Sal Rosselli’s excerpts from the 2007 Leadership Conference

Sal Rosselli at the SEIU Puerto Rico Convention 2008

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Resignation Letter of Sal Rosselli from SEIU Executive Committee

February 9, 2008 (A year ago)

Andrew L. Stern, President SEIU
1800 Massachusetts Ave., N.W.
Washington DC 20036

Dear Brother Stern:

Like you, I take great pride in the recent growth of SEIU and the prominent position our union holds in the labor movement and in public policy debates of critical importance to working families. I was honored four years ago when you appointed me to your executive committee. During the previous eight years, we had worked together constructively to help hundreds of thousands of health care workers in California and beyond join our union and change their lives.

In United Healthcare Workers West (UHW), we have always believed that our international union should be about more than numbers and headlines. Over the past two years, a stark difference has evolved between SEIU’s projected image and its real world practices. An overly zealous focus on growth – growth at any cost, apparently – has eclipsed SEIU’s commitment to its members. As labor leaders, we are obligated to place the needs of our members first and to uphold democratic principles not only in the workplace, but also in our union. That is increasingly being blocked, circumvented and manipulated.

It is said that “democracy dies in the darkness.” It is with deep disappointment and great concern that I have watched dark shadows fall upon SEIU, diminishing our hopes for revitalizing the labor movement. Let me shed some light on the undemocratic practices we in UHW have experienced firsthand:

# You unilaterally decided to eliminate the Catholic Healthcare West (CHW) Unity Council and appointed an International Union consultant to manage our collective bargaining relationship, even though the Council’s creation was adopted by CHW rank-and-file leaders and approved by the International Executive Board. By all accounts, our relationship with CHW had been enormously successful and had led to significant growth and dramatic improvement in the lives of SEIU members who work at CHW. Your decision potentially weakens us just as we are about to enter negotiations for 16,000 CHW employees, jeopardizing the lead contract of our 2008 contract campaign that has lined up the expiration dates of nearly 100 acute care hospitals covering approximately 100,000 caregivers.

# Similarly, you silenced workers’ voices in bargaining with the California Nursing Home Alliance by directing International Union representatives to meet with our employers behind our backs and then abused your power by barring UHW members and staff from participating in direct negotiations with our employers, despite the fact that UHW represents 75 percent of the nursing home members in bargaining. Based on our recent meetings with representatives of the nursing home industry, it is obvious that the International Union’s secret discussions with our employers are continuing.

# You recently decided to intensify the divisive debate about separating long-term care workers from hospital workers in California which will further undermine our unity just as negotiations commence for contracts at more than 100 nursing homes – contracts we fought for years to align on a common expiration date of June 2008 — in order to win major improvements for caregivers and residents and secure organizing rights for workers in as many as 98 additional facilities, including 17 where organizing drives are already under way.

# Despite our representation of the largest number of workers in Catholic health care of any SEIU local and the direct involvement of two employers with whom we are engaged in active campaigns, you exclude UHW from participation in discussions with the United States Conference of Catholic Bishops. In response to our request for review of your decision, you have now scheduled a hearing in Chicago for February 12, with only 8 days’ notice, whose scope is far broader than anything approved by the International Executive Board, on the alleged ground that it is necessary to review all aspects of our Catholic health care employer relations and representation, raising the specter that these matters will be placed entirely under control of the International Union and its bureaucracy where rank and file members will have no say, and no ability to affect their workplace destiny.

# In a deliberate attempt to create instability in important ongoing organizing campaigns by fomenting mass resignations among our Southern California organizing staff, your officers and staff helped orchestrate the recent resignation of Southern California Organizing Director, Amado David, whose letter of resignation appeared to have been created on SEIU equipment weeks before his resigning and is now being circulated by you to other SEIU leaders, all as a pretext for taking further action against UHW’s leaders and members. Despite this attempt, our UHW Southern California organizing program remains fully staffed and staff remain committed to UHW’s organizing program.

# You and other international officers interfered in the affairs of the SEIU California State Council – our collective vehicle for state legislative and electoral action – using the imposition of a revised constitution and bylaws to prompt a presidential election when none had been anticipated, then manipulating the per capita voting formula and procedures in order to produce the outcome you desired. Ultimately, you permitted provisional locals with no members (and locals that have never paid per capita) and locals that were months behind in per capita payments (owing the State Council nearly $2 million) to vote in the election so that you could control the outcome of the election and seat the leader of your choice.

# Your secret meetings with Governor Schwarzenegger and other elected officials, without the participation of SEIU California leaders, fatally weakened our many years of disciplined work to bring about true health care reform. Those secret discussions with the governor and his staff led them to believe that SEIU – and the labor movement along with us – would settle for far less than was necessary to protect the interests of working families or to win the support of California’s voters. The final deal that was struck, while far better than the settlement you had recommended, was flawed and tainted as a result of your actions and was politically doomed.

# Just last week you attempted secretly, although unsuccessfully, to squelch the SEIU California State Council’s endorsement of Barack Obama for President.

# You removed a UHW administrative vice president from the Executive Board of the California United Homecare Workers Union (CUHW) for asking questions about “budget and allocation of funds.” Your actions like this have created a culture of fear throughout SEIU, making local officers, members and staff afraid to speak up for fear of reprisal.

# Your international officers and staff manipulated voting procedures in Unity Council bargaining with Tenet Healthcare in order to thwart the will of the members and achieve your desired outcome. Specifically, international officers tried to cast “per capita” votes on behalf of unorganized workers who had no knowledge of the negotiations, paid no dues to SEIU, and were not even in the process of forming a union. Your failed effort would have given away our members’ right to strike for seven years and would have forced them to accept lower standards.

As you know, UHW (formerly Locals 250 and 399) is the oldest health care union in the country, with 75 years of proud and historic accomplishments. We stand for the principle of one member, one vote and the basic belief that members must have a seat at the bargaining table and the right to vote on all agreements that affect them. We believe that involving members at all levels of our union, providing rank-and-file workers with the support they need to decide our direction and lead our struggles, while winning good contracts that improve caregivers’ lives and the quality of the care we provide. These are the best examples we can use to organize the unorganized. Consistent with this, we believe that the deterioration of democracy in our union will have disastrous consequences.

The Nursing Home Alliance agreements and others negotiated by the International Union appear to relegate entire categories of workers to permanent second-tier status, without basic rights and standards to be expected in a union contract or any reasonable hope of achieving them. This transactional exchange of members’ rights and standards for greater numbers contradicts the core mission of SEIU. We must be committed to fight for higher standards so that workers who perform the same work will ultimately earn the same pay and benefits, regardless of the identity of their employer.

Let me be clear. We fully support a culture of organizing and strongly approve the goal of organizing our core industries. We also understand the obligation that union strongholds like California and New York have to help organize health care workers outside those two states. Our own organizing record, our leadership in developing and supporting the organizing recommendations of the President’s Committee 2000 and the establishment of the Unity Funds, our successful bargaining-to-organize fights in CHW, Tenet and HCA that led to growth opportunities outside of California, and our direct assistance to local and international organizing efforts throughout the country leave no doubt regarding our commitment.

Each year UHW provides $23 million in per capita payments and Unity Fund contributions to the International Union. We do so, even though this is the fourth straight year in which not a dime is spent in California. However, we cannot support, as you propose, sending even more of our organizing dollars to Washington and giving the International Union even greater control of their use when so many of SEIU’s organizing ventures have not and will not build power in our core industries, which was the purpose of the dues increase. Furthermore, we see an ever diminishing International Union commitment to improve workers’ lives now or in the future.

Much of what I have outlined here I have said to you directly and in Executive Committee meetings. I have abided by the code of conduct for Executive Committee members that requires what is said in the committee to stay in the committee and that positions adopted by majority vote of the committee should determine the position of all its members.

In good conscience, I can no longer allow simple majorities of the Executive Committee to outweigh my responsibility to our members to act out of principle on these critically important matters. I say this with no ill will, but with a deep sense of conviction.

As an elected leader of UHW and an elected international union vice president, I believe that maintaining my silence about the sacrifice of our principles and our failing to give voice to a clear and honest disagreement about the road we are on and the future direction of our International Union is too high of a price to pay. Therefore, my conscience leaves me no option but to resign my position as a member of the Executive Committee, effective immediately.

I believe that workers must have a voice. Indeed, that is the central reason I believe in our union. I believe that for workers to have a representative and effective voice, capable of changing their lives and the direction of our nation, many voices must be heard, not just those from Washington. I resign not to walk away, but to stay involved and to be able to speak freely.

In Unity,

Sal Rosselli
President

“When the working class unites, there will be a lot of jobless labor leaders.” –Eugene Debs, 1905 speech

Unions are a modern concept, a product of industrial society. The idea is a simple, but important one — namely that the weak majority must organize collectively to battle the powerful minority — the capitalist, whose will is backed by the power of the State. The individual worker is almost powerless in a non-union workplace, with the choice of obeying the boss or quitting their job for another one.

Unions upset this blissful state of affairs, when these weak, individual workers banded together against the boss, they had considerable strength indeed. Note that this right to collectively bargain was hard-won by workers — much worker blood was spilled by capitalists (through their lap-dog, the State), in order to protect their privilege, power, and profits, which depended on a disorganized, and above all, weak workforce.

Make no mistake: unionism was a powerful, effective social force, and it has always been reviled by capitalists and management, because it cuts into their absolute workplace authority, which they seem to feel is theirs by right, in the style of kings of times past.

In the course of the fight for unionism, different schools of thought emerged — those who looked at the big picture of capitalist society saw that no class peace with Capital was possible; others, unwilling to embrace such a radical, revolutionary agenda, felt that workers and capitalists could reach an understanding of sorts — these folks became business unionists, represented most notably by unions like the AFL-CIO, the UAW, and the Teamsters.

Business Unionism vs. Revolutionary Unionism

With the demise of the Knights of Labor and the Industrial Workers of the World, and countless bloody crackdowns on radical labor organizing, the business unionism view prevailed, becoming, for a time, the most successful labor movement in history.

However, business unionism is in a bad state these days, as they find, to their dismay, their power continually being eroded, particularly as globalization is accelerated, in which Third World workers can be pitted against First World unionized ones, invariably a losing a battle for the First World workers — the company simply says “do as we say or we’ll relocate to another country” — and business unionists are forced to take one more step backward.

It is my belief that business unionism will eventually die out, and we’ll be back to where we were at the turn of the century, where Capital dictates the conditions under which we work without consideration of the consequences — which are invariably measured in the lives of working people everywhere.

Business unionism won out in the past struggles between Labor and Capital, but in the long run, their vision of worker/owner solidarity is a false one, which is unravelling as we speak, particularly in the wake of NAFTA, GATT, and now MAI. Increasingly, it is Capital who calls the shots, and Labor who takes the lumps — which explains why hundreds of thousands of working people have been “downsized” for the sake of corporate profits.

Before I talk about what revolutionary unionism is, it’s important to first talk about what it isn’t, which brings me to business unionism.
THE BUSINESS UNION

What is business unionism? It is, at root, the belief that workers and bosses have common interests, focusing on rhetoric like “getting the job done” and “a fair day’s work for a fair day’s pay.” Business unions function to keep workers working, and profits flowing smoothly into the pockets of business owners. Business unions have long been businesses themselves, with entrenched and powerful bureaucracies, and their conduct over the years has created the image of labor unions as corrupt, inefficient, self-serving agencies (of course, this view is foisted on us by the corporate press, who are by no means neutral or objective in their coverage). Peaking in membership in the 50s, business unions have suffered a long, slow decline since then.

The heart of the business union is the labor contract, under which workers are to labor for the profit of the bosses. The contract phase of labor/management negotiations is notoriously complex, with both groups haggling over pay levels and job retention.

Business unions hold that there is such a thing as a fair wage, and work to ensure the best possible deal with management, in terms of pay and pay raises, and benefits. Business union jobs (those that are left) still remain better paid than their non-union equivalents — this reflects the power of collective bargaining, which remains strong, despite enormous setbacks over the decades.

However, business unions pit workers against workers — if you’ve ever been in a business union, you’ll find a distinct hierarchy evident within the union, favoring the older, higher-paid, senior workers over the younger, lower-paid workers. Make no mistake — if you’re on the lower rungs of this hierarchy, you are cannon fodder in the event of hard negotiations — it will be your job that is sacrificed if push comes to shove, while senior union members will retain their privileges and protections.

Even within this seniority system, there are still higher levels of hierarchy — a business union reserves all decision-making action to labor leaders — the rank-and-file are not to engage in independent activity, but are to remain in lock-step behind their respective leaders — who, particularly as unions grew in power — came to resemble management itself, more and more. All workplace initiative is kept safely at the top of the business union pyramid.

The business union has always revolved around the trade union principle of organizing. That is, they hold that each trade has its own distinct interests, which are independent of those of other workers. As such, they organize around a particular profession or trade, thereby dividing workers into manifold smaller unions, focusing exclusively on their particular interests.

The ultimate weapon of the business union is the strike. Only business union leaders are authorized to declare a strike — when the rank-and-file do so, these unauthorized actions are called wildcat strikes, and are not looked on favorably by business union bosses, because it undermines their power.
THE REVOLUTIONARY UNION

“It was not by gold or by silver, but by labor, that all the wealth of the world was originally purchased.”
–Adam Smith, The Wealth of Nations

The revolutionary union has become a historical relic — the last active revolutionary union is the IWW — the Industrial Workers of the World — which, founded in 1905, was sacked in 1919 by the US government and has not recovered since then. It’s been around, but hasn’t been a major force in Labor for many decades.

Revolutionary unionism remains the great untried experiment — its vision of the world — a world without Capital and capitalist exploitation of workers — hasn’t yet come about. We seem amazingly far from this vision as we reach the close of the 90s.

Will it come about again? Who knows? In some respects, I doubt it, at least in the way it did before, because the State has created a variety of secret police organizations, namely the FBI (created in 1919) and the CIA (created in 1948), who actively work to prevent large-scale social organizing for change. The lesson learned by authorities in response to the great labor upheavals of times past was to infiltrate and destroy popular movements before they get too powerful.

Any new radical unionism must organize under the watchful eye of these and other organizations, which will affect the way these new unions operate. It’s not impossible for a new revolutionary unionism to come about — but it will be a formidable challenge. But then, such is the case with any progressive social movement. The powerful never give up their privileges easily, or out of the goodness of their withered hearts.

Clearly, the revolutionary union view of the reality of relations between workers and bosses is more accurate than that of the business unionists, as recent history only too clearly shows, in the flood of pink slips and factory relocations which have left a devastated workforce in its wake.

So, what is a revolutionary union? It’s easier to say that “revolutionary” describes the tactics and outlook of this type of unionism, which focuses on an unending battle between Labor and Capital (not an endless battle — rather, one where either Capital wins, reducing us to the level of serfs, or Labor wins, in which case capitalism ends), and recognizes that Labor produces all that is of value in society.

The revolutionary union is centered around direct action, as opposed to the strike. The strike is seen as the last weapon of the worker, and not even the most effective one. Workers are most effective in pushing their agendas while still on the job, using a variety of direct action tactics.

In revolutionary unions, there is no status hierarchy between workers — no distinction between senior and junior workers. Moreover, there is no union bureaucracy or leadership to decide for workers what does or does not get done. All initiative comes from below — from the rank-and-file, who, by their own efforts, make their wishes felt and known. This approach produces a considerably more democratic union, with an active, informed membership.

Revolutionary unions practice industrial unionism; that is, the idea that instead of workers dividing themselves into manifold trades, and defending their interests to the exclusion of others, there are, instead, only two classifications in working society — workers and capitalists. That is, those who work for a living, and those who live on others’ work. Those who take orders, and those who give them.

The revolutionary unionist seeks One Big Union, instead of many little ones. The logic behind this is that capitalists tend to close ranks and defend their common class interest — against so unified a foe, can a divided workforce possibly prevail? The history of business unionism reveals that it cannot. It was this idea that led to the IWW slogan, “an injury to one is an injury to all.”

Solidarity is the glue that holds the revolutionary union together, which is both an asset and a liability. It is a liability because it depends on workers closing ranks and working together as a whole, which doesn’t always occur. Scabs, or workers who cross the picket line during a strike, are always a threat to organized labor solidarity. Because unions represent large numbers of people, organizing solidarity is a daunting task, and is often unsuccessful. When it works, it works well.
THE FUTURE OF LABOR

The revolutionary unionist seeks more than simply increases in pay or benefits — the revolutionary unionist pursues longer-ranging workplace changes. A long-standing revolutionary union goal was more leisure time for the worker, measured in a shorter workday. It was the efforts of revolutionary unionists that cut the 16-hour workday in half, and radical unionists today would like to see the workday cut in half yet again. This wish can only come about in the wake of intense, large-scale organizing, something which has been impossible for nearly 70 years.

However, with the continued withering away of business unions, an opening has grown for renewed radical unionism. The challenges are enormous, but the opportunity is there. This has been made possible, conversely, by the greed and machinations of Capital itself — as the bosses seek to reduce American workers’ pay, increase their hours, and slash their benefits, they have themselves created a revolutionary situation.

Management is very aware of this situation, however — which is why there has been a proliferation of “empowerment sessions” and “team-building” initiatives in companies, where they seek to buy off the workers they still retain with union-style benefits without the unions. In other words, the appearance of empowerment, versus actual workplace empowerment. This masterful PR effort by management reveals the extent to which they’ll go to see unionism finally destroyed. Companies want workers to think they’re on the same team as their bosses, the way business unions believe. But it’s a lie, and always will be.

No amount of bogus empowerment conferences can change the static environment in which workers operate — where all initiative comes from above, and where their pay continues to stagnate, and they are forced to work longer hours in increasingly precarious jobs. Fear is what binds the non-union workplace, just as solidarity is what holds together the union shop.

Will this continue indefinitely? I don’t believe it will. It can’t, because working people are being screwed right and left by management, no matter how many happy faces they try to put on their schemes. It simply isn’t part of human nature to take it on the chin so many times without wanting to take a few swings yourself. Big Business has had it coming for a long time — with the State behind them, they’ve grown arrogant with power, and think they can grind people into the ground with impunity. This can’t go on forever.

The challenge for the revolutionary unionist is to adapt to these new conditions and bring real improvements in the lives of workers. One thing that killed revolutionary unionism in the past was the inability of such unions to consistently bring real benefits to working people — something business unions could do in the form of contracts and pay increases. The new revolutionary union will have to keep a focus on meat and potatoes issues at the same time it focuses on actual radical unionizing efforts.

Business unionism is dead; it just doesn’t know it yet. It will keep losing as we move through this transitional period of the globalization of Capital. Does this mean there’s no hope for working folks? Not at all — it only means there is no middle ground between Labor and Capital — a position mistakenly occupied by the business unionists. It will mean that the revolutionary union, so long considered a fossil of a bygone age, will become the only possible avenue left for working people who want a real say in what goes on in the workplace.

http://www.infoshop.org

Service Employees International Union announced plans Friday to unite 240,000 home care and nursing home workers in California in a single local union. Leaders at SEIU-United Healthcare Workers West, a feisty health care local that represents 140,000 long-term care and hospital workers in the state — and would lose almost half of its membership if the new union local is formed — immediately fired off a petition asking for a membership vote on disaffiliation from the international union.

The escalation of a nasty internal rift at SEIU over organizing and negotiating tactics comes at a time of high-stakes contract negotiations and threats of budget cuts in Sacramento that could have a drastic effect on hours and wages for health care workers. With a big clock ticking on the $42 billion state budget deficit, efforts by SEIU to form a new local union and UHW to disconnect from the fold will play out over the next few months.

The international union has tapped executive vice president Eliseo Medina and Michael Holland, an attorney with experience in union reorganizations, to draw up an implementation plan and timeline for the new statewide local within 30 days. A disaffiliation vote could be scheduled as soon as the next 60 days.

The SEIU announcement came after a vote Friday by the executive board to adopt the recommendation of an outside hearing officer and an advisory vote of the union’s membership in California last year.

The jurisdictional changes, started in 2000 by the board and SEIU president Andy Stern, seek to break up political fiefdoms in favor of uniting workers by industry and geography.

Board action means that UHW’s 65,000 long-term care and home care workers will be united in a new local with 140,000 workers from SEIU Local 6434 and 15,500 workers from Local 521.

“We will have a united voice in Sacramento and (Washington) D.C.,” said executive vice president Mary Kay Henry. “Our No. 1 job in is to use the next 30 days to galvanize health care and nursing home workers” to support economic recovery plans in California and Washington, D.C., and to fight budget cuts on both coasts, she said.

The implementation plan will deal with current contract negotiations and make sure there is an orderly transfer process that ensures workers’ interests are protected, she said.

UHW’s letter to Stern reports “widespread and profound opposition within our membership to any efforts to dismember our local union or to take away its rights of democratic governance.”

UHW leaders declined further comment.

Sacramento Business Journal

Debate on Democracy in SEIU-UHW [2/08]
Part 1
Part 2
Funny Andy Stern

Andy Stern Responds [0/08]

Intro to SEIU from Andy Stern

Anna Burger talks

“SEIU has evolved into a dictatorship in which Andy Stern and others have consolidated power, decision-making authority, and resources among a few.”–Sal Rosselli, president of SEIU’s United Healthcare Workers-West, in The San Francisco Chronicle, Jan. 3, 2008

On Thursday, January 8, a group of 70 Service Employees International Union (SEIU) officials will join a conference call, set up in Washington, D.C., to decide the fate of 150,000 members of United Healthcare Workers-West, SEIU’s third-largest affiliate. Among the actions the SEIU International Executive Board (IEB) may take is transferring 65,000 long-term care workers in California, against their will, from UHW into a new statewide entity with officers appointed by SEIU President Andy Stern.

Either on this call or during a meeting Jan. 20., Stern’s board may also approve a headquarters take-over of UHW’s remaining 85,000 members. This would be accomplished via a Stern-imposed trusteeship that would replace all UHW elected leaders and further obliterate their local, one of the fastest-growing and most dynamic in SEIU.

SEIU spokesmen are downplaying the impact of either course of action.

They say it’s just an “internal matter,” a question of changing “local union jurisdiction,” after a long deliberative process, resulting in “democratic” decisions. Stern points to a recent “advisory vote” with an 86.2 percent showing in favor of his California re-organization plan. What he neglects to mention is that only 24,000 members cast valid ballots, out of 309,000 who received them-a 7 percent participation rate. More than 120,000 workers-in UHW and two other locals-actively boycotted the election, signing cards or petitions protesting it. Members pointed out that SEIU’s ballot only gave them two options, both leading to UHW dismemberment. As rank-and-filer Lola Young explained to The Sacramento Bee, “It was like asking me if I wanted to be shot in the left knee or the right knee. It’s not much of a choice.”

As widely reported in the California press, tens of thousands of hospital, nursing home, and home care workers like Young spent much of last year mobilizing to keep UHW intact and their own popular president, Sal Rosselli, in office. They made it clear, on numerous occasions, that they favored Rosselli’s approach to health care organizing and bargaining over Stern’s. In late 2008, they picked up support from prominent friends of labor and revered union figures like United Farm Workers founding mother, Dolores Huerta. In two recent public letters, nearly 300 elected officials, community activists, clergy members, academics, and trade unionists noted that Rosselli’s local had “consistently acted with the highest integrity, placing the best interests of caregivers, consumers, and communities at the center of its work.” The concerned politicians–including leading California liberals like Sheila Kuehl, Mervin Dymally, Fiona Ma, Tom Ammiano, and Dean Florez–urged Stern to “seek a peaceful resolution of your dispute with UHW rather than precipitate a crippling civil war inside SEIU.”

Despite such appeals, SEIU headquarters is still poised to launch the union equivalent of George Bush’s “Operation Iraqi Freedom.” Stern’s own misbegotten invasion of California could cost millions of dues dollars (on top of the huge amounts SEIU has already spent trying to undermine UHW). It will require the deployment of many international union staffers (who numbered more than 600 at last count and presumably have better things to do elsewhere.) None of these would-be occupiers of UHW will be greeted as “liberators” by the rank-and-file, as they attempt to displace elected UHW board members, bargaining committees, stewards, and mobilizers. UHW employers will have a field day with the resulting disruption of contract negotiations and enforcement.

At a time when unions are urging Congress to pass an Employee Free Choice Act (EFCA), to aid union organizing and bargaining, there will be much damaging publicity for all of labor. It will highlight the fact that most SEIU members in California no longer have the right to choose what local they’re in or who represents them. Already anti-EFCA groups have run full-page ads in major newspapers playing up SEIU’s role in foisting Gov. Rod Blagojevich on the now unappreciative citizens of Illinois. When and if Stern pulls the trigger on UHW, UnionFacts.com and similar management front groups will have a propaganda field day displaying the corpse of workers’ rights within SEIU.

For some outside observers, one of the mysteries of this affair is why SEIU board members have, so far, gone along with what N.Y. Daily News columnist Juan Gonzalez calls a “colossal scam” and “a stunning assault on union democracy.” SEIU’s IEB is, after all, the union’s top decision-making body (except when its convention is in session once every four years). In their own communities, some IEB members are well-known progressives. Among those with a resume that includes Sixties’ activism, a few were once even communists, socialists, and/or union dissidents themselves. Today, they’re understandably proud to be part of a board, which is, by far, the most diverse in labor, in many important categories. Among SEIU’s president, secretary-treasurer, six executive vice-presidents, 23 vice-presidents, five Canadian or retiree representatives, and 37 others simply titled “IEB Member,” one finds more women, African-Americans, Asian-Americans, Latinos, and gays than in any other similar executive body.

Unfortunately, how this “diversity” was achieved creates a major problem in terms of IEB accountability to the membership vs. the top leadership. The SEIU board has been structured and its members recruited in such a way that it doesn’t provide a check on the power of the president or secretary-treasurer, Andy Stern and Anna Burger respectively, or any meaningful oversight of their activities. Some officials on the board do have a base in their own local unions (usually, smaller ones) that they developed themselves as locally elected leaders and four out of 73 are elected just by their fellow Canadians, as a concession to Canadian “autonomy.” But the vast majority owes their union jobs and careers, now and in the past, to the two top officers. In very corporate fashion, Stern and Burger have transformed their board into a “management team,” that has about the same degree of real “independence” as corporate directors hand-picked by a powerful CEO. If any member ever steps out of line-like Rosselli did in recent years, due to policy differences with Stern-he or she will be dropped from the team, as Rosselli was last June when the current Stern-Burger “administration slate” was elected by 2,000 delegates meeting in Puerto Rico. At SEIU conventions–since the entire board (except for Canadians) is elected “at large”–an independent candidate has about as much chance of winning as a dissident shareholder running for director of General Electric at its annual meeting.

In other labor organizations-even ones more deserving of the moniker “business union”-national executive boards are filled with former workers who came up through the ranks. Ambitious rank-and-filers have a much better chance of making it to the top elsewhere than in SEIU. Candidates for board positions usually start out as a shop steward. Later, they become an elected local union leader, perhaps serve on the national staff for awhile, and then run for a seat on the national executive, as an independent or on someone else’s slate. In big unions like the Teamsters and Steelworkers, some candidates run for at-large positions-ie union-wide office, like the presidency-but most board hopefuls have to compete for fellow members’ votes in regional conferences or districts where they live, work, and are known.

In unions like my own former employer, the Communications Workers of America, the top officers and executive board are elected, as in SEIU, by convention delegates chosen by the members, not via the more democratic Teamster or Steelworker method of direct elections. But, regardless of whether voting is direct or indirect and no matter how bureaucratized a union may have become, the allocation of executive board seats to different constituencies (smaller than the entire union) tends to make some board members more politically accountable to those at the bottom rather than just the top. In the Communications Workers of America, for example, most board members represent either multi-state districts (ranging in size from 20,000 to 175,000 members). Or they are elected from occupational groups such as manufacturing workers, flight attendants, public employees, or journalists. Competition for seats on the CWA board is quite common. Independent candidates can even oust incumbents backed by the national president and fellow board members, as a challenger did last spring in the CWA/Newspaper Guild. Even the current president, Larry Cohen, was first elected to CWA office ten years ago only after facing stiff competition from an incumbent board member vying for the same open position as EVP.
What’s striking about SEIU is not only the absence of similar opportunities for competitive elections, but also the union background and current payroll status of many board members. According to an analysis done by UHW prior to the election and expansion of the IEB last year, “the majority are Stern appointees or staff. Out of [what was then] 67 members of the IEB, well over half are either SEIU International Union staff, or local leaders who were originally appointed to leadership positions in their local by Stern, rather than being elected by their members.” Opportunities for such career-advancing appointments abound in SEIU, to a degree unique in the labor movement. That’s because, under Stern, nearly 80 local unions have been put under headquarters trusteeships and/or re-organized with new leaders named by him, rather than elected by the members. (Due to its consolidation into huge, regional bodies, SEIU now has only 300 “locals” left.)

Union trusteeships are supposed to be a method of rooting out corruption, straightening out a troubled local’s finances or functioning, and then holding elections within eighteen months that return the local to membership control.

In SEIU, however, Stern-installed trustees or “interim presidents” are usually staffers from outside the local who are given as long as three years to entrench themselves politically, before facing any membership vote.

Running as de facto incumbents, they usually win, with the help of a large number of other paid staffers who are, by then, working for them on the union payroll as well. To get the picture, one need look no further than the six officials who serve directly under Stern and Burger-Annelle Grajeda, May Kay Henry, Gerry Hudson, Eliseo Medina, Dave Regan, and Tom Woodruff. Now earning nearly $200,000 each, four of these six executive vice-presidents have never been working members, in any SEIU jurisdiction; the other two became part of SEIU through its merger with District 1199, the New York-based health care union. The four originally hired from outside served as either trustee of a local, a local union executive director, or in some other appointed staff position. All owe their original or later, higher-ranking jobs to the sponsorship of Stern, Burger, or a fellow EVP.

Within the larger SEIU board-as talented as some members may be–this patronage system has been producing some rotten fruit lately (or, as SEIU loyalists describe it, “a few bad apples”). Just two months after her elevation to EVP on Stern and Burger’s ticket, Grajeda came under investigation for financial improprieties and was forced to take a leave from her local (where she was a Stern-appointed “interim president”), from SEIU’s California state council (where Stern helped her replace Rosselli as chairperson), and her new International union job (another 2008 gift from the SEIU president).

Also absent from this week’s conference call to decide the fate of UHW will be Tyrone Freeman and Rickman Jackson, two more Stern protégés who became public embarrassments. They were elected to the IEB last June but removed shortly thereafter in the huge corruption scandal engulfing Local 6434 in Los Angeles, SEIU’s second largest affiliate. Freeman has since been kicked out of SEIU and ordered to pay back $1.1 million that he embezzled; he still faces likely criminal charges. Jackson was stripped of the Michigan local that Stern had awarded him, ordered to make restitution as well, and then exiled to Canada, where he is being given a “second-chance.”

Due to an unrelated scandal, former SEIU research department staffer, Tom Balanoff, now a Stern-installed national vice-president in Chicago, has been dodging reporters lately (although reportedly also cooperating with the FBI) about his wire-tapped conversations with the recently arrested Rod Blagojevich, governor of Illinois. Presumably, Balanoff will be voting this week on the future of UHW, along with a number of current SEIU headquarters staffers, who in most cases have never held any elected office in SEIU other than being on the board. One might reasonably wonder how SEIU presidential assistants or department heads like Kirk Adams, Eileen Kirlin, Stephen Lerner, or Debbie Schneider can be expected to cast an independent vote on questions related to UHW (or anything else) when Stern and Burger sign their paychecks and they serve in their regular jobs at the pleasure of the officers?

Deliberating with them will be board members whose own political empire building, unpopularity with dues-payers, or semi-retired status make them unlikely profiles in courage or free-thinkers either. One thinks here of Susana Segat, an ex-political operative now running a Boston local that lost several thousand members to the Mass Teachers Association because of her high-handed, Burger-backed methods. Or SEIU vice-president David Holway, a lawyer and ex-lobbyist, whose New England-based Local 5000 now has a license from Stern to gobble up smaller groups as far away as Georgia. Or their fellow Bostonian Celia Wcislo, who was put out to pasture when her local was absorbed by 300,000-member SEIU/1199 in New York, eliminating any further need for her services as an elected president of 25-years standing. Or former foundation official and environmentalist Jane McAlevey, whose brief reign as appointed director of SEIU Local 1107 in Nevada was so dysfunctional that she was forced out last June, while retaining her seat on the SEIU board.

And then there are all the SEIU janitor local leaders around the country who’ve never worked a day in their life as janitors but serve on the IEB anyway because of their past role as staffers or Stern-anointed trustees. The newest of these is Javier Morillo-Alicea, a former Macalester College history instructor who is gay, Latino, and now president of Minneapolis Local 26, where he worked briefly as an organizer. Morillo-Alicea is young, energetic, and much-admired locally. But does anyone expect him to buck his powerful SEIU patrons in Washington, D.C., when that means risking all that he’s acquired in a just few short years, including the Minnesota janitors’ franchise, an executive board position, and a Stern-created slot on SEIU’s new “ethics commission”? I wouldn’t bet money on Morilla-Alicea speaking out, unless he wants to have his local endure the same kind of headquarters’ assault that UHW has suffered and he, personally, is ready to return to the tenure track in academia.

The great irony of the cast of characters that Stern and Burger have assembled to administer the coup de grace to UHW is that, structurally, the SEIU board now resembles the ruling body of International Brotherhood of Teamsters (IBT), before that union was democratized and reformed over the past twenty years. During the IBT’s mob-dominated past, its members had no right to elect top officers in a nationwide vote or elect, from their own region, the Teamster vice-presidents who make up the rest of the executive board. The only successful IEB candidates were all elected at-large, by delegates at leadership-dominated conventions, as part of slates formed by Teamster presidents (four of whom were indicted and three of whom went to jail in corruption scandals). Each of these pre-1989 Teamster chiefs would add or drop people from their leadership “team,” as needed, to insure executive board conformity with their wishes (using the additional carrot of a full Teamster salary, on top of any others, just for meeting attendance).

Beginning in 1991, thanks to the presence of TDU and the settlement of a federal racketeering lawsuit, the IBT has had a series of contested elections for the top leadership, and convention delegates only get to nominate the candidates. In each race, the president, secretary-treasurer, and some V-Ps have run “at large,” with all 1.4 million Teamsters eligible to vote for them. All other board members, representing regional constituencies, have had to campaign for election among a smaller number of rank-and-file voters who live and work in the same area they do. Almost all successful IEB candidates, whether liberal or conservative, “old guard” or reformer,” have been working members of the union, not appointed staffers; with the notable exception of current president James Hoffa, all previously served in lower-level elected positions.

Reflecting the IEB’s local union roots (and legal protections in the Teamster constitution), a bigger Teamster local can’t take over a smaller one without members of the latter voting to approve the merger. Although trusteeships were often used in the IBT’s bad old days to crush dissent, they have, since 1989, been mainly used to oust crooks. Tom Leedham, the progressive leader of a Portland, Oregon local, has run for international president three times as a TDU-backed candidate, sharply criticizing Hoffa’s leadership and always gaining 35 to 40 percent of the vote. Unlike Sal Rosselli, Stern’s leading foe in SEIU, Leedham has not faced the threat of trusteeship in retaliation for his dissent. As Teamsters for a Democratic Union (TDU) organizer Ken Paff told The Los Angeles Times Dec. 30: “When your union [SEIU] is less democratic than the Teamsters, you have to look in the mirror and ask, ‘What happened?’”

More friends of SEIU should be asking this question. More labor-oriented academics should be doing some Sixties’-style “power structure research”-which means taking a closer look at “who rules SEIU,” how they do it, and what price workers pay for having such an unhealthy concentration of power and privilege at the top of their national union. And, finally, concerned trade unionists around the country should be coming to the aid of UHW, in its hour of need, before Andy Stern’s pending assault on SEIU dissidents backfires on all of organized labor, making the campaign for labor law reform a dead letter on Capitol Hill.
Steve Early is former CWA organizer who has been a supporter of Teamster reform and a commentator on Teamster politics since 1977. His recent reporting on labor has focused on SEIU, the subject of a forthcoming book. He is also the author of Embedded With Organized Labor: Journalistic Reflections on the Class War at Home (Monthly Review Press, 2009).

Britain leaves Iraq in Shame

Obama was elected on the back of revulsion at Bush’s war, but greater pressure will be needed to force a full withdrawal. If British troops are indeed withdrawn from Iraq by next June, it will signal the end of the most shameful and disastrous episode in modern British history. Branded only last month by Lord Bingham, until recently Britain’s most senior law lord, as a “serious violation of international law”, the aggression against Iraq has not only devastated an entire country and left hundreds of thousands dead – it has also been a political and military humiliation for the invading powers.

In the case of Britain, which marched into a sovereign state at the bidding of an extreme and reckless US administration, the war has been a national disgrace which has damaged the country’s international standing. Britain’s armed forces will withdraw from Iraq with dishonour. Not only were they driven from Basra city last summer under cover of darkness by determined resistance, just as British colonial troops were forced out of Aden 40 years ago – and Iraq and Afghanistan, among other places, before that. But they leave behind them an accumulation of evidence of prisoner beatings, torture and killings, for which only one low-ranking soldier, Corporal Payne, has so far been singled out for punishment.

It’s necessary to spell out this brutal reality as a corrective to the official tendency to minimise or normalise the horror of what has evidently been a criminal enterprise – enthusiastically supported by David Cameron and William Hague, it should be remembered, as well as Tony Blair and his government – and a reminder of the dangers of escalating the war that can’t be won in Afghanistan. It was probably just as well that the timetable for British withdrawal from Iraq was given in a background military briefing, after Gordon Brown’s earlier schedule for troop reductions was vetoed by George Bush.

But in any case, in the wake of Barack Obama’s election on a partial withdrawal ticket, the latest plans look a good deal more credible. They are also welcome, of course, even if several hundred troops are to stay behind to train Iraqis. It would be far better both for Britain and Iraq if there were a clean break and a full withdrawal of all British forces in preparation for a comprehensive public inquiry into the Iraq catastrophe. Instead, and in a pointer to the shape of things to come, British troops at Basra airport are being replaced by US forces.

Meanwhile, the real meaning of last month’s security agreement between the US and Iraqi governments is becoming clearer, as Obama’s administration-in-waiting briefs the press and officials highlight the small print. This “status of forces agreement”, which replaces the UN’s shotgun mandate for the occupation forces at the end of this month, had been hailed by some as an unequivocal deal to end the occupation within three years.

There’s no doubt that Iraq’s Green Zone government, under heavy pressure from its own people and neighbours such as Iran, extracted significant concessions from US negotiators to the blanket occupation licence in the original text. The final agreement does indeed stipulate that US forces will withdraw by the end of 2011, that combat troops will leave urban areas by July next year, contractors and off-duty US soldiers will be subject to Iraqi law and that Iraqi territory cannot be used to attack other countries.

The fact that the US was forced to make such commitments reflects the intensity of both Iraqi and American public opposition to the occupation, the continuing Iraqi resistance war of attrition against US forces, and Obama’s tumultuous election on a commitment to pull out all combat troops in 16 months. Even so, the deal was denounced as treason – for legitimising foreign occupation and bases – by the supporters of the popular Shia leader Muqtada al-Sadr, resistance groups and the influential Association of Muslim Scholars.

And since his November triumph, Obama has gone out of his way to emphasise his commitment to maintaining a “residual force” for fighting “terrorism”, training and protection of US civilians – which his security adviser Richard Danzig estimated could amount to between 30,000 and 55,000 troops.

Briefings by Pentagon officials have also made clear this residual force could remain long after 2011. It turns out that the new security agreement can be ditched by either side, while the Iraqi government is fully entitled to invite US troops to remain, as explained in the accompanying “strategic framework agreement”, so long as its bases or presence are not defined as “permanent”. And given that the current Iraqi government would be unlikely to survive a week without US protection, such a request is a fair bet. Combat troops can also be “re-missioned” as “support units”, it transpires, and even the last-minute concession of a referendum on the agreement next year will not, the Iraqi government now says, be binding.

None of this means there won’t be a substantial withdrawal of troops from Iraq after Obama takes over the White House next month. But how far that withdrawal goes will depend on the kind of pressure he faces both at home and in Iraq. The US establishment clearly remains committed to a long-term stewardship of Iraq. The Iraqi government is at this moment negotiating secret 20-year contracts with US and British oil majors to manage 90% of the country’s oil production. The struggle to end US occupation and control of the country is far from won.

The same goes for the wider shadow of the war on terror, of which Iraq has been the grisly centrepiece. Its legacy has been strategic overreach and failure for the US: from the rise of Iran as a regional power, the deepening imbroglio of the Afghan war, the advance of Hamas and Hizbullah and threat of implosion in Pakistan – quite apart from the advance of the nationalist left in Latin America and the growing challenge from Russia and China. But at its heart has been the demonstration of American weakness in Iraq, the three trillion-dollar war that helped drive the US economy into crisis.

No wonder the US elite has wanted a complete change of direction and Bush was last week reduced to mumbling his regrets about the “intelligence failure in Iraq”. For Obama, the immediate foreign policy tests are clear: if he delivers on Iraq, negotiates in Afghanistan and engages with Iran, he will start to justify the global hopes that have been invested in him. If not, he will lay the ground for a new phase of conflict with the rest of the world.

Seumas Milne

The Guardian

Even though the Federal Reserve is now the biggest single participant in the financial system, the myth of a “free market” still lingers on. It’s mind boggling. The Fed has expanded its balance sheet by $2 trillion, guaranteed $8.3 trillion of dodgy mortgage-backed paper, provided a backstop for bank deposits, money markets, commercial paper, and created 8 separate lending facilities to ensure that underwater financial institutions can still appear to be solvent. The whole system is a state subsidized operation buoyed on a taxpayer-provided flotation …device which bears no resemblance to an invisible hand. More astonishing, is the massive power grab engineered by the Fed which has taken place without the slightest protest from 535 shell-shocked congressmen and senators. Elected officials have either kept their finger in the air to see which way the political wind is blowing or timidly caved in to Treasury’s every multi-billion dollar demand. It’s flagrant blackmail and everyone knows it. Congressional oversight is an oxymoron.

Anyone who has followed the financial crisis from its origins knows that the Fed’s bloody fingerprints are all over the crime scene. Still, that hasn’t stopped well-meaning liberal economists (Krugman, Stiglitz, Reich) from supporting Bernanke’s increasingly unorthodox attempts to flood the financial system with liquidity (“quantitative easing”) and invoke whatever radical strategy pops into his head. In fact, many of the experts believe that Bernanke should do even more given the sheer size of the meltdown. There’s growing support for a gigantic stimulus package ($700 billion) which will focus on road construction, infrastructure, state aid, extensions to unemployment benefits and green technologies. The Obama camp hopes that government programs and deficit spending will make up for the huge losses in aggregate demand which threaten to drag prices down even further in a self-reinforcing deflationary cycle. Even so, its natural to wonder at the wisdom of giving even more power to the very people who created the mess to begin with and who seem more interested in proving their depression-fighting theories than throwing a lifeline to struggling homeowners, consumers or auto workers. Maybe its time to try something different.

So far, Bernanke’s monetarist approach has amounted to nothing. The stock indexes are off 45 percent and housing prices continue to plunge. The Fed’s low interest rates and lending facilities have helped to keep the banking system from collapsing, but they’ve failed to get consumers or businesses spending again. The economy is tanking fast. Paul L. Kasriel, the Director of Economic Research at The Northern Trust Company summed up Bernanke’s dilemma like this:

“In a sustained housing bust that causes banks to take a big hit to their capital (low interest rates) simply will not matter. This is essentially what happened recently in Japan and also in the US during the Great Depression. Most people are not aware of actions the Fed took during the Great Depression. Bernanke claims that the Fed did not act strong enough during the great depression. This is simply not true. The Fed slashed interest rates and injected huge sums of base money but it did no good. More recently, Japan did the same thing. It also did no good. If default rates get high enough, banks will simply be unwilling to lend which will severely limit money and credit creation.” (Interview with Paul Kasriel; Mish’s Global Economic Trend Analysis)

In fact, the banks are just one part of the problem. Another part is the shortage of creditworthy borrowers now that home equity is drying up and the standards for loans have gotten tougher. Most people have seen their personal wealth vanish as hosuing prices fall and and their 401-Ks shrivel to the size of a chickpea. The Fed chairman faces huge obstacles in trying to restart the credit engine and get maxed out consumers spending again.

Bernanke has expanded the money supply at record pace, but to little effect. The money is stagnating in pools because the financial plumbing is still gunked up from troubles in the banking system. The credit-transmission system has broken down causing a generalized contraction throughout the economy. Business activity has dropped off a cliff and consumer confidence is at a 40 year low. In his Forbes article “What Would Keynes Do?”, Former Treasury Department economist, Bruce Bartlett, sheds light on a part of the problem which many of the pundits miss:

“Another problem that policymakers back then didn’t grasp is that the money supply’s effectiveness depends on how quickly people spend it; something economists call velocity. If velocity falls because people are hoarding cash, it may require a great deal more money to keep the economy operating.

Think of it this way: Velocity is the ratio of the money supply to the gross domestic product. If GDP is $10 trillion and money turns over 10 times per year, then $1 trillion in money supply will be sufficient. But if velocity falls to 9, a $1 trillion money supply will only support a $9 trillion GDP. If the Fed doesn’t want GDP to shrink by 10%, it will have to increase the money supply by 10%.

This is essentially the problem we have today. Unlike in the 1930s, the Fed is not allowing the money supply to diminish. Also, we have programs like federal deposit insurance to prevent bank deposits from shrinking. But velocity is collapsing. Banks, businesses and households are all hoarding cash, not spending except for essentials. This is bringing on the deflation that is crippling the economy.”

This is why Bernanke has launched his radical intervention, buying bonds, stocks and anything else that will keep asset-prices from crashing. It’s an attempt to reignite spending by goosing the market. When businesses and consumers can’t sustain demand, the government has to step in and take their place. Otherwise, businesses have to cut costs even more dramatically, sending unemployment soaring while prices continue to nosedive.

The real worry is that Bernanke’s pet theory is merely an academic pipe-dream which is doing more harm than good. After all, his strategy is based on a controversial reading of history that is only accepted by disciples of Milton Friedman. The idea that a normal recession morphed into the Great Depression because the money supply decreased by one-third between 1929 to 1932, is likely an oversimplification of a very complex situation. If Bernanke’s calculations are correct, then show us the goods? Why haven’t the zero-percent interest rates and the trillion dollar lending facilities stimulated spending? Instead, the equities markets continue to tumble, corporate profits are down, foreclosures are on the rise, commodities are in freefall, and the unemployment lines are winding halfway across the continent. (Unemployment during the Great Depression didn’t reach 25 percent for three years. It is actually accelerating faster in 2008 than it did in 1929) So, where’s the progress, Ben?

The present list of remedies fail to address the underlying rot in the system itself. That’s the problem. There’s no doubt that Timothy Geithner and Larry Summers will have better luck mitigating the effects of the slumping economy, but to what end? To stitch together a system which diverts a larger and larger portion of the national wealth to a smaller and smaller group of corporatist and bankers? Is that the measure of success?

(Note: Redistribution US Style: In the United States the top 1 percent of wealth holders in 2001 together owned more than twice as much as the bottom 80 percent of the population. If this were measured simply in terms of financial wealth, i.e., excluding equity in owner-occupied housing, the top 1 percent owned more than four times the bottom 80 percent!)

No thanks. Besides, the financial crisis is not an accident of nature, like a tornado or an avalanche. It’s a self-inflicted wound that can be traced back to particular policies that were put in place to shift wealth from one class to another. The low interest rates, the massive leveraging, the undercapitalized institutions, the off-balance sheets operations were all concocted with the same objective in mind. The Fed’s repertoire may change, but the results are always the same; they reflect the deeply-held class bias which orders the economy according to the interests of rich and powerful.

Besides, there’s reason to believe that Bernanke doesn’t fully grasp the fundamental problem, that economic growth in recent years was predicated on a flawed model that can’t be restored. Consumers were able to spend beyond their means because their personal assets were greatly inflated by the availability of easy credit and lax lending standards. Now that risk is being repriced, debt deflation has set in and prices are plummeting across the spectrum. Homeowners are feeling the pinch because they can’t tap into their home equity which amounted to $800 billion in 2006. The process of lowering interest rates by spreading risk throughout the system (securitization) has frozen over, sending investors fleeing from the stock markets to the safety of US Treasurys and cold hard cash. Bernanke’s attempts to reflate the bubble by buying up Fannie and Freddie’s mortgage-backed securities (MBS) and bundled credit card debt from finance companies is a sign of utter desperation. He’s like a man pumping air into a punctured tire, pushing up and down furiously while the air hisses out the other side.

The economy is contracting because the excessive spending was based on artificially low interest rates and debt leveraging. In The End of Prosperity Fred Magdoff and Paul Sweezy wrote:

“In the absence of a severe depression during which debts are forcefully wiped out or drastically reduced, government rescue measures to prevent collapse of the financial system merely lay the groundwork for still more layers of debt and additional strains during the next economic advance.” As Minsky put it, “Without a crisis and a debt-deflation process to offset beliefs in the success of speculative ventures, both an upward bias to prices and ever-higher financial layering are induced.”

This is the market model that Bernanke and Paulson are trying to resuscitate, but without much success. The credit that once gushed from the hedge funds and investment banks has slowed to a trickle. It’s no longer possible to take complex debt-instruments and amplify their value 30 or 40 times over. Investors have seen through the swindle and boycotted the market for pools of debt packaged as securities. As foreclosures rise, the banks balance sheets will continue to hemorrhage, forcing them to make margin calls that will push more and more financial institutions into bankruptcy. It can’t be stopped. This is what happens when the underlying economy can no longer support an oversized financial system where wages have stagnated and workers are unable to make the interest payments of their loans. The whole system begins to buckle. John Bellamy Foster and Fred Magdoff explain the origins of “financialization” in their Monthly Review article “Financial Implosion and Stagnation”:

“It was the reality of economic stagnation beginning in the 1970s, as heterodox economists Riccardo Bellofiore and Joseph Halevi have recently emphasized, that led to the emergence of “the new financialized capitalist regime,” a kind of “paradoxical financial Keynesianism” whereby demand in the economy was stimulated primarily “thanks to asset-bubbles.” Moreover, it was the leading role of the United States in generating such bubbles—despite (and also because of) the weakening of capital accumulation proper—together with the dollar’s reserve currency status, that made U.S. monopoly-finance capital the “catalyst of world effective demand.”

Magdoff and Foster’s theory confirms that there was a plan to expand financial markets into riskier areas to compensate for the stagnation which unavoidably occurs in capitalist economies. The real problem is rooted in the hostility of corporate bosses towards workers which translates into wages that don’t keep pace with production. When wages languish, in an economy that is 70 percent consumer spending, the only way to increase GDP is by expanding credit. And that, in fact, is exactly how it has played out. Trickle down ideologues, like Henry Paulson, make every effort to extend credit to anyone with a pulse and a body temperature of 98.2 degrees, but they fight tooth and nail to crush the unions or any attempt to raise salaries. And Paulson, of course, is not alone in waging class warfare; he is just an extreme example.

The bottom line, is that financialization, which rests on the twin pillars of easy credit and ballooning debt, creates an inherently unstable system which is prone to wild swings and frequent busts. Bernanke is trying to restore this system ignoring the fact that workers–whose personal balance sheets are already bleeding red–can no longer support it. No amount of tinkering in the credit markets will reduce the overcapacity bulging throughout the system or add one farthing a poor man’s bank account. There is a historic mismatch between supply and demand that cannot be reconciled by Bernanke’s market meddling. Workers need a raise, that’s how demand is created.

The same message goes out to Obama’s economic team, too. The stimulus package might get the economy through the short-term rough patch, but if wages don’t rise, the economy will continue to underperform. That’s why the new commander in chief would be well advised to quickly pass The Employee Free Choice Act (also known as “card check”) which would end secret ballots in union elections. It may be the most important piece of legislation in a decade. Its passage would ease union organizing and help to grow union membership which has dwindled to about 10 percent of the work force.

Forget about the fake differences between the two political parties. There aren’t any. The only hope for deep structural change is to strengthen the unions and give workers a place at the policy table. That’s the only peaceful way to dismantle this parasitic financial regime and bring about a more equitable distribution of wealth.

Mike Whitney

Original title: Clearing the Path for a Workers’ Surge? Card Check
“Information Clearinghouse“

It’s only been a month since hundreds of thousands of union members and their families helped Barack Obama win key “battleground states.” Yet, already, some labor supporters of the president-elect fear he may be backing away from a key campaign promise to workers threatened by recession. While running for office, Obama said he strongly backed the Employee Free Choice Act (EFCA), a long overdue labor law reform measure that should be part of his promised economic stimulus plan. However, when Obama introduced his top economic advisors on Nov. 25 and talked about … steps to “jolt” the economy in January, EFCA was not part of the package. More disturbingly, his new chief of staff, Rahm Emanuel, declined to say whether the White House would support EFCA when he was questioned about it at a Wall Street Journal-sponsored “CEO Forum” earlier in November.

EFCA is vehemently opposed by big business because it would enable workers to unionize and negotiate first contracts more easily. The bill would amend the 73-year old National Labor Relations Act (NLRA) so that private sector employers have to bargain with their employees when a majority sign union authorization cards. Just as the NLRA did, as a centerpiece of the New Deal, EFCA would encourage collective bargaining to raise workers’ living standards and restore greater balance to labor-management relations. Beginning in the late 1930s, this federal labor policy helped create a vast new post-World War II American middle-class.

Now, facing the worst financial crisis since the Depression, the Democrats have an unparalleled opportunity to link labor law reform to their broader economic recovery efforts. As economist Dean Baker, from the Center for Economic and Policy Research, points out, “If workers are able to form unions and get their share of productivity gains, it could once again put the country on a wage-driven growth path, instead of growth driven by unsustainable borrowing.”

Tax cuts, home foreclosure protection, extended jobless benefits, and a public jobs program are all fine, EFCA supporters say. But expanded use of labor’s traditional tool for “self help” (i.e. collective bargaining) is needed just as much and doesn’t require new federal outlays like the recent $700 billion bailout of Wall Street. With newly-won bargaining rights, both hourly and salaried employees would gain a seat at the table, when management decisions are being made during the hard times ahead. Even amidst down-sizing, they would have more say about lay-offs, severance pay, and recall rights, not to mention pay, health care benefits, and the funding of troubled retirement plans.

EFCA’s potential (and not just because it might lead to a wave of successful organizing). Contrary to the opinion of most historians, employer propagandists claim that NLRA-assisted union growth during the late 1930s actually prolonged the Depression. In a recent op-ed piece, National Right To Work Committee president Mark Mix predicted that passage of EFCA “will likely have a similar effect on the economy as the original Wagner Act, transforming what could have been a recovery into a lengthy, deep recession, or worse.” To kill the bill, business groups spent an estimated $50 million on anti-EFCA advertising in Congressional races this fall.

Key Democratic challengers were elected anyway, giving labor law reformers a large majority in the House and 59 Democratic, Republican, and independent supporters in the Senate. Based on this latter head count, it will only take a single additional Republican vote for cloture (if not for EFCA itself) or another Democratic win (in the still-disputed contest for a Minnesota Senate seat) to thwart any GOP filibuster like the one in 1978 that doomed labor’s last bid to overhaul the Wagner Act.

Of course, some Senate Democrats counted as pro-EFCA by labor may now be waffling, on cue from Chief of Staff Emanuel. See, for example, Arkansas Sen. Blanche Lincoln who told the Northwest Arkansas Times Dec. 4 that “focusing on this bill, this issue, isn’t paramount.” According to the Times, Lincoln professed to be “undecided” on EFCA and “believed the nation has more important issues to deal with.” Even a union supporter and key House committee chair like Rep. George Miller (D-Calif) seemed to be sending mixed signals in a Nov. 18 Chicago Tribune interview. Miller said EFCA was not going to be “the first bill out of the chute,” but was “not moving to the back of the train” either. [Never forget that the Taft-Hartley Act which consummated the postwar corporate onslaught was driven successfully through a Truman veto by Republicans crucially helped by Democrats both north and south of the Mason-Dixon line. Editors.]

As Michael Mishak reported in the Las Vegas Sun Nov. 30, the new administration clearly fears that any debate about EFCA early in 2009 “would be divisive at a time when Obama has gone to great lengths to bridge the partisan rift in Washington that has grown deeper over the past eight years.” (Of course, outside the Beltway, there’s little evidence that strengthening workers’ rights is an unpopular cause anywhere in America.) The problem for labor is, if EFCA is not pushed early and hard as part of Obama’s overall economic recovery plan, the bill runs a high risk of getting pigeonholed as “special interest” legislation and post-election “pay-back” for labor. This narrow frame will seal its fate.

That’s why the same union-backed political apparatus that helped put Obama in the White House needs to be re-mobilized now to keep grassroots pressure on him and other Democrats. In many cities, a broad coalition of labor and community groups organized by Jobs With Justice is planning a week of activities, Dec. 7-13, calling for a “People’s Bailout” that would include passing EFCA. In January, unions need to bring their rank-and-file members to Washington in far greater numbers than the UAW has mustered on behalf of its foundering, management-driven agenda for the auto industry.

Backers of the bill have a strong case to make that EFCA is an economic fix that would work, while costing taxpayers almost nothing compared to massive handouts for bankers, insurers, credit card companies, investment firms and, perhaps next, auto makers as well. Workers about to be—or already—crippled financially by the recession will be watching closely to see whether their plight merits the same helping hand so quickly extended to corporate America.

Steve Early – Boston Globe
Obama Abandoning EFCA? Not yet

Longtime labor activist Steve Early wrote an op-ed in Sunday’s Boston Globe questioning President-Elect Obama’s commitment to the Employee Free Choice Act. Says Early: “Rahm Emanuel [Obama's soon-to-be chief of staff] has declined to say whether the White House will support the Employee Free Choice Act.”

[You may have read Early's article about EFCA in the Sept./Oct. 2008 issue of Dollars & Sense.]

Many union activists believe EFCA will make it easier for workers to organize and to engage in collective bargaining. Ever since the election, left-liberal bloggers have been questioning whether Obama will make EFCA a priority, as he pledged during the campaign.

Last week, the Huffington Post seemed to put those fears to rest. Sam Stein wrote:

An aide to Barack Obama reaffirmed the President-elect’s support for the labor movement’s chief legislative priority in a one-word statement issued to the Huffington Post on late Tuesday.

Asked if Obama’s support for the Employee Free Choice Act remained as strong as his public proclamations suggested on the campaign trail, transition spokesman Dan Pfeiffer responded, succinctly, “Yes.”
Some have wondered whether Emanuel, with his warm feelings for the corporate world, might try to push Obama away from the labor movement. But according to the Communication Workers of America, Emanuel voted for EFCA in the House last year.

So it looks like the Obama administration will support EFCA. But there’s nothing wrong with the labor movement keeping the pressure on.

by Dollars & Sense

Whistleblower’s lawsuit

A whistleblower who helped instigate regulatory and media investigations of Kaiser Permanente’s troubled Northern California kidney-transplant unit has filed a wrongful termination lawsuit, alleging that senior Kaiser medical-group officials ignored several warnings about mounting problems in the program. In early May, under pressure from federal and state authorities, Oakland-based Kaiser decided to shut the unit and transfer patients needing new kidneys to waiting lists at UCSF Medical Center and UC Davis Medical Center. The move came after examples of botched … paperwork, chaotic management practices and long delays for transplants reached the attention of regulators and the public.

According to the lawsuit filed by David Merlin, who was administrative head of the kidney unit for about two months in late 2005 and early this year, Kaiser’s kidney transplant program “was so poorly organized and unprofessionally managed that it failed to comply with state and federal requirements and was compromising patient care, leading to unnecessary suffering and possibly deaths.”

For many years prior to that, Kaiser had subcontracted kidney transplant work to the two University of California medical centers.

In the wrongful termination lawsuit, filed July 14, Merlin said he met with several senior San Francisco executives of the Permanente Medical Group (TPMG), the for-profit medical group that ran the transplant unit and contracts with Kaiser’s hospitals and health plan to provide clinical services in Northern California, in January and early February, raising concerns about the operation of the unit.

Merlin’s lawsuit said those executives — including Nancy Langholff, RN, assistant medical group administrator; Diane DeCorso, Langholff’s boss, and Dr. Nora Burgess, TPMG’s chief financial officer at the San Francisco hospital — ignored his attempts to bring severe ongoing problems in the unit to the organization’s attention, and declined to let him schedule a meeting with Bruce Blumberg, M.D., at the time the medical center’s physician-in-chief.

Instead, he was told to “shut up” about the problems, and to “let it go,” Merlin said.

Merlin, who had previously worked as an administrator at Brigham and Women’s Hospital, a Harvard University affiliate in Boston, as well as San Francisco’s Saint Francis Memorial Hospital and St. Luke’s Hospital, filed his wrongful termination suit in San Francisco Superior Court. It asks for at least $5 million in damages.

Shortly before the filing of the lawsuit, Kaiser spokesman Matthew Schiffgens described Merlin’s charges that senior officials ignored problems in the unit as “allegations,” adding, “if he has any concrete examples of the issues he’s raising, we’d be willing to address them.” As of July 17, “we have not been officially served with the complaint,” Schiffgens said, adding “we’re not to going to litigate or advance our litigation strategy in the media.”

More broadly, Schiffgens said, Kaiser continues to work with regulators to transfer patients to the UC medical centers, care for life-threatened renal patients in the San Francisco unit, and review the situation. “There is still a continuing internal review of the kidney transplant program,” Schiffgens said July 12, including “how the actual program operated (along with) administrative and communications issues.”

But a formal internal investigation, promised in the early days after the transplant unit’s woes hit the front pages, was discontinued after Kaiser decided — under pressure from regulators — to shutter the kidney unit, Schiffgens told the San Francisco Business Times. “That work has been put on hold,” he said, while Kaiser focuses on the specifics of running the unit and transferring patients to the non-Kaiser medical centers for transplants. “At some point in the future, we can revisit that.”
Regulators report

After being terminated by Kaiser in early February, Merlin took his case to the news media — including the Los Angeles Times and KPIX, CBS TV-Channel 5 in San Francisco. He also contacted a number of state and federal regulators, including the California Department of Managed Health Care, U.S. Department of Justice and the Medical Board of California, which licenses physicians, spending hours with top-level investigators and executives. Several DMHC officials and investigators talked to him by phone, for example, the agency confirmed. The result, starting in early May, was a flood of news accounts and regulatory moves that forced Kaiser to reconsider its plans.

The Centers for Medicare and Medicaid Services, for example, released a report on June 23 that appears to support a number of Merlin’s allegations about quality and management problems. That report alleged the unit was understaffed, its record keeping and training were inadequate or nonexistent, and that some patients weren’t matched up with donor kidneys, even when perfect matches were available. Patients received confusing information in many cases, and many complaints were ignored or lost.

Kaiser officials said in their June 22 CMS correction plan they didn’t agree with or acknowledge the accuracy of the federal agency’s long list of alleged operational and managerial deficiencies in the kidney unit, and declined to acknowledge any mistakes or take responsibility or liability for them.

A similar report from the Department of Managed Health Care is expected by month-end, and insiders at the agency say a significant monetary fine against Kaiser — possibly the largest ever levied by the state agency — will be part of DMHC’s response. That penalty could be significantly higher than the previous record fine of $1 million, according to an informed DMHC insider.

Since the Los Angeles Times and CBS TV broke the story in early May, a number of top Kaiser officials connected to the kidney program have left their positions. Michael Alexander, CEO of Kaiser’s San Francisco Medical Center, which houses the unit, announced plans to retire last month. Dr. Bruce Blumberg, the hospital’s physician-in-chief during the two years problems in the kidney unit festered, left that position in recent weeks to move into the San Francisco medical center’s genetics unit, a shift that sources say was not related to the kidney unit’s woes and had been planned for some time. And Dr. Sharon Inokuchi, who at various times had been the kidney unit’s medical director and administrative head, was relieved of administrative duties “several months ago,” according to Kaiser, and is now working as a practicing nephrologist, or kidney specialist, in the unit, which is in the process of being shut down.

So far, however, no senior executives in the Permanente Medical Group, which ran the unit, have left or been reprimanded. And except for the first days after the issue came to light, TPMG executives have repeatedly deflected questions on the medical group’s role, leaving Mary Ann Thode, president of Kaiser’s Northern California hospital and health-plan units, to bear the brunt of public scrutiny.

A number of critics, including Merlin and former Kaiser, California Medical Association and Deloitte Consulting senior researcher Ruth Given, contend that TPMG’s role was central to the kidney unit.

The medical group, unlike the rest of Kaiser, is a for-profit enterprise that splits profits among its physician partners. Critics say that gives an incentive for the group to bring services in-house for financial reasons, sometimes to the detriment of enrollees. In addition, critics say, Kaiser’s emphasis on “population health” — meaning providing cost-effective care for the greatest number of enrollees — carries within it some risk that the interests of individual patients could be compromised in an attempt to stretch health-care dollars across a broad spectrum of care.

That appears to have been one of the factors leading Kaiser executives to take steps that put some individual patients at risk, with the goal of ultimately benefiting the greater good, Given said. This “may at least partially explain TPMG’s unwillingness to respond to (patient and family) complaints in a timely manner — or apparently at all — if the media had not gotten involved.”

As Kaiser has done for a number of weeks, Schiffgens declined to make other Kaiser officials available, including Robert Pearl, M.D., chief executive officer of the 6,000-doctor medical group, or other senior TPMG officials. “I have been the spokesman for the program,” Schiffgens said, “and I don’t see that changing going forward.”

A rollout gone wrong?

Merlin said he’s convinced that the kidney unit’s highly publicized woes are indicative of much deeper management and structural flaws within the giant HMO, which has more than 8.5 million enrollees nationwide, more than three-quarters of them in California.

He said Kaiser planned to use the San Francisco unit as the template for a series of kidney and other transplant centers nationwide that would save the organization huge amounts of money by not sending them to non-Kaiser hospitals for their transplants.

“I have every reason to believe they’re going to resurrect this (model),” Merlin said. “They want to build a strong template to roll out in the other eight states. … They said it would save Kaiser hundreds of millions of dollars” to handle organ transplants in-house.

Kaiser’s Schiffgens said he is “not aware” of such a broader strategy. The San Francisco-based Northern California kidney transplant unit is “the only (transplant program) that was ever brought in-house,” he said.

Other sources, including some within Kaiser, say Kaiser’s corporate culture and the influence of its powerful medical group, contributed to a reluctance to address these issues directly and publicly.

Considering that Kaiser’s own “Principles of Permanente Medicine” guidelines hold the system’s physicians responsible for directing all clinical decisions and designing and operating care delivery within the organization, said Given, a former Kaiser research specialist, “it is particularly puzzling to me that there has been no official public statement from TPMG about (its) role in this entire fiasco.”

Critics say the powerful influence of Kaiser’s doctors within the organization is little known to the public or to regulators, and that financial incentives sometimes result in clinical decisions that can put some patients in jeopardy. A senior Kaiser source blamed the situation on internal power struggles and cultural change within what the source called “a doctor’s culture.”

The physicians “manage to stay out of things,” the Kaiser source said, “but the doctors are key. They’re the ones that really control the huge part of the money.”

Chris Rauber

Whistleblower settles lawsuit over abrupt firing

David Merlin, the former administrative director of Kaiser Permanente’s troubled Northern California kidney transplant unit, has settled his wrongful termination lawsuit against Kaiser following a Dec. 18 arbitration hearing.

Merlin lost his job in February 2006 after eight weeks, following his questioning the safety, management and oversight of the unit by Kaiser and its Permanente Medical Group. The suit, filed in mid-July in San Francisco Superior Court and seeking at least $5 million in damages, said the transplant program “was so poorly organized and unprofessionally managed that it failed to comply with state and federal requirements and was compromising patient care, leading to unnecessary suffering and possibly deaths.”

Merlin also brought his concerns to the federal Centers for Medicare and Medicaid Services, the California Department of Managed Health Care (DMHC) and other regulators, and to the news media, resulting in a series of huge fines, scathing regulatory reports and media scrutiny of the transplant center’s woes.

Matthew Schiffgens, Kaiser’s spokesman on the transplant issue, confirmed that the Oakland-based health-care giant had settled the case, without providing any further details.

San Francisco Business Times.

Liability for negotiating in bad faith

A party’s right freely to enter into negotiations and to decide on the terms to be negotiated is, however, not unlimited, and must not conflict with the principle of good faith and fair dealing laid down in Art. 1.7. One particular instance of negotiating in bad faith which is expressly indicated in para. (3) of this article is that where a party enters into negotiations or continues to negotiate without any intention of concluding an agreement with the other party. Other instances are where one party has deliberately or by negligence misled the other party as to the nature or terms of the proposed contract, either by actually misrepresenting facts, or by not disclosing facts which, given the nature of the parties and/or the contract, should have been disclosed. As to the duty of confidentiality, see Art. 2.16.

A party’s liability for negotiating in bad faith is limited to the losses caused to the other party (para. (2)). In other words, the aggrieved party may recover the expenses incurred in the negotiations and may also be compensated for the lost opportunity to conclude another contract with a third person (so-called reliance or negative interest), but may generally not recover the profit which would have resulted had the original contract been concluded (so-called expectation or positive interest).

Liability for breaking off negotiations in bad faith

The right to break off negotiations also is subject to the principle of good faith and fair dealing. Once an offer has been made, it may be revoked only within the limits provided for in Art. 2.4. Yet even before this stage is reached, or in a negotiation process with no ascertainable sequence of offer and acceptance, a party may no longer be free to break off negotiations abruptly and without justification. When such a point of no return is reached depends of course on the circumstances of the case, in particular the extent to which the other party, as a result of the conduct of the first party, had reason to rely on the positive outcome of the negotiations, and on the number of issues relating to the future contract on which the parties have already reached agreement.

http://www.jus.uio.no

Good faith in mediation

Good faith in mediation, notes Lande, “is like mom and apple pie—it’s hard to be against them. . . Many people think that they know bad faith when they see it. They “know” that bad faith in mediation is when one side—the other side—refuses to make a new offer or what they view as a “reasonable” offer. This conduct clearly grieves some litigants, lawyers, and judges who would like the courts to sanction the alleged offenders.

In virtually all the final reported opinions on this issue, however, the courts have decided that this conduct is not sanctionable bad faith. The courts have decided that it would be inappropriate to sanction this behavior, which is impossible to adjudicate without evidence about communications in mediation and the participants’ state of mind.

Even proponents of good faith rules recognize that judicial second-guessing of participants’ states of mind would be an inappropriate judicial encroachment into the mediation process. As a result, the judicial interpretation of “good faith” has come to mean attendance at mediation (possibly with a representative having “sufficient” negotiation authority) and submission of any required premediation materials.

The result is that the good faith rules do not prohibit what people think of as bad faith.

“Bad Faith” Negotiation Strategies and Tactics

In our recent survey (with 78 responses) participants were asked to identify which of several acts constituted bad faith negotiation practices or strategies:

Those that garnered the most votes were parties lying about facts important to resolution (65.83%) — which would likely constitute grounds for rescinding any deal reached by the parties due to fraud — and a refusal to compromise “without good reason” (59.76%). Withholding information important to obtaining a “fair” deal garnered less than half but nevertheless a substantial number — 40.51% — of the “votes.” Again, this type of behavior could well constitute fraudulent concealment and is subject to its own set of sanctions — rescission and damages. **

Refusing to compromise with good reason (4.5%) however, and not compromising “enough” (3.4%)received so few votes that we must conclude our survey respondents accept these activities as perfectly appropriate when parties are attempting to negotiate settlement, whether in a mediation or outside of it.

http://www.negotiationlawblog.com

Good faith in negotiations

Good faith is an exceedingly controversial concept both judicially and academically. Yet ironically, it is this doctrine that forms the underlying rationale for numerous other entrenched legal principles. These include misrepresentation, waiver, estoppel and forfeiture. This article will examine the scope of a party’s duty to negotiate or bargain in good faith. It is a duty consisting of two obligations. The first is to act “in good faith” and the second is the obligation to bargain.’ The former is negative in content as it prohibits certain forms of bargaining behavior. The latter is positive in nature because it requires the parties to negotiate with a view to the actual conclusion of an agreement.

The Concept of Good Faith

The cagey attitude that the Canadian academic and judicial communities frequently display towards “good faith” seems to suggest that it is some novel concept to which they both must reconcile themselves. Nothing could be further from the truth. One of themodern roots of the good faith doctrine comes from Lord Atkinson’s dicta in New Zealand Shipping Co. v. Societe des Ateliers and Chantiers de France in which he held that, “…a person shall not be permitted to take advantage of his own wrong.” However, the concept of “good faith” is actually far more entrenched in history than this. The doctrine has been traced back to the Romans who summarized the concept with the expression “pacta sunt servanda” or, “what is so suitable to the good of mankind as to observe those things that parties have agreed upon.”

The fall of the Roman Empire and the rise of Christianity further refined the notion of good faith as a legal obligation. This was primarily done through the ecclesiastical courts who asserted jurisdiction over contractual disputes by arguing that good faith was a test of the sanctity of contractual obligations. Religion is only one aspect in the history of good faith. The rise of the merchant class during the 1I th and 12th centuries was even more influential to the evolution of the doctrine. Commercial necessity required that good faith as a contractual relationship be honored and enforced.

The term “in good faith” is commonly used, but its familiarity does not necessarily make it easy to define, or practice, or enforce. Authors David Bristow and Reva Seth explore the roots of this principle, as well as its evolution, particularly as it applies to negotiation and bargaining. They use the Canadian experience, citing several cases, as the context for their examination. They note that Canadian courts are slowly moving toward an acceptance of the duty to negotiate in good faith as a minimal standard of behavior.

The term “in good faith” is commonly used, but its familiarity does not necessarily make it easy to define, or practice, or enforce. Authors David Bristow and Reva Seth explore the roots of this principle, as well as its evolution, particularly as it applies to negotiation and bargaining. They use the Canadian experience, citing several cases, as the context for their examination. They note that Canadian courts are slowly moving toward an acceptance of the duty to negotiate in good faith as a minimal standard of behavior.

Unlike its ambiguous status in Canada, good faith is a cornerstone concept in the legal systems of many European countries. This is particularly true for nations such as France, Germany, Italy, and Switzerland.2 Even the United States seems to have embraced the concept of good faith with greater ease than Canada. For instance, an explicit good faith and fair dealings requirement has been a part of American sales law for years.3 Specifically, Article 2 of the Uniform Commercial Code establishes a general obligation of good faith. An expanded version of this requirement can be found in section 205 of the Restatement of Contracts.4 Section 205 of the Restatement declares that: “Every contract imposes upon each party a duty of good faith and fair dealings in its performance and enforcement.”5

Definition of Good Faith

Defining what the concept of good faith actually encompasses is an exercise that frequently proves to be frustratingly circular. Commentators have even gone so far as to suggest that the infamous U.S. Supreme Court obscenity test of, “…I will know it when I see it” be used.6 In her article, “Good Faith in Contractual Performance,” O’Bryne argues that attempts to define good faith continually prove to be futile because, “…good faith can have no absolute meaning: it simply assumes its contents from the facts of each particular case.”7 Interestingly, this approach is similar to the one used by ancient Romans who simply recognized that good faith was based on “… an appeal to common sense.”

Essentially, the doctrine of good faith arises from a common concern for fair dealings and the protection of the parties’ reasonable expectations. As a result, definition attempts have centered on concepts and terms such as: “fair conduct,” “reasonable standard,” “decent behavior,” or “community standards of fairness and reasonableness.”8 In Gateway Realty v. Acton Holdings,9 Kelly J. sought to formulate a more precise definition of good faith. On page 197 of the trial decision he stated that:

What will constitute bad faith or breach of the conduct described above will depend on the terms of the contract and the circumstances of each case. In most cases, bad faith can be said to occur when one party, without reasonable justification, acts in relation to the contracts in a matter where the result would be to substantially nullify the bargained objective or benefit contracted for by the other party, or to cause significant harm to the other, contrary to the original purpose and expectations of the parties.

With this attempt to define good faith, Kelly J. has gone further than most other judges have been willing to. Unfortunately, the result is still circular. Commentators have criticized this definition by asking: Can an object or benefit ever be said to be secured by a contract if the other party had not agreed in some manner to confer the benefit or to act towards attainment? This definition raises other questions as well. For instance, what constitutes “reasonable justification” or “significant harm?”

Emulating the approach of the English Chancery judges may be the most pragmatic solution in the search for a definition of good faith. This would mean that good faith would be defined as “…simply the absence of bad faith.” Robert Summers, one of the main architects of the American Restatement of Contracts is an adamant supporter of this approach since:

Good faith is an excluder. It is a phrase without a general meaning of its own and therefore serves to exclude the wide range of heterogeneous forms of bad faith.10

Attempts to precisely define good faith appear to be useless. It is impossible to take into account all the situations, types of behavior, tactics or conduct that may in a given situation constitute a departure from “good faith.” Defining good faith on a case by case basis therefore has a certain appeal. However, the movement to define good faith in terms of what it is not is growing steadily. In fact, it is one that has already been used by the Canadian courts. A recent case in the area of public administrative law held that, “… good faith should be expressed negatively… ideally by reference to instances of [bad faith].”11

Standard for Good Faith

Irrespective of the manner in which good faith is defined, establishing some type of definitive test or standard with which to aid in assessing a party’s conduct remains critical. This would serve two purposes. The first would be to help diminish the sense of arbitrariness often associated with good faith. Second, it would enable parties to evaluate their own actions and subsequently apply preventative measures. To date, there has only been one attempt in Canada to establish a standard with which to determine whether or not the parties have fulfilled the requirement that they act in good faith. This was done by the Nova Scotia Supreme Court in Gateway Realty Ltd. v Arton Holding Ltd. et. al.” This case held that the common law duty to perform in good faith will have been violated when a party acts in bad faith. That is, the duty is breached when a party acts in a manner that, “…substantially nullifies the contractual objectives or causes significant harm to the others, contrary to the original purposes or expectation of the parties.”13

Determining whether a party has acted in good faith involves an element of both the subjective and objective. In the recent case of Dudba v. Smilestone,14 Kelly J. provided one of the few commentaries regarding what state of mind is required if a breach of good faith is being alleged. Kelly J. agreed that the state of mind is important and concluded that the court’s duty is to conduct an objective inquiry into the discretion-exercising party’s state of mind. This ruling, however, has been criticized for failing to resolve whether subjective honesty is sufficient to meet the good faith standard or whether the courts must rely only on an objective assessment. As Kelly J. noted, absent any improper motive or purpose the court would be unwilling to interfere with the exercise of discretion by the party in question. In the case of Greenberg v. Meffert,15 the Ontario Court of Appeal provided some guidelines that may prove to be significant in future good faith cases. In this case Robins J.A. held that:

When the matter to be decided or approved is not readily susceptible to objective measurement such as matters involving taste, sensibility, or personal compatibility of judgements of the party for whose benefit the authority was given, such provisions are more likely to be construed as imposing only a subjective standard. On the other hand, in contracts relating to such matters as operative fitness, structural competition, mechanical utility or marketability, these provisions are generally construed as imposing an objective standard of reasonableness.

If this central distinction to good faith is used, courts ought to invoke a functionally subjective measure of state of mind when the matter at issue relevantly concern “taste, sensibility or personal compatibility.” Conversely, if it is a matter that can be assessed by a third party then an objective inquiry would be conducted. How the Canadian courts will address this issue currently remains to be seen.

Good Faith as a Legal Concept

There are several factors that have contributed to the traditional judicial distrust of the good faith doctrine. The primary one is the fear that an ambiguous good faith doctrine would somehow jeopardize the Anglo-Canadian legal tradition of individual autonomy and freedom to contract. This tension between the individual and the society is clearly illustrated in a recent House of Lords case, Walford v. Miles.16 The facts in this case are as follows. The defendant agreed to sell both business and premises to the plaintiff providing the plaintiff had a bank letter proving sufficient credit to facilitate the purchase. In this context, the defendant agreed to terminate negotiations with any third party. Though the plaintiff provided the letter the defendant withdrew from the negotiations. The defendant cited the concern that its staff would not “get on with” the plaintiff as the explanation for such action. The plaintiff then sought to enforce the agreement that the defendant was not to deal with other parties. What the plaintiff wished to have happen was for the court to imply that the defendant would continue to negotiate with them in good faith. This did not occur.

Instead the sentiment of the court seemed to be that mandating or legislating parties to negotiate in good faith is an intuitively counterproductive request. More specifically, the House of Lords stated that:

The concept of a duty to carry on in good faith is inherently repugnant to the adversarial position of the parties when involved with negotiations.

This case held that provided the parties do not make any misrepresentations during the negotiation, then each is entitled to pursue his or her own interest to the fullest extent possible. This school of thinking believes that to impose any type of duty to negotiate in good faith would be to impede the parties’ ability to achieve what is best for them. Essentially, the fear is that a duty to negotiate in good faith would prohibit the use of traditional negotiation tactics such as threatening to withdraw from the discussion in order to achieve better terms. Other concerns frequently associated with the duty to negotiate in good faith include: issues of uncertainty regarding how a vendor is to know whether it is entitled to withdraw from further negotiations, or at which point and to what extent the court should intervene to enforce such obligations. Underlying all of these concerns is the belief that a duty to negotiate in good faith is both unworkable in practice as well as inherently inconsistent with the position of the negotiating party. There are still judges today who remain convinced that the doctrine of good faith is not a part of Canadian contract law as is evident in several cases.

(edited)

Reva Seth

http://www.allbusiness.com

Thus, we have the $700 billion Bush bank bailout, the $700 billion “stimulus package” Obama wants by inauguration to “jolt this economy back into shape” and the $800 billion fund Hank Paulson created to get consumers borrowing and buying again.

These come on top of Bush $455 billion deficit, the $29 billion bailout of Bear Stearns, the $105 billion in pork to grease the $700 billion bailout, the $100 billion to $200 billion to keep Fannie and Freddie afloat, the $140-billion-and-counting for AIG, the $25 billion for the greening of GM, Ford and Chrysler, the $25 billion more to save the Big Three and the $20 billion for CitiGroup.

Now much of this overlaps, and some will be retrieved. But we are still staring at a deficit that could approach $2 trillion.

How would this stack up historically?

A deficit of $1.4 trillion would be 10 percent of gross domestic product, dwarfing the postwar record 6 percent run by Ronald Reagan in the Jimmy Carter recession.

Bewailing the “Reagan deficits” has been a staple of Democratic oratory. This will stop. But the politics of this is not the point, the policy is.

Consider what we are about to do. Bush in 2008 spent 21 percent of GDP. States, counties and cities spent another 12 percent. Thus, one third of GDP is spent by government at all levels. Obama and Co. propose to raise that by another 10 percent of GDP. We may soon be north of 40 percent of gross domestic product controlled and spent by government.

That is Eurosocialism.

And where, exactly, are we going to get the money?

Americans save nothing. We spend more than we earn. Thus the levels of consumer debt, credit card debt, auto debt and mortgage debt. U.S. foreign-exchange reserves amount to a piddling $73 billion.

The only nation with the kind of cash on hand we need now—if we don’t print the money and invite another gigantic bubble—is China, with its $2 trillion in foreign-exchange reserves.

Will Beijing lend back the dollars it has piled up by selling to us?

China certainly has an incentive to keep Americans spending. For our purchases of Chinese-made goods have often been responsible for 100 percent of China’s growth. China does not want to kill the American goose that lays those golden eggs—until the goose can’t lay any more eggs. Then they won’t need the goose.

But should China decide to lend us the money, what will Beijing demand in interest rates and assurances that we will not default. After all, the U.S. debt is 70 percent of GDP, our savings rate is near zero, and our merchandise trade deficit is still running at 5 percent to 6 percent of GDP.

Unlike the 1950s, we are today dependent on foreigners for two-thirds of our oil and for much of our manufactured goods—toys, TVs, radios, cameras, cars, shoes, clothes, bikes, motorcycles—and for the $700 billion to $800 billion we borrow each year to pay for these imports.

With U.S. homeowners, consumers, companies and banks now going bust, why must the nation borrow trillions more to bail them out? So we can maintain our status and standard of living as the last superpower.

Bush and Obama are competing to shovel out trillions of dollars, so we can return to the good times of yesterday.

But wasn’t yesterday the root cause of today? Didn’t saving nothing and spending more than we earn, purchasing what we cannot afford in cars, consumer goods and houses, buying far more from abroad than we sell abroad—didn’t that cause this crisis and crash?

A family man in America’s condition, awash in debt, spending more than he makes, would cut back consumption, find a second job and get out of debt. Or declare bankruptcy, accept the shame and humiliation, change his wastrel ways and start anew.

Is it different for a nation?

Yet we seem to believe we can borrow and spend our way out of a swamp of unpayable debt into which borrowing and spending have plunged us.

We are headed either for default on our debts and bankruptcy as a nation, or something less honorable: a quiet cheapening of the debts we have incurred by inflating and destroying the dollar, robbing our creditors of what we owe them and robbing our own people of the value of what they have earned. And so it has come to this.

What would the Founding Fathers think of us now?

Patrick J. Buchanan

http://www.vdare.com