"What has been the consequence of labor's embrace of conservative politics and financialization? Pension fund values have collapsed, public sector employees are under assault, benefits have disappeared and layoffs are commonplace."

Well, it seems to me that a union is not a private, profit-making enterprise, not completely, at any rate. [1]

In 1925, labor leaders, including the AFL's (American Federation of Labor) Samuel Gompers, formed The Union Labor Life Insurance Company (Ullico). Gompers believed that providing union workers with affordable life insurance would finally secure an economic stability long elusive to rank and file union members. Gompers wouldn't recognize the Ullico that exists today. It grew into a financial powerhouse through speculative investments in increasingly complex financial securities and instruments funded through millions of dollars of union payments and workers' premiums. It was a slow but steady, and ultimately strange, transition for a union organization from basic life insurance provider to Wall Street heavyweight. Ullico's modest beginnings in the 1920s were expanded in the 1930s to include retirement annuities. A decade later, Ullico expanded its insurance offerings to include health insurance. By the 1970s, union pension plans became a large part of Ullico's bottom line along with additional investments in real estate development and capital projects, built always of course with union labor. The Ullico Casualty Co., launched in the 1980s, expanded into trust fund liability insurance and portfolio management services. By 2008 Ullico, with more than $30 billion in assets, completed its metamorphosis from a basic workers' cooperative life insurance provider to one of the largest financial service firms in the U.S. [2]

Ullico was swept up into capitalisms shift from production to the increased power of finance capital. The financialization of the global economy over the past fifty years has resolved a key crisis in capitalism: the troublesome investment quandary for institutions with surplus capital. "Their main solution from the 1970s on" argued John Bellamy Foster, "was to expand their demand for financial products as a means of maintaining and expanding their money capital. On the supply side of this process, financial institutions stepped forward with a vast array of new financial instruments: futures, options, derivatives, hedge funds, etc. The result was skyrocketing financial speculation that has persisted now for decades." [3] Surpluses were placed not in fixed capital investments with long turn arounds plagued by inflexibility and instead invested in financial products that offered quick returns and enormous flexibility.

The financial sector quite obviously benefited from the process of financialization, and firms, particularly pensions funds and firms like Ullico, benefited the most. With enormous sums of real money, banks and finance sector actors became the dominant players in the economy. While the investment returns realized by workers' pension funds and financial actors like Ullico in financialized investments has increased real wealth for workers it has occurred at the expense of growth in the productive economy. And herein lies the real irony in labor's mad scramble for a piece of the finance capital bonanza. The money machine of financialization has been a Faustian bargain for unions. While financialization offered unions new ways to put pensions to work, the investment growth in speculative financial instruments and exotic derivatives has been at the expense of investments in production and the jobs that go with those investments. The growing chasm that has separated finance capital from production has appeared a compelling enough reason for Ullico to move increasingly more and more money into Wall Street's version of casino capitalism.

Despite nearly universal exuberance, the last few years have illustrated a number of the risks financialization poses for the labor movement. One consequence of the BP Deepwater Horizon spill, for example, has been a dramatic reminder of the enduring connection between productive and finance/speculative capital. The collapse in BP's stock value has cost pension funds $1.4 billion in fund values at 42 state retirement accounts. [4] Pension funds have over invested in companies like BP, forever awash in Wall Street speculation. The financial implosion of the past two years has demonstrated even more risks to labor when unions actively pursue financialization as a wealth management strategy at the expense of investments in production. Prior to the financial collapse, financialization appeared to have in very real ways reinvented value. The enormous surpluses produced through investments in exotic financial instruments like credit default swaps and investment-backed securities have shown greater returns than investments in productive activities. The increased financialization of value has strengthened the political power of the financial sector. In other words, if value is produced through financialization and not production, it is bankers and not workers who become the source of all wealth. This is a fact not lost on workers who find themselves increasingly in a strange position vis-à-vis capital and the capitalist state. [5] As Rosenfield has noted, the "decades-long trend in private-sector labor negotiations has now confirmed collective bargaining as having shifted from demands by workers to demands on workers." [6] Ullico appeared to offer one way for workers, in an economy increasingly uninterested in production, to protect their shrinking share of surplus value.

That Ullico ignored the contradictions of financialization and pursued a strategy that advanced the interests of the financial class over workers demonstrates the far-reaching power of what Marx called the "bankocracy." While many have commented on the shift from production to financialization as having resolved a number of crises of capitalism over the last twenty-five years, Marx provided perhaps the clearest description and analysis of finance capital fifty years before Ullico's birth. As Marx described it, finance capital was controlled by a "bankocracy" that arranged the usual suspects in familiar arrangements. As he wrote in Capital "the newly-hatched haute finance" depended on an alliance with the landed aristocracy, industrialists and a bourgeois political class that provided the necessary political protection. The consolidated power of finance capital dictated the terms of access to surplus capital. This is true today as it was in Marx's time. What is new in this arrangement has been the replacement of the landed aristocracy with financial actors such as production-cum-trading houses like BP, huge public-sector pension fund like Calpers and insurance giants like Ullico.

But of course the crises financialization appeared to resolve did only by engendering a new set of contradictions and antagonisms. The shift in the origin of value from labor to financialization was accomplished through, among other things, the temporal fix provided by exotic financial instruments that extended nearly unlimited capital in the form of credit to more and more investors, and workers-turned-consumers, seeking greater and greater returns in rates that always exceeded the returns possible through production. For labor, the shift from life insurer to Wall Street financial services provider has meant more than merely a shift in fiduciary responsibility to unions and their members but moreover has been based on a fundamental shift among the largest unions from democratic to corporate unionism. In other words, financialization moved into the labor movement when rank and file decision-making moved out.

Douglass McCarron, more than any other figure, has come to represent labor's new class of corporate leader: conservative and authoritarian - a union leader for profit only. McCarron assumed the Presidency of the United Brotherhood of Carpenters and Joiners (UBCJ) in 1995 and quickly remade the UBCJ in the image of Wall Street, one with the organizational and administrative flexibility to take full advantage of the economic possibilities of financialization. [7] It has been a swift transformation. Less than a year after his election he embarked on a far-reaching restructuring program designed, as McCarron described it, to "streamline" the union. A rank and file member of local 120 in New Jersey described the opening salvo of McCarron's reforms.

On June 25th in 1996, the International Carpenters and Joiners of America, otherwise known as the International, under the direction of Douglas McCarron ordered the emergency takeover of the New York District Council. The takeover happened in the middle of the night with no warning or due process. Armed guards along with representatives of the International took possession of our building, and then the International removed our duly elected officers of which I was privileged to vote for in the first referendum election held for district council officers in my union's history. The election was also certified and supervised by a federally appointed investigating review officer, Kenneth Conboy. On July 18th, I, along with 22 other instructors of the Labor Technical School, were fired one week after the hearings on July 10th and 11th of 1996 held by the International concerning the emergency removal of our elected officers. On the 24th, by the order of the U.S. southern district court of New York, special hearings were set up. However, unlike the International's orchestrated hearings, they were not open to the membership. These hearings were closed, and I, along with the other 22 members, were escorted out by these armed guards.

Over the next few years, McCarron's "streamlining" included the expulsion of dissident members, the unilateral dissolution of troublesome locals and the merger of others into larger and larger administrative units. He purged elected officials and rewrote bylaws for locals in California, Nevada, New England, Pennsylvania, and New Jersey. In the middle of union elections in Michigan, McCarron closed all the locals and the three district councils and appointed a McCarron partisan as executive secretary treasurer with consolidated authority over all dissolved locals in a new Michigan Regional Council.

Always the corporate shill, McCarron has reveled in the attention lavished on him by the capitalist press. In a Business Week article from the late 1990s he explained his authoritarianism as the only way to reform rank and file unionism. "We have a product to deliver," he told the magazine "and we have to do it more efficiently." McCarron has curried favor with corporate executives and republican politicians. And while his enthusiastic embrace of conservative politics has seemed out of step in even the mainstream labor movement, it's old hat for the UBCJ, the "Big Bully" of American labor.

During the Depression, the Carpenters actively opposed industrial unionism, came out against workers who organized in mass production industries and refused to allow any to affiliate with the American Federation of Labor unless they agreed to transfer their skilled members to the UBCJ. Union President at the time William Hutcheson opposed FDR and actively campaigned for Alf Landon. McCarron has pursued similar tactics. He cozied up to George W. Bush and carried out political purges. Echoing Hutcheson's red baiting tactics, for example, he expelled a British Columbia local after they publicly opposed the corporatization of the carpenters union, saying of its members, "There is a high influence of the communist party" in the BC local. In almost every way imaginable, McCarron has returned the UBCJ to its conservative roots, but in one significant way, McCarron has transformed the union in ways that would have given even William Hutcheson pause.

After his election as UBCJ President, Douglass McCarron became an influential member of Ullico's board of directors. Beginning in the late 90s, Ullico leaders pursued a series of investment schemes designed to enrich board members and Wall Street insiders at the expense of its union subscribers. The scheme worked like other familiar Wall Street scandals: officers and directors purchased shares in one company, in this case the telecommunications company Global Crossing, based on insider information offered by a CEO, in this case Global Crossing's CEO. Nearly all of Ullico's board members gobbled up 33 million preferentially priced shares. When Global Crossing went public and the stock soared to more than $60 a share in 1999, board members enjoyed a $1 billion windfall.

When the bubble burst and the stock tanked, board members distributed their golden parachutes. In an exit scheme of Ullico CEO Robert Georgine's design, board members dumped Global Crossing and bought up Ullico stock in an even more advantageous purchase plan than the one that got them in trouble in the first place. The stock sell-off and price manipulation of Ullico's stock more than made up for the disastrous Global Crossing investment. Less than a year later, Ullico's board established a new price for Ullico stock nearly $100/share higher than the price they paid in the exclusive purchase plan. Board members made more than $13 million. When the board later dropped the price, the company started posting astounding losses: more than $20 million in 2001 and nearly $75 million in 2002. [8] The unions and their members paid the price of the collapse in Ullico.

The scheme and subsequent scandal bankrupted Ullico and led to a shake up in Ullico's leadership. [9] Georgine was forced out while numerous other board members resigned. McCarron jumped ship in March of 2003. His presence on the board, however, proved to be pivotal. The corporate-connected and Republican-friendly McCarron had become an important political ally of the "bankocracy." Despite pressure from rank and file union members to fully investigate Ullico and the scandal, The GOP-controlled Congress refused. As Roll Call reported "party leaders didn't want to embarrass Bush or United Brotherhood of Carpenters and Joiners President Douglas McCarron, one of Bush's best friends in organized labor." [10]

The financialization meltdown of which Ullico was a part did not arrive unseen. Even John Maynard Keynes years before questioned the social value of financialization. As Foster has written, "Keynes saw even in his day, the advantages of the liquidity and negotiability of financial instruments come at the cost of facilitating nth-degree speculation which is short-sighted and inefficient." [11] If others saw it coming, why not labor? The new "bankocracy", after all, has been obviously a cabal of finance capitalists out to enrich themselves through speculation. The health of unions however, whether radical like the Wobblies, reformist like SEIU or corporate like the Carpenters, has required a struggle with, not an embrace of, bourgeois values like efficiency, faith in technology and fiscal austerity. Ullico's embrace of financialization has therefore reflected a profound betrayal of worker solidarity.

What has been the consequence of labor's embrace of conservative politics and financialization? Pension fund values have collapsed, public sector employees are under assault, benefits have disappeared and layoffs are commonplace. With increased unemployment has come a deluge of home foreclosures and auto repossessions. Nearly $25 billion in auto loans were past due as of October 2008. Nearly two million vehicles were repossessed in 2007. Personal bankruptcy levels hit 1.25 million for the one-year period ending June 30, 2008, a 34% increase over the previous year. Bank seizures of homes doubled in January of 2009 when more than 233,000 properties were in various stages of default. Workers, union and non-union alike, have paid the price of financialization and the corporatization of the labor movement made much of this possible.

McCarron assumed the Presidency of the Carpenters and joined Ullico's board at a defining moment for the labor movement. The percentage of unionized American workers was near a historic low point. In the 1950s, 30% of all workers were members of a union. By the year 2000, that number had collapsed to less than 12%; among private sector employees, only 8% of workers are members of a union. The corporatization of the UBCJ and the financialization of Ullico contributed to nothing more, it seems, than the complete abrogation of any strategic defense or principled struggle of labor vis-à-vis capital. As a result, with job losses over the past two years in excess of eight million workers, more union members today queue in unemployment lines than gather in solidarity at union halls.

David Correia is a Visiting Assistant Professor in American Studies at the University of New Mexico. He writes about environmental politics, labor and New Mexico history. He can be reached at dcorreia@unm.edu

Endnotes

1. Opening Statement of Representative Harris Fawell, Chairman of the House Subcommittee on Employer-employee relations commenting during a 1998 hearing on Carpenter's union restructuring and impediments to union democracy.

2. Chris Phelan, William Green: Biography of a Labor Leader, (New York: State University of New York Press, 1989); ULLICO Web site (www.ullico.com).

3. John Bellamy Foster, 'The Financialization of Capitalism', Monthly Review, (58) 11, 2007, 1.

4. Dunstan McNichol, 'BP Oil Spill Costs U.S. State Pensions $1.4 Billion', Business Week, June 28, 2010.

5. See R Marens, 'Going to War With the Army You Have: Labor's Shareholder Activism in an Era of Financial Hegemony', Business & Society, (47) 3, 312-342, 2008.

6. Herman Rosenfeld, 'The North American Auto Industry in Crisis', Monthly Review, (61) 2, 2009.

7. David Correia, 'Welcome to the Business-Friendly Carpenter's Union', Counterpunch Weekend Edition, September 11-13, 2009.

8. Greenhouse, 'Ex-Governor to Look into Union Stock Deal', New York Times, May 1, 2002.

9. Jane Slaughter, 'Is Sweeney Losing Clout? - ULLICO Scandal Sows Disunity at the Top', Labor Notes, January 1, 2003.

10. John Bresnahan, 'Boehner Targets Ullico', Roll Call, March 20, 2003.

11. John Bellamy Foster, 'The Financialization of Capitalism'.