U.S. Multinationals in Capital Strike Against Taxes

U.S. multinationals in Capital strike against taxes

Carl Proper

Jan. 12, 2013

Global, nominally U.S. corporations have been on a tax strike since the last “repatriation holiday” in 2005.  Corporations like Apple computer and General Electric are refusing to bring an estimated $1.7 trillion in “overseas earnings” back to the U.S. as long as the United States demands a 35% tax payment on those earnings. Apple, for example, has more than $12 Billion parked offshore.  Google has $17 billion and Microsoft, $29 billion.  “To the companies,” Washington Post reporters Jia Lynn Yang and Suzy Khimm note, “no other tax issue matters more.”

Faced with the same situation seven years ago, President George W. Bush let capitalist allies off with a five percent tax payment, and nearly $400 billion was eventually brought back to the U.S.  But, while the tax holiday was “sold” to the public with the promise of job-creating domestic investment, ninety-two percent of that money was instead returned to shareholders in the form of dividends and stock buybacks..  Times reporter David Kocieniewski describes two differing versions of how one of the big winners, pharmaceutical giant Merck Corp., used the tax giveaway.  According to:

“Merck spokesman, Steven Campanini…. the company used the [repatriated] money for “U.S.-based research and development spending, capital investments in U.S. plants, and salaries and wages for the U.S.” 

But..

 According to regulatory filings, the company cut its work force and capital spending in this country in the three years that followed. …

Merck brought back $15.9 billion in October 2005. The next month, it unveiled a restructuring plan to cut 7,000 jobs. Over the next three years, about half those cuts were made in the United States, where the company’s employment fell to 28,800 jobs, from 31,500….

… Much the same happened elsewhere, according to a review of taxpayer data by the National Bureau of Economic Research. “For every dollar that was brought back, there were zero cents used for additional capital expenditures, research and development, or hiring and employees’ wages,” said Kristin J. Forbes, a professor of economics at the Massachusetts Institute of Technology’s Sloan School of Management.  Forbes was a member of President Bush’s Council of Economic Advisers and led the study.

The pitch today is to eliminate U.S. taxes on foreign profits altogether, and switch to a “territorial system” – in which a company only pays taxes where it claims the money was made.  But global companies have many ways of attributing earnings to tax havens like the Cayman Islands to avoid local taxation – or avoiding taxes altogether in “free trade zones” around the world.  (U.S.-based Intel Corporation, for example, negotiated “foreign trade zone” status to avoid taxes in 2011 on its new facility in Chandler, Arizona.)

Unsurprisingly, wealthy global corporations find widespread political support for their strike, including from Co-Chairs Alan Simpson and Erskine Bowles of the National Commission on Fiscal Responsibility and Reform.  “At least,” says Bowles in justifying the giveaway, “(the money) will be here and not circulating in other countries.” The territorial system of taxation was also endorsed by President Obama’s Jobs Council, headed by General Electric CEO Jeffrey Immelt.  Thankfully, this Council has not met since early 2012.  A call for this colossal break was also part of GOP Presidential nominee Mitt Romney’s economic platform, and House Republicans have passed a budget that includes a transition to a territorial tax system.

The effects of caving in to this “bring it home free” demand would include long-term damage to future U.S. budgets.  “The territorial tax system they envision would gut the entire U.S. Corporate tax code,” according to Edward D. Kleinbard, a Professor of Tax Policy at the University of Southern California.  Kimberly Clausing, an Economics professor at Reed College calculates that as many as 800,000 jobs could be added to low-tax countries instead of the United States.

Among factors making a complete Obama Administration cave-in on this demand unlikely is opposition from domestic firms, which already pay higher taxes than the country’s biggest multinationals.  But some negotiated compromise seems likely, though not necessarily as part of “Fiscal Cliff” negotiations.  A 20-25, percent taxation agreement, followed by significant financial repatriation, could be a significant Democrat victory, and a boost to the domestic economy.

Another arguably positive resolution might be following the Japanese example.  Japan switched to a territorial system in 2009.  But they also tax a company’s foreign income if taxes paid in another country are less than 20 percent.  While 20 percent is still a low number, a global 20 percent standard would represent a remarkable move toward tax discipline in a global world.

It seems likely, however, that U.S. corporations would respond to this idea by continuing their strike.

Materials cited in this article:

In ‘Fiscal Cliff’ Debate Companies Quietly Push For Tax Break On Foreign Profits,” Jia Lynn Yang And Suzy Khimm, Washington Post, November 29, 2012

Companies Push for Tax Break on Foreign Cash,” David Kocieniewski,  New York Times, June 20, 2011

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Globalization and Union Power

 

Carl Proper

April, 2013

Capital is global today, and not only wealthy, but politically powerful.  Organized labor, like most democratic organizations, is local or national, and at a disadvantage.  While corporate globalization hits manufacturing workers first, the resulting shift in wealth and power eventually affects service and government workers, and their unions, as well.

Capital, despite many heroic efforts by workers and their unions, appears to be winning the class war.  Unions need to change.

I believe that organized labor, like political democracy, will need to coordinate much better globally to contribute at a significant level, and the sooner, the better.  To be taken seriously, we must challenge the heart of corporate power – unchecked control over who works, who doesn’t, and on what terms.  Globalization is much harder for organizations like labor unions that rely on communication from the bottom up, than for top-down corporate command structures, but workers of the world, unite! is still the path to justice.

One reason global capital is winning is that our former political allies – liberals, the educated middle class – are also global in their travels, education and world view.  Where once liberals leaned politically toward labor as a force for justice, and for a better future, now they are on the sidelines as we fight and too often lose.  They see unions as well-meaning, but as resisting global progress and not representing the poorest.  (Of course, the pocket-book interests of upper middle class consumers also affect their world-view.  They are well served by low-cost imported goods and undocumented services.)

More fundamentally, the great economic and political power capital has gained through global operations means that general political opinion in particular countries – liberal, conservative, labor — is not terribly important.  This is because democracies speak mostly for particular populations, but everyone wants the jobs that global corporations control.

In the early stages of globalization, many manufacturing workers in developing countries were made redundant.  As their incomes fell, retail bottom-feeders like Walmart rose, and resentment rose as well, not only against the rich, but against more fortunate workers. Tax revenues declined, harming public employees.

Meanwhile, the vast corporate wealth derived from buying labor from the lowest-wage countries, and selling products to the most advanced, buys political influence wherever it goes.

In a 1981 article on bargaining, authors Samuel Bachrach and Edward Lawler[i]  defined power in a way that is useful for understanding our current situation.  Power in ongoing relationships, they argue, is a function of need.  Party A’s power depends entirely on Party B’s need for A or something A controls.  If B needs nothing from A, A has no power over B, regardless of any intrinsic strength.  If B needs A – or something A controls — more than A needs B, A dominates.  In general, the side that needs the other side less in a relationship has more power (whether for good or ill).

Let’s consider how this has played out in reality for one global corporation.

IntelChinaIn 2010, Paul Otellini, CEO of the nominally American microchip manufacturer, Intel, described to New York Times Op-Ed Columnist Thomas Friedman why he was locating his newest factory, and hundreds of jobs, in China, instead of the U.S. [ii] :

“The things that are not conducive to investments [in the U.S.] are [corporate] taxes and capital equipment credits,” he said. “A new semiconductor factory at world scale built from scratch is about $4.5 billion — in the United States. If I build that factory in almost any other country in the world… I could save $1 billion, because of all the tax breaks these governments throw in.”

 Otellini complains as well about lack of U.S. investment in technical higher education.

“Intel can thrive today — not just survive, but thrive,” Friedman notes, “and never hire another American.”

Asked if his company was being held back by weak science and math education in America’s K-12 schools, Otellini explained:

“As a citizen, I hate it. As a global employer, I have the luxury of hiring the best engineers anywhere on earth. If I can’t get them out of M.I.T., I’ll get them out of Tsing Hua” — Beijing’s M.I.T.

 

The irony of pleading for lower U.S. taxes while calling for increased investment in education escapes Otellini, and Friedman.  Yet increasing corporate tax immunity is a primary factor in layoffs and wage reductions for state employees and deficit spending at the Federal level.

In the months following opening of the plant in China, Intel spokespersons, through the media — and no doubt in conversations with public officials — consistently made the pitch for lower taxes.

And in fact, after the China plant went online, Intel in 2011 announced its next new plant, a $5 billion investment at an existing Intel “campus” in Chandler, Arizona.  The announcement followed a tour of the facilities by President Obama.[iii]  What were the terms for the new investment?

“To be honest, when we changed the sales-tax factor . . . that’s when Intel was making the decision to either divest from Arizona or stay in Arizona,” said Barry Broome, president/CEO of the Greater Phoenix Economic Council…This $5 billion, Intel is not going to pay taxes on that investment,” he said. “It is in a foreign-trade zone. The taxes are abated.”

Evidently, Arizona’s need for jobs was greater than Intel’s need for Arizona’s workers.  That is, Intel had more power (but still some need).  Arizona felt it had to be extra creative, if not extra-legal, in providing tax-free “foreign trade zone” status to a U.S. company in America.

It is important to understand that workers in all states and countries face the same dilemma.  I recall, for example, a conversation I had in the 1980s with a trade unionist from the Philippines.  An “American” company (really global) had just closed one of its two large unionized plants in his country, relocating them to China.  “Those were OUR jobs,” my friend said.  “How could they just take them away?”

Net results of the ability of corporations to locate, move or terminate jobs virtually at will around the globe include lower taxes and greater power for corporations, vis-à-vis workers, governments and citizens.  The shift of power from public to private interests over the past fifty or so years has led to growing class inequality in the U.S. and globally, and to the shrinking ability of many governments to provide public services.

How did this radical power shift come about?  One entertaining history of the early days of global outsourcing – and corporate empowering – is the 2009 HBO film “Schmatta:  Rags to Riches to Rags.”[iv]  This film depicts the New York heyday of the garment industry, where, as one garment executive notes, “everybody was union.”  Then follows the stunning discovery by employers, in the latter 1900s, that they were now free to lay off their American employees at will and contract assembly work to nations where wages were so low as to disappear as cost factors – and neither the union nor the government could stand in their way or follow.  As Russ Togs executive Irving Rousso puts it, describing an early pants subcontracting venture, with materials purchased in Italy and assembled in Johannesburg, South Africa:  “the work came in nice, and…forget it, at a price that you cannot believe!”

American readers of a certain age may recall being told by government and media spokespersons in the ‘60s, ‘70s and ‘80s that, of course, only “low-skill” jobs like garment assembly would be allowed to leave the country.  “Higher” skilled jobs like auto assembly – and certainly computers — would remain in America.  You may also remember Walmart metastasizing continuously in the same years, owing in part to its “Made in USA” image (soon jettisoned for all-third-world production); or patriotic Intel CEO Andy Grove, an immigrant, committed in his day to domestic employment.

Times changed.  Power shifted.  What was unthinkable in 1955 was unquestionable 50 years later.  U.S. workers needed jobs, but U.S. owners needed U.S. workers less and less.

Failure to follow

The response of my union, the International Ladies’ Garment Workers’ Union, then UNITE (later UNITE HERE) to this crisis was similar to that of most other unions:  we represented particular workers, and tried to defend their interests.  We demanded regulation and limitation of imports.  Our theme song, “Look for the Union Label” was a hit.  But the import tide was undeterred.

Though we had been fairly successful at following corporate runaways a5780PB40F19CP400G.union Labelnd contractors domestically – we were even able, domestically, to hold manufacturers financially responsible for their U.S. contractors’ employees[v] — we never found the way to follow when they contracted across national borders.[vi]  National cultures and national laws were different.  Nationalism and “us vs. them” were and are deeply embedded.

Other unions and industries followed the same pattern.  The shared power, the checks and balances formerly applied by non-corporate domestic stakeholders disappeared into history.  As GM spokesman Greg Martin told a Congressional committee in 2007, “We’re a global car company that happens to be based in the United States.”[vii]  In other words, the services of US industrial workers were helpful, but no longer needed.

Capital had found the magic key that freed them of responsibility to labor and to their country’s laws.  As for the consequent shift in wealth and power, still proceeding in our day: “forget it! You cannot believe!”

By the time Koch-funded Republican Scott Walker made his move against collective bargaining rights of public employees in 2011, the demolition by global outsourcing of manufacturing jobs and unions had been under way for five decades.  Corporate wealth and power had multiplied, while the solidarity – and disposable income — of a 93% non-union private sector was diminished.

“What happens if America loses its unions?”[viii] Washington Post columnist Harold Meyerson asked, and the question cannot be dismissed.

What can be done?  Contributors to this blog have made excellent proposals. To inspire great struggles, all agree, we need great dreams.

We need a revival of strikes that actually shut down production.  But shutting down production today may mean coordinating with the new global centers of production.

Racism and anti-communism, were used to divide the working class and block organizing in the South and Southwest in the 1930s and 1940s, and were key to reversing labor progress in the mid-20th century.  But authoritarian socialism, as applied by Stalin, Mao – and Castro – failed to deliver workers a better world, and should not now divide us again.

A national campaign to demand “just cause” for firings in ALL workplaces would help build a class movement, not just an interest group.

But one big dream that is already ON the agenda of workers and activists in many parts of the world is global democracy and global democratic unionism.

If not globally, how else can labor seriously address issues with Apple, Wal-Mart, Intel, Hyatt, Exxon, the World Trade Organization – or world health, world peace, the rights of women, the needs of the environment?  The challenges that stopped the unions from following capital as it took over the globe in the late 20th century still apply, to be sure, but at a less crippling level.  Nationalism, tribalism, vastly different political and labor structures and traditions will no doubt be with us in some form when the 22nd century arrives.  But as capital moves to consolidate its global monopoly, and as workers cross every border to find employment – worker organizing cannot freeze in a 20th century national template.

The Steelworkers, U.E., CWA and other unions, in fact, ARE already seriously building global capability. US LEAP has been incredibly courageous in taking on the assassins of Latin American trade unionists.  International Labor Rights Forum has served us all by identifying sweatshop violations and working toward global contracts for humane sourcing.

Many other farsighted workers, activists and organizations, operating both inside and outside organized labor, are taking the challenge on.  The late Tim Costello, the Teamster intellectual and modest revolutionary and Shanghai law Professor Liu Cheng who worked together to rewrite China’s labor legislation, are examples.  Many other Americans have coordinated with activists in China and elsewhere.

A global fight for democracy and unionism could broaden labor’s base – and also put working people and their organizations back in alliance with the liberal critics and victims of unrestrained capitalism in all countries — those who should be our allies, and can create majorities.  The fight against Coca-Cola capitalism and Exxon excess is our fight, but not ONLY our fight.

The brief collaboration a few months ago between east coast dockworkers, Bangladeshi labor activists and Walmart’s retail employees demonstrated the potential for change.  When a factory burned in Bangladesh last December, killing more than 100 garment workers, dock workers on the U.S. east coast briefly refused to unload the ship carrying goods from that factory to Walmart.[ix]  The Bangladeshi tragedy occurred at the same time as nationwide actions by Walmart’s retail employees here. This blog ran the photo on this page last December, showing Bangladeshi trade unionists holding a banner expressing solidarity with exploited U.S. Walmart employees

Global coordination of this kind needs to be a straw in the wind of global change. Workers’ communication networks are global, and actions can be.

Labor needs today to take many different steps to demonstrate to capital that we can organize on so large a scale that THEY NEED US once again.  They need to know they can run, but they can’t hide.


[i] Samuel B. Bacharach and Edward J. Lawler, in  “Bargaining:  Power, Tactics and Outcomes,” printed in “Bargaining,” Jossey-Bass Publishers, San Francisco, 1981.  My summary is a simplification of their theory.

[ii] “A Word From the Wise”, New York Times, March 3, 2010, Thomas L. Friedman

[iii] “New $5 billion Intel facility planned for Chandler,” The Arizona Republic, Feb. 19, 2011, Ryan Randazzo, Edythe Jensen and Mary Jo Pitzl

[iv] HBO Documentary Films, ©Home Box Office, Inc.

[v] Thanks in part to an exemption from Taft-Hartley and Landrum-Griffin bans on secondary boycott.

[vi] Jefferson Cowie tells a similar story about another industry in “Capital Moves:  RCA’s 70-Year Quest for Cheap Labor,” Cornell University Press, Ithaca, NY, 1999

[vii] Of course, two years later, GM sang a different song, as U.S. and Canadian taxpayers bailed them out.  The game is not over.

[viii] “What happens if America loses its unions”, Harold Meyerson, June 12, 2012, Washington post, and this blog

[ix] While it not generally known, the U.S. garment industry exemption from the Taft-Hartley ban on secondary boycotts (allowing the union to strike a garment contractor to organize the manufacturer, or vice versa) is still in effect and probably valid globally — if there was a strong union to use it, according to lawyers who have dealt with the issue.  If a fatal factory is not a striking issue, what is?

Same Employer, Same Fight

Same Employer, Same Fight U.S., Bangladeshi Workers Suffer and Stand Up to Walmart

Posted on December 1, 2012 by dsalaborblogmoderator

by Carl Proper

“What do you do [to] make a really big difference for these women, and save lives?” CNN commentator Erin Burnett asked her viewers. “Unions. Yes, unions.”

Remarkably, this mainstream newsperson called on air for unionizing an industry – in this case, the Bangladeshi garment industry, where one hundred mostly female workers perished in last weekend’s fire at a factory producing apparel for Walmart and other U.S. retailers and manufacturers.

To buttress her case, Burnett referred to the similar tragedy 101 years ago at the Triangle Shirtwaist company in New York City , in which 146 garment workers perished in a factory fire lacking every available fire safety protection. She noted that:

“The New York City fire helped spur the growth of the International Ladies’ Garment Workers’ Union, which fought for better working conditions for sweatshop workers. And we have every hope that the very sad events of this weekend can do the same for Bangladesh… What do you do? Unions. Yes, unions…They could make a really big difference for these women, and save lives.”

Of course, Burnett was right. If workers do not organize to defend their own interests, and if better-placed people of good will – like Burnett — do not support workers’ causes at a political level, there is no answer. The early members of the ILGWU, and many other unions, fought that fight long ago, and won against employers who no doubt looked as powerful as any today.

How did they do it? What were the common elements between the industry of that day, and in our day; and in the struggle of “wealth creators” of all generations — who too often die of powerlessness — to gain a degree of control over their lives?

A fundamental commonality in the garment industry is the division into a relatively few and powerful corporations who design and sell the products, and set the working conditions; and the thousands of small, relatively powerless production contractors who directly employ the workers making the clothes.

As early as 1900, labor historian and economist John R. Commons described for the U.S. Industrial Commission the circumstances that plague millions of workers in 2012, in the U.S. and abroad, just as they affected employees in a variety of industries at the turn of the 20th century:

“When work comes to the contractor from the manufacturer and is offered to his employees for a smaller price than has been previously paid, the help will remonstrate and ask to be paid the full price. Then the contractor tells them, “I have nothing to do with the price. The price is made for me by the manufacturer.” That is, he cuts himself completely loose from any responsibility to his employees as to how much they should get for their labor . . . . The help do not know the manufacturer . . . . However much the price for labor goes down there is no one responsible.”i

Substitute for “the manufacturer” in this quotation the words “Walmart”, “Tommy Hilfiger”, or the like, and the story is the same – but with one key difference. In the U.S. garment industry in the early 20th century, both the controlling businesses – the manufacturers — and the contractors were concentrated in New York and a few other Eastern cities. Today, the two sides of the business, and the employees of each, are separated by borders and oceans.

In the early decades of the twentieth century, the ILGWU won massive strikes and key support from liberal allies like future Supreme Court Justice Louis Brandeis, future Labor Secretary Frances Perkins, and New York Governor, then President Franklin Roosevelt. In the 1930s, they ended the practice of union manufacturers denying responsibility for the contractor employees who made their clothes. They negotiated collective bargaining agreements with BOTH sides of the business. They required union manufacturers to use only union contractors, and union contractors to work only for union jobbers – and organized the majority of workers on both sides. The success of this mutual responsibility system in pushing sweatshops to the outer margins of the industry was so obvious that even conservative Republicans — including Senators from Robert Taft to Barry Goldwater, and then-junior Supreme Court Justice Antonin Scalia — eventually endorsed and enforced the union’s exceptional “secondary boycott” protection. It worked, as nothing else could.

Could it also work today, and in other industries as well? Could U.S. workers pressure Walmart, for example, to guarantee fair wages and conditions for workers at its overseas contractors? Could Walmart’s indirect employees in Bangladesh or elsewhere coordinate with U.S. unions, and political allies in both countries, to assure enforcement of fair labor standards? What role could Walmart’s direct employees in China’s many Walmart stores, play? Certainly, these are conversations that should take place (and perhaps they are).

Over the same long weekend as the Bangladesh fire, and the nationwide demonstrations there, U.S. workers in hundreds of locations, also acted in nationwide concert to challenge the Walmart dictatorship. It was a courageous and key step toward a fairer world. But as these U.S. workers well understand, they need all the solidarity they can get – just as the garment employees around the time of the Triangle fire needed solidarity in their day.

By standing up where they are, Walmart’s militant indirect employees in Bangladesh, and other countries around the world, also strengthen American workers’ hand in dealing with the same employer. U.S. workers’ actions similarly open up paths to cooperation against the common adversary.

Each union, and workers in each country, will have to work out its own path to solidarity and victory, but to stand on equal footing with our employers, unions must cross geographic barriers employers crossed long ago.

And as workers seek new paths today, who better to learn from than garment workers of an earlier day? Those immigrant women and men, speaking numerous different languages, broke through a previously impregnable barrier to hold the real powers in the industry — the manufacturers (since then updated to include retailer-jobbers like Walmart) — responsible, by contract and under law, for the employment conditions they fostered. Through massive strikes and struggle, they established a principle of manufacturer responsibility for decent conditions for ALL employees, direct or indirect. That principle was once widely implemented and accepted, but the ILGWU’s power was lost when we failed to follow the work across national borders. The principle largely disappeared with the union, though unions like UNITE HERE are working to rebuild it today.

The confluence of events over the past weekend must be recognized, and consciously continued as a step toward global worker power.

i Report by the U.S. Industrial Commission,” Volume XV, 1901; as cited in “Out of the Sweatshop,” by Leon Stein, New York Times Book

Carl Proper was a working member, then staff member of the International Ladies’ Garment Workers’ Union, then UNITE, then UNITE HERE from 1972-2011.  He is now retired.

With Power Comes Responsibility

With Power Comes Responsibility

Carl Proper

December, 2012

 

"Goods produced under conditions which do not meet rudimentary standards of decency should be regarded as contraband and ought not to be allowed to pollute the channels of interstate trade.” – President Franklin D. Roosevelt, 1938, calling for passage of Fair Labor Standards Act (FLSA).

“Most people would still be really disturbed if they saw where their iPhone comes from.”  former Apple executive.[1]

..

On June 22, 1987, the conservative Reagan Administration asked the Supreme Court to uphold Roosevelt’s principle, as embodied in the Fair Labor Standards Act, against CitiCorp (now CitiBank).  They acted on behalf of workers who had gone unpaid for the weeks before their employer went broke.  CitiCorp had acquired the clothing manufacturer’s production out of bankruptcy, but the products were now “hot goods,” the Court ruled.  They could not be sold until the workers were paid all wages due them.  Liberal Justice Thurgood Marshall (previously Chief Counsel for the NAACP) wrote the Court’s opinion, with conservative Justice Antonin Scalia (still serving in 2012) concurring.

Today, things are different.

No iPads, or other Apple computer products, to cite a contemporary example, were blocked from sale this Spring following revelations of extensive labor abuses in their factories.  On the contrary.  As the Bloomberg news headline noted on March 16: “Apple Stores Packed, Sales Boom as New iPad Debuts”.  This was despite widespread publicity about abuses leading to deaths by suicide and by explosion at Foxconn or other Apple contractor factories. “We’ve known about labor abuses…for four years,” one Apple executive told a New York Times reporter.  “They’re still going on….Why?  Because the system works for us.  Suppliers would change everything tomorrow if Apple told them they didn’t have another choice.[2]



The directly affected workers, of course, were among Apple’s 700,000 –plus subcontractor employees in China.  Overseas contracting today is a sort of “get out of responsibility free” card for U.S. corporations.  But, given the predominance of globally outsourced production by U.S. manufacturers, it is well past time to consider why there are no global rules – or American rules – that are effective in policing global employers.  Conditions where much U.S. production is done now recall the U.S. sweatshop world of one hundred years ago, before the 1911 Triangle Shirtwaist factory burned in New York’s Washington Square, killing 146 employees and drawing world attention to unjust and inexcusable working conditions.

And, as happened a century ago in the U.S., there are growing protests by Chinese workers against unchecked exploitation.  These include riots by indirect Apple employees in overcrowded “dormitories” on Foxconn property and threats of mass suicides.  More effectively, youthful workers at Honda and Toyota, and some other foreign-owned factories, have staged successful strikes, resulting in pay increases and formation of independent local labor unions, formal or otherwise.

Worker protests, and the threat of more to come, together with the embarrassment of the negative news in the U.S., have wrung promises of reform from Apple and its most favored assembly contractor, in China.  How far these reforms go remains to be seen.

On the U.S. labor scene, on the other hand, news tends toward premature reports of the death of organized labor.  The resurgence of what French economist Thomas Piketty has termed “crazy inequality” in the U.S. is fodder on the nightly news.  Nominally “U.S.” corporations play the role of global sovreigns, playing the U.S. off as just one more country bidding for their investment.  While manufacturing workers here have not yet seen their wages cut to “globally competitive” levels, the thought that earnings trend lines in the U.S. and China may cross in the foreseeable future is no longer a joke.

Americans with some sense of history should be asking how it is that workers and voters in the early and mid- 20th century were able to set real limits on corporate power, but so many now acquiesce to a corporate challenge not only to organized labor, but to electoral democracy as the way our most important decisions are made.

To understand the 20th century victories of the common man and woman, I turn to the union and industry where I worked, first as a production worker at raincoat manufacturer Forecaster of Boston in the 1970s, then for thirty-five years as a union organizer and representative for the International Ladies’ Garment Workers’ Union (ILGWU) and its successor unions, UNITE and UNITE HERE.

The early union members in the U.S. garment industry, around the turn-of-the-20th -century, were mostly immigrant Jewish women and men from Russia and its sphere of influence, or from Italy.  They lived together in tuberculosis-ridden tenements, worked together in rat-infested sweatshops, struck and won together in massive general strikes.  They were beaten back for a time as manufacturers outsourced their work to tiny sweatshop contractors, but developed new ideas in negotiations and in union classes.  Eventually, with a boost from the Roosevelt Administration, they won contracts requiring their REAL employers (the manufacturers) to guarantee fair wages, benefits and working conditions – even in the contractor shops.  The manufacturers agreed because they won also:  the ILGWU signed agreements with industry Associations representing whole sectors of garment production, leveling the competitive playing field, and allowing reasonable profits.  Both workers and employers also won when, through political action, the ILGWU gained and defended the right to picket any employer who did not sign an Association contract.

The workers and leaders who won these historic victories believed they were fighting not just for better pay, but to build a better world.  Many were socialists or communists and they were internationalists in origin, ideology and behavior.  At the founding “Convention” of the ILGWU, in 1900, eleven union activists from New York, New Jersey, Baltimore and Philadelphia, with a treasury of less than one hundred dollars, declared themselves an “International” union.  As refugees largely from an unassimilated minority in an oppressive empire, they saw their poverty as the result of injustice – never as a mark of failure.  They knew they, and their class, were destined to rise and to win in this new world – and they did.  We owe them many of the rights we enjoy today.

In 1909, 30,000 mostly women garment workers struck through the winter in New York, and won an initial victory in the “shirtwaist” industry.  In 1910, 50,000 mostly men in the coat and suit industry walked out, and eventually settled a “Protocol of Peace” with their employers.  Future liberal Supreme Court Justice Louis Brandeis helped negotiate the settlement – but only after the workers struck on a massive scale, and made demands.  When, in 1911, more than 100 young women and men died in a wholly preventable factory fire at the Triangle Shirtwaist Company in New York’s Washington Square, union demonstrators and their supporters turned even that to a good purpose – the beginning of state and eventually national health and safety legislation.

Then, as employers responded to workers’ power by closing their directly owned factories and outsourcing work to tiny, fly-by-night sub-contractors, the union was cut to less than half its former size.  Undaunted, the union developed and promoted to its political allies a model for regulating the industry.  They would hold the REAL employers – the manufacturers who owned the garments — responsible for providing decent conditions for ALL workers producing their goods, contractor employees included.

In 1933, new President Franklin Roosevelt seemed ready to sign a deal with employers to freeze workers’ wages until 70,000 garment workers walked off the job in New York City, and 20,000 more walked out in Camden and New Haven.  Desperate employers signed new contracts including industry-wide manufacturer responsibility, conditional on Roosevelt Administration approval.  Following the owners, Roosevelt responded to the union’s hard-fought victory, and approved the deal.  The union – victorious first on its own terms — followed through by turning away from Socialist candidates and committed going forward to the Democratic Party.  Garment workers, even those employed by sub-contractors, began rising toward a new middle class.

In 1947, there came a dramatic confirmation that the ILGWU / New Deal system still worked for everyone.  The new Congress, the first Republican Congress since the Hoover Administration, rewarded its backers by enacting the harshly anti-union Taft-Hartley Act.  This law forbid (among other changes) workers from picketing one employer to help organize another (a “secondary boycott”).  But an exception was made for the ILGWU.  Speaking on the floor of the Senate, “Mr. Republican,” Senator Robert Taft, acknowledged that the garment manufacturer was the “virtual employer” of his contractors’ workers, and alone had the power to prevent sweatshops.

A similar scenario followed in 1959, this time with an exception to the mostly anti-union Landrum-Griffin Act.  Right-wing Republican Senator Barry Goldwater, in a Senate floor dialog with Democratic Massachusetts Senator John F. Kennedy, noted that “We conferees are in the very peculiar position of every one of us agreeing that we do not intend to upset the status quo of the garment or apparel industries.” [3]

Finally, in the Supreme Court case cited at the top of this article, the Republican Reagan Administration and Justices from the left and right of the Supreme Court again confirmed the principle first won through a generation of massive strikes.  With regard to the sweatshop-prone garment industry, the dominant employer could not duck responsibility to the folks actually producing its goods through the subterfuge of outsourcing the work.

Opposition to U.S. sweatshops, for a time, was not a partisan issue.

Then, globalization – of a certain kind – happened.  A small Massachusetts employer, being squeezed out of business, told me about a bill he had seen to The Limited store chain from a Chinese source, in the early days of global outsourcing.  The bill didn’t even include the price of labor, which, compared to other costs was effectively zero.  Manufacturers at first seemed stunned as they realized that neither the union, nor U.S. government regulators, nor the jobs-hungry governments of Mexico, Indonesia or China, were prepared to demand just conditions for workers – and their new indirect employees, even those with nominal labor rights in their own countries, were in no position to make any demands.  Corporate America had died and gone to heaven.

Other industries quickly followed the garment example, relocating production to so-called “third world” countries, where worker rights laws could be largely ignored. A succession of “Free” Trade agreements – opposed by unions in all countries – moved through Congress.  Many liberals split with labor on this issue, seeing “buy American” appeals as selfish and nationalistic, but not foreseeing the depressing effects on the earnings and power of recently liberated African Americans or other U.S. workers. Over time, even working class consumers dealing with declining incomes succumbed to shopping strictly for the lowest price items.  People stopped asking WHY the goods were so cheap:  they knew the answer as they looked at their own paychecks. For management, the old contentious days of sharing power and wealth with organized employees appeared headed toward the dustbin of history.

As for the common worker – the intuitive conviction that a worker actually “owned” a job, as long as s/he put in a good days’ work every day, won no backing from the new breed of economists.  Workers’ intuitions, and the shock from seeing their interests ignored, were global.  In 1987, as I attended an international conference for garment union activists, a Philippine union representative spoke to me of a Sara Lee[4] garment factory that had located earlier to his country.  The plant had recently closed and moved to China, leaving no hope behind.  “Those were our jobs,” he insisted. How could this U.S. employer simply take them away?

The 1999 “Battle of Seattle”, where union members and environmentalists joined together in the streets, demanding shared power with corporations in overseeing world trade, was a high point of globalized labor resistance to the new “neoliberal” economy.  In the aftermath of the demonstrations, however, elected officials continued moving away from the New Deal alliance with labor and into a global anti-worker alliance with corporate interests.

Thus unchecked, U.S. corporate power in our day now looms as an overpowering threat to the once superior rights and conditions of the 99% at home.  As they have succeeded at taking on and taking down workers in one industry after another, now including the public sector in state after state, few organized workers are left to resist.  In the wider world, however, a challenge looms:  “state capitalist” nations like China, bankrolled by U.S. corporate investment, are confronting American corporations now divorced from their own base.  In the pursuit of profit gained not from the common effort of all Americans, but from increased exploitation in the U.S. and abroad, the greed of corporate America risks sinking the ship that once sheltered them along with the rest of us.

Where will powerful resistance to the Age of Greed come from?  We might start by looking to a surprising group of workers, with something in common with our Jewish immigrant fore-mothers one hundred years ago – to a new generation of internal migrants from the rural areas of China.  Like the twentieth-century American socialists from Russia and Eastern Europe, these young people expect a better life than their parents, and have little tolerance for the rampant corruption of that country’s new elite.  But what, if anything, can we, or they, learn from the history of American workers and industry in the 20th century?  And what can we now learn from activists in China?

Within the ILGWU, the socialists eventually defeated the communists, and then moved on to become New Deal liberals.  They had seen how unchecked competition led again and again to extreme instability in the garment industry.   They developed, fought for and won a new system, in which the real powers, the brand-name manufacturers, were held responsible for the conditions of all workers.  As all prospered, a consensus was built against sweatshops that lasted for fifty years.

The power of those early garment workers was greatly enhanced by their highly concentrated employment in the “garment districts” of New York and other cities, and even by their concentration in tenement housing.  This was equally true for the tens of thousands of workers employed in the textile mills of Lawrence, Massachusetts in the years leading up to the great “Bread and Roses” strike of 1912.  And it will prove true for the millions of manufacturing workers in China in our day.  Already, the workers at dominant employer Apple’s favored sweatshop partner, Foxconn, have won better conditions and significantly higher wages from a succession of protests, with solidarity facilitated by plants where thousands work elbow-to-elbow, then retire to on-site company dormitories.  At Honda and other foreign-owned auto manufacturing plants in China, young workers have won strikes at one plant and then quickly spread word to others with their mobile phones – a sort of “virtual” concentration of potential power.  Rebellions against arbitrary authority have also taken place in many Chinese towns and villages – and often, authorities have had to back down.

A few courageous Americans have played a part as advisors to Chinese organizers, or even, in the case of former Teamster, writer and activist Tim Costello, joining in rewriting Chinese labor law to include the right to form independent labor unions.  In a eulogy to Costello (who died of cancer, two years ago), Professor Liu Cheng, from the Faculty of Law and Politics, Shanghai Normal University commented that:

Mr. Costello’s work is a worldwide contribution.  Working people of the world shall remember him forever. We shall carry on the unfinished lifework of Mr. Costello to struggle hard for the working people so as to reach a harmonious world of the people, by the people, for the people.

But in China today – and now in the U.S. as well – largely unchecked economic power works hand-in-hand with unchecked and corrupt political power, as in the latter years of America’s19th century.  In both countries, popular anger is rising, but in China, there is now more hope and rising expectations.  Already, worker demands are raising living standards in China, making room for rising standards throughout East and Southeast Asia.

We know, from our own history, that while the sympathy of the well-off can be of assistance, employers and political leaders – even friends like Franklin Roosevelt – ultimately respond most to demonstrations of real worker organization and power.  We proved in the early years of the twentieth century that workers can only defeat outsourced sweatshops by holding the dominant manufacturer responsible.  We have experienced in recent decades the futility of demanding an end to imports, and the falling wages at home that result from unchecked exploitation of workers in other parts of the world.

For working people to recover our lost rights and powers, we must respond globally. We have tried nationalism – and it has failed.  “Workers of the world, unite!” is now necessary just to catch up with capital.

The 1909 shirtwaist strike that ignited the ILGWU was called by a 17-year-old immigrant girl.  The first Honda strike in China was called by a 23-year-old migrant man. The rising generation of young Americans and young Chinese will not surrender to the limitless greed of those they have defined as the one percent.  But the history of U.S. garment workers points to the need for cooperation between workers confronting the employer at its home base – typically in the U.S. or Europe — and workers manufacturing the final product – including in China or elsewhere in emerging economies.  For workers anywhere to achieve justice, we must hold employers globally accountable, by union contract and by law, to both direct and virtual employees.


[1] “In China, Human Costs are Built into an iPad,”, Charles Duhigg and David Barboza, New York Times, 1/25/12

[2] ibid

[3] 105 Cong.Rec. 17381 (1959) (remarks by Sen. Goldwater of Arizona)

[4] At the time, Sara Lee owned Hanes and Wrangler brands.