Restructuring artist and Delphi CEO Steve Miller says Delphi is broke and is demanding unprecedented wage cuts from its union workforce. To get his way, Miller is attempting to use the bankruptcy laws as a sword to attack his workforce. As John Gapper of the Financial Times wrote yesterday, “organized labour meet organized capital.”

But there is a deeper story here. Delphi was created as a spinoff of the disparate parts (so to speak) of GM’s internal parts supply divisions. A central purpose of the spinoff by GM of its ownership of the entity was to enable the new company to put greater pressure on its unions to cut wages and benefits. The transaction is actually quite similar to the privatizations of state owned companies as a result of various forms of “shock therapy” in countries like Russia, Poland, and China. Privatization allows the capital markets to carry out the attacks on labor that politically sensitive governments are unwilling to do. Delphi made this clear to anyone willing to listen and said it explicitly in the prospectus it prepared for investors in its 1999 IPO. But it also noted that it was losing money at its birth and that it faced liabilities associated with an underfunded pension plan. And it remained overwhelmingly dependent on its biological parent, GM.

In a sense, then, Delphi was never really an independent company. It was, from the beginning, a political ploy to divide and conquer the GM workforce – a scheme hatched by GM officers and directors and carried out by GM representatives who controlled the Delphi subsidiary. The key was sending Delphi off on its own but on a very tight string – those losses and pension obligations hung over the newly born company like a dark cloud on warm humid Detroit afternoon. Everyone knew, as Bob Dylan might have put it, that a “hard rain was gonna fall.”

And now it has.

But there is a way out. GM remains not just solvent but positively flush with cash – more than 50 billion dollars at last count, and, as Mr. Gapper notes, Delphi has a two year supply of cash as well. Delphi belongs back inside GM not in bankruptcy court. Instead of rewarding its executives, the court should toss the case out and together GM and Delphi should find another way to solve their problems than taking them out on the backs of American workers.

While the Bush regime pushes forward its policy of imposing “freedom and liberty” in the middle east at the point of a gun, it bears recalling what regimes long supported by the United States actually look like from the perspective of its working people. This article makes clear how hard it is to gain respect for basic labor rights in Egypt.

Middle East Times

What a difference a decade makes. In the early 1990s opposition to NAFTA was found largely in the United States and Canada. In Mexico the labor movement was largely silent thinking that the pact would result in job creation for Mexican workers. Only the left wing PRD was critical. Now, after a decade of experience with the Washington Consensus workers in the south realize that these trade pacts are a dead end. There have been large demonstrations in countries like Nicaragua against the proposed CAFTA. This is part of a general shift to the left in Latin America, even if some of that shift has been towards populist authoritarians like Chavez in Venezuela.

Trade Pacts to the South Losing Appeal – New York Times

I recall the comment of a partner I once worked for who suggested that law school meant that I would always know how to read a Supreme Court opinion but now it was time to make some money. Well, I am glad that I actually do know how to read Supreme Court opinions, especially when they are about how we make money in this country. And yesterday’s decision in Kelo v. City of New London is well worth reading in this regard.

I post this comment and the link here because the case touches on some fundamental conflicts withing capitalism itself. But it also, interestingly, raises concerns about the proper relationship between corporations and the public interest. As one dissenter notes, corporations used to be above all else instruments of a public purpose, whereas in Kelo it is the private interest of Pfizer, the pharma giant, that is one of the issues on trial.

More generally, the split decision (5-4) reflects the basic antinomy in capitalism between a general interest in having a government serve the larger directions of capitalist development versus a strong bias towards individual rights and property ownership. This is not an easy divide to resolve.

The decision is also interesting, of course, because it is part of the larger debates about originalism, federalism and the proper role of the courts in deciding what law is. And if that were not enough motivation to read the entire opinion, along the way we are treated to the delightfully ironic spectacle of arch-conservative Justice Thomas quoting America’s leading marxist legal scholar, Morton Horwitz as well as Justice Holmes’ famous anti-free market dissent in Lochner!

https://laws.findlaw.com/us/000/04-108.html

The Financial Times’ regular columnist, Amity Shlaes, hopes the nomination of Rep. Christopher Cox to head up the SEC will take the teeth out of the corporate reform effort underway in the post-Enron environment. Here is my reply to her recent column which the FT ran along with a nice photo of Justice William O. Douglas.

FT.com / Letters – SEC’s first duty should be to investors

I was recently part of a panel on corporate governance at a conference sponsored by Santa Clara’s Markkula Center for Applied Ethics. I used this opportunity to continue my attempt to reframe our understanding of the modern corporation. In my view the governance debate must tackle the immense political and economic power of private corporations. The paper outlines one approach. The URL is:

Corporate Governance

Nobel prize winning economist Douglass North recently opined on the pages of the Wall Street Journal that China needs to establish clear property rights in order to make capitalism work there. I wrote a letter in response that questioned the feasibility of this approach. To my pleasant surprise, the Journal saw fit to publish my letter. I have reprinted the letter here below and the North article itself can be found at: https://online.wsj.com/article/0,,SB111283514152300351,00.html.

As Chinese stock markets continue their descent the fragility of the Chinese economy continues to worry many around the globe.

The letter:

Mr. North is certainly right that Chinese leaders need to establish clear property rights if they are to move to the next stage of modern capitalism. What he seems unable to explain is why that move is likely to be deeply problematic, if not impossible.

To establish property rights to assets effective enough to enable efficient trading and innovation to take place would almost certainly require a violent confrontation with the Chinese working class and peasantry — groups that, understandably, believe they have a claim to the nation’s wealth senior in priority to that of the party and newly emerging wealthy elite. That confrontation has been taking place sub rosa since the bloody suppression of the democracy movement centered in Tiananmen Square in 1989. But conflict is now more open, with strikes and even violent confrontations between the state and aggrieved citizens increasingly the norm.

The regime is clearly hesitant to unleash a final confrontation. To resolve this conflict, China must find an alternative way forward that relies, instead of on authoritarianism, on democracy and social equity.

Stephen F. Diamond
Assistant Professor of Law
School of Law, Santa Clara University
Santa Clara, Calif.

A key aspect of the effort to reform corporate govenance after the collapse of Enron, Worldcom and Tyco, has been to strengthen the role of independent directors. The NYSE, for example, now requires a majority of independent directors on the boards of listed companies as well as Audit, Nominating and Compensation committees composed of just independent directors. But if shareholders cannot have a meaningful role in selecting these independent directors, what difference do these rules make?

In a recent paper delivered at Stanford, Professor Jeffrey Gordon from Columbia explored the significance of independent directors. He argued that they play an important role interpreting the signals of surrounding markets, particularly the capital markets to insiders. While just a draft at this point the paper is a valuable exploration of the issues surrounding independent directors.

Nonetheless, unless the SEC passes the proposal of its staff that shareholders be offered the opportunity to nominate independent directors by piggybacking on the proxy process now controlled solely by management, even formally independent directors will remain overly dependent on the CEO who is responsible for securing their position.

https://olin.stanford.edu/schedule/2005-spring/gordon-new.pdf

As I suggested could happen in an article published last fall, trade tensions between China and the U.S. have begun to heat up. Below is a link to a graphic from a recent analysis of the issue by the Wall Street Journal. It makes clear why China is on top of the hit lists by protectionists. There is no doubt that China, backed by global multinational corporations, is an adept player in the international economy. They are exploiting cheap labor who are denied basic human rights to force the country’s entry into the global economy. But is narrow protectionism the right response? Can American workers afford to cut off their potential alliance with Chinese workers? An alternative approach would offer support to Chinese workers to form their own independent unions and political parties. While the international labor movement pays lip service to this approach, it does very little in a concrete way. The time to change this may have finally come.

WSJ.com – Trade Gap Widens, Fuels Calls For Tougher Stance on China

In an ironic twist China has decided to try and give the U.S. Government a taste of its own medicine. Mimicking the annual State Department Report on Human Rights, the PRC has issued its own report on the human rights record of the United States. The URL is below. What is interesting in this report is what the Chinese state ignores: namely, labor rights. Almost completely absent from the report is any suggestion that there are any problems at all for American workers on the job. In passing, the report cites a problem of discrimination on the job for American women workers. Other than that, the report is silent.

Yet, after a twenty five year assault on unions in this country – kicked off in the Reagan Administration by the wholesale dismissal of striking air traffic controllers – certainly a reasonable place to start a discussion on human rights in America could be with a discussion of labor rights. For example, Lance Compa of Cornell University recently authored a report on the widespread denial of basic human rights to workers in the meatpacking industry. The report, entitled Blood, Sweat, and Fear: Workers’ Rights in U.S. Meat and Poultry Plants, was published by Human Rights Watch and the URL is below also.

The Human Rights Watch study points out: “Health and safety laws and regulations fail to address critical hazards in the meat and poultry industry. Laws and agencies that are supposed to protect workers’ freedom of association are instead manipulated by employers to frustrate worker organizing. Federal laws and policies on immigrant workers are a mass of contradictions and incentives to violate their rights. In sum, the United States is failing to meet its obligations under international human rights standards to protect the human rights of meat and poultry industry workers.”

When there are such widespread violations of human rights of workers in the United States, about which one would think a “socialist” country like China would be very concerned, why would they pick workers’ rights, alone, to ignore?

The answer, of course, is pretty simple: China hopes to avoid the spotlight that should be shone on its own widespread abuse of worker rights….including forbidding strikes, preventing workers from exercising their freedom of association, jailing worker activists and denying basic due process to workers who attempt to defend their standards of living. In fact, of course, despite the hostility to unions from employers and the government in this country, the conditions faced by Chinese workers are far worse and deserve much greater scrutiny from the international community than has been the case to date.

https://https://english.people.com.cn/200503/03/eng20050303_175406.html

https://https://www.hrw.org/reports/2005/usa0105/usa0105.pdf