Feb 12th 2010

What the Iconic Labor Battle at Hugo Boss Means for Our Economic Future

by Robert Creamer

Robert Creamer is a long-time political organizer and strategist and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on amazon.com.
It's the red carpet season in Hollywood. That means high-end apparel companies like Hugo Boss are promoting iconic celebrities to wear their clothing line at the Oscars and other award ceremonies.But for the workers who make these suits in Cleveland, Ohio, it's a season of a different shade - that of the pink slip. And the result is an iconic labor battle that is emblematic of many of the most important issues facing our economy.

Just after Christmas, Germany-based Hugo Boss messengered pink slips to the 400 employees at its Cleveland, Ohio manufacturing facility. The employees were told that they were being laid off, and the plant was being closed.

Hugo Boss was not closing the facility because it was losing money - or, for that matter, because the company was in bad financial condition. Quite the contrary. Its annual report says that: "Despite the global economic crisis… HUGO BOSS held its ground over the course of the year. In particular, toward the end of the year some initial positive trends were visible. In the fourth quarter sales revenues were slightly above the previous year's …"

Not only is the whole company profitable, there is every indication that the Cleveland plant is profitable as well.So why is Hugo Boss shuttering its Cleveland operation and sending 400 American workers onto unemployment lines? Simple. The workers at the plant refused a company demand that their wages be cut by almost a third - from $12 per hour to $8 and change.

The company refused to discuss counter-offers, and rejected out of hand a package of incentives proposed by state and local officials to save the plant.

Now let's remember that these workers weren't making exorbitant incomes to begin with. Twelve dollars an hour is only about $25,000 a year. The average CEO of a large American corporation (making $10.5 million per year) earns that much in the first five hours of the first work day of the year. No matter, the executives at Hugo Boss think they can make more money if they move the jobs of the Cleveland workers to Turkey and China, where they can get workers to manufacture their suits for even less. If something isn't done to alter their decision, the Hugo Boss plant in Cleveland will stop making suits in April of this year.

There are four key lessons for the American economy from the Hugo Boss story:

Lesson # 1.
Every time we allow the executives of international corporations to maximize their own wealth by paying their workers less and less, we allow them to place all of us in economic jeopardy. The root of the current Great Recession was the reckless speculation of a bloated financial sector that was swimming in the money it has squeezed from ordinary Americans who actually produce things for a living. That shift of income from everyday people to corporate CEO's, insurance companies and Wall Street banks left wages stagnant for the last decade. All of the economic growth of the Bush years went to the top two percent of the population. That left consumers without expanding incomes to buy new products, forcing the economy to rely on growing consumer debt and a housing bubble to finance its relatively anemic expansion. The fruits of increased productivity must be widely shared in order to sustain long-term economic growth. A high wage economy is the foundation of a bright economic future - not a Bush era economy where income is concentrated in the hands of a few.The evidence is crystal clear.

Economist Paul Krugman has noted, at the beginning of the Great Depression, income inequality, and inequality in the control of wealth, was very high. Then came the "the great compression" between 1929 and 1947. Real wages for workers in manufacturing rose 67% while real income for the richest 1% of Americans fell 17%. This period marked the birth of the American middle class. Two major forces drove these trends - unionization of major manufacturing sectors, and the public policies of the New Deal that were sparked by the Great Depression.

The growing spending power of everyday Americans spurred the postwar boom from 1947 to 1973. Real wages rose 81% and the income of the richest 1% rose 38%. Growth was widely shared, but income inequality continued to drop. Compare that to the Republican policies of the Bush years - trade policies that allowed corporations to send manufacturing jobs abroad, and to lower wages at home; policies making it harder to organize unions; and tax cuts for the wealthy.

Of course, throughout the heyday of Reagan's "supply side revolution" and Bush's tax cuts, the Republicans and the right wing intellectual establishment have held fast to their foundational belief that these policies - and especially tax cuts for upper income Americans -- would create private sector jobs.

Well, the great experiment in "trickle down economics" is over and the results are in. The New York Times reports that, "For the first time since the Depression, the American economy has added virtually no jobs in the private sector over a 10-year period. The total number of jobs has grown a bit, but that is only because of government hiring."

These Republican economic policies didn't just produce fewer jobs than advertised. They didn't produce any private sector jobs at all. The whole experiment in handing over money to the wealthiest people in America so they could use it to benefit the rest of us was a colossal - empirically verifiable - failure.

But our economy is not doomed to have more and more low-paying jobs, greater income inequality and economic stagnation. There's a great deal that can be done to prevent corporations from lowering the incomes of American workers in the future - and to stop Hugo Boss from laying off 400 workers in Cleveland right now.

Lesson #2. America's trade policies have to change.
The international rules of the economic road must and can be changed. Fundamentally, the rules of international trade must require that wages for employees are not solely subject to market forces. Human beings are not commodities like beans and corn. Most people agree that we need child labor laws, health and safety laws, laws protecting the right to organize, and the minimum wage. That's because without them, "the market"--left to its own devices--would force companies to drive down wages, and incentivize unsafe working conditions.

The same is true of the international market place. The international rules of the economic game that are reflected in trade agreements need to be changed to recognize that human beings are the point of the economic system - not just an "economic input." Labor agreements must have labor and environmental protections - not just protections for the rights of capital and "intellectual property."

Lesson #3. Our tax and regulatory policies need to be changed to reward true economic production and discourage the reckless speculation of the financial sector.
It is the exploding financial sector that insists that a profitable company like Hugo Boss produce even more short-term profits - even though it damages the American manufacturing base.
We've seen this movie over and over again. A few months ago Simmons - a 133-year-old profitable bedding maker -- was forced to file for bankruptcy protection because it has been milked dry by a succession of buyers and Wall Street investment banks. The investment banks made millions through leveraged buyouts that made good financial sense for Wall Street, but left the manufacturing firm deeper and deeper in debt. The New York Times reports that "the financiers borrowed more and more money to pay ever-higher prices for the company, enabling each previous owner to cash out profitably."

This time, Hugo Boss is being milked by a private equity firm called Permira. The changes in financial regulation proposed by the Obama Administration would be a start in the right direction. But everything from tax policies to compensation practices need to change if we are going to re-establish the priority of productive work - including manufacturing - over the needs of the "Masters of the Universe" on Wall Street.

Lesson #4. We have to remember: it ain't over 'til it's over. It's up to all of us to use our collective political and economic power not only to make changes in our economic policies, but to stop the destruction of 400 productive jobs at Cleveland's Hugo Boss. Workers at Republic Windows and Doors in Chicago sat down on the job in order to preserve their jobs - and with the help of public officials like Congressman Luis Gutierrez and my wife, Congresswoman Jan Schakowsky - they won.

Last year workers at another apparel company, Chicago-based Hartmarx, which makes President Obama's suits, faced their own fight. Thousands of jobs were put in jeopardy when the company's bankers sought to liquidate the company entirely. The workers fought the banks again - and with the help of Illinois State Treasurer and current Senate candidate Alexi Giannoulias they won, too.

The workers in Cleveland realize they must engage in that same type of fight against the corporate greed of Hugo Boss, and they need all of our help.

We should demand that each of the glitterati that attends the Oscars publicly refuse to wear Hugo Boss clothes, so long as the company continues to put its own greed over the interests of American workers.

Each of us should foreswear Hugo Boss clothes until the workers at the Cleveland plant get back their jobs. Retailers should be asked to stop carrying Hugo Boss products.

Investors in the private pension fund
Permira should sell their holdings.

All of us should stand shoulder to shoulder with the members of Workers United, an affiliate of Service Employees International Union, and help them demonstrate to America, once again, why a strong labor movement is our country's principal defense against a low-wage economy and economic stagnation.

Robert Creamer's recent book: Stand Up Straight: How Progressives Can Win, available on Amazon.com.

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