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The Collapse of Michigan’s Largest City Parallels a Long Campaign to Undermine Labor Radicalism and Racial Integration

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Postal workers on strike, Detroit, circa 1970.

Underneath all the economic and political symptoms there are really only two causes of Detroit’s fiscal collapse that recently culminated in bankruptcy. The first cause of the Motor City’s decline is corporate America’s merciless, and quite successful campaign to annihilate labor unionism, especially the more radical variants. This of course reverses the conservative myth that Detroit was done in by “greedy unions.” Far from it. Detroit was done in by wealthy corporations that divested capital from the region in order to pry bigger profits from their workers, be they in the Midwest, or in the US South and Mexico.

The second cause of Motown’s chronic poverty is white racism – not the discriminatory variety whereby some white people treat African Americans unfairly and unkind, but rather the structural and political anti-Black policies and practices around which government and the private economy are still largely organized today.

Combined, the corporate attack on organized labor, and popular white revanchism to thwart the economic goals of the Black freedom movement have devastated Detroit. The victims are the city’s poor, mostly African Americans, but also a small number of impoverished whites and Latinos who have seen essential services disappear. Of course corporate America’s campaign to undermine organized labor wasn’t confined to Detroit and Michigan. Nor was white America’s exodus from the urban core behind suburban units of exclusionary local government. But the results are clearer today above and below 8 Mile Road, the 8 lane asphalt border separating Detroit from its suburbs, than virtually anywhere else in the nation.

As the “arsenal of democracy” in the early 1940s, Detroit was turning out more war materiel and weaponry than probably any other city on earth. Several hundred thousand southerners arrived in Michigan during the war to take jobs in the mega-factories that were expanding along the River Rouge, in Hamtramck, and on the banks of Detroit River. After the war most of the tank and bomber assembly lines were converted back to auto manufacturing and other civilian machinery, but Detroit kept a good share of the nation’s multi-billion dollar weapons contracts throughout the Cold War. Such are the complex contradictions of America’s rise to global military and economic power; the working class who built the war machine and produced unimagined quantities of consumer goods, fueling one of the world’s greatest historical accumulations of capital, umbrellaed by the Pentagon’s unrivaled ability to project power, were also fostering a culture of labor radicalism.

Marx described the process a century prior. Capital would create the conditions for its own demise on the vast shop floors where toiling workers would find solidarity and organize. Capital’s intellectuals have long recognized the dynamic also, but instead of writing mechanistic theories of how the revolution from private ownership to social democracy would naturally unfold, they were busy making plans to undermine the threat.

In the late 1940s and 1950s Detroit teemed with communists, socialists, anarchists, and other anti-capitalists, in addition to hundreds of thousands of militant workers with no particular ideology straitjacketing them. They all had more than enough gumption to challenge their bosses. A massive wave of strikes roiled Detroit in the post-War period, so many that one local newspaper ran a “strike box score” like that which keeps track of hits and runs in baseball. Detroit’s industrial working class became a core of the US labor movement in the 1950s. The city’s cavernous auto plants became battlegrounds not over mere working conditions and pay, but over ideology, and over control of the American economy. Workers demanded a hand in directing investments and planning production. Radicals attempted to inspire and mobilize the workers to move beyond narrow business unionism, to build a lasting counter-force to capital on the national political level.

Civil rights movement organizations forged alliances with Black and white workers to address racism within the unions, and to attempt what has proven elusive throughout American history, to build a multi-racial front for economic democracy. The auto plants were eventually desegregated, as were other industries, and in time the most powerful unions in the United States were integrated, but at the same time the racial and class ideologies that would unravel labor solidarity were poisoning the air.

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Most whites actively resisted residential de-segregation, or did nothing to undo the shift from de jure racism to structural racism. A sign in suburban Detroit in the early 1960s.

Socially and geographically many whites in Detroit built walls of exclusion around their residentially segregated housing, their better schools, their better endowed financial and insurance institutions, their hospitals, and their private clubs. They were doing what white workers, rising into the so-called middle class, were doing in virtually every corner of the United States. Racism, the complex means of organizing society around white privilege, remained an appealing political program to many white workers in spite of the gains they made with their Black brothers and sisters in the factories.

By the late 1960s white Detroit was already staging an exodus from the city into the rapidly growing suburbs of Oakland County, and the transformation of the US into a post-industrial services and knowledge economy would be seized by these well-positioned white suburbanites. Black Detroit, still only one generation removed from the plantations of Mississippi, Alabama, Louisiana, and Georgia, lacking the social capital and racial pass card of access to economic rights were trapped in Motown. The rebellion of 1967 against the city’s mostly white police force and political establishment revealed the raw racism that was tearing the region’s working class apart. Many white Michigan residents supported a crack-down on the Black communities, un-moved by the root causes of the rioting.

In the suburbs of Oakland County and a handful of affluent cities and townships in Wayne County many white Michigan families made the leap from the industrial era into an economy dominated by healthcare, computing, finance, real estate, engineering, insurance, and research and education. Whites in the exurbs of the Detroit metropolitan region became one of the most affluent populations in the United States. More than half of Black Detroit found itself blocked, unable to access and afford the means of social mobility. Black Detroit became one of the poorest populations in the United States, afflicted by the social ills of violence that grow from severe inequality.

Disproportionately, Blacks in Detroit experienced rapid downward mobility. Their salaries, healthcare, and pensions provided from employment in the factories were replaced with minimum wages and no benefits in the growing service sector of restaurants, retail, and hospitality. That’s if they could get a job at all. Unemployment grew steadily in Detroit. The jobs their fathers had once held in the auto plants, machine shops, and other factories across the region were now held by minimally paid southern laborers without union protections, or else by Mexican and Asian workers in the expanding maquiladoras of the global south.

Detroit’s population shrank mostly from the white out-migration to cities and towns like Royal Oak, Grosse Pointe, Birmingham, Troy, Franklin Village and dozens of other independent local governments with their own tax bases, budgets, and school systems. Detroit’s 1.6 million people as of 1960 dwindled to 1.2 million by 1980. It fell again to 950,000 in 1990, and has cratered at just above 700,000 today.

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A mansion in Bloomfield Hills, Oakland County, Michigan. Bloomfield Hills is one of the wealthiest communities in America. In 2009 the Wall Street Journal listed this home as a “bargain” for the price of $4.95 million.

The city of Troy, incorporated in 1955 in Oakland County just eight miles north of 8 Mile Road, the physical and psychological border of Detroit, grew quickly in the latter half of the 20th Century into an affluent, majority white community. Dozens of other exurban enclaves, most of them smaller, quite a few home to the region’s new elite, grew over the same period.

In a sense whites, and later a small group of Black middle class migrants exited Detroit with the social and economic capital they acquired at the height of the city’s industrial flower. It was like a run on a bank that causes the institution to implode. Detroit’s affluent residents took the human and financial capital of what was once one of the wealthiest cities on earth and they redeposited themselves and their savings beyond the reach of the struggling city.

Of course the reasons to leave were ample. Dozens of major manufacturing plants in and around Detroit were closing and entire sections of the city were becoming not much more than tracts of housing for jobless laborers with little savings. The American auto industry shuttered much of Michigan’s manufacturing plant (and much of the Midwest’s) in the 1970s and 1980s in the face of cheap Japanese imports. However, the flight of capital from Detroit can actually be traced back before this threat from “globalization.”

It’s clear from the political literature written about Detroit that America’s ruling class saw the shop floors of Ford, GM and Chrysler as dangerous agglomerations of race and class conscious labor. Workers in the Midwestern manufacturing sector were very much responsible for the immense gains that most American workers obtained in the post-war period until about 1970. Beginning with the bloody strikes of the 1930s and reaching through into the 1950s labor militancy in Detroit and the rest of the Rust Belt forced America’s corporate titans to share the national income and accept a more democratic society.

To break the back of labor unions in America the major corporations and financial companies broke Detroit. Over the long-haul capital withdrew from the region’s manufacturing infrastructure and poured instead into the un-unionized American South, and overseas into Asia and along the US-Mexico border. The Detroit metropolitan economy reconfigured itself around the suburban office parks of Oakland County, and the wages of whiteness prevailed over the brief post-war possibilities of multi-racial solidarity.

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Police sports cars, one of many signs of conspicuous public sector consumption in Oakland County’s affluent suburban cities and towns.

Because of the highly fractured system of independent local cities, counties, and revenue authorities that characterizes American government this demographic shift translated into a permanent fiscal crisis for Detroit. Big public pension obligations, or none at all; corrupt mayors, or squeaky clean politicians; it didn’t really matter. These influences on Detroit’s fate weren’t sufficient, nor necessary to cause the collapse. It was capital and white flight that did the city in. The tectonic shift in incomes and wealth reduced Detroit to the status of a revenue-starved city retaining all its responsibilities of social investment and a much amplified welfare load. The city was prevented from annexing nearby suburbs where retail tax dollars were being captured, and where real estate prices where rising along with family incomes. The region’s affluent suburbs and the state government refused systemic reforms for revenue sharing across governments. White Michigan and the new corporate community, largely ensconced in the suburban and rural regions of the state, sat back to watch the urban core burn.

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8 Mile Road slices across Detroit’s northern border, geographically and fiscally severing the city from the tax bases of wealthy towns and cities to the north.

An analysis of Detroit and 28 of the independent suburban towns and cities above 8 Mile Road, mostly in Oakland County, shows clearly how the massive, unsustainable debt came about. Just between 1999 and 2011 the annual median household income for Detroit’s residents fell by $4,300, from $29,500 to $25,100. The number of unemployed doubled from 7.8 to 15.5 percent of the adult population, with many of these job losses resulting from the 2008 financial crisis.

A handful of the Oakland County suburbs, mostly those bordering the city along 8 Mile Road also saw the incomes of their residents drop, and joblessness rise causing fiscal problems for these governments also. The rest of Oakland County prospered over the same period, however.

For example, the aptly-named Beverly Hills, a small incorporated village about 7 miles from Detroit has seen the median family income of its residents grow by $12,700 over the last twelve years, from $90,300 to $103,100 today. In a few other Oakland County enclaves families register incomes more than double the nation’s average, three times that of Detroit. These cities, towns, and villages, many of them incorporated in the 1950s and 1960s expressly to absorb white migrants bailing from Detroit, are fiscally healthy units of government. Oakland County today maintains a AAA bond rating from Moody’s and uses this to finance many of the smaller townships, villages, and school districts in its limits. Bloomfield Hills School District has maintained a AAA credit rating thanks to its wealthy residents who are solidly in the top 20 percent of US income earners. Ratings on much of Detroit’s paper ranges from speculative to junk status, often with “negative outlooks,” a phrase in the industry that means downgrades are likely.

Detroit’s unraveling is far from over. The bankruptcy process instigated by emergency manager Kevin Orr is designed to kill off one last vestige of political and economic power of the city’s working class – the defined benefit pension obligations of public employees. Finally, if and when Detroit’s regimen of austerity comes to an end, renewed investment in the city is likely to come in the form of waves of gentrifying housing and commercial development which may cause mass displacement and provide few benefits to the city’s working poor as the jobs created will be more of the same precarious service industry roles.

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Screenshot from SAIC’s jobs web site. SAIC develops surveillance technologies for many branches of the federal government, as well as local governments and police agencies.

In 1988 the Oakland city council passed the nation’s most ambitious anti-nuclear ordinance, banning any and all activities that would advance the development and deployment of nuclear weapons. It was a big deal, not like the previous mostly symbolic ordinances passed by other towns and cities far from the nation’s nuclear labs and military bases.

The city of Oakland lies just south of Berkeley where in the 1940s and 1950s much weapons research was conducted. Weapons and components were transported through Oakland’s Port and across roads and highways and rail road routes traversing the city. Atomic weapons that later decimated the environments of South Pacific islands, causing cancers among islanders and destroying their homes were shipped through Oakland. In the 1960s Berkeley’s research was consolidated at Lawrence Livermore Laboratory in southern Alameda County, but for decades Oakland was host to nuclear weapons contractors and federal offices involved in the design and deployment atomic weapons. (In fact this is true today, the subject of a future blog post perhaps.) The Navy sought to home port a nuclear-armed squadron in the Bay Area in the 1980s, and Oakland’s anti-nuclear ordinance was a direct effort to resist the further nuclearization of the region.

In 1990 a federal judge appointed by Ronald Reagan slapped down most of Oakland’s anti-nuclear law, calling it unconstitutional and claiming that it interfered with national security. However, one portion of the anti-nuclear ordinance stayed on the books. Oakland would continue to refuse to enter into contracts or otherwise spend city funds on work done by corporations involved in the US nuclear weapons program.

Both the spirit and letter of this law were thrown out three years ago when the Oakland city council summarily agreed to the massive port-city surveillance system called the Domain Awareness Center. The contractor building Oakland’s camera and sensor network is Science Applications International, a giant military-industrial corporation that has helped the US Defense Department develop, build, and deploy nuclear weapons, among many other killing technologies.

And the Oakland contract with SAIC would seem to violate the spirit of another city of Oakland resolution, the anti-SB 1070 law that was passed in 2010 to oppose Arizona’s anti-immigrant law. Oakland’s anti-SB 1070 resolution requires the city to boycott Arizona, and companies with headquarters in Arizona, due to the state’s racist and militarized immigration policies. SAIC has a major office in Arizona and has helped the federal government build a massive border wall and surveillance system.

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A portion of the gigantic wall built by SAIC along the US-Mexico border, a portion of which spans Arizona.

SAIC’s anti-immigrant technologies probably don’t violate Oakland’s anti-SB 1070 ordinance because the company’s contracts are with the federal government, and not the state of Arizona. SAIC is headquartered in Virginia, and only has branch offices in Arizona. Nevertheless, SAIC is perhaps the single largest provider of border surveillance technology to the government. SAIC has multiple offices in Arizona where its assists the Department of Homeland Security in its historically unprecedented effort to wall off the US-Mexico border and deport millions of human beings.

On SAIC’s web site the company proudly advertises the 60-mile border wall it helped build for the Department of Homeland Security in Arizona.

SAIC has developed the major surveillance, biometric, and alarm systems used by the DHS along the US-Mexico border throughout Texas, Arizona, New Mexico, and California. SAIC claims to have executed at least $200 million in border security contracts in the last five years, work that includes developing the “Integrated Wide-Area Surveillance System,” or IWASS, which we are told, in promotional material on the company’s web site: “safeguards the homeland through an intelligence-based operational solution for border security.”

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Screenshot taken from SAIC’s jobs web site. SAIC is hiring interrogation trainers to teach US military personnel how to interrogate captives and prisoners. The work is carried out at Fort Huachuca, an Arizona military base where SAIC also assists in drone training and operations.

SAIC has dozens of job openings at its Arizona offices currently. The company is hiring biometric technicians to develop camera-linked computer systems capable of discerning identity from facial recognition and body shapes. These technologies could someday be incorporated into Oakland’s Domain Awareness Center system, according to discussion between SAIC and city officials.

At its Fort Huachuca office SAIC is hiring staff for its “human intelligence” program, a major military contract to train interrogators and spies within the US military. SAIC is deeply integrated into the US military’s espionage and surveillance activities. Arizona is one of the major locations where SAIC and the Army develop these technologies.

Fort Huachuca, located in southern Arizona near the Mexico border, was founded in 1877 by the US Army during their war of extermination against the Apache nation, and other southwestern Indians. For Huachuca grew afterward as an outpost against Mexico from which the United States had seized a quarter of North America.

Today the desert outpost is also one of the US military’s major drone warfare bases. SAIC is one of the main contractors providing technology and training for Army and Navy drone weapons systems at Fort Huachuca, and drone surveillance systems based at Fort Huachuca are reportedly used in border patrol operations, but mostly in overseas theaters of war. As the LA Times reported in 2011, SAIC employees are part of the “kill chain” in drone warfare, carrying out crucial roles in the drone missions employed by the Obama administration to kill thousands in the Middle East and Central Asia. Just last month the military re-upped SAIC’s drone contract to assist Army personnel in operating and maintaining the new weapons.

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Screenshot of SAIC’s jobs web site, advertising employment opportunities for drone operators. SAIC’s staff are in the “kill chain” of the US military’s controversial drone warfare programs.

SAIC’s nuclear weapons contracts are too numerous to try to list. SAIC has contracted with the US nuclear weapons complex since the mid-1980s. SAIC has taken billions in payments from the US Department of Energy and the National Nuclear Security Administration to conduct studies and carry out contract work for nuclear weapons development as well as lead up the government’s site planning and environmental compliance efforts at the major weapons labs in New Mexico and California. One of SAIC’s latest nuclear weapons-related contracts is a $228 million work order with Sandia National Laboratories in Albuquerque, New Mexico. In addition to designing and testing nuclear weapons, Sandia also develops weapons and surveillance technologies for the CIA, NSA, and other federal spy agencies.

SAIC also serves the military branches that deploy nuclear weapons. For example, in 2009 SAIC was paid $10 million to help the Air Force reorganize its nuclear weapons command structure.

Homeland Security chief Janet Napolitano’s appointment as the University of California’s 22nd president is part of a long tradition of militarizing the university from the top down.

napoDepartment of Homeland Security secretary Janet Napolitano’s nomination to be the 22nd president of the University of California announced days ago has already provoked skepticism and opposition from numerous faculty and students. Christopher Newfield, a professor of English at UCSB, wrote on his widely read blog that Napolitano is “unqualified to be a university president,” due to her lack of academic background and knowledge of how universities operate. “She has no political network in California,” added Newfield, “no local knowledge of the players, no constituency in the state, no national or state-based academic network, no direct understanding of the state’s history or current society.”

The UC’s graduate student union which represents thousands of student employees across the ten campuses, from Berkeley to San Diego, stated in a press release that they are “shocked and troubled,” by Napolitano’s nomination. “We fear that this decision will further expand the privatization, mismanagement, and militarized repression of free speech that characterized Mark Yudof’s presidency and will threaten the quality and accessibility of education.”

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UC president Robert Dynes center front with Los Alamos weapons lab executives. In center background is Robert Foley, UC vice president for Laboratory Management. The poster hanging in the background celebrates Los Alamos Lab’s trident nuclear missile program.

Yudof of course was UC’s cigar chomping, bald, and gruff president recruited from the University of Texas in 2008 to replace Robert C. Dynes and whip the school’s administration into shape. Dynes was a physicist who presided over various scandals including one that has been emblematic of the decline of universities across the U.S. over the past two decades: bloated and growing executive compensation packages even while colleges trim their budgets, lay off faculty, and hike tuition. UC’s executives were lambasted in the press for their six-figure salaries and cronyism until the Regents, that lofty board of millionaires, mostly friends and donors to the Governor of California given ultimate power of the nation’s largest university, told Dynes it was time to retire back to his laboratory at San Diego.

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Mark Yudof while president of the University of Texas signing a joint management agreement with Lockheed Martin executive C. Paul Robinson to co-manage Sandia National Laboratories, a nuclear weapons facility in Albuquerque. Sandia Labs also does perhaps a billion dollars of contract research for the CIA, NSA and other spy agencies.

Napolitano is a departure from Yudof and Dynes in that she doesn’t appear to have been selected purely for her unique qualifications to handle the crisis de jour for the University. Yudof cleaned up Dynes’ mess.

Dynes was recruited by several of the Regents in order to assemble Los Alamos National Security, LLC, a private corporation in which the university is a partner with Bechtel. LANS, as it’s called, was a creature of necessity; in the early 2000s another set of scandals —spying, theft, and various deadly accidents— threatened one of the UC’s most prized possessions, it’s sole, lucrative, and much coveted contract to manage the nation’s largest nuclear weapons laboratory in the high desert of the Land of Enchantment, New Mexico. Dynes arrived largely to assemble the UC’s joint bid for the contract with Bechtel and a few other large military-industrial corporations. He was successful in keeping UC wed to the nuclear lab. (Yudof actually led a counter-bid through the University of Texas and Lockheed Martin to wrest LANL’s contract from UC, but failed.)

Prior to Dynes was Richard Atkinson, an academic’s academic, a former head of the National Science Foundation, and Chancellor of UC San Deigo. Many UC faculty today look back on Atkinson as the ideal type, his reign the good old days, the high water mark for UC, untainted by worldly corruption and materialism, a set of little cities upon golden California hills where patient scientists and scholars could plod away at their research unhurried and secure in tenure and prestige.

But the UC has always been run by cops, spies, and weaponeers. The second board of Regents included Irving Scott, owner of a proto-Northrop Grumman, building warships for the U.S. military. Scott’s company, the Union Iron Works, built the USS Oregon battleship which was deployed in the 1890s to the Philippines where it shelled the Filipinos into submission – for their own childish good said UC’s leaders.

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San Francisco’s Union Iron Works, a forge for battleships and weapons. The arms factory was owned by one of the UC’s first regents. Dozens of military-industrial executives have held seats on the Board of Regents providing an organic link between the Pentagon’s industrial contractors and the university.

UC’s tenth president was selected partly based on his anthropological work in service of the growing U.S. imperium in Asia. David Prescott Barrows led the Bureau of Non-Christian Tribes, “re-educating” the Filipinos, indoctrinating them into American culture, and the English language used by their new rulers. Barrows was molding colonial subjects. He once wrote as if he were molding play dough: “the physique of the Filipino is also being modified for the better. The race is physically small, but agile, athletic and comely.” Barrows concluded in a patriarchal tone, “in the face of these benefits the Filipinos are not unappreciative.”

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UC insider John McCone (right) led the CIA for four years, 1961-1965, and was also a Deputy Secretary of Defense, Under-Secretary of the Air Force, and member of the Atomic Energy Commission.

By the time Clark Kerr took the reigns of UC in the 1960s, UC had become the uncontested heavy weight champion of the military-industrial-academic complex. Yale could certainly boast deeper ties and more recruits sent yearly to the CIA, but UC Berkeley had John McCone, industrialist, weapons manufacturer, and chairman of the Atomic Energy Commission, and for his crowning achievement in the halls of the national security state, director of the CIA from 1961 to 1965. Yale sent the future spies; Berkeley’s patron McCone ran the circus. Today there is a building named after McCone on Berkeley’s campus, but history is alive too. If one looks deeper into UC’s federal labs, and into its administration and faculty, one will find live lines to Langley.

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The UC Regents visit a thermo-nuclear weapons testing facility at the Los Alamos Laboratory in the 1960s.

McCone was just one among many of UC’s ultra-powerful spooks and Pentagon dons who sloshed money and personnel and gadgetry between Washington and California. After Clark Kerr’s ouster by right-wing, red hunting Regents and the nation’s paranoid FBI director, Charles Hitch took over the nation’s biggest and still fast growing university. Hitch was an economist brought to UC Berkeley to teach business, but his scholarly expertise lay in the economics of military budgeting. Among his greatest hits: The Economics of Defense in the Nuclear Age; Decision-Making for Defense; The Defense Sector and the American Economy, and; Defense Economic Issues, all very dry tomes patiently and authoritatively discussing the most scientifically effective ways to spend billions of tax dollars on nuclear-tipped intercontinental missiles. Professor Hitch was appointed assistant secretary of defense by Kennedy just prior to his taking the post of UC president. It was a natural progression.

HitchCharles-1965Skeptics of Napolitano’s nomination to be UC president point out that running a big federal bureaucracy doesn’t make for skills transferable to UC, but in Hitch’s case that was in fact part of the reason the Regents selected him. Hitch was a budget man for the Cold War defense contractors and Uncle Sam. He was also chairman of the Budget Review Board and the Capital Outlay Review Board for UC while on faculty. So what better man to run the entire integrated show, not just lecturing and writing about how to budget the military-industrial-academic complex, but in fact drafting the operative budgets for the Pentagon and later the UC?

Napolitano does differ from the previous 21 white men who presided over the University of California in being a woman. She’s not different at all with respect to her career and connections to the national security state. Plenty of UC’s leaders, from Chancellors to the Regents to the President have been insiders in the Pentagon, the nuclear weapons complex, and other branches of the warfare state. However, DHS chief Napolitano is unlike the previous UC presidents in that she an academic outsider, and that is the singular and new difference she signals, a full departure from a presidency that once required the credentials of scholarship and pedagogy, even while it was scholarship and teaching in service of war and empire.

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In 2012 Larry Ellison, CEO of the Redwood City-based Oracle Corporation, was awarded a compensation package worth ($96.1 million) nearly as much as the entire healthcare and pension costs of all BART employees ($101 million).

Are Bay Area Rapid Transit employees paid too much? It’s amazing that the question is even being asked. BART’s board of directors, general manager, and chief negotiator put this rhetorical query in front of the public during the strike two weeks ago as part of their strategy to undermine sympathy for BART workers. BART even set up a web site to spread it’s narrative of greedy employees, http://bartlabornews.com, where “Bart Rider” is soberly informed that “BART employees contribute $0 toward their pension plan, BART riders and taxpayers fund their retirement plans.” The point of public relations communiques like this are clear: in the Bay Area’s economy BART employees consume too many tax dollars and don’t have a legitimate need to maintain their existing pay and benefits.

BART management added pension and healthcare contributions to their tally of employee pay to claim that their employees “earn an average of $134,000,” even though pension and healthcare expenses are not cash equivalents for BART employees, and even though the healthcare expenses actually benefit BART as an employer by keeping their workforce healthy and productive. Even so most news outlets dutifully reported the average pay of BART employees and included health and pension costs as if this were cash, erroneously implying that the train system’s workers take home six figure salaries.

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BART’s labor costs. Source: BART, Fiscal Year 2013 Preliminary Budget Memo, March 30, 2012.

It’s amazing that the pay of BART’s employees has gained so much attention from the regional media in the first place. For over a decade the Bay Area’s major newspapers and TV news stations have been guilty of failing to adequately cover one of the most important stories of our time: rising income and wealth inequality, and the decline of middle class jobs in the face of inflation, globalization, automation, and the tax revolt that has scaled back the public sector. And now that most of the Bay Area’s news outlets finally reported a story about the pay of middle class public employees they bungled the story by framing it inside a question pre-packaged for them by an anti-labor consultant from Ohio: don’t BART employees make too much already?

The BART strike readily tells the big-picture story of austerity for millions of workers and exponentially growing incomes for the wealthy few. Let’s therefore re-frame the question of how much BART employees are paid and consider their compensation, its source and impact on the wider economy, to that of the top 1% of California’s income earners.

The average BART train operator has a base salary of $47,000, and takes home about $66,000 in cash when overtime is accounted for. Station agents have a base salary of $52,000 on average, and take home about $68,000 when overtime is included. Because BART employees have their healthcare and retirement costs currently covered, this means that their decent salaries are largely spent on housing, food, recreation, and other goods. All of this spending, including healthcare and eventually purchases made using retirement income, happens almost entirely within the Bay Area. What goes around, comes around, with $275 million in wages for BART workers fueling sales and profits for businesses in the Bay Area, feeding back into the budgets of other cities and local agencies.

Let’s now compare what BART employees make to the compensation of the region’s top one percent of income earners, the CEOs of Silicon Valley’s tech companies, and San Francisco’s financial institutions.

In 2012 Larry Ellison, CEO of the Redwood City-based Oracle Corporation, was awarded a compensation package worth ($96.1 million) nearly as much as the entire healthcare and pension costs of all BART employees ($101 million). Ellison has been raking in this kind of cash for decades and is one of the wealthiest men in the world. Last year he spent $300 million to buy an island in Hawaii. For that same sum of money Ellison could have bought every single BART train car and still had $44 million left over, enough to pay the overtime clocked by every single BART employee, and still he’d have $13 million left to buy a couple more trophy homes like his house on Broadway in San Francisco’s Pacific Heights, but truth be told in spite of the America’s Cup, most of Ellison’s fortune doesn’t get spent in the Bay Area. It sits in bank accounts, or is held as shares in corporations, or goes toward acquisitions of boutique real estate in distant enclaves of global wealth.

last year Ebay’s CEO John Donahoe was paid a lot more ($29.7 million) than all of BART’s 348 station agents combined ($23.6 million). His pay package could have covered their salaries and overtime, and picked up 2/3 of their healthcare and pension costs.

Wells Fargo’s CEO John Stumpf was paid ($19.3 million) almost enough to cover the total pension and healthcare costs of all BART train operators and station agents ($20.8 million), a combined workforce of 832 employees. It’s hard to imagine Stumpf spending even five or ten million in one year on groceries, transportation, and other goods from Bay Area businesses.

Meg Whitman, CEO of electronics giant Hewlett Packard, was paid ($15.3 million) more than double the total cash earnings of BART’s 131 utility workers ($6.4 million).

John Martin, the CEO of Gilead Sciences, was paid a bonus ($3.37 million) that exceeded the total healthcare costs of BART’s utility workers ($3.09 million).

So who’s paid too much? What is “enough” when it comes to the amount of money a person needs to live with dignity in California’s Bay Area.

Keep in mind that the above described levels of executive compensation are not determined by “natural” market forces. Nor are these spoils calculated by sober boards of directors mulling over the services these executives provide.

Pay at the top of the corporate food chain is as much a matter of culture, power, and politics, as it is the outcome of a supply and demand curve for managerial talent. That’s the lesson of the BART strike. The wages and benefits that will be afforded to BART’s employees are being struggled over in a political fight, not determined by mathematical economic principles.

When it comes to the eight figure pay packages afforded to CEOs today, on the culture side America has simply slipped further into an ethical quagmire that allows the polarization of classes between an elite few who are hoarding immense fortunes, and the many who live increasingly in debt. In political terms, those at the top of the economy engage constantly in their own version of collective bargaining, but instead of trying to wrest pay and benefits from management through unions, their focus is set instead on the U.S. federal tax code. As the management, holding the financial and legal resources necessary to lobby and influence legislators and regulators to write favorable legislation and to look the other way, these men (mostly they are men) have the power to often get what they want. And the decline of labor unions over the past four decades means that there is virtually no serious counter-force to fight them, to demand a more equitable economic regime.

The pervasive use of stock grants and stock options to pay company executives is now the top cause of massive pay packages for management, including those outlined above. Corporations shifted from simply paying their executives seven figure salaries to paying seven and eight figure stock grants and options packages when Congress disallowed tax deductions on salary expenses above $1 million in 1993. The law that disallowed deductions on salaries in excess of $1 million was an ethical rule resulting from the scandalous damages caused by excessive greed at the top of the economy in the 1980s and early 1990s. Management raided corporate wealth, crashed entire companies, and the response was to regulate the tax benefits they were gaming to enrich themselves.

Larry Ellison’s $96.1 million in pay primarily comes in the form of $90.6 million in options to purchase shares of Oracle Corporation at a set future date for a set price. One of the reasons companies like Oracle pay their CEOs this way is that they can deduct this sum from their federal corporate income taxes, along with bonus payments and stock grants. If a form of compensation other than base salary can be characterized as “performance-based,” then it can earn a corporation a tax benefit. Ellison’s compensation last year in the form of stock options therefore may have sliced upwards of $32 million off Oracle’s federal tax bill.

Ellison will have to pay taxes on his $90.6 million (or more if Oracle’s stock price outperforms the options pricing model they used to guess the value of the shares he may purchase), but until he exercises the options it’s all deferred. So last year Oracle and Ellison temporarily sheltered $90.6 million from the tax man.

When Ellison exercises his options he pays federal income tax on their value, and he’s likely in the top marginal bracket, but that bracket is at a historical low point. Massive reductions in income tax rates for the wealthy are part of the reason people like Ellison have become so enormously wealthy in recent years while the federal budget has run continuous deficits.

If Ellison holds the shares and they appreciate further in value, he can later sell them for a capital gain. Capital gains are taxed also at historically low rates of about 23.8 percent for the wealthiest handful of people like Ellison who currently own more than half of all stock in publicly traded companies. So although federal taxpayers supposedly “make up” for the loss of revenue deducted by Oracle when Ellison pays taxes on his stock options, the taxes Ellison is paying are quite low.

The other Bay Area CEOs you likely wont see riding BART because they can afford their own private jets are also paid mostly in the form of stock grants and options, creating valuable tax deductible expenses for their firms, and providing the executives with securities that can be held for years and sold for quite large capital gains.

Earlier this year Citizens for Tax Justice, a research organization that studies inequity in the tax system, found that 280 of the largest U.S. corporations used stock option executive pay to reduce their tax bills by $27.3 billion over three years.

A good chunk of these deductions are potentially retained by corporate America as a kind of arbitraged profit because of the quirky accounting rules that allow them to basically guess the value of the stock they’re granting when they report their income to shareholders, but to then use the actual cost of the stock options to determine their eligible deduction when they’re exercised by the executive. The difference between that guess and the real price when exercised is all gravy. This quirk is entirely the product of lobbying by corporations and the wealthy to maintain a loop-hole permeated tax system set up for them to game.

ExcessStockOptionsCorpsTPJ

Silicon Valley tech companies are among the biggest users of stock option compensation awarded to CEOs. Apple, Facebook, HP, Oracle, Google, Cisco and others therefore also reduce their federal taxes by billions each year. Source: Citizens for Tax Justice, “Executive Pay Tax Break Saved Fortune 500 Corporations $27 billion Over the Past Three Years,” April 24, 2013.

So what’s the connection back to BART?

A lot of BART’s funding for capital improvements comes from the federal government, and once upon a time transportation funds for operations were also available from the federal government, but these were mostly eliminated beginning in the Reagan administration. The loss of federal funds for operations and maintenance is a serious crisis for many of the nation’s bigger transit agencies like BART, and few think operations assistance will return due to the chronic federal budget crisis.

The squeeze on federal funds available for capital expansion also mean that transit agencies have to raid their own fares and tax dollars to come up with funds to pay for expansions. All of this creates the pressure that leads to the politics of austerity and demands that workers take cuts to shoulder more of the burden of funding public goods. When you zoom out and look at the entire system by which transit is funded, it’s clear that the political victories of the wealthy and corporate America to reduce statutory tax rates, and avoid taxes through numerous loopholes, sets the stage for conflicts between public sector workers, transit riders, and local government managers.

Bay Area’s Top Executive Pay in 2012:

Larry Ellison, Oracle Corporation

Salary: $1

Bonus: $3.9 million

Perks: $1.5 million

Options: $90.6 million

John Donahoe, Ebay

Salary: $970,000

Bonus: $2.8 million

Perks: $160,000

Stock: $23.7 million

Options: $2 million

John Stumpf, Wells Fargo

Salary: $2.8 million

Bonus: $4 million

Perks: $15,000

Stock: $12.5 million

Meg Whitman, Hewlett Packard

Salary: $1

Bonus: $1.68 million

Perks: $220,000

Stock: $7 million

Options: $6.4 million

John Martin, Gilead Sciences

Salary: $1.4 million

Bonus: $3.37 million

Perks:$7,500

Stock: $4.94 million

Options: $5.43 million

John Chambers, Cisco

Salary: $375,000

Bonus: $3.95 million

Perks: $11,000

Stock: $7.34 million

BART board member Zakhary Mallett has taken one of the harshest positions against BART workers during contract negotiations and the strike.

BART board member Zakhary Mallett has taken one of the harshest positions against BART workers during contract negotiations and the strike.

The BART board of directors has kept their reasons for selecting Veolia’s Thomas Hock as their lead negotiator a secret in spite of growing outrage from the train system’s workforce who call Mr. Hock a “union buster.” The unions are now demanding that Hock be fired and that the board retreat from its position to take away pay and benefits from their members. Still it’s not clear what the board’s strategy has been and why it hired Hock.

Communications that BART’s directors have had with one Richmond city council member seem to indicate, however, that BART’s management selected Hock to take actions that they were unprepared, or unwilling to undertake themselves.

On May 21 Richmond council member Jovanka Beckles wrote BART board member Zakhary Mallett (who represents Richmond on the BART board) to inquire about the hiring of the Veolia lawyer Hock to lead BART’s labor strategy. Beckles express concern bordering on opposition to this move:

“I understand that the BART Board is paying $400,000 to Thomas Hock, VP of Labor Relations at Veolia who has a reputation for union busting and discrimination,” Beckles wrote. “I would like to know how the Board justifies this expenditure and this approach in dealing with our public employees who are also residents of the region.”

Mallett, in a response to Beckles said he unsuccessfully attempted to contact the  council member  by phone, according to copies of the e-mails supplied by Beckles. He responded ten days later via e-mail:

“Due to the nature of your inquiry, BART staff is not comfortable having an email discussion on the matter; a verbal discussion is preferred.”

Two days after the four day strike ended Mallett told the San Francisco Chronicle’s Matier and Ross that his goal was to drive down the workers’ wages. “If someone is making $1,000 an hour for a job that can be done for $20 an hour, then they don’t need a raise,” said Mallett.

Mallett’s hyperbolic characterization of BART employee compensation was far off the mark, however. The average BART employee (including management and executives like general manager Crunican who earns $320,000 a year) is $83,000. Hourly that’s about $40. Many BART workers in fact already make Mallett’s prescribed $20 an hour.

Beckles tells me that without further explanation from BART’s management the selection of Hock appears to her a reflection of a concerted strategy to break the unions. “It seemed clear that in selecting [Hock], BART management was planning for a strike,” said Beckles.

radulovich2012BART president Tom Radulovich wrote to Beckles on May 31 to clarify the BART board’s stance:

“BART is currently at a critical juncture in its 40-year history,” wrote Radulovich. “While enjoying record ridership, we also face enormous reinvestment needs that will define whether we thrive or deteriorate in the decades ahead.”

The BART system’s regressive funding structure and lack of revenue for maintenance and expansion is essentially the root cause of the conflict between the workers and BART board, an otherwise mostly progressive collection of politicians, a majority of whom were elected with support from the unions. BART has too little funding to upkeep the system and expand it, and therefore has been stretching funds used to operate the system, including worker pay and benefits.

In conclusion Radulovich explained the board’s rationale for why they have chosen to go on the offensive against the unions and seek concessions in spite of the improving economy:

“BART workers do not pay any portion of their pension costs and they pay less than 5% of their medical costs. Recently at the bargaining table, you asked your workers to share a greater portion of responsibility for these growing costs. This year, we are asking the same from BART workers. In a recent poll, 72% of the residents of the three-county BART district agreed that workers should assume some of the costs of their pension and health care packages.

In these times of shrinking resources, none of us has a budget which is robust enough to compensate public employees in the manner that they desire and deserve. Hard choices are the rule of the day. We are making progress at the bargaining table, and appreciate your interest and support as we work to resolve these issues fairly and equitably.”

Beckles tells me she thinks this stance will lead to another strike.

“I am not close enough to the negotiations to know how they are going,” said Beckles in an e-mail. “I would hope that there can be a settlement that avoids a strike and is fair for BART’s employees because it will set a standard of good wages for other contracts and other workers. I do not think that is likely if the management negotiators keep trying to break the unions.”

hock

Thomas P. Hock, Veolia Transportation’s vice president for labor relations, former president and CEO of Professional Transit Management.

An under-reported facet of the BART strike concerns the private consultants hired by BART to negotiate with its major unions, SEIU and ATU. BART’s most important, and most expensive consultant is Thomas Hock, a lawyer from Ohio who is the vice president of labor relations for the Veolia Transportation company.

In this week’s East Bay Express I’ll be providing a report on Hock’s record as a consultant and contract negotiator to both public transit authorities and private transit corporations in their recent bargaining sessions with employees. Be sure to check that story out. What follows is some extra information I didn’t fit into that report.

In addition to Hock’s record at Veolia, his past as a businessman is also relevant to his role in the current BART negotiations. Before he was employed by Veolia Hock owned and managed his own private transit corporation called Professional Transit Management, or PTM.

PTM obtained contracts to operate transit systems in over a dozen U.S. cities in the 2000s, including the city buses in Cincinnati, and paratransit buses in as far flung locations as Racine, Wisconsin and Tucson, Arizona.

Veolia purchased PTM from Hock in 2008, folding PTM into its U.S. transit operations. Prior to Veolia’s purchase of PTM, Hock’s company had already garnered a controversial reputation among workers, a reputation that has stuck to Hock personally.

Hock’s controversial reputation stems partly from allegations of racism and discrimination made against PTM by its bus drivers and other employees. The most serious case involved PTM’s Springs Transit facility in Colorado Springs, Colorado. PTM ran the city’s bus system under contract. Hock oversaw the operation from his office in Ohio.

PTM’s managers fostered a racist work environment at the Colorado Springs facility, according to records from an official investigation. Latino, African American, and Asian employees of PTM eventually filed complaints with the U.S. Equal Employment Opportunity Commission (EEOC). The EEOC investigated and found that PTM’s managers and white employees were making egregious threats against Latino, Black, and Asian employees. A lawyer for the EEOC called the level of racial harassment “stunning.” An EEOC press release from May of 2007 describes PTM’s civil rights violations in detail:

“In particular, several employees, including supervisors, routinely used egregious ethnic slurs for African Americans, Hispanics, and Asians in the workplace. On one occasion, a co-worker commented that it should not be against the law to shoot Mexican men, women and children or to shoot African Americans and Chinese people. This employee also allegedly stated, “If I had my way I’d gas them [referring to Black employees] like Hitler did the Jews.” There were other threats of violence against minorities including references to “shooting” them and “gassing” them or “killing” them. Many of these remarks were made in front of supervisors who did nothing to stop it and sometimes participated in the abusive behavior. Likewise, management was aware of the hostile environment and did nothing to end it.”

HockAddress_EEOCLawsuit_Colorado

Professional Transit Management, Thomas Hock’s company, was the Defendant in an EEOC lawsuit that found “egregious” discrimination against Latino, Black, and Asian employees in the company’s transit facility in Colorado Springs, CO.

The EEOC sued Thomas Hock and his company and obtained a consent decree from the United States District Court for the District of Colorado in 2007. The consent decree required PTM to implement numerous changes at the Colorado Springs facility in order to wipe away the environment of racist hostility that managers had allowed to flourish. The judge also ordered PTM to pay six employees $450,000 in damages.

Download a copy of the Consent Decree obtained by the EEOC here.

Check this week’s EBX for further background on BART’s chief negotiator, Thomas Hock, and his former company PTM.