As I found out while participating in a recent panel on labor rights in China, there are many seemingly well-intentioned liberals out there who still think that China will progress smoothly towards a democratic future. Thus, they argue for example, that it is time for American unions to “engage” with what they argue are also unions in China but what are, in fact, arms of the Chinese state.
The proposal agreed to led to a new off balance sheet vehicle controlled by the UAW itself to pay future retiree benefits. GM agreed to transfer billions in assets to the new Voluntary Employee Beneficiary Association, or VEBA, and the UAW would appoint a board of trustees to manage the entity.
At the time I flagged two related concerns:
1) the UAW’s contract ratification process failed to inform union members of the risks associated with the new entity, thus potentially violating both federal labor law and securities law; and
2) the shaky financial structure that GM put in place to fund the VEBA was, I argued, a house of cards.
This week those cards began to tumble.
The UAW leadership sold the new collective bargaining agreement with GM, over fierce rank and file opposition, on the basis of an assertion that the VEBA would secure health care for retirees for 80 years.
And now, only a few months later, it appears GM is not even good for its promised initial cash transfers to the VEBA!
Yesterday, GM announced a massive multi-billion dollar cost cutting restructuring effort that includes a commitment by the UAW to allow GM to delay a $1.7 billion cash payment GM now owes the VEBA. That is a loan to GM and, assuming GM has the money, it carries a 9% interest rate.
In essence, that means the UAW is now helping to finance deeply troubled GM. There has been no explanation how the decision was made since it is not even clear that an independent board of trustees to run the VEBA has yet been appointed.
Legally the VEBA owes its beneficiaries a fiduciary duty to defend their long term interests. That means that any decision about how to invest fund assets should be made at arms length.
Hence, the operative question is: if the VEBA wants to invest in the debt of another entity to the tune of $1.7 billion they must consider all the possible alternatives.
It is not clear to me that it makes sense at all for the VEBA to be lending anyone $1.7 billion, much less General Motors.
Most such liberals are not Chinese.
This new book by former Washington Post China correspondent Philip Pan argues, as I have, that a new form of “authoritarian capitalism” is taking hold there and that absent tremendous pressure from the general population it will not change.
Today’s review in the New York Times noted:
By embracing market economics while preserving the party’s monopoly on power and restricting political freedom, Mr. Pan writes, China’s Communist leaders have concocted an “authoritarian capitalism” that “could be as exploitative as anything Marx — or Mao — ever envisioned.” Free markets and private enterprise, he says, “generated wealth and prosperity, but unrestrained by democratic institutions, they also produced grim work conditions”: without trade unions, a free press, independent courts or elections, workers have little leverage with their employers and no way to remove corrupt officials, who often collude with business interests.