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Friday, December 12, 2008

Good result for the wrong reason

I am not the right guy to play Scrooge this time of the year, but why is the resolution of the Republic sit down strike something to be applauded. I understand the plight of the employees. State law entitled them to notice and pay that they were not about to receive.

But this is hardly the fault of Bank of America. BOA has been politically pressured to make a loan that will never be repaid.

You may say "who cares?" BOA is a big bank and 1.75 million dollars is barely a crumb in its cookie jar. But, as the old saying goes, a million here and a million there, and pretty soon we are talking about real money. Neither BOA nor any other bank can survive by making, not merely a poor - but an insane "loan" in response to political pressure. In a free economy, businesses fail and various stakeholders - shareholders, employees and creditors - will be hurt by it. We can't expect banks - even those who have had an influx of federal capital - to insure against it.

The Republic employees acted boldly and certainly benefited from being from the President-elect's hometown. Maybe (although I would oppose it) the government should guarantee obligations under the plant closing laws. But shifting the costs to a firm's lender based upon who can and cannot exert the requisite political pressure seems irrational and even dangerous.

I suppose that those who are committed to a greater collectivization of losses and gains, this is a fumbling step in the right direction. My own view is that, if you want to assume community responsibility for private obligations, it ought to be done directly so the community can assess the costs and benefits.

Crossposted at Marquette University Law School Faculty Blog and Shark and Shepherd.

Posted by Richard Esenberg on December 12, 2008 at 08:41 PM | Permalink


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» Commentary on the Pressure on Bank of America in the Republic Windows Strike from Workplace Prof Blog
Over at Prawfsblawg, there has been an interesting exchange on whether the result in the Republic Windows sit-in is to be applauded or decried. Richard Esenberg originally posted a warning that pressuring Bank of America to extend a loan in [Read More]

Tracked on Dec 15, 2008 4:44:57 PM


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Come on, these "loans" to failed plants are no big deal. The banks can just securitize them and shift the risk to others. What's the worst that could happen?

It's funny how quickly the public forgets the consequences of banks making bad loans; one would have thought the lesson from the mortgage crisis is that banks should be making fewer dubious loans.

Posted by: andy | Dec 13, 2008 12:02:09 AM

"a million here and a million there, and pretty soon we are talking about real money."--a slippery slope argument that, in this instance, seems untenable: that we need to do something (institutionally) about widespread involuntary unemployment in the long-term, however, is a more virtuous slippery slope; in the short-term we should do everything we can to ameliorate the effects of such unemployment, even if it goes against the grain for what counts for economic efficiency these days. The relative value of some putative economic facts may disguise value judgments that, from a moral perspective, are troubling if not indefensible. It bears to keep in mind the significance of the proposition that "the moral commitments [including the lack thereof] of economic agents are important causes and effects of significant economic phenomena, and that those commitments are influenced by the way that they are described and appraised by economic agents and by economists." At any rate, these alleged economic facts may hide substantive disagreements about values or disguise deep disagreements about the nature of "the good" that can only surface in conflict situations such as this one.

"In a free economy, businesses fail and various stakeholders - shareholders, employees and creditors - will be hurt by it."--But surely it is not too hard to appreciate the fact that the hurt to employees is of a different order of magnitude than the hurt to shareholders and other stakeholders (if only because the voluntary character of the choices involved varies considerably, owing to the different endowment structures).

"Irrational" perhaps from the perspective of neoclassical economics (which has a rather constricted conception of rationality) but perhaps less so from classical political economy or from a perspective that doesn't accept all the presuppositions and assumptions about market "efficiency" or "utility" and so on. Sometimes ethical questions of fairness and moral concerns more generally will trump economistic ones, particularly when the latter are only tenuously connected to a coherent and defensible moral philosophy or when a chasm has developed between positive and normative economics. Or, put differently, and with Larry Solum (in critiquing Kaplow and Shavell), we might argue that the "ideal of public legal reason supports both welfare and fairness, but denies the claim of either to exclude the other."

Finally, this particular sit-down strike seems unique in its specific socio/micro-economic causes even if one wants, as I do, to draw inspiration from the collective determination and solidarity of the workers, thus it seems unnecessary to generalize the economic anxieties about its apparent financial hazards or implications (e.g., 'Neither BOA nor any other bank can survive by making, not merely a poor - but an insane "loan" in response to political pressure.'). In other words, whatever the "global" causes, the "local" economic causes and effects seem paramount in this case and thus we need not leap from the local to the global in teasing out the probable or possible economic implications of this particular political and economic settlement. All the same, I'll jump from the local to the global and conclude, with Michael Luntley: "We must rearticulate the authority of the Good. In doing this we must articulate the more specific goals and standards for the variety of human institutions we find in modern society and stand these goals in opposition to the market criteria of capitalist success." Why? As it stands it increasingly seems to be the case that "Under capitalism life is lived not under the authority of the Good, but under the aristocracy of Capital."

Posted by: Patirck S. O'Donnell | Dec 13, 2008 9:35:35 AM

By the way, I looked up your bio and background and noticed the interest in theology. Given that, perhaps you might consider looking at the Republic settlement from the perspective of Catholic social teachings (I realize not all theologies are Catholic, still...), which appear far more hospitable to the perspective I sketched above than Scrooge-like one outlined in the post. Those teachings are summarized here as follows:

1. Dignity of the Human Person: Belief in the inherent dignity of the human person is the foundation of all Catholic social teaching. Human life is sacred, and the dignity of the human person is the starting point for a moral vision for society. This principle is grounded in the idea that the person is made in the image of God. The person is the clearest reflection of God among us.

2. Common Good and Community: The human person is both sacred and social. We realize our dignity and rights in relationship with others, in community. Human beings grow and achieve fulfillment in community. Human dignity can only be realized and protected in the context of relationships with the wider society.

How we organize our society -- in economics and politics, in law and policy -- directly affects human dignity and the capacity of individuals to grow in community. The obligation to "love our neighbor" has an individual dimension, but it also requires a broader social commitment. Everyone has a responsibility to contribute to the good of the whole society, to the common good.

3. Option for the Poor: The moral test of a society is how it treats its most vulnerable members. The poor have the most urgent moral claim on the conscience of the nation. We are called to look at public policy decisions in terms of how they affect the poor. The "option for the poor," is not an adversarial slogan that pits one group or class against another. Rather it states that the deprivation and powerlessness of the poor wounds the whole community.

The option for the poor is an essential part of society's effort to achieve the common good. A healthy community can be achieved only if its members give special attention to those with special needs, to those who are poor and on the margins of society.

4. Rights and Responsibilities: Human dignity can be protected and a healthy community can be achieved only if human rights are protected and responsibilities are met. Every person has a fundamental right to life and a right to those things required for human decency – starting with food, shelter and clothing, employment, health care, and education. Corresponding to these rights are duties and responsibilities -- to one another, to our families, and to the larger society.

5. Role of Government and Subsidiarity: The state has a positive moral function. It is an instrument to promote human dignity, protect human rights, and build the common good. All people have a right and a responsibility to participate in political institutions so that government can achieve its proper goals.

The principle of subsidiarity holds that the functions of government should be performed at the lowest level possible, as long as they can be performed adequately. When the needs in question cannot adequately be met at the lower level, then it is not only necessary, but imperative that higher levels of government intervene.

6. Economic Justice: The economy must serve people, not the other way around. All workers have a right to productive work, to decent and fair wages, and to safe working conditions. They also have a fundamental right to organize and join unions. People have a right to economic initiative and private property, but these rights have limits. No one is allowed to amass excessive wealth when others lack the basic necessities of life.

Catholic teaching opposes collectivist and statist economic approaches. But it also rejects the notion that a free market automatically produces justice. Distributive justice, for example, cannot be achieved by relying entirely on free market forces. Competition and free markets are useful elements of economic systems. However, markets must be kept within limits, because there are many needs and goods that cannot be satisfied by the market system. It is the task of the state and of all society to intervene and ensure that these needs are met.

7. Stewardship of God's Creation: The goods of the earth are gifts from God, and they are intended by God for the benefit of everyone. There is a "social mortgage" that guides our use of the world's goods, and we have a responsibility to care for these goods as stewards and trustees, not as mere consumers and users. How we treat the environment is a measure of our stewardship, a sign of our respect for the Creator.

8. Promotion of Peace and Disarmament: Catholic teaching promotes peace as a positive, action-oriented concept. In the words of Pope John Paul II, "Peace is not just the absence of war. It involves mutual respect and confidence between peoples and nations. It involves collaboration and binding agreements.” There is a close relationship in Catholic teaching between peace and justice. Peace is the fruit of justice and is dependent upon right order among human beings.

9. Participation: All people have a right to participate in the economic, political, and cultural life of society. It is a fundamental demand of justice and a requirement for human dignity that all people be assured a minimum level of participation in the community. It is wrong for a person or a group to be excluded unfairly or to be unable to participate in society.

10. Global Solidarity and Development: We are one human family. Our responsibilities to each other cross national, racial, economic and ideological differences. We are called to work globally for justice. Authentic development must be full human development. It must respect and promote personal, social, economic, and political rights, including the rights of nations and of peoples It must avoid the extremists of underdevelopment on the one hand, and "superdevelopment" on the other. Accumulating material goods, and technical resources will be unsatisfactory and debasing if there is no respect for the moral, cultural, and spiritual dimensions of the person.

(See: http://www.osjspm.org/major_themes.aspx)

Posted by: Patirck S. O'Donnell | Dec 13, 2008 10:22:05 AM


Those are two pretty long comments just to avoid the question.

As I understand it, your first comment suggests that we should support emotionally compelling transactions on the micro level, even in the face of a substantial probability of disaster on the macro level. No thanks.

As to your second comment, whatever Catholic social thought teaches, it probably isn't to rob Peter to pay Paul--much less to rob Peter to pay the guy who screwed over Paul in the first place, as happened in the Republic case.

Posted by: JP | Dec 14, 2008 11:38:19 PM

I'm not sure that this is an "insane" loan. Chase owns 40% (and are kicking in a portion of money towards the workers' claims), and other owners are reopening for business in Iowa. They should remain on the hook to repay it, and if their costs are lower at the new plant, they should be in a position to do so.

Posted by: Workplace Prof | Dec 15, 2008 4:46:48 PM

I tend to agree that the political discourse implied that any bank that received federal assistance was obligated to lend on demand. That is a pretty illogical and dangerous argument. I have also argued that the focus on the "evil" bank allowed the company to evade criticism and for liberal politicians and advocates to proclaim "victory" without strengthening social welfare policy. What will happen to the workers after they exhaust their wages -- and they lack jobs, healthcare and prospects for alternative work? http://dissentingjustice.blogspot.com/2008/12/what-progressives-should-have-done-for.html

Posted by: Darren Hutchinson | Dec 15, 2008 8:00:19 PM

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