Unions Renewed

Building Power in an Age of Finance

Alice Martin, Annie Quick

• Publisher: Polity
• Year: 2020
• Print ISBN: 9781509539123, 9781509539116
• eBook ISBN: 9781509539130
• Edition: 1
• Topic: Economics
• Subtopic: Economic Policy
• Index: Economics

Unions face a once in a generation opportunity for renewal. Decades of decline have been compounded by a global elite who increasingly generate profit from financial engineering in ways that side-step labour and undermine the power of organised workers.

However, as this economic system begins to falter, there are signs of a renewed union movement emerging. Debt-laden firms – from supermarkets and nursery chains to outsourcing giants – are collapsing, and workers are organising to determine what comes next. Unionised bank cashiers are refusing to push predatory loans, teachers are striking against the exploitative housing market, and manufacturing workers are pooling redundancy pay to buy-out plants and become worker owners.

Alice Martin and Annie Quick argue that these are seeds of union renewal. To be effective in an age of finance, the union movement must set its ambitions beyond narrow wage-bargaining, and towards the financial systems that have infiltrated workplaces and impoverished communities. By doing so, they can play a critical role in ushering in a new, democratic economy.

No-one committed to economic justice can afford to miss this urgent, highly original book and its radical vision for unions.

1
How financialization undermines the power of workers

In August 2018, Tops Friendly Markets, a supermarket chain operating in the north-eastern states of the US, announced the closure of ten of its stores as part of a bankruptcy plan.¹ At the time, the firm had 14,800 employees, over 80 per cent represented by two unions – United Food and Commercial Workers International Union (UFCW) and the Teamsters. The company used the restructuring process to substantially reduce the pension benefits for its workers by withdrawing from the unions’ pension plans.² The unions eventually approved the reduction, with UFCW union president Frank DeRiso explaining ‘it was a bad situation. We’ve done our part to keep this company in business.’³

On the surface, Tops sounds like a textbook case of business failure. In a competitive market, some businesses fail, and when that happens, both owners and workers lose out. Right?

Wrong. Tops’ bankruptcy was not the result of inevitable market forces. Tops was driven to bankruptcy by private equity firm Morgan Stanley, which had bought it eleven years earlier in 2007. As the new owners, Morgan Stanley had loaded the company with over $700 million of debt – more than twice the company’s original purchase price, including $377 million borrowed just to pay Morgan Stanley and its investors’ dividends on their shares in the company. To be clear, that means they borrowed as much money as the original price of the entire company, which they then paid out directly to themselves. When, in 2013, Morgan Stanley sold Tops back to its senior management, it was in so much debt that the new owners simply couldn’t make the investments needed to keep the chain competitive.⁴

This story is not unusual. Investigating six other cases of US supermarket chain bankruptcies since 2015, researchers Eileen Appelbaum and Rosemary Batt traced the chains’ financial troubles back to a handful of private equity firms.⁵ Such firms have been around for decades, but became major economic players in the years preceding the 2008 financial crisis. They take a majority share of private companies – often those in financial trouble, but not always. They usually invest for about five years, and instead of using those investments to upgrade stores, deliver training for employees or improve productivity in other ways, their business model relies on extracting as much money as possible from the company before selling it on. If the company goes broke after, then so be it – they’ve already cashed in. The strings of grocery store bankruptcies aren’t anomalies in the private equity model, they are its logical result.

This presents a particular challenge for workers. There are hundreds of thousands of retail workers across the US whose jobs and conditions are being undermined by these practices. In the classic union model, workers bargain and use strikes to win a higher share of the profits from the owners. But strikes are only threatening if owners need workers to work in order to make money. What if the real people profiting – in this case a private equity firm and their investors – don’t need to produce anything to make money? What if they can do so through the kind of financial engineering we’ve seen with Tops Markets?

In this scenario, it’s less clear what a strike can achieve. Even Tops workers, with unusually high unionization rates for the private sector, were at a loss. As union president DeRiso explained, ‘every collective bargaining process that’s been negotiated, we’ve been in a bad position because of the debt the company has’.⁶

Private equity is just one example of the way in which financialization is changing power dynamics within the labour market. Over the past forty years, the intensification of short-term financial motives across all corners of the economy means that those with capital have found it easier to make money through financial activity than through actually making goods or delivering services. At the same time, it becomes harder for workers to win their share of the pie. This occurs at the level of the workplace; financialization weakens workers’ position when bargaining for better wages and conditions, or, indeed, makes it hard to bargain at all. It also occurs at the level of the whole economy; in our current state of financial capitalism, wealth creation is occurring not just through the production of goods and services, but increasingly through real estate, currency trading or private equity markets. It’s these practices that are fuelling runaway inequality at the very top. If the labour movement wants to have a role in resisting this, not only through winning increases in wages and conditions, but also through reshaping the economy more broadly, then it has to get more creative and ambitious about how to disrupt the systems of financialization.

We don’t claim that financialization is the only economic trend causing trouble for workers; globalization, automation, changes in the kinds of jobs we do and the rise of self-employment all play their part. We take financialization as our focus because it is an important cause that creates distinct problems for the bargaining power of workers – and one that is often overlooked. Perhaps this is unsurprising. Financialization is notoriously hard to get your head around and doesn’t make good headlines. A robot stealing your job makes a better cartoon than a private equity firm putting jobs at risk by taking out unsustainable debt.

And yet we need to get our heads around it if we’re going to have a chance of seriously redressing economic power imbalances. This book is not another explanation of financialization – there are many good ones out there already. Instead, it’s a description of the ways in which financialization is reducing the power that we have over our work and our lives – and how we can resist this.

Finance today: speculative, extractive and rent-seeking

‘Finance’ simply means economic activities that deal primarily with money itself (rather than making goods or services) and includes banking, investing, lending, borrowing and insurance. While finance has always been part of capitalism, its role has increased so much since the 1980s that the term ‘financialization’ has been coined to describe this new phase. It’s not just that the finance sector is much bigger than it was (although it is). It’s also that these institutions, and the people that work in them and benefit from them, are exercising an increasing amount of influence over the rest of the economy.⁷

While it’s common to pinpoint the 1980s as the ‘start’ of financialization, in fact it has been more evolution than revolution. The influence of finance has ebbed and flowed over the past few centuries of British and US history, growing alongside the industrial revolution (particularly in Britain, where it was bolstered by colonialism and slavery),⁸ fuelling the Great Depression in the 1930s and being tamed by heavier regulation during the post-war period.⁹ Nevertheless, a decisive policy agenda in the 1980s to deregulate finance on both sides of the Atlantic fuelled key shifts that amount to a fundamental change to the way that capitalism works.

Financialization was part of a broader neoliberal agenda ushered in by the Thatcher government in the UK and the Reagan administration in the US. With deregulation, money could flow much more easily across borders, banks were allowed to engage in all sorts of financial activities that were previously forbidden, and financial institutions could charge higher interest on loans. Deregulation also allowed the creation of new types of financial institutions, such as hedge funds and equity funds, forming the ‘shadow banking sector’. These became major economic players, but remained largely unregulated.¹⁰ Spawned in the US and the UK...

Table of contents

• Cover
• Endorsement
• Dedication
• Title Page
• Copyright
• Acknowledgements
• Introduction
• 1 How financialization undermines the power of workers
• 2 Understanding and rebuilding union power
• 3 Bargaining with finance
• 4 Owning the future
• Conclusion: a way forward
• End User License Agreement