Casualties of Corporatism, Obama-Style

Carl Horowitz
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Posted: Jan 23, 2010 12:00 AM
Casualties of Corporatism, Obama-Style

The federal takeover of General Motors and Chrysler has produced its share of collateral damage, but perhaps no group of persons has been left in the lurch more than the roughly 15,000 nonunion salaried retirees of auto parts manufacturer Delphi Corporation who are unlikely to receive their promised benefits. Their dilemma has much to do with Delphi having been until a decade ago a GM subsidiary. It also has plenty to do with how the Obama administration sees GM and companies like it.

To understand the predicament of these employees, it’s first necessary to digress briefly on the Obama economic worldview. In a word, that worldview is corporatism, or if one will, State-sponsored capitalism. Under corporatism, government provides central direction to capital and labor, but unlike socialism, it refrains from assuming direct control. What government does is forge partnerships with executives of powerful firms, coax them into working toward common goals, and provide them with funds, expertise and force of law. Corporations effectively become the for-profit arm of the executive branch of government. And because political connections take on special importance in this context, the possibilities for corruption vastly increase. Though corporatism for several decades has been more a phenomenon of Western Europe than of America, we seem bent on catching up in a hurry.

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The corporatist spirit was in clear evidence during the last several months of the Bush administration, a period during which hundreds of billions of assets of the nation’s largest financial houses suddenly became worthless. Led by Treasury Secretary Henry Paulson, a frantic administration persuaded Congress to authorize $700 billion for a bailout known as Temporary Asset Relief Program (TARP). Then-Senator Barack Obama, sensing a teachable moment, sharply criticized President Bush’s “stubborn inflexibility” for not considering a diversion of TARP funds from rapacious banks and corporations to needy households. Populist rhetoric of this sort helped generate support from independent voters and win the election.

That was then. Now many on the Left, stunned over a seeming reversal of fortune, are crying “foul.” They claim Obama in short order has become a shill for big business, in the process betraying his idealism. Matt Taibbi, writing in the December 10 issue of Rolling Stone, groused: “Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place.” Well, Matt, welcome to the real world. The truth is that Obama, first and foremost, is about centralization of power. He’s never had any intention of changing the basic rules of the game beyond moving them several steps leftward. Those corrupt, scruffy ruffians at ACORN are useful only insofar as they can get (and keep) him elected.

Many of Obama’s conservative critics have exhibited a certain naivete of their own, insisting that he’s garden-variety “Leftist,” the ultimate manifestation of Saul Alinsky-style community radicalism gone national. The accusation is at once true and misses the larger point: President Obama’s primary commitment is to progressive corporatism. He doesn’t hate business – far from it. Two of his top campaign donors, in fact, were Chicago-based corporate billionaires Neil Bluhm and Penny Pritzker. What Obama seeks is to persuade major companies into accepting power-sharing arrangements and in return provide them with protection from upstart competitors.

Major corporations, especially if they’re on the ropes, see this as a deal they can live with. More access to Washington, after all, means less chance of failure. Thus, GM (at least under its government-appointed CEO) and Chrysler, as the price of survival, accepted a Treasury Department-brokered plan to provide the United Auto Workers (UAW) with respective equity stakes of 17.5 percent and 55 percent. Citigroup ceded 27 percent of its assets to the government, having received $45 billion in federal loans. And American International Group (AIG), having bet disastrously on mortgage-related credit default swaps, has accepted its status as a ward of Washington, having received $182.3 billion in bailout funds. Corporations also are dedicated lobbyists for government intervention. Leading the charge for Obama’s universal health care plan, for example, have been pharmaceutical and insurance industry leaders such as Pfizer, Eli Lilly, Abbott Laboratories, Aetna, Cigna and United Health.

Washington Examiner columnist Timothy Carney, in skillful and layman-friendly fashion, argues that corporatism is the animating force behind current White House economic policy. His new book, “Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists and Union Bosses” (Regnery), sees Obama as committed to shifting economic decision-making from consumers, workers and investors and to politicians, lobbyists, bureaucrats and businessmen who benefit. Democrats, the author emphasizes, differ somewhat from Republicans, but not that much. While they court labor unions (themselves a variation of Big Business) as partners, they don’t question the corporatist model. How else does one account for executives and employees of Microsoft, Boeing and General Electric giving far more generously to the Obama campaign than to the McCain campaign?

Carney’s book, which features a Foreword by Congressman Ron Paul, explains why government, business and labor, though mutually antagonistic on the surface, often close ranks to promote their interests. The idea that Big Business and Big Government are at mortal odds, Carney argues, is “the Big Myth,” a myth especially onerous in that it gives “progressives” moral cover to denounce profiteering while protecting or even engaging in it once they acquire power. The result is that Washington, D.C. under Obama more than ever has become a corporate favor factory – especially to the auto industry.

GM and Chrysler now operate under the supervision of Obama administration “car czar” Ron Bloom and his immediate boss, Treasury Secretary Timothy Geithner. During the waning months of the Bush administration, the automakers pleaded for and eventually received a combined $13.4 billion in emergency loans and stood to receive another $4 billion contingent upon the government’s acceptance of restructuring plans. This would prove a dress rehearsal for full-fledged takeovers in April by the Obama administration, which found the reorganization proposals unacceptable. (The more solvent Ford avoided a similar forced bankruptcy). In return for liquidating outstanding company obligations, the federal government, through a combination of cash and loan proceeds, bought a 61 percent equity stake in GM and a 10 percent equity stake in Chrysler. As mentioned earlier, it also delivered sizable stakes to the UAW. (Fiat, by the way, got a 20 percent piece of Chrysler, a share that could rise to 35 percent).

When the dust settles, it will be a costly rescue. For one thing, taxpayers – that is, most of us – will pay an estimated combined $30 billion subsidy out of the $82 billion loaned. If it’s any comfort, this subsidy is a downward revision of an earlier estimate of $44 billion. Bondholders already have been taken to the cleaners, receiving pennies on the dollar on their claims. Retail auto dealerships, as part of a cost-cutting program, also stand to lose. GM announced it would cut 2,400 mainly smaller-volume dealers from its 6,000-member network, while Chrysler would eliminate nearly 800 dealerships, about a fourth of its network.

But few are reeling quite like nonunion retirees of Delphi. The Troy, Mich.-based corporation, with nearly 150,000 employees worldwide and $18.1 billion in revenues in 2008, had been the parts division of General Motors until it was spun off as a separate publicly-held firm in 1999. The reorganization didn’t stave off a meltdown. Delphi went into bankruptcy in October 2005, hammered by high benefit commitments and revelations of accounting irregularities. And though it climbed out of bankruptcy four years later, its pension plans remain underfunded, so much so that this past July Delphi terminated them, sticking the federal government’s Pension Benefit Guaranty Corporation (PBGC) with a long-range tab now estimated at $6.7 billion. (That PBGC itself one day may require a bailout is a separate issue).

The burden won’t be shared equally. Part of the government takeover agreement states that GM must cover a $4.3 billion pension shortfall for wage-earning union workers who had been with Delphi as of 1999. The company, however, will not have to do likewise for the $2.5 billion pension deficit for Delphi’s nonunion salaried retirees. Nor will it have to provide the latter group with health or life insurance coverage. Thus, some 15,000 former administrators, purchasing managers, engineers, bookkeepers and other white-collar employees, many having worked for the company for decades, are being hung out to dry. “We have been discriminated against overtly by our federal government, which chose winners and losers between the union and nonunion individuals,” notes Den Black, interim chairman of the Delphi Salaried Retirees Association.

Black, along with the heads of GM, Chrysler and Ford’s nonunion salaried retiree associations – respectively, Jack Dickinson, Chuck Austin and Don Whitehouse – already had sent a long letter to Treasury Secretary Geithner and National Economic Council Director Lawrence Summers dated March 24, 2009 requesting that President Obama’s Automotive Task Force give them an opportunity to lay out their major concerns regarding industry restructuring. The letter read:

It is evident that non-union retirees are facing an economic tsunami. Our investments have been devastated by a precipitous drop in the stock market and employers are abandoning non-union retirees by eliminating as many benefit programs as possible for cost-cutting purposes. As a consequence, non-union retirees face rising medical costs on fixed incomes and devastated savings. In addition, non-union retirees face an uncertain future relative to their pensions. The domestic automobile industry is in the midst of a massive restructuring and needs federal loans to stay solvent. Consequently, not only the survival of the companies is at risk but also the pensions of all retirees.

The salaried retiree representatives called for such measures as forcing the automakers to enhance contributions once their own positions improve; preventing pension funds from being diverted toward employee buyouts; and maintaining supplemental benefits during company restructuring. While not begrudging union employees’ right to a decent retirement, the authors are wondering why nonunion employees can’t get the same measure of protection. “None of this was driven by contractual obligations,” Black remarked. “This was driven by political considerations and Treasury telling GM what it would do.”

His organization and several individuals have taken action. For one thing, they filed a civil suit in U.S. District Court for the Eastern District of Michigan this past September alleging that PBGC had violated federal pension law by failing to obtain court approval of its termination of Delphi’s defined-benefit plans and failing to safeguard the interests of participants and beneficiaries. The complaint charges that Delphi’s plan administrator knuckled under to extreme pressure. As it stands, nonunion Delphi employees stand to lose anywhere from 30 percent to 70 percent of their pensions, while employees who took an early retirement might not see a dime because PBGC doesn’t pay “supplementary” benefits. The company had not made any contributions during its four-year period of bankruptcy. By contrast, the salaried retirement group notes, Delphi “topped off” (i.e., protected the full benefits) pensions of unionized hourly-wage retirees.

Here’s another fact worth mentioning: Treasury Secretary Geithner sits on the PBGC board of directors.

The Delphi retiree group also has taken its case to Congress, gaining separate hearings in the House and Senate. On October 29, a panel of the Senate Committee on Health, Education, Labor and Pensions, chaired by Tom Harkin, D-Iowa, convened a hearing on the disparate treatment of Delphi employees. Sen. Harkin, long a union partisan, didn’t offer too much encouragement for the salaried retirees. The primary victims of injustice, he intoned, were union workers “who labored right alongside their brothers and sisters, but are not being made whole on their pensions.” (In point of fact, GM had agreed the previous month to rectify this imbalance.) By contrast, Harkin referred to the far greater plight of salaried nonunion retirees almost as an afterthought. Ranking Minority Committee Member Sen. Michael Enzi, R-Wyo., at least, understood that nonunion employees got a bad deal. “Everyone needs to know and understand what promises were made, who negotiated the deal, and how this administration also pre-packaged the GM bankruptcy arrangement,” he said.

On December 2 the House Education and Labor Committee, Subcommittee on Health, Employment, Labor and Pensions, held its own hearing. Rep. Tim Ryan, D-Ohio, whose Youngstown-Akron district is home to some 5,000 Delphi salaried retirees, stated, “So the people least responsible for the bankruptcy of a company like Delphi are in the end, the ones who lose their job over it.” Ryan has introduced legislation, H.R. 3455, to establish a Voluntary Employee Beneficiary Association (VEBA) for former Delphi employees. The measure would use unspent TARP funds to provide health coverage to uncovered hourly and salaried workers. House colleague Michael Turner, R-Ohio, whose Dayton district has about 1,000 salaried Delphi retirees, likewise remarked: “All of these retirees, regardless of labor affiliation or not, worked alongside each other during their careers. They should not be treated differently in retirement. Congress and President Obama’s administration owe it to these hard-working men and women to pursue aggressive oversight in this matter, and to work toward a solution.”

Perhaps the most telling comments have come from nonunion Delphi retirees themselves. Here are a few longtime ex-employees responding to an article appearing in September in the congressional daily newspaper, The Hill. Fred Arndt wrote:

I had 32.5 years with GM and Delphi, and now I’ve been thrown under a bus by GM, Delphi and the Government. I hear a lot of talk about help in Washington but nothing is happening. President Obama only wants to help the unions. Just look at the facts.

Julianne Kronoshek weighed in with this comment:

I worked as a salaried employee for GM a total of 35 years and 9 months for Delphi. I will not receive the benefits that union employees will receive from GM, and many of those union members never worked for GM. Explain to me how you can justify this intrinsically obvious discrimination against a class of people.

Garry Gilliam also had something to say:

As a Delphi salaried employee who worked 39.3 years for GM and 9 months for Delphi, I think I have a right to feel both angry and abandoned as to how unfairly being a Delphi salaried employee we are treated by the Obama administration, GM and Delphi regarding our pension and health benefits. Salaried employees were not allowed and did not attempt to form a union because we were always told we would receive the same benefits as our union work force. I ask you, is this justice?

Well, actually, it isn’t. But the Obama administration, committed to a progressive-corporatist worldview, measures justice by progress in achieving broad societal goals through partnerships with major corporations and unions. Timothy Carney writes: “The real lesson of Obamanomics is this: Be big or go home.” It looks as though nonunion retired Delphi employees just aren’t that big.