The surprise spring visit of Change to Win leaders Andy Stern, James Hoffa and Anna Burger sparked headlines across the globe as it was the most important high level visit of American union leaders to China in modern history. The visit was a shocking reversal of American labor’s steadfast opposition to regimes like China’s that crush genuine labor unions and ignore basic human rights.

This post is an attempt to assess the meaning of this event.

1. CHINA

China right now is a powder keg – on two fronts – one is financial and the other is social. Change to Win (“CtW”) ignores this reality and could easily look foolish for having allied itself with the regime if there is a major upheaval and the ACFTU collapses. In the meantime they are doing damage to the reputation of the global trade union movement.

A gauntlet of a sort has been thrown down by Andy Stern. Imagine what would have happened had a delegation of American unionists gone to Poland in 1980, just a few months before the emergence of Polish Solidarity? The idea is truly unimaginable. Yet at some level that has now happened.

A. There has been a wave of labor and rural worker unrest there for the last several years. That reality, of course, is ignored by CtW in an act of what can only be called cognitive dissonance. The social reality does not fit their agenda because they actually respect – more than any Maoist could – the apparent “success” of the ACFTU. Hoffa told the press during the trip that the sole criterion to judge a labor movement is whether or not workers lives have improved. Of course, by that criteria one could have said kind words about some of the worst authoritarian regimes in history.

Now, one can squint and perhaps conclude that the coastal sweatshops in China represent some kind of improvement relative to rural life. But I met not long ago with a visiting Chinese workers compensation lawyer who represents hundreds of injured young workers (missing limbs or eyes, crippled arms and legs, burned skin, poisoned lungs and blood) who straggle back home after months or years in these plants and I think they would have a different story to tell. And, of course, this does not take into account the overall decline in living standards when one adds in the devastation across the aging state owned industrial sector.

I imagine the young women workers stuffed into dormitories after 12 hour days on the assembly lines producing iPods would have a story to tell as well if truly given the chance. An ACFTU branch was recently organized at Foxconn, the company that makes iPods – it immediately elected the company’s public relations manager as its head! He, in turn, dutifully promised to run the new union in accordance with the dictates of the Communist Party, of which he is a loyal and longstanding member, of course. ACFTU at Foxconn

But it is not as if the workers have been quiescent. Isabel Hilton wrote a brilliant and moving profile of worker unrest for Granta not long ago. And U. Michigan sociologist Ching Kwan Lee says there has been a “veritable labor insurgency” underway there for the last few years. She has a new book out based on her four years of fieldwork. Against the Law: Labor Protests in China’s Rustbelt and Sunbelt She dismisses the ACFTU and points to the fact that it is completely a party instrument and also helps gain much needed cash for the ACFTU due to the 2% tithe employers must pay whenever a “branch” is organized. And she notes the crossover of their local leadership with management representatives.

As the ACFTU lost a significant chunk of its membership due to industrial job loss over the last decade, the more Maoist types within the party who view the ACFTU as a counter-weight against the neo-liberals in the party, pushed the ACFTU to move into the foreign sector. I do not know the details but my guess is that there was a bitter fight within the regime about this. I think the idea that the regime needed some leverage over that growing sector won out. The ACFTU did not make the move into companies like Wal Mart and Foxconn, which have been the savior of the regime in the post-1989 period, without party clearance and support.

So the scissors that the regime is caught in is whether it can suck in enough foreign investment to replace the aging state owned sector at a sufficient pace to make a full-scale rebellion less likely. The ACFTU’s role is to help create a balance between these two forces – help attract foreign investment yet legitimate the brutal industrial revolution now underway in China in order to prevent a genuine social revolution. Only time will tell if they are successful, but when one considers the other possibility – financial implosion – it seems quite likely that they will fail.

B. The financial risks stem from the attempt to force workers’ savings into the corrupt banking system where party officials siphon off funds into pet projects or into the aging state owned sector to prevent it from total collapse (recall how the East German economy collapsed when the Berlin wall fell – who wanted a Trabant when real Fiats became available?). That is why I think the behavior of US Treasury Secretary Hank Paulson is so dangerous. He really does not understand what he may be unleashing when he pushes China for full liberalization of its financial system. Frankly, if the PRC liberalized capital fully it could lead to capital flight on a massive scale as rational Chinese savers diversified – the regime certainly seems to think this makes sense as their investment in private equity giant Blackstone suggests. In other words liberalization could lead to a collapse in the value of the yuan and a flood of even cheaper sweatshop products to the US.

But with constraints still in place, the money flows into flimsy investment projects or the domestic stock market. A bubble certainly seems in place and it will burst. So it is only a question of which force will break first and when. My assumption has been that the regime would keep a lid on these forces until after the Olympics in ‘08. But markets are tough forces to control, as are restive populations!

II. CHANGE TO WIN

Meanwhile, CtW is living in some kind of fantasy world if it thinks the ACFTU is a real partner for American workers. It is hard to conceive of what CtW is thinking they gain out of the trips to China in ordinary collective bargaining or organizing terms. Most likely they really don’t expect to gain anything on the ground in China (the ACFTU at Wal Mart as an aid to organizing WMT here?? Who could take that seriously?) but rather they feel they need the association with the regime or the ACFTU for some reason, whether they have really thought it through consciously or not.

There may be an ideological connection here to Andy Stern’s view that labor needs to accommodate itself to new forces in capitalism such as globalization or private equity. In the eyes of Stern, the ACFTU is very likely a model for how a labor movement, of sorts, can offer itself up as playing a useful role to employers and the state. The Chinese body may be a disciplinarian, watchdog, and strikebreaker, but hey at least the party and state needs them and they secure that 2% dues cash flow! (The top down approach of the Chinese regime is echoed in the top down politics that dominate the national SEIU – see, for example, the recent controversy within the California nursing home sector: SEIU ends deal with nursing homes)

I have heard some CtW supporters compare the CtW to the original CIO – that may indeed be more apt than they think as it was the CIO that supported the no strike pledge during World War II while AFL affiliates retained an independent view (see Nelson Lichtenstein’s book Labor’s War At Home). They seem to have forgotten that it was widespread militancy and an emerging alternative social and economic perspective among workers was responsible for forcing the employers and the Roosevelt administration to begin cutting deals and resulted in laws like Glass-Steagall, the Public Utility Holding Company Act and the Investment Company Act that reorganized entire industries and protected workers from the dangerous speculative activity emanating from Wall Street.

III. RESPONSE

Today, rapid structural changes underway in finance, corporate structure, and international trade mean that the labor movement must articulate an alternative social and economic perspective. It may not be possible to do this through the trade union structure alone given all of the cross currents among affiliates and the natural defensive role that trade unions play. And it certainly cannot happen within the framework of the two major political parties. But progressive segments of the labor movement could start thinking independently about how to articulate such views about alternatives.

Chinese events are not going to unfold in quite the same way as in Poland or the former USSR, but unfold they will and American labor will be called upon for help. That help will not be necessarily material but political and that requires an independent perspective. If I have a quarrel with China Labor Bulletin and its director, Han Dong Fang, the leader of the movement for a real labor union movement in China, it is that they are sticking to such narrow issues – the lesson of Poland is that the movement did not reckon with what was really going to happen to the economy once the regime capitulated.

Of course, shock therapy shocked everyone. But the praise I heard in Poland in the late 1980s from underground activists for Milton Friedman and Thatcher was truly unsettling. While I cannot imagine such nonsense ideas taking hold among Chinese workers, I also fear that a kind of strategic vacuum could emerge that would then be filled with nationalism or fundamentalism of some sort.

So in my view the best kind of response to the Stern gang is to understand their move as part of a larger strategic vision of labor in the new post cold war globalized capitalist economy. It is a view that says, hey, labor organizations – of whatever sort (Stern is friendly with all sorts of authoritarian labor groups including some close to the proto-fascist Indian BJP) – can be relevant – perhaps as labor brokers (can you say “Bracero”) or as deal makers (reflected in their love/hate relationship with private equity).

So, then, the question is what is an alternative strategic vision for labor in this newly emerging world? From the answer to that question follow myriad tactical moves that the labor movement could make. From that answer can follow the rational proposals for economic and political change that must emerge if the inequity and instability of the new global capitalism is to be addressed.

A global campaign to free jailed trade union activists in China is underway here: China: keep your Olympic promise!

Help out by signing the letter of protest. And if you have a means to invite the leaders of Change to Win join the campaign, please do so – during their frequent junkets to China they close their eyes to the reality in China.

In the 1930s Mineworkers leader John L. Lewis was chided for his reliance on organizers with ties to the Communist Party. He famously replied: “Who gets the bird, the hunter or the dog?” One might well ask the same question – but in reverse – in reaction to this absurd story in Friday’s Wall Street Journal which suggests that Andy Stern of SEIU thinks he can help American workers by cozying up to the labor arm of the stalinist regime in Beijing. The Chinese regime has been trying for years to legitimize its so-called labor union, the All China Federation of Trade Unions, by sending its representatives to international meetings and by wining and dining naive (is that the right word?) western union leaders in junkets to China. How quickly these western labor leaders forget the murder of real trade unionists during the crackdown on the 1989 democracy movement and the jailing of thousands since then.

U.S. Labor Leader Aided China’s Wal-Mart Coup – WSJ.com

As this late breaking story in today’s WS Journal suggests, the PE world may have less to celebrate than they think with the successful completion of the Blackstone IPO. The timing could not have been worse as the offering helped coalesce disparate forces in labor and Congress around new tax legislation that could hit investment managers hard. Global financial markets from Shanghai to Wall Street are now increasingly contested political terrain rather than the hands-off “neutral” environment they used to be.

Key House Democrats Add To Private-Equity Tax Push – WSJ.com

As this late breaking story in today’s WS Journal suggests, the PE world may have less to celebrate than they think with the successful completion of the Blackstone IPO. The timing could not have been worse as the offering helped coalesce disparate forces in labor and Congress around new tax legislation that could hit investment managers hard. Global financial markets from Shanghai to Wall Street are now increasingly contested political terrain rather than the hands-off “neutral” environment they used to be.

Key House Democrats Add To Private-Equity Tax Push – WSJ.com

I thought I would reproduce here my reply to a post on a actors’ union bulletin board regarding the role of private equity funds in the EMI world:

Private equity funds, of course, argue that they are “efficient” because they funnel investors’ money into areas where they have special expertise. And when they do so they often take control of a particular company or even an entire industry and thus close the gap between public shareholders and inside managers. So, for example, at one point KKR, a leading buyout fund, owned approximately 40% of the US grocery industry. They certainly had some expertise in that arena and likely increased profitability. But their methods of doing so included laying off workers, closing down many stores, disrupting communities and lives of thousands. The late 1980s buyout of Safeway by KKR was a particularly harsh example. The southern California grocery strike of a few years ago was, in part, a symptom of that buyout as KKR was still on the board of Safeway at the time.

In general the concern that labor unions and their representatives on pension funds are raising about PE is that this strategy relies heavily on the use of borrowed money to take over companies. When you finance a company with debt rather than equity it decreases the flexibility available to management and puts pressure on the company to make regular interest payments on the debt. And there is always the lurking risk of forcing the company into bankruptcy where a federal judge can break union contracts and reduce pension and health care benefits. That is the concern many have about the Chrysler buyout by Cerberus.

The role of PE in film and entertainment is slightly different. For the time being PE is being used as a means of shifting slightly away from traditional bank lending. As readers here know better than me, films are increasingly capital intensive operations – they require a heavy up front commitment to produce and to distribute with lots of risk and uncertainty about eventual box office success. Only a few films become reliable franchises (like the Bond films or Pirates) that can be counted upon to generate predictable revenues for investors. So the studios and producers have often relied on specialized lenders at particular investment banks and commercial banks for funding.

But in the past few years that structure is shifting. My view is that globalization is hitting the entertainment and media sectors in a major way now. The opportunities that new distribution technologies could generate are enormous. I met recently with a company here in Silicon Valley called Vudu Labs. They have a proprietary system that relies on peer-to-peer technology to distribute films in real time directly to the TV without going through the cable pay per view system or the internet. They have a distribution deal in place now with seven studios and a film library of more than 5000 films – far more than Apple (something I discovered when I bought a video iPod recently, much to my dismay!)

As these new digital distribution systems get put in place the potential for new global revenues skyrockets. The global audience could grow by billions according to Michael Eisner. When those kinds of numbers get thrown around Wall Street listens. So bankers and the studios, as well as agencies like Endeavor among others, are forming new investment funds to funnel money into the industry. These are already large – in the hundreds of millions – but could easily grow larger. I think the emergence of these types of funds changes the politics of the industry and shifts power to those who control distribution and finance rather than production. (A similar shift is underway in other industries.) Since much of the effort of the guilds in collective bargaining has been focused on production (divvying up the 20% of revenues left after the distribution arms have taken their 80% cut) the risk is that the new forces in finance, distribution and the super-agencies leave the guilds out in the cold once again as they did with DVDs.

Finally, a note on regulation: yes, the PUHCA regulated the energy industry until it was gutted by a weak Congress bought out by energy industry Enron era lobbyists. The result is a wave of mergers and acquisitions underway in that sector that could result in layoffs and problems in the power delivery system. It turns out that there is still on the books now a New Deal era law, the Investment Company Act of 1940, that is supposed to regulate PE funds. But Congress created some exemptions in the Clinton era to allow buyout funds to escape control of the Act. The AFL-CIO recently sent the SEC and Congress a letter calling for the use of the Act to regulate PE funds – in particular, to be used to regulate the Blackstone Group which is attempting a public offering. I worked with the AFL on the letter and I think this effort is making some headway now in Congress as a new bill has been introduced to eliminate the tax loopholes that PE funds rely on.