Nathan Newman wrote:
> it is worth analyzing
>why Milken really deserves jail. You make the case that Milken funded
>marginal risky investments when many others would not. But is that a good
>thing? You cite MCI- MCI was a massive unionbusting firm that grew based
>on regulatory subsidy by the FCC and did little more than helped usher in
>lower rates for big business customers at the expense of higher costs for
>local phone service.
-According to the CPI local phone subindex, local phone costs lagged -the CPI from 1977 to 1983 (the series starts in '77, and '84 was the -year of the Bell breakup), moved in tandem with the broad CPI from -1984 to 1990, and has lagged the CPI since by about the same margin -it did from 1977 to 1983. So "higher costs" seems a bit overstated.
Doug, this is a very undynamic analysis of changes in local service, ignoring the massive lowering of costs due to technological advance that had preceded "deregulation." Try your numbers not for a few years in the late 70s but over the post-war period and you will get much more dramatic results. And your numbers ignore the additional costs slapped onto consumers beyond nominal phone service - increased installation costs, increased maintenance charges, increased charged for connection to long distance in many cases, and so on. But most of all, you miss the massive decline in quality of service which is tied into the massive losses for workers in the process. "Deregulation" led to massive layoffs among the Baby Bells which has decreased quality and service for all consumers. Folks may not have seen all their bills increase, but what they are getting is of much lower quality due to the massive cuts in funding for local service in favor of big business customers of long distance.
The history of the telephone company was a massive redistribution of resources from business users of long distance to subsidize universal access and lower rates for residential consumers. This continued for decades until deregulation in the 1970s and 1980s reversed the process with the creation of MCI and a regulatory structure to allow it to cannabilize the Bell system.
The fact is that junk bonds strengthened the power of investor-capitalists at the expense of other actors in the economy in controlling enterprises. Not that other actors - creditors and managers - were always friendly to workers interests, but they were more likely to cut deals to workers advantage than investors who were much more likely to be in a zero-sum struggle over the wage-profit split. It is no coincidence that the rise of junk bonds and takeovers in the 1980s coincided with massive union busting.
Doug then wrote:
>Mike had a role in catalyzing the shareholder revo, but Michael
>Jensen was theorizing it in the early 1980s, and pension fund
>managers were pushing it by the late 1980s. After a certain point,
>Milken is just a symbol, a sacrificial animal to expiate collective
>guilt.
The point is not theory and pension fund activists were usually not in a position on their own to leverage massive takeovers and then betray implicit contracts with long-time employees. Far more interesting than Jensen in analyzing corporate control of enterprises is John Coffee of NYU, who has argued for analyzing firms as a coalition of interests - creditors, managers, investors, workers, etc. - who negotiate continually with different partners and who have to maintain some credibility for long-term commitments if they are repeat players in such negotiations. What junk bonds allowed for is the rise of new players to leverage massive amount of capital for takeovers, after which they could betray labor and creditor commitments with little fear of loss of reputation or trust, since each transaction was so unique. Large repeat institutional players like investment banks and pension funds do not actually have the same freedom to disregard such implicit previously existing contracts, since such lack of credibility will increase their general costs of contracting for both labor and credit in the market if they are seen as generally untrustworthy.
Coffes's analysis of the 1980s as a time of massive repudiation of implicit contracting in the marketplace is a far more compelling analysis than the bland econo-speak of Jensen and others who have such a narrow analysis of what a firm is as an entity. And it explains far better the lived experience of workers and unions as suffering due to Milken and the junk bond driven takeover period. They saw his actions and the results as criminal destruction of their own lives. Were they all just deluded?
Justin took the opportunity of my mentioning the experience of Vegas workers finding the mob a much better employer than the Milken-funded capitalists who followed them to do his usual routine of union leadership bashing. He wrote "Sure--the Teamsters (obviously) and even the mob aren't anti-union, as long as the unions are compliasant."
First, Justin's statement is just ignorant. The union leadership in Vegas was business unionist but of the militant form. Al Bramlett, the guy who built the union and turned Vegas into a union town, was quite happy to shut down the city - "turn off the lights" in Vegas lingo - twice in the 1970s (mostly dealing with the first wave of corporate guys like Howard Hughes). And the results were, on a purchasing power basis, probably the highest salaries in the whole hotel industry nationwide, a city where maids and housemen could buy homes and build pretty damn decent lives for themselves, all in the context of a right-to-work law. Bramlett actually got too ambitious in his later years and crossed the line the mob did not like - he began to organize the money people which the mob wanted unfettered by union control mostly because they preferred that people laundering and skimming for them be totally under their control - so Bramlett was found out in the desert with a hole in his head in 1978.
But the difference between the mob and the Milken-funded boys is that the mob had limits to their greed. They were happy to be making a shitload of money and willing to share some with the workers who made the city run. The Milken boys, on the other hand, decided it was not enough to make all that money - every aspect of the hotel had to make the maximum profit possible and every part of the hotel had to be a profit center. The result was the 1984 strike in Vegas which lasted two months and almost destroyed the union as the companies went all out to bust them.
This experience in Vegas was duplicated across the country in the 1980s. Yes, Milken was not the only player but he was a heck of an important one and just because his ass was fried and others got away is no reason to cry a tear for him. I'm all for analysis that says he is only a symbol of a much bigger problem in capitalism, but his crimes were real in the lives of millions of workers across the country.
-- Nathan Newman