you can file for an automatic six-month extension. But filing on time is especially smart this year because the Treasury Department will be handing out more than 130 million economic-stimulus payments, starting in May. To get a check this year, you have to file a return for 2007.
Here are a few significant changes to look for this year, as well as other last-minute tips and warnings from accountants and enrolled agents:
The good news is that the income limits for tax-deductible contributions to a regular IRA have increased again. That means more people are eligible to get a deduction, says Greg Rosica of Ernst & Young in Tampa, Fla.
![[Tax Facts]](http://s.wsj.net/public/resources/images/PJ-AM106_TAXFAC_20080401200015.gif)
Suppose you're covered by a retirement plan at work and file jointly with your spouse. If so, the income phase-out range for 2007 was $83,000 to $103,000. (That means the deduction begins to phase out if your income exceeds $83,000, and it's gone completely at $103,000.) For 2006, the range was $75,000 to $85,000.
Income limits also rose for contributions to a Roth IRA, in which contributions aren't deductible but withdrawals are typically tax-free.
The maximum contribution to either type of IRA for 2007 is $4,000 if you were under 50 and $5,000 if you were 50 or older, says Ed Slott, a Rockville Centre, N.Y., IRA consultant. For 2008, the limits rise to $5,000 for those under 50 and $6,000 for those 50 or older, Mr. Slott says.
Some homeowners who had debt forgiven by a lender may benefit from another new law. You're allowed to exclude from your income qualified mortgage debt that was forgiven on your principal residence up to $2 million, or $1 million for married people filing separately. To claim this exclusion, use IRS Form 982 (www.irs.gov).
Some employees of the CIA and other intelligence agencies will benefit from a new twist in the home-sale rules. The new law allows special leniency for someone from the "intelligence community." If you sell your main residence for a profit, you may be able to exclude that gain from your income even if you can't pass the usual ownership and use tests required. For more details, see IRS Publication 523.
• It's a wash. IRS officials issued a ruling late last year answering a question raised in this column many years ago. Suppose you sell a stock at a loss in your regular taxable account and then buy the same stock a few minutes later for your IRA. Can you deduct your loss? Or have you violated what's known as the wash-sale rules and are thus unable to deduct the loss? (A "wash sale" typically occurs when you sell or trade securities at a loss and buy the same thing, or something "substantially identical," within 30 days before or after the sale.)
The IRS's decision: If you did that maneuver, you did indeed violate the rules and can't deduct your loss.
Another reason to consider filing separately: When you file a joint return, you're typically each liable for the full tax bill. If you file separately, you're responsible only for your own tax. That can be smart for some people thinking about getting divorced, or who fear the other spouse may be hiding income or overstating deductions, Mr. Scharin says. (In some joint-filing cases, one spouse may be able to avoid joint liability by claiming to be an "innocent spouse" -- but it's typically very difficult to succeed with that argument.)
• Avoiding bloopers. If you worked for two or more employers last year, check to see if you had too much Social Security tax withheld from your wages. The maximum amount of wages subject to the tax for last year was $97,500. The maximum tax that should have been withheld was $6,045. Enter the credit on Form 1040, line 67, or include it in the total for Form 1040A, line 42, the IRS says.• Don't forget to check to see whether it would make sense to deduct your state and local sales taxes, instead of state and local income taxes. This is especially important for people in Florida, Texas and other states with no income tax. But many people in other states also may benefit from it. Just remember: You can't deduct both sales taxes and state and local income taxes. And you can't deduct either unless you itemize.
• If you've been looking for work, certain job-search expenses may be deductible -- even if you haven't yet landed your dream job. But you can't deduct any of these expenses if you're looking for a job in a new occupation, or if you're looking for work for the first time, or if there was a "substantial break" between the end of your last job and your search for a new one, the IRS says. This can get tricky. Consider consulting a tax pro.
• Many people automatically claim the standard deduction even though they would be better off itemizing, government studies have shown. Crunch the numbers both ways to see which is better.
• Finally, don't even think of filing a return arguing that wages aren't taxable, or that filing a tax return somehow is voluntary -- or similar theories that have been routinely rejected by the courts. The Justice Department is expected to announce a major new initiative soon designed to discourage people from making "frivolous" filings. If you're eager for big trouble, try making one of these arguments. Also, there is a $5,000 penalty for filing a frivolous return.
The Strange Case of SEIU
Do unions prefer civil war to immigration reform?
By Carl F. Horowitz
If numbers were all that mattered, Andrew Stern would be America’s most successful labor leader, hands down. For over two decades, he’s led the Service Employees International Union (SEIU) — first as president John Sweeney’s chief strategist, and since 1996 as Sweeney’s successor. Under Stern, SEIU’s membership has nearly doubled to around 1.9 million, a feat all the more remarkable given that most unions during that period shrank or held steady. Union members held nearly a third of all non-farm private-sector jobs between 1950 and 1965; now they hold about 12 percent, and a mere 7.5 percent of private-sector jobs.
SEIU’s dramatic increase has persuaded Stern that he’s found a model for organized labor to regain its clout at the bargaining table and in the corridors of power — what he calls a progressive business model, a rough hybrid of Martin Luther King and Steve Jobs. By working with rather than against employers, Stern believes, unions can regain their long-declining share of the U.S. workforce.
A focus on organizing rather than political activism is the key, Stern argues from his Washington, D.C., headquarters. Lobbying and public advocacy are mostly futile, as long as unions lack the numbers to cause fear at the ballot box. Stern’s strength-through-numbers evangelism led him to break, very publicly, with his former mentor Sweeney, now president of the AFL-CIO. He and a half-dozen other labor leaders, including James P. Hoffa of the Teamsters and Terence O’Sullivan of the Laborers, announced in the summer of 2005 that their unions would split from the AFL-CIO and form their own federation, Change to Win. At the group’s kickoff conference in St. Louis that September, Stern declared: “We pledge to devote the vast majority of our resources to uniting the strength in modern, growing, strong, powerful organizing unions.”
Stern has his critics, some within his own union. The most prominent is Sal Rosselli, leader of a major SEIU affiliate in California representing health-care workers. His battle with Stern and his allies has all the hallmarks of a looming civil war, one that could get ugly at the union’s annual convention in Puerto Rico later this spring. The conflict underscores the weakening of American unionism’s bargaining power created by Third World mass immigration, legal or otherwise.
To understand the Rosselli-Stern split, some context is necessary. The SEIU is not like Carpenters, Plumbers or other craft unions. Aside from a sizable contingent of nurses, the SEIU overwhelmingly represents unskilled workers — hospital attendants, security guards, janitors, hotel chamber maids and home-health-care workers. Squarely in the lower half of the modern service-economy labor force, these jobs offer relatively little in the way of wages, benefits or career advancement.
These are the jobs our current presidential candidates are fond of telling us that “Americans won’t do.” All things being equal, any employer would rather pay someone $10 rather than $15 an hour. And immigrant workers with low educational attainment and limited English ability are happy to take $10 an hour, at least in the short run — it beats what they’d be making back home doing the same thing. When such workers can’t easily be replaced, unions are in a position to negotiate effectively on their behalf. But today’s high levels of immigration, legal and otherwise, make it almost certain that these workers can be easily replaced — which makes Stern’s endorsement of illegal-immigrant amnesty seem, well, oblivious to economic reality.
Service-economy unions think they can turn open borders to their advantage. The SEIU is willing to cut sweetheart deals — lowering the labor costs even of employers whom they regard as exploiters — because doing so allows them to organize more recruits. SEIU owes much of its growth — in numbers more than in power — to Third World immigration, especially from Mexico. The SEIU estimates that one-quarter of its members are Hispanic immigrants, a proportion higher than any other union in this country, save perhaps the now nearly irrelevant United Farm Workers. And the SEIU is willing to do political grunt work for the Mexican government and U.S. ethnic-grievance groups like La Raza and the Mexican American Legal Defense and Educational Fund: it was SEIU Local 1877 that provided security for L.A.’s massive pro-amnesty marches two years ago.
Who are the losers in all this? The American people, at least those paying taxes to support education, health, welfare, housing, and other programs used heavily by first- and second-generation immigrants. According to a report issued by the Federation for American Immigration Reform, called “Breaking the Piggy Bank,” K-12 education for illegal immigrants alone cost the states a combined nearly $12 billion in 2004; including children born here to illegal parents raises the total to $28.6 billion. California accounted for $7.7 billion of the latter figure. Assuming this figure has risen over the ensuing four years— a safe bet — educating the children of illegals accounts for at least half of the state’s latest estimated budget deficit of $16 billion. Governor Schwarzenegger is finding out firsthand that there are fewer things as expensive as “cheap labor.”
The aforementioned Sal Rosselli, president of the Oakland, Calif.-based United Healthcare Workers West (UHW) might well be as clueless as Andrew Stern when it comes to immigration policy. But he has seen the consequences of the employer-union chumminess now driving health-care-worker contracts in his state, and he’s not happy with Stern.
The UHW, formed out of a merger between SEIU Locals 250 (Northern California) and 399 (Southern California), has 140,000 members. But those numbers haven’t translated into bargaining strength. In a secret 2003 agreement with California nursing-home chains — according to Bay Area alternative newspaper SF Weekly — the SEIU committed to: discouraging patients and their families from suing for negligence; and supporting a four-year, $2 billion increase in MediCal subsidies to nursing homes. In return for supporting these industry-backed measures, the union retained the right to organize other nursing homes. Some bargain.
UHW members may have fumed, but they saw a weak deal as better than none at all. Rosselli, less inhibited, saw a gigantic sellout. “California nursing homes are sweatshops, and a terrible place to live,” he told the website of Labor Notes magazine, decrying the agreement as “pre-negotiated contracts that severely limit workers’ bargaining rights and voice.” He resigned from the SEIU executive committee in protest, and wrote Andrew Stern a pungent letter explaining his action. “Over the past two years, a stark difference has evolved between SEIU’s projected image and its real-world practices,” noted Rosselli. “An overly zealous focus on growth — growth at any cost — apparently has eclipsed SEIU’s commitment to its members.” He appeared on the far-left TV program Democracy Now! to denounce SEIU’s “centralizing control and power.”
Stern ally Dave Regan — president of SEIU District 1199, which represents health care workers in Kentucky, Ohio and West Virginia — responded in kind on the same broadcast. “I thought Sal Rosselli was a trade unionist. This is the absolute most despicable kind of behavior. . . . Sal is willing, through his actions, on this program, in California and other places, to weaken the strength of members of my local union.”
It’s ironic that Andrew Stern is now cast as a shill for big business. The SEIU has long stood with the far Left. Some 20 years ago, it was Stern and Sweeney who hatched the SEIU’s ongoing street-agitprop movement, “Justice for Janitors,” to conduct aggressive, ear-splitting organizing demonstrations in cities across the country. And this February, the union formally endorsed the nation’s most liberal senator, Barack Obama, for president.
UHW West may wind up disaffiliating from the SEIU. Whether or not it does, the central dilemma remains: Mass immigration from Mexico and other developing nations undermines union bargaining power. More than ever, America’s immigrant-driven unskilled labor force consists of people with little formal education, poor command of English, and a lack of ability (and often willingness) to assimilate. Union membership will avail these workers little, so long as employers can draw heavily from the next wave of unskilled workers, underpay them, and send the rest of the bill to taxpayers. The consequences of unions obsessing over institutional growth at the expense of the national interest are that, in the end, they won’t be able to defend even their own interests.
— Carl F. Horowitz is director of the Organized Labor Accountability Project at the National Legal and Policy Center in Falls Church, Virginia.
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