Private Equity Investments and Labour: Current Trends and Challenges of Trade Unions

Maria Alejandra Caporale Madi

José Ricardo Barbosa Gonçalves

The 2008 global economic crisis revealed how deeply the social life of the working class has been affected by deregulated finance. In this setting, the impact of private equity funds on working conditions has been attracting lots of attention since private equity funds - such as Blackstone, Carlyle Group or Texas Pacific Group - have been responsible for the employment standards of tens of millions of workers. Truly, as workers are confronted with over US $ 1-trillion in worldwide concentrated private equity buyout power, the relevance of private equity funds is outstanding in an analysis of the perspectives of mergers & acquisitions, employment and organised labour.

The new employers and the rationalisation strategies

This scenario has consolidated the work of new social actors: the fund managers of the private equity funds. Fund managers’ services include fund raising, financial statement analysis, company selection, restructuring implementation and ongoing monitoring of investments. Fund managers centralise endowments from investors, such as financial institutions, institutional investors - also pension funds - and high net worth individuals, among others, in order to assume key roles in acquisitions of high profit potential.

In this financial and productive setup, capital has turned out to be faceless. In relation to the questions “Where does capital reproduction happen to be?”, “How does capital reproduce itself?” and “Who is benefiting from the capital reproduction process?”, the answers rely on the fund managers’ actions that attract the owners of capital to specific business. These investors have been attracted by fund managers who do not only promise high short-term profits but also offer the incentive of seductive “irresponsibility” toward the portfolio companies. The fund managers assume full responsibility over the business and, thus, they have autonomy to implement any kind of operational and financial restructuring strategy. The real target of the fund managers is to sell the companies within ten years after the acquisition.

In fact, in the United States and many European countries, the behaviour of fund managers, entirely premised on profit targets aimed to increase short-term cash flow, have increased workers’ exploitation. Beyond the “rationalisation” strategies, social conflicts and tensions are strengthened as restructuring actions reshape the control on workers and increase staff turnover, outsourcing and casual work. Under the fund managers’ pressure, the portfolio companies turn out to be subordinated to narrow economic efficiency targets that shape employment relations for the worse. Workforce displacement and loss of rights are also part of the spectrum of management policies aimed at cost reduction. The challenges to the employment conditions that have been negotiated by trade unions through collective bargaining reveal the emergence of private equity funds as major “invisible” transnational employers. In fact, this “faceless capital” configures new employment relations and increases pressure on organised labour.

Private equity short-term returns and exit strategies have increased the challenges on collective bargaining power because of the accelerated cost-cutting through layoffs, closures, outsourcing and further reductions in productive investment. In this setting, the Global Unions have reported that private equity firms, mainly buyouts, have been threatening employment, working conditions and workers’ rights through their financial strategies (IUF, 2007).

Global Unions’ agenda

Global Unions have been mobilising against the business model of the private equity funds that poses risks not only to the sustainability of productive investment and employment in domestic markets but also to the stability of the international financial system. This attempt has included joint efforts and activities with the International Union of Food, Agricultural, Hotel Restaurant, Catering, Tobacco and Allied Workers´ Association (IUF) and Union Network International (UNI), as well as cooperation with the Trade Union Advisory Committee (TUAC) and the International Trade Union Confederation (ITUC), and International Metalworkers’ Federation, among others.

Global Unions have been defending the view that the re-regulation agenda could promote long-term productive investment growth, employment creation based on the decent work agenda, employment security and protection of trade unions’ rights (IUF, 2007). To achieve this, the following workers’ rights should be secured: collective bargaining, information, consultation and representation within the workplace; trade union representatives should be informed about the capitalisation and debt structure of the buyout deals and who the ultimate investors are; additional government protection for workers affected by private equity takeovers – this could follow from the recent steps taken to uphold the employer responsibilities of private equity firms (ITUC, 2007).

In addition, Global Unions defend the view that regulatory reforms should address transparency to guarantee full access to audited financial accounts, particularly disclosing:

• characteristics of debt contracts (total amount, types and maturities, rates and schedules):


• restrictions on assuming more debt and the identity of the lenders/holders of the debt securities if they are not publicly traded:


• analysis of earnings (debt to earnings ratios, dividends to earnings ratios; special dividends financed through additional debt, fees);


• business plan guidelines (exit strategy, plans for selloffs/closures, management of cash flows, financial assets);


• investments in plants, equipment and research;


• labour conditions strategies (employment methods, training, pension funds/retirement benefits and negotiations with unions).

Regulatory reforms should also enforce changes in tax regulation to cover private equity regimes so that tax systems are not biased toward short-term investor behaviour. The regulatory Global Union agenda also includes the revision of corporate governance frameworks to include unlisted companies. Such regulation could include the following: measures to discourage short-termism: greater transparency and public reporting requirements; more supervision by public authorities; limits to debt; changes in taxation of capital gains; and ensuring that private equity funds comply with all relevant employer obligations (ITUC, 2007).

According to suggestions from the Global Unions, it is also important to address regulatory changes to enhance the stability of the international financial system. This proposal reveals a strong concern about the risks that private equity funds, mainly buyouts, pose to the sustainable growth of national economies in the global economy.

Conclusion

According to the ITUC (2007), “(o)nly government action can curb the external impact and the outright exploitation of these investment activities.” Current trends in investment and private equity indeed provide an important opportunity for discussion and reflection about the global articulation of workers and unions. This relates to trade union representation as well as to the challenges presented by the impact of the political and economic forces beyond the private equity business model that organisations face.

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José Ricardo Barbosa Gonçalves and Maria Alejandra Caporale Madi are both Professors at the Instituto de Economia, State University of Campinas (UNICAMP) as well as researchers with the Centre for Labour Economics and Trade Unionism (CESIT). José has been doing research about neoliberalism, trade unions and social exclusion, and Maria’s work focuses on financialization, corporate governance and social exclusion.

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References

• International Trade Union Confederation [ITUC] (2007), Where the House Always Wins: Private Equity, Hedge Funds and the new Casino Capitalism, ITUC Report. Available online at:
  http://www.ituc-csi.org/IMG/pdf/ITUC_casino.EN.pdf


• International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers´ Association [IUF] (2007), A Workers´ Guide to Private Equity Buyouts, Geneva. Available online at:
  http://www.iufdocuments.org/www/documents/A%20Worker%27s%20Guide%20to%20Private%20Equity-e.pdf

Maturing Contradictions: the 2010 Public Sector Strike in South Africa

Claire Ceruti

The huge strike in August by South African public sector workers brought the number of strike days in 2010 to the highest ever. Teachers and hospital staff struck for three weeks despite police harassment of picket lines and a series of court interdicts to prevent police, soldiers and nurses from striking(1). The strike started after members forced their leaders to reject government’s ‘final offer’ of 7% and R700 (€70) housing allowance. After seeing the government’s lavish expenditure on the 2010 soccer world cup, strikers found it difficult to believe that government could not meet their demands. The public servants were asking for an 8.5% wage increase and R1000 (€100) a month housing subsidy. However, the strike was much more than a wage strike: three years ago, public sector workers struck during the dying days of the regime of previous president, Thabo Mbeki, while the 2010 strike was a major test of his successor, Jacob Zuma and thus of the unions’ strategy for social change.

The political implications of the strike were reflected in a striker’s placard: ‘Comrades are like buttocks. When they part 7% (shit) comes out.’ This is a direct reference to the alliance between the ruling African National Congress (ANC), the South African Communist Party (SACP), and the biggest trade union federation, Congress of South African Trade Unions (Cosatu), whose affiliates comprise a majority in the public sector. Cosatu’s strategy for change since the end of apartheid has been to influence government policy through this alliance. The strategy foundered under Mbeki, who was the architect of a home-grown neo-liberal program for South Africa before he was president. Under Mbeki, corporate tax was cut, more than a million jobs were lost and homelessness grew quicker than provision of low-cost government housing, leaving 15% of the country’s population living in self-built iron shacks today.

The revolt against Mbeki was a long time maturing. It finally exploded on several fronts. From 2005, some of the poorest townships in South Africa took to the streets before municipal elections. The service delivery protests demanded not only the ‘better life’ promised in ANC election campaigns but also more accountable government. There was also a revival of wage strikes. These developed in tandem with a revolt inside the ANC and crisis in Cosatu’s strategy. Union leaders were increasingly embarrassed that Mbeki used the alliance to assert his authority over the unions, while dismissing their policy suggestions. Rather than concluding that Cosatu should become more independent, its leaders looked for friendlier faces within the alliance. A variety of forces, including Cosatu’s general secretary Zwelinzima Vavi, sided with Zuma after Mbeki expelled him from the cabinet. Zuma did not take the strikers’ side in 2007, but argued for both parties to return to negotiations. However, the December 2007 conference of the ANC (now simply known as ‘Polokwane’ after its location), which voted for Zuma as ANC president, also promised better conditions for public sector workers.

The 2010 strike unfolded against the post-Polokwane reconstitution of the alliance, and exposed some of the contradictions between members’ interests and the broad strategy of the union leaders. The 2007 strike was initiated by union leaders kicking against their marginalization in the alliance, and enthusiastically supported by the members. The 2010 strike, by contrast, was forced on reluctant leaders by the righteous expectations of the members.

On the one hand, union negotiators were confident that their new comrades in government, beholden to the unions for helping them to power, would make a satisfactory offer. On the other, government negotiators hoped their comrades in the unions would sell a deal to the members. They were under pressure to rein in wage demands both because of the fiscal hangover from the world cup and also to reassert authority amidst the new confidence of various alliance members to critique ‘their’ government publically. However, members were expecting nothing less from Zuma than to meet their demands. Any early misconceptions that government negotiators were acting against Zuma’s real intentions and against ANC policy were quickly dashed when Zuma appeared on national television, just days into the strike, asserting the government’s right to dismiss ‘essential workers’ who continued to strike.

Government came down hard on the strikers. Police used rubber bullets and water cannon on pickets at several hospitals on the second day of the strike, and fired on teachers who walked onto a highway near Soweto. The mainstream media conducted a vitriolic campaign, blaming strikers for deaths of babies and disrupting education. Months before, six babies had died in a hospital under ‘normal’ conditions because of a shortage of basic disinfectants. Two months earlier, schooling was suspended for the world cup, while in Nelspruit learners are still without a school after their high school was converted into stadium offices. Without a strike support committee bringing affected communities into direct contact with the strikers, this moralistic pressure proved key in isolating strikers as the strike dragged on.

However political considerations were also important to understand why the strike was concluded as it was on September 6 with an agreement that most strikers feel was imposed from above. Cosatu was about to announce its proposals for economic policy, ahead of the ANC’s national general council and therefore could not afford an all out defeat of the strike but neither could they afford to reach a breaking point with Zuma’s camp if they wanted their policies to get a hearing. On August 27 a government spokesperson, Themba Maseko, was quoted in the Business Day newspaper saying: ‘We are beginning to see and hear too many statements that are taking the strike beyond labour relations. It worries us’..

Vavi therefore played a very contradictory role throughout the strike. His role followed the logic of collective bargaining with a political edge: a negotiator influenced by strategic considerations related to the alliance. At a march in Johannesburg 12 days into the strike, on 26 August, Vavi echoed strikers’ anger, declaring that ‘the alliance is once again dysfunctional’. He also lambasted ‘predatory elites’ in the ANC and – crucial to the strikers’ confidence – announced that the federation had filed notice for a one day general strike in solidarity with the public workers. However behind the scenes, he was working hard first to avert a strike and then to settle the strike. Vavi describes this role in a remarkably unselfconscious letter after the strike, responding to the teachers’ union’s accusations that they had been sold out. The letter encapsulates the contortions of a union leader caught between his comrades in government and the fledgling force pushing up below. Vavi writes that the negotiators were ‘acutely aware how difficult it was for government to move’ and describes a number of attempts to reach a compromise on figures suggested by the public sector union officials, but apparently not caucused with their members.

Shortly after the 26 August march, Zuma ordered the parties back to negotiations. Many strikers took this as a signal that they were wining. The announcement of the new offer – 7.5 percent – was a major blow to their morale. Most were also furious that Vavi announced this deal on national radio before it was put to the members, urging strikers to accept it because it was ‘impossible’ to win anything more. Vavi’s reading is that government negotiators felt betrayed by their union comrades who had twice promised they could sell a deal to members, only to be told the members had rejected it.

Despite Vavi’s recommendation, most hospitals and most regions of the Cosatu teachers’ union rejected the offer, often unanimously. However after three weeks of no-work-no-pay, combined with worries about patients and learners, and demoralized, shrinking picket lines, the strikers lacked inspiration to continue the strike. After some days of uncertainty the strike was ‘suspended’.

The political residues of the strike have not washed away easily, however. The Zuma regime is nervous about the ability of its alliance partner to control its members. They took it as a full frontal attack when Cosatu called a ‘civil society conference’ to which the ANC was not invited. Government’s New Growth Path makes many promises to Cosatu and few concessions to its economic suggestions, while making a social pact – a new means of binding the unions - central. Less visible, but no less important, is the political residue in the minds of strikers. It is firstly evident that strikers have begun to generalize beyond their own sectoral issues. Strikers in 2010 sympathised with service delivery protests much more readily than in 2007. Secondly, strikers learned a hard lesson in the logic of the alliance and of collective bargaining. At least one striker felt that the strike became a lever for Vavi’s own political ambitions. Finally, strikers in 2010 moved quickly to directly criticizing Zuma. The strike demonstrated that the contradictions are likely to unfold much more quickly for Zuma than for Mbeki.

(1) Government and the unions have failed to reach agreement on who is an essential worker.

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Claire Ceruti is a researcher attached to the South African Research Chair in Social Change at the University of Johannesburg. She has been doing research about class and strikes.

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The struggle against pension reform in France

Philippe Légé

In 2010, France has experienced an intense social struggle. The triggering factor was the pension reform which the government of Prime Minister François Fillon argued was necessary to “save the pension system”. The French system relies on compulsory basic and supplementary state pension schemes financed mainly by contributions (proportional to wages) and taxes decided at national level. According to the government, because of the growing number of retired people and an ageing population, it is necessary to raise the legal retirement age from 60 to 62 (and from 65 to 67 for a full pension) in order to encourage people to work longer. But the trade unions are very sceptical about this reasoning, for the average age at which workers cease activity is 58.8 years. And 60% of workers are not in employment when they claim their pension rights: they are either unemployed, or invalid. For example, “25% of nurses and 40% of auxiliary nurses are invalid when they retire” (Lambert 2010). In the first part of this article, the terms of the debate will be analysed, and in the second part the struggle around the pension reform will be discussed.

Unconvincing official arguments for pension reform

“It is demographic, not political. If you live longer, then you must work longer”. The previous French governments used similar arguments in support of the pension reforms that took place in 1995, 2003 and 2007. The ratio between the number of retired people and the number of contributors is undoubtedly increasing – but by how much? It is now clear that previous official reports exaggerated the demographic trends. The birth rate did not fall and the economically active population will not decline. The latter will actually increase until 2015, and then remain constant unless policies are adopted to increase women’s employment. The evolution of the active population is a political issue: it is limited to a demographic issue only when the government has no employment policy!

There are only two possible adjustment policies when a population is getting older: either to reduce the pension per capita or to increase the share of national wealth dedicated to pensions (which currently stands at 13% of GDP in France). Workers understood that, despite official propaganda, the proposed reform did not favour the latter solution. Because of uneven and incomplete careers, as a result of unemployment and increasingly casual jobs, the only outcome of the reform will be a decrease in pensions. Indeed, the effects of similar reforms proved to be regressive: according to the French Conseil d'Orientation des Retraites (Pensions Advisory Council), the pension represented on average 79% of a person’s pre-pension wage in 1995, but the ratio fell to 72% in 2007 and is expected to be 65% in 2020. The effects of the 2003 Fillon reform provide strong arguments against the 2010 Fillon reform.

The evolution of the pension system is the result of a complex set of factors, which the government gets deliberately mixed up. In 2007, the French pension system was running a slight surplus; in 2008, it had a deficit of €6.9 billion which has increased to €32 billion in 2010 (11 billion for basic pensions and 21 billion for supplementary pensions). Yet, only 10% of this deficit is linked to the rising number of retired people. The main cause of the current deficit is the economic crisis. The GDP share of spending for pensions is stable but income is decreasing because of unemployment and sluggish growth. Well, who is responsible for the crisis, one could ask? Having bailed out the banks, the government is now asking workers to make an effort. Yet, it would be possible to finance the deficit by raising the contributions paid by employers. Of course, capital owners will argue against “increasing the costs of labour”, a move which is assumed to endanger the competitiveness of companies that will then have no choice but to lay off workers or relocate. But in actual fact, any subsequent problem of competitiveness could be solved by decreasing dividends. In 1980, dividends were equivalent to 4.2% of total payroll, a ratio which rose to 12.9% in 2008. Hence, the only problem with pensions is a distribution problem – and the ‘competitiveness’ argument is simply misleading (Husson, 2003).

Pensions at the root of a broader social movement

Two associations (Copernic Foundation and Attac, 2010) made a strong case against the reform, developed alternative analyses and gathered social and political forces on the left. During spring, they organized debates all over the country. Then, the demonstrations called by all trade unions were a real and surprising success: 1 million people were on the streets on the 27th of May and 2 millions on the 24th of June. After the summer break, the movement grew even stronger. Truck drivers, teachers, port and rail workers, students and a very large number of private sector workers went on strike and united in a large movement against the government. They participated in huge demonstrations (gathering 3.5 millions on the 12th of October), blocked some freeways and organized general meetings. Because of the strike, ten of the twelve national oil refineries shut down and many petrol stations were empty for two weeks. The movement nevertheless remained popular, being approved by nearly 80 percent of the population. Its strength forced the unions to remain united against the government. It prevented the CFDT (the less pugnacious of the two largest French unions) from withdrawing from the movement.

How can one account for such a large and popular movement? The evolution of the pension system is a matter of civilization, and pension reform was not the only source of revolt. Unemployment and deteriorated working conditions also featured prominently in the general meetings. In the debate concerning the conditions under which workers employed in difficult or hazardous jobs can retire earlier, the government wrote that "wage-earners must be physically worn-down when retiring" (see: http://www.retraites2010.fr/le-projet-de-loi/mettre-en-place-un-dispositif-de-prevention-et-de-compensation-de-la-penibilite). But what could be more justified than workers benefiting from retirement before they are ill or exhausted? Moreover, for the vast majority of French people, the government had lost much of its legitimacy. In September, when Eric Woerth, the minister in charge of the pension reform, said that the text "could not be changed", anyone knew that he had been much more understanding with wealthy people when he was formerly budget minister. During the summer, the Woerth-Bettencourt scandal had exposed the close relationships between political and economic powers. With a fortune estimated at $20 billion, Liliane Bettencourt, the main shareholder of L'Oréal, is one of the wealthiest people in the world. In June, tape recordings revealed that she had dodged taxes by using undeclared Swiss bank accounts and that Woerth’s wife had been given a job managing Bettencourt’s wealth. Mrs Bettencourt received a €30 million tax rebate while Mr. Woerth was budget minister. Moreover, Bettencourt’s former accountant has claimed that conservative French politicians were frequently given envelopes stuffed with cash to finance their campaigns (see: http://www.guardian.co.uk/world/2010/jul/12/nicolas-sarkozy-bettencourt-scandal).

Further evidence of the relationship between political and economic powers appeared in articles concerning the French President's brother, Guillaume Sarkozy. He is not only a textile entrepreneur and the vice-president of the French employers’ association, but also the general manager of Malakoff Médéric. This mutual insurance company created in 2010 a private subsidiary company (Sevriena) in order to take advantage of the pension reform. While Nicolas reduces state pensions, Guillaume sells supplementary private pension schemes. Nicolas Sarkozy is widely perceived as “the President of the very wealthy” because he created the famous “tax shield”, providing a protection against taxes on high incomes.

Conclusion

The French social movement of the fall of 2010, particularly the strike by oil workers, has shown the great power and determination of the working class. But the government defeated it by conscripting energy workers and ordering the riot police to disperse picket lines, before promulgating the reform. The outcome of the struggle has been influenced by three elements. Firstly, the economic impact of the movement has been weakened by a reactionary law of 2007 forcing rail workers to give an individual 48 hour notice of strike actions. But the government went much further by conscripting some workers of the private sector. The unions initiated a procedure against this illegal restriction of strikes, which is currently proceeding. Secondly, the fragility of the movement itself was partly due to the crisis and the unemployment which had placed the workers in a difficult position. Finally, Sarkozy was putting his political future in the balance with this reform. Hence, the challenge was a very difficult one: any victory was impossible without bringing Sarkozy and the government down. However, the movement allowed many people to make interesting democratic mobilisation experiences and all reached the same conclusion: a battle has been lost but the war is not over.

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Philippe Légé is Assistant Professor of Economics at the University of Picardie (UPJV, France). His work is in the history of economic thought and the analysis of the current crisis. He's a member of the French Association of Political Economy (AFEP).

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References

Attac and Fondation Copernic (2010), Retraites, l'heure de vérité, Paris: Sylepse.

Husson, M. (2003), “Exploding the Myth of Competitiveness”, Le Grain de Sable, N° 430, available at: http://hussonet.free.fr/competns.pdf

Lambert, R. (2010), “Non, c'est la cheville”, Le Monde diplomatique, November. Available in French at: http://www.monde-diplomatique.fr/2010/11/LAMBERT/19841

Pensions Advisory Council Reports (2010), Huitième rapport du Conseil d'orientation des retraites, 14 April, available in French at: http://www.cor-retraites.fr/rubrique3.html