Kochland (part 2)

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After the National Labor Relations Act of 1935 recognized the right of workers to organize and bargain collectively, labor unions became a fixture in corporate life. Author Christopher Leonard says, “It was a losing game to take on unions; their power was too great to challenge. Most companies chose to accommodate organized labor.” But when Charles Koch consolidated his father’s businesses into Koch Industries in 1968, he brought with him a new willingness to take on the unions and subordinate them to his management philosophy and goals.

Pine Bend

The difference became apparent in the early 1970s at the Pine Bend refinery on the Mississippi River in Minnesota. Its workers were organized by the OCAW—the Oil, Chemical and Atomic Workers Union. Leonard acknowledges that by this time, many unions had become “bloated power structures” in their own right. The OCAW at Pine Bend had a lot of say over work rules, and some of their rules created inefficiencies by making extra work or imposing additional costs. For example, if workers were asked to work overtime without two hours notice, they had to receive bonus pay on top of their overtime pay.

When management insisted on rewriting all the work rules without union input, the workers went out on strike. Koch broke the strike with a combination of hardball tactics. The company managed to operate the plant with supervisors and other non-union labor. They bullied other unions like the Teamsters to cross the picket lines by threatening to replace their services (such as delivery services) with non-union suppliers. When violence broke out on the picket line, Koch obtained an injunction limiting the union to four picketers. The OCAW eventually capitulated and accepted the contract offered.

Now the work rules favored the company. My favorite example—even if an employee won a grievance against the company, all he won was the right to work extra hours to earn back the money Koch owed him!


Leonard devotes three chapters to the long, losing struggle of workers at the Georgia-Pacific warehouse complex in Portland, Oregon. Before it was acquired by Koch Industries, he describes it as an “economic island: one of the last employers in the region to offer solid work and solid pay for people who didn’t have a college degree.” Then “this island began to sink, slowly and steadily, as workers’ pay, benefits, and job security were stripped away further, year after year.” He sees this story as typical of the fate of blue-collar workers in the age of corporate acquisitions and private equity.

Here the union was the IBU—the Inlandboatmen’s Union, originally named after workers on river barges. It was absorbed into the ILWU—the Longshoremen’s union—in the 1990s. When Koch Industries acquired Georgia-Pacific, it started cutting costs by reducing the workforce while trying to get more work out of each remaining worker. In addition to an inventory system called the “Warehouse Management System,” it introduced a “Labor Management System” to exert more control over the workers. The system would issue precise instructions to a forklift driver, maintain a precise record of every movement through the warehouse, rank the workers by performance, and post the rankings on a bulletin board. Drivers had to keep their own written log of every minute they were not “on the grid” carrying out the instructions of the system. From management’s point of view, productivity and profits were rising. From the workers’ point of view, the job had become more demanding and more stressful, while wages failed to keep pace with inflation. The situation in the country as a whole wasn’t much better. Productivity and wages used to go up together, but between 1973 and 2013, productivity rose 74.4 percent, but real wages rose only 9.2 percent.

When the time came to renegotiate the labor contract in 2010, the union was looking for big gains, but Koch brought in tough negotiators who were “trained to beat back unions for a living.” Every request by the union was met by a counterproposal that asked the workers to give back something of equal or greater value. If they wanted a decent raise, they would have to replace their health insurance plan with a less desirable one or replace their traditional guaranteed-benefit retirement plan with a riskier 401(k) plan. When the union voted down what Koch proposed, the Koch negotiators stopped coming to meetings. After over a year without a new contract, and in fear of being replaced by non-union labor, the workers backed down. The Labor Management System would stay. The workers would get minimal pay increases, but have to contribute more to keep their health insurance and pension plan.

The 2015 negotiations did not come out any better. By then the number of unionized workers had been cut almost in half. A new worry was that accidents and deaths at the warehouses had been increasing, and Georgia-Pacific’s safety record ranked relatively low in the industry. Again, management wanted to make wage increases conditional upon replacing the health insurance and pension plans. In the end, workers got only 2% raises for two years and the prospect of $1,000 bonuses for the next two years. (The bonuses were less valuable than raises, since they didn’t become part of base pay and grow by compounding). The workers were disgruntled but resigned. Support for the union itself suffered, no doubt as the Koch brothers intended.

Leonard has provided a ground-level look at what happens when bargaining power shifts from labor to management. While business consolidations made workers in many industries dependent on a smaller number of big employers, the decline in unionized manufacturing jobs intensified the competition among workers for a dwindling supply of good jobs. As profits rose but pay stagnated, the share of the national income going to labor declined accordingly, especially after 2000.


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