Punish the workers

It is a sad day in Missoula when a local employer lays off 417 jobs. It is even sadder that it was management who caused, through bad decisions, the operation to close down. But, nearly everyone in the pulp and paper industry knew that it was only a matter of time before Smurfit-Stone shuttered the Frenchtown mill.

Why is that? Nearly a year ago Smurfit-Stone Container filed for Chapter 11 Bankruptcy. At the time, chairman and CEO Patrick J. Moore said, “Our financial performance has not reflected the full potential of our earnings power due to higher cost operations and burdensome debt levels dating back to the original formation of the company.”

Did you notice that bit about burdensome debt levels? At one stage, Smurfit-Stone Container was leveraged to the extent of 70 percent of capital. Hardly wise management, but instead this was celebrated back in 1989 (the go-go 80’s) as an ambitious company batting above its average on the way towards becoming a global behemoth.

In March 1989 Stone paid $2.2 billion in cash and securities for Consolidated-Bathurst Inc. (CB), Canada’s fifth largest pulp-and-paper company. The purchase made Stone Container the world’s second largest producer of pulp, paper, and paperboard; a major player in newsprint; and gave Stone Container a foothold in the European market through CB’s Europa Carton subsidiary and U.K. plants. Investors even back then worried about the $3 billion debt, but management thought it was easy enought to sell-off some of the non-core assets. The deal, though, was financed by banks and eventually they called in their obligations. The debt nearly caused Stone Container to collapse in 1993 when the debt had risen to nearly $5 billion.

Still the company continued on its spending binge, all with the aim of becoming what they are now – North America’s largest manufacturer of paperboard packaging. In 2000, it purchased St. Laurent Paperboard Inc. of Montreal for about $1 billion in cash and stock. In 2002, it paid $375 million for the MeadWestvaco Corporation’s Stevenson, Ala., mill and the seven plants and 82,000 timberland acres that supply it. It was still splurging as of 2008.

Ever since then, through mergers, reorganizations, fire sales of assets, broad redefinitions of strategy and assorted restructuring programs the debt load has constantly dragged the company down. As of of Sept. 30, 2008, the company was still $5.6 billion in debt with only $7.5 billion in assets.

What about the Missoula mill? Well in a gentle farewell to workers, Smurfit president Steve Klinger said on Monday that the Frenchtown mill was a high-cost facility that did not provide adequate returns over the long term for the company.

Really? Because in 2008 a strategic review that the company conducted with outside experts determined that its mill system was very cost-competitive, with about two-thirds of its plants in the top half of the cost profile. This was after they’d already closed a 180,000-ton linerboard machine in Montana. So, either they already knew that Frenchtown was one of the dogs, or they just couldn’t be bothered to fix it.

I dunno. Maybe the workers could see what was coming and were just hoping things would work out fine. But, I can’t help but think that the company hasn’t been completely honest with the crew. I guess it is hard for management to admit they’ve been screwing up for over 20 years. Patrick Moore and the bosses in St. Louis, however, will all keep their jobs. And, to put the icing on the cake, Smurfit-Stone may pay out up to $47 million in bonuses to executives and other employees in 2009. I don’t think any of the folks in Frenchtown will be getting them.

40,000 IOUs


Clouded behind the health-insurance debate this week was the announcement by the country’s highest military officer that we need to send more troops to Afghanistan. Surprisingly, I didn’t hear a chorus of fiscal conservatives bemoaning the fact that we will need to borrow trillions more dollars to do so.

While Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, declined to specify how many more troops are needed, it is commonly thought that 40,000 will be added to the current contingent of 64,000. That’s an increase of around 60% in the continuing cost of the Afghan campaign. But, nary a peep from the Republicans about the increasing size of government! Of course, these military employees will be operating overseas so probably can’t be counted part of the ‘Economic Reinvestment’ stimulus program.

If Republicans were serious about ‘balancing the budget’, then at the same time we consider the wisdom of committing 40,000 of our neighbors to fight a war that few of us understand, we would be discussing which social programs will be cut. Do you think the American public would cut Medicare in order to protect the citizens of Afghanistan? Perhaps we could calculate how much our taxes will need to rise to win this fight? Representative Rehberg? Should you support this influx of troops, I will be waiting to hear how you pay for it.

Sadly, we will be subjected to a rhetoric of ‘a war we have to win’, presumably at whatever cost. Ironically, as Senator Evan Bayh (D – IN) recently pointed out, all this borrowing will diminish our global influence, because fiscal strength is essential to diplomatic leverage, military might, and national significance. Being dependent to foreign debtors is counter to our fiscal DNA, but you know we’re going to have to pay the piper someday. That’s a battle we’ll never quite win!

Taking on the workers

I love it when a number of my interests intersect in one post. A superb post over at Education Week captures everything that is wrong when people criticize the unionized nature of this country’s school system. As Diane Ravitch suggests Unions are Not The Problem:

I must confess that I have always been puzzled by people who insist that the unions are the cause of everything that is wrong with education. If we only could get rid of the union, they say, then we could raise performance.

Her arguments seem oriented around three points:

1. If unions were to blame, then school systems that are less unionized, such as in the South, should be doing better. They’re not.

2. It is not that getting rid of poorly performing teachers is difficult. Most of them grow disenchanted and leave within their first few years. There’s not much difference here between heavily unionized schools and less unionized schools.

3. The right to form and join a union is a basic human right.

And it was this last point that got me to thinking about the Employee Free Choice Act (EFCA), which currently seems to be every conservatives favorite punching bag (after President Obama).

The crux of the issue with EFCA centers on how easy it is for workers to organize and form a union. The EFCA effectively makes it easier for workers to recruit others, thus making it easier for workers to have the option to join a union where there is currently none. Sounds good to me – unions are by, for, and made up of workers. Surely workers should be able to form unions however they want?

Ignore for a moment that economists think that unions help boost the economy by raising wages. It seems that pro-business organizations are coming out in force against unions, against EFCA, and against raising workers wages. For example, the unapologetically anti-labor Center for Union Facts spent $20 million on ads in 2008 against EFCA. The U.S. Chamber of Commerce has vowed to spend another $10 million this year. Just think how many jobs or workplace improvements all that money could have funded!

While these corporate interests claim that signing petitions somehow infringes on workers rights, they never get too agitated at managers who force workers to sit through hours of anti-union videos during work time, who pressure workers not to join unions for fear of losing their jobs, and the labeling of workers as troublemakers if they so much as mention the word ‘union’ on the workplace. Talk about thuggish behavior!

Nope, this has nothing to do with improving our education system, not a whole lot to do with improving our productivity and economy, nor with protecting workers from other workers. It is the same-old class warfare that our history has been littered with – with the bosses wanting to control the every means of production and workers being grateful for any crumbs thrown their way. Anyone would think the workers created the current economic malaise!

Are you being served?

Tipping waiters and waitresses is supposed to be about rewarding good service. Unfortunately, in these tough economic times they also illustrate the injustice of piece work. Through no fault of their own, servers are today taking home fewer dollars for the same work.

You’ve probably been there. Sitting in your favorite restaurant, that is. Wondering what you’ll have for lunch or for dinner. Prices have gone up and you’re a little bit worried about whether you can afford that nice glass of beer. Instead you decide to not order the fabulous soup and you know that desert is probably out of the question.

But, when the check comes you are still a bit shocked by the total. It might be more than you were budgeting for. So, you don’t leave as generous a tip. Tonight it might just be 15%, less than you know the server earned. They were patient, courteous, and diligent in their service. But, through no fault of theirs, you can’t leave your normal, generous tip. At the end of the night, sadly, you know that they will be taking home less. No matter how hard they worked.

It gets worse. According to the Wall Street Journal, the minimum wage for servers in many states “has been stagnant at $2.13 an hour going as far back as 1991“. That doesn’t go very far these days. And, some chain restaurants are now requiring servers to share their tips with the folks who seat you, bus your table, and wash your dishes. This minimizes the labor costs for the restaurant with little perceptible difference to the customer.

It’s just like folks who are paid by the number of pieces they produce. As a result of factors outside their control, a worker can see their take home pay decline. Maybe the financial wizards didn’t put the company on solid-enough footing and so must now lower the company’s cost to service the debt. That might mean cutting the piece rate, or worse cutting the number of employees and insisting those who stay to work harder or put in longer hours. Or perhaps the marketing geniuses didn’t have a good year and demand for the product is drying up. Maybe the wrong product was being made or planted. Maybe the delivery contract was poorly negotiated and the product isn’t getting to market in a timely and consistent manner. The list goes on. But, in each case the factor leading to the decline is outside the control of the worker. And you can bet labor costs will be the first and easiest place that managers look to cut costs.

So, if you’re eating out tonight or enjoying a cool beverage at your favorite establishment, give a thought to your waiter or waitress. If the service is up to the usual standard, then tip a little more than you usually do. They’ll appreciate it and with any luck they will be able to stick-it-out through these tough times to serve you again some other time.

To Save or Not To Save the Auto Industry

What should we do with the auto industry? On the one hand, they employ millions of people directly and support businesses that employ millions more. Can ourcountry handle the collapse of this industry in these already disastrous economic times?

On the other hand, I can’t really deny that they cars they make aren’t as good as their foreign competitors. They are less attractive, less functional, and have lower gas mileage than their foreign counterparts. They clearly haven’t done a good job of innovating and staying abreast of changes and trends in the market. Other auto companies aren’t suffering the way they are. So why should we help them? What precedent are we setting? What will be the next industry that we’ll have to help? Where does it end?

I also go back to the union issue. I am strong proponent of workers’ rights. However, even I have to admit that the unions have gone too far. Requiring lifetime benefits for someone who has only worked for the company for five years? I’ve never heard of that…ever. It seems unreasonable to me. Yet at the same time, I don’t buy that the only way that American auto manufacturers can compete with their foreign competitors is to cut employee pay and benefits.

What to do, what to do…

The Rebirth of Robert Reich, and the Debate to Come

Republicans are gonna love this. Robert Reich, former Harvard professor (currently at the University of California, Berkeley’s Goldman School of Public Policy) and Clinton-era Secretary of Labor, wants to resurrect Keynesian economics. The whole post is worthy of your time, but this paragraph in particular caught my attention:

What the hawks don’t get is what John Maynard Keynes understood: when the economy has as much underutilized capacity as we have now, and are likely to have more of in 2009 and 2010 (in all likelihood, over 8 percent of our workforce unemployed, 13 percent underemployed, millions of houses empty, factories idled, and office space unused), government spending that pushes the economy to fuller capacity will of itself shrink future deficits.

Remind me, again, why is the economy currently underutilized? I bet Republicans will say it is because the market isn’t allowed to run wild and crazy and free. Or they’ll just ask for more tax cuts for the uber-wealthy, in a perpetuation of the only-the-mighty-know-best theory. I know they’ll be lining up at Walmart at 4am, I just know it.

So, if the private sector won’t invest enough, maybe the general public will? Some how I don’t think so. Our paychecks seem to be getting smaller, our credit cards are maxed out, and we’re all dead scared of losing our jobs and our benefits. And no small ‘stimulus’ check for $600 is going to change that. Besides, what was your experience like last time, did it just get swallowed up by the credit card monsters, eh?

Nope, it’ll have to be the spender of last resort, Big G, government. Spending money on fixing roads and bridges before they fall down, repairing levees and ports before they reach breaking point; investing in mass transit, improving our water supply, investing in new sources of energy and new ways of conserving energy. Sounds like stuff we could all use.

Reich’s love affair with Keynes isn’t new. In fact, Reich’s piece for Time Magazine’s 100 Most Important People of the Century is a nice primer on Keynesian economics. Here’s where Reich repeats the nub of it:

Keynes’ basic idea was simple. In order to keep people fully employed, governments have to run deficits when the economy is slowing. That’s because the private sector won’t invest enough. As their markets become saturated, businesses reduce their investments, setting in motion a dangerous cycle: less investment, fewer jobs, less consumption and even less reason for business to invest. The economy may reach perfect balance, but at a cost of high unemployment and social misery. Better for governments to avoid the pain in the first place by taking up the slack.

I might just be a Keynesian. Just don’t tell the Republicans.