Financialization and Casualization of Labour – Building a Trade Union and Regulatory Response
ILO/GLU International Conference on Financialisation of Capital: Deterioration of Working Conditions – TISS, Mumbai, February 22-24, 2009
Peter Rossman, International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Associations (IUF)

Workers today confront a number of seeming paradoxes. A financial universe flush with unprecedented liquidity is afflicted with overnight insolvency. Unprecedented amounts of money are being pumped into the private banking sector, yet workers are being told they’re losing their jobs because the banks won’t lend and suppliers want cash up front. Private equity-owned companies face bankruptcy as they struggle under their mountains of debt, yet the buyout funds have just completed a season of record fund-raising and are sitting on a half trillion US dollars or more in uninvested capital, so-called “dry powder”. Nestlé, the world’s largest food company, is ahead of schedule with it’s 25 billion Swiss franc share buypack program, while at the same time warning its workers to brace for yet more restructuring and layoffs. Agricultural workers, pushed to the edge of starvation by a decade of falling prices, last year were told that shortages were behind a doubling and tripling of their bill for basic foodstuffs. After a short respite in which prices fell but still remain unaffordably high, they are now being told that record harvests in 2008 mean new potential price increases as growers cut back on acreage.
I think that all of us here today would agree that what we call “financialization”, at least as a descriptive term, is both real and meaningful. There has been a significant growth in the specific weight of finance, whether measured as a share of GDP or as a rising share of overall profits. The banks have increasingly turned away from directly financing corporate investment towards directly tapping into wage earners’ revenue through mortgage, credit card and other forms of consumer debt. Financial bloat has been accompanied by sluggish output and employment growth, a stagnating or declining share of wages in the national income and widening inequality. Crises have become more frequent and more severe. The global financial system increasingly resembles a giant Ponzi scheme, based on continuous asset inflation and the need for continuous injections of new cash to finance the payouts. Behind this volatility stands the impatient, restless institutional investor, including employee pension funds.
We all know the figures, for example, on executive pay, or that the notional value of outstanding credit derivatives exceeds 9 times global GDP. I don’t need to repeat them here. What I want to talk about is what this has meant for workers generally, and specifically for workers in the IUF sectors. One direct consequence for workers in manufacturing and services has been the demand for these sectors to deliver rates of return equal to those that were formerly obtained only in global financial markets. In 2006, Deutsche Bank chief Ackermann declared that investors should aim for a 20% return. In 2007, at the last pre-crisis shareholders’ meeting, the keynote theme of his address was, literally, “25% is not enough”. The big buyout funds in fact claimed to be delivering annual returns on the order of 30% and more. There are only two ways profits like this can be regularly generated: through high leverage, and by cranking up the rate of exploitation.
Loading up on debt has been one vehicle for generating super returns. Between fourth quarter 2004 and fourth quarter 2008, the companies in the S&P 500 paid out USD 900 billion in dividends and bought back 1.7 trillion of their own shares – 2.6 trillion dollars returned to shareholders on earnings of 2.4 trillion. And this leaves to one side the enormous amounts of leveraged buyout debt generated during the credit boom, which saw a trillion dollars spent on buying companies between summer 2006 and summer 2007 for the sole purpose of taking them private, loading them with more debt to finance dividends and then selling them on. High levels of debt are not simply a means of leveraging profits: they amplify volatility, and transfer risk from investors to workers.
The pressure for increasingly higher returns has meant, in the words of two scholars (who were writing in the 90’s about the 1980’s!), that firms in the
manufacturing and service sectors have essentially become “a bundle of assets to be deployed or redeployed depending on the short-run rates of returns that can be earned.”*
As a consequence, workers in virtually all sectors face the threat of rapidly changing ownership, permanent restructuring and targets centered on a financial logic that places little or no value in real production, productivity or jobs. Stock markets today directly reward companies which eliminate productive capacity and destroy jobs. Layoffs and closures feed a financial market that thrives on shifting wealth away from productive investment, which in the food sector has steadily declined as a percentage of corporate resources. At Kraft, for example, the world’s second largest food corporation, capital expenditure in 2008 was barely 3% of operating revenue – about half the norm of 20 years ago. Even investment in R&D has declined, as a percentage of cash flow. R&D is increasingly outsourced, either to universities, or, in the case of Nestlé, through a proprietary hedge fund on the prowl for startups. If “downsize and distribute” was only a trend in the 1990’s, when the phrase was coined, it became a steamroller, particularly in the years following the dot.com and stock market crashes of 2000-2002.
In the European Union, where food processing is the largest employer in the manufacturing sector, and which contributes the largest share of value added in the sector, over 15% of jobs were eliminated in the growth years 2000-2005 (the last for which I have figures, but the trend has intensified) – ahead of textiles, and only behind agriculture. These jobs were not lost to foreign imports: they were lost to the stock market.
Increased profits and sales were not achieved through productivity-enhancing technological change, which barely affected the production process as such. The companies simply squeezed more out of less. Mergers, acquisitions, and financially-mandated reductions in “headcount” meant that medium-sized facilities were closed and production centralized in fewer units transporting products over longer distances, deepening and widening the industry’s already substantial carbon footprint.
Those companies now employ fewer and fewer workers to produce their branded products. Outsourcing and casualization have become key tools for enhancing exploitation in the quest for superprofits. Precarious work not only allows employers to achieve massive reductions in the wages bill. It has a chilling effect on the bargaining power of workers who remain directly employed. The organizing task for unions now goes beyond winning global recognition, organizing and bargaining rights from transnational employers. It is to unite the directly employed and the growing numbers of precarious workers producing within the same transnational company systems into a single bargaining power.
In 2000, Unilever, the world’s third largest food company, launched a “Path to Growth” strategy aimed at funneling €16 billion to shareholders in 2000-2004 and €30 billion in 2005-2010. In 2000, when Path to Growth was launched, the company employed 300,000 workers. Today there are 148,000. In the first three years of the Path to Growth, net profit increased by 166%. 2006 saw a 20% increase in net profit. New worldwide job cuts were announced in July 2007, simultaneously with a 16% increase in second quarter profits for the year. When 20,000 additional job cuts in Europe were decreed last year, Unilever claimed this “shakeup” would generate €1.5 billion in cost savings that would deliver even greater “shareholder value”. When he retired at the end of 2004, the CEO who initiated this program received a £17 million golden handshake.
The “Path to Growth” not only saw profits, executive compensation, and “shareholder value” grow at the expense of jobs. Outsourcing and casualization grew as well. A Unilever presentation to investors in 2003 includes a slide entitled “Improving asset efficiency, releasing cash” where increased outsourcing of production from an average 15% to “25%+” is listed as an “achievement”.
Pakistan provides a perfect illustration. Unilever Pakistan claims to employ over 7,000 people, directly or indirectly. But of these many thousands of people, only 323 are employed by Unilever on permanent contracts. At the Walls Ice Cream Factory in Lahore, for example, there are 89 permanent workers – and 750 workers employed on a casual basis. Lipton is one of Unilever’s “billion dollar brands” – the 2 dozen brand products that generate 75% of corporate revenue. Unilever’s Khanewal tea factory employs 22 permanent workers, union members who are covered by a collective agreement. But another 723 workers are hired through six contract labour agencies. They are in principle allowed by law to form a trade union and negotiate with the employer, but their employer is the labour hire agency, not Unilever. These workers receive one-third the wage of the permanent workers, have no employment security, no benefits and no pension. Until August 31 of last year, Unilever had a second Lipton factory, in Karachi. That plant employed 122 permanent workers, and 450 casuals. But that was too many permanent workers for Unilever, so the plant was abruptly closed and production transferred to a former warehouse nearby – with 100% outsourced, temporary staff.
The path to growth that transfers additional billions annually to investors is not only absolute reductions in the number of jobs, it is the growth of non-union workplaces and disposable jobs. If Unilever Pakistan has taken outsourcing and casualization to degrees many other companies can still only dream of, I’ve highlighted the situation because there is a piece of Pakistan throughout the Unilever system, including India, where casualization is rampant and Hindustan Unilever last year began its own buyback program on the Mumbai exchange. And the Unilever dynamic is at work in all the companies confronting the IUF and unions around the world, rolling back collective bargaining gains which took decades to achieve.
Look deeper into the CSR presentations, the dividends and the quarterly reports, and you’ll find lengthening chains of precarious, insecure and increasingly impoverished casual workers, from Pakistan to Pittsburgh. The same trends are at work in the hotel sector, where the IUF also organizes. Despite a global tourism boom, employment growth and the fact that hotels are by nature rooted and not moving offshore, wages have stagnated or declined. Once considered slow, steady earners, “boring”, like banks, transnational chains like InterContinental, which has regularly returned 18% to investors, now set the benchmark profit rate. Work has been massively casualized, and speedup rules, for example in housekeeping, which employs one quarter of all hotel staff. The fate of agricultural workers, a large percentage of the nearly 1 billion women and men who are now chronically hungry and malnourished, is increasingly linked to movements on commodity exchanges thousands of kilometers from the farms and plantations on which they work. This is the reality of financialization.
In the current crisis, defending jobs and working conditions is, for unions, the first order of the day. Yet workplace action alone is clearly no defense against the ravages of a global financial meltdown, just as it could not defend against the system’s daily workings. Regulation and political action are clearly needed, but what kind of regulation? Lending has to resume, but lending for what? So that employers can return to the day of the 20% return and continue to buy back their shares, speedup, downsize and outsource the jobs while cutting back on investment? Lending for growth, but what kind of growth? The growth that leads Unilever Pakistan to rely on agency labour for 98% of its tea packing in a nation of tea drinkers? The growth that now requires housekeepers in luxury hotels to clean 18 rooms a day? The growth which leaves farmworkers without clean water for drinking or washing up in some of the richest countries of the world?
In the final analysis, the fundamental issue we face is how to organize unparalleled accumulated global wealth to start feeding the hungry and provide potable water to the millions who have no access to it, restore vanishing topsoil, halt and reverse climate change and put the right to work, the right to decent work, at the center of the rights we demand. Financialization, climate change and growing global hunger are not three distinct phenomena, but aspects of a single, unified crisis. Last year saw the establishment of the first hedge fund dealing exclusively in carbon trading emissions. In January, a Wall Street firm, Jarch Management Group, bought leasehold rights to 400,000 hectares of fertile land in a remote part of the Sudan controlled by a local warlord. The company is also maneuvering with insurgents in Darfur, Ethiopia, and Somaliland. According to the CEO, “If you bet right on the shifting of sovereignty, then you are on the ground floor. I am constantly looking at the map and looking if there is any value.” If financialized capitalism increasingly resembles a global casino, the casino is now selling death by derivatives.
If, to answer Mr. Ackermann, we know that 25% is too much, and that it is neither environmentally nor socially sustainable, how much is enough? Singling out, for example, derivative markets or private equity or hedge funds detaches them from the wider environment in which they are embedded. The institutional investors who dominate world capital flows form a single investment pool – what matters is the return, not the nature of the investment.
When we talk about restoring the flow of investment from finance to the real economy, this can obscure the extent to which the real economy’s individual corporate units are themselves thoroughly financialized. How real is real when a company like Porsche last year earned 7 times more from exercising derivative contracts than it did from car sales? The Financial Times recently asked, rhetorically, “Is Porsche a Carmaker or a Hedge Fund”? The answer is that it is both, and the same applies, for example, to Cargill, the world’s largest grain trader and primary processor, as well as to numerous other industry leaders.
Our regulatory response to the current crisis and our political agenda depend on the questions we ask. Regulation is an ongoing task, since regulations and taxes are the mother of financial innovation. It is a social project, not an act of legislation. The paths of trade unionists and academic researchers rarely intersect. It is my hope that meetings like this, and many more such meetings, will help us to develop the answers we urgently need.
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*Neil Fligstein and Linda Markowitz, “Financial Reorganization of American Corporations in the 1980s,” in W. J. Wilson (ed), Sociology and the Public Agenda. Newbury Park: Sage, 1990, p.187.