Exposing Federal Sponsorship of Job Loss

The Whitehall Plant Closing Campaign and "Runaway Plant" Reform

Julia C. Abedian

• Publisher: Routledge
• Year: 2018
• ISBN:
  9780429837913
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Originally published in 1995, this book explores a number of subjects of significance for labor and economic policy, especially the role of U. S. tax policy in the relocation of jobs from the contintental USA to Puerto Rico. The book demonstrates the problems for the USA because of inadequate adjustment policies to protect the interests of communities and workers when plants close and production is relocated. It disproves the myth that markets will take fcare of workers and communities, showing that basic economics is concerned with market forces and not with equity, environmental and worker protections. The Whitehall plant closing case is documented and the economic and political context analyzed which caused that case to be instructive for broader economic and labor policy purposes. In a new age of American Protectionism, this book has enduring relevance.

I

The Antagonists, the Issue and the Political and Economic Antecedents

This study examines an American plant closing, the union that fought it and the federal tax law that enabled it. The study chronicles an attempt by the Oil, Chemical and Atomic Workers (OCAW) union to avert the closure of Whitehall Laboratories in Elkhart, Indiana and to reform the federal tax law the union said caused the closure. OCAW’s campaign began in the spring of 1990 and ended over three years later in August 1993.

Plant closings are a fact of life in market economies like the United States and likewise, attempts by unions, employees and local communities to avert them are recurrent and well-documented.¹ Naturally, and by necessity, fights to prevent plant closings are mostly local in scope even when the company is headquartered elsewhere and the reasons for the closing have little to do with the local situation. The effects of any single plant closing campaign rarely extend beyond the community immediately involved. The campaign analyzed here, however, had extraordinary national ramifications. Most notably, it touched off a Congressional tax reform effort which significantly scaled back a federal tax break worth billions to U.S. manufacturers. It also resulted in one of the few successful legislative attempts by organized labor to slow the exodus of so-called “runaway plants.” This study examines how the union transformed a routine plant closing into a national debate over the U.S. government’s role in displacing American jobs and then compelled Congressional action on the matter.

THE COMPANY AND THE UNION

In April 1990, New-York based American Home Products Corporation (AHP), one of the world’s largest and most profitable pharmaceutical manufacturers, signaled it might close its Whitehall Laboratories production facility in Elkhart, Indiana. Whitehall, an AHP subsidiary established in 1926, had manufactured drugs in Elkhart since 1949. In 1990, the plant manufactured or packaged various over-the-counter medications including Anacin, Dristan, Preparation H, Primatene, Denorex, and Advil.

AHP was the world’s seventh largest pharmaceutical manufacturer, with sales of nearly $6.8 billion.² It was the world’s fifth most profitable pharmaceutical and ranked second when measured by profits as a percentage of assets.³ In 1989, AHP’s sales and earnings were at record levels and its dividends were up for the thirty ninth consecutive year. Also, until 1989 when it acquired A.H. Robins Company, the company carried no long-term debt, a notable characteristic in view of the preponderance of highly leveraged corporate acquisitions in the 1980’s.⁴

AHP’s success was representative of the growing good fortune of the U.S. pharmaceutical industry as a whole. Dubbed “investors’ darlings” by financial analysts, drug makers’ return on equity in 1990 was 26%, double the Fortune 500 median.⁵ Thanks to successful new drug introductions, price hikes on existing products, and aggressively innovative marketing, profits and gains in market share were spectacular. In addition to dominating sales in the states, U.S. pharmaceuticals enjoyed a solid presence worldwide, accounting for 42% of the major drugs marketed abroad.⁶

Whitehall Laboratories shared in the industry’s success. The plant in Elkhart was one of several Whitehall manufacturing operations in the U.S. The various over-the-counter and personal care products manufactured there were profitable even as the sales of some declined. The physical plant was well-maintained and relatively efficient, although aging. The unionized work force was productive and cooperative, even compliant. Production and laboratory employees earned, on average, $13.48 per hour, ⁷ slightly higher than the industry average of $12.47,⁸ and health and pension benefits were in line with industry standards.⁹ Of the roughly 800 employees at Whitehall, approximately three-quarters were production workers and laboratory technicians represented by two local affiliates of the Oil, Chemical, and Atomic Workers (OCAW) union, Local 7–515 (production and maintenance) and Local 7-838 (laboratory).

Throughout its nearly 40 year history at the plant, OCAW never went on strike, contract negotiations were easy and union crossovers to company management positions were not uncommon. For its part, AHP never asked for a wage concession or any significant changes in work rules relating to productivity.¹⁰ Labor/management relations at Whitehall were, for the most part, devoid of the divisiveness and rancor typical in some other unionized manufacturing environments. In fact, the relationship AHP managers had with union leadership up to 1990 could be characterized as friendly and paternalistic and seemed the very image of the “social accord” model of labor-management relations.¹¹

PRELUDE TO A SHUTDOWN

1990 Contract Negotiations

Local union leaders first learned the company planned to close Whitehall during routine contract negotiations in April 1990. In a January coordinated bargaining session with the AFL-CIO’s Industrial Union Department (IUD), a wage increase¹² was offered by AHP and accepted by the IUD and OCAW.¹³ Subsequently, in April, the only issues left to discuss were those specific to the local unions in Elkhart.

When AHP¹⁴ came to the table, the company’s agenda was simple; AHP sought to remove a contract clause prohibiting it from moving production out of Elkhart.¹⁵ This clause first showed up in the contract in 1960 and was the result of a deal struck to prevent the company from moving to Iowa.¹⁶ In return, OCAW settled for a wage freeze. Although AHP eventually lifted the wage freeze, the relocation prohibition remained in the contract. Over the years, the clause was revised in minor ways but, for the most part and certainly in the most recent contract negotiations, the clause was not at issue. ¹⁷ In the April 1990 talks, it seemed to be the only issue.

Prior to 1990, local OCAW leaders enjoyed a friendly relationship with Whitehall and AHP managers. This friendliness was typical of labor-management relations throughout American Home’s manufacturing facilities.¹⁸ Furthermore, during the decade of the 1980’s, mainstream U.S. labor leaders publicly pointed to American Home as a model of excellence in labor relations.¹⁹ The OCAW-International Union (OCAW-IU) itself encouraged this view, even as recently as 1989, calling on AHP’s senior vice president, Joseph Bock, to use his stature among managers and unionists alike to resolve a long and contentious strike between OCAW and a company unrelated to AHP. Lulled by the chumminess and loyalty they had come to expect from OCAW leaders, AHP negotiators assumed they could count on the union’s continued acquiescence, even in the face of a shutdown.

AHP entered the April contract negotiating session believing it would be simply the first step in an orderly and smooth termination of production at the Elkhart facility. The company took steps to assure this eventuality by tipping off an OCAW-IU officer prior to the negotiating session that the shutdown was imminent. AHP viewed this tip-off as a favor to the union that would enable union leaders to concentrate on negotiating a better severance package for the workers who would be affected by the closure. Thus, AHP expected no resistance in the April 1990 negotiations.

Connie Malloy was the president of Local 7–515. She was new to the presidency, elected only four months earlier, when news of the shutdown came to light. In her 28 years at the plant, she had held various local leadership positions, including the vice-presidency. Considered a troublemaker by her foes, Malloy was nevertheless elected on a platform of change. She was only the second woman elected to the presidency of the union even though most of the unionized work force at Whitehall were women. Her gender and the recency of her position as local union president made her an outsider to the well-established relationships among local and international union leaders and company industrial relations executives. Comfortable in her outsider status, she had no use for the institutional history of her union’s relationship with AHP and refused to take out the no-relocation clause. Perhaps because she was so new to the presidency, AHP officials may have presumed she had no real influence with union members and thus would be unlikely to garner support among them for her resistance to AHP’s proposal. Or perhaps they thought she already had been informed of the possibility of a shutdown by the OCAW-IU officer they had tipped off in March. Whatever the reason, AHP underestimated Malloy’s reaction to its proposal to remove the no-relocation clause. The early April contract negotiations broke down over this clause and Malloy unilaterally decided to expose the company’s plans to the press.

The Fight Begins

Malloy’s revelation to the local press forced AHP to respond publicly. AHP assured employees that no decision had yet been made but it was “considering a phase out of its operations in Elkhart.”²⁰ AHP mentioned it was conducting a study of all its operations to determine its production requirements. Behind the scenes, AHP made clear to union negotiators that if the anti-relocation language was not removed, it could choose to operate the plant without a contract, give them the requisite²¹ 60 days notice and shut down the plant. When negotiations resumed in late April, OCAW acceded but requested inclusion of a provision requiring AHP to give 13 months’ notice before the plant was closed. The union wanted pre notification a month before an official 12-month notification to the work force in which to “change [AHP’s] mind or look at other avenues”.²² AHP consented and the contract was made.

To Malloy, the contract simply codified reality. The first negotiating session in early April “pre-notified” her to Whitehall’s imminent closure. AHP’s intentions could not have been clearer; the contract only formalized notification procedures. Malloy began the campaign to keep Whitehall open even before the parties returned to the bargaining table in late April.

What began as a rather haphazar...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Foreword
• Preface
• Chapter I: The Antagonists, the Issue, and the Political and Economic Antecedents
• Chapter II: Obsolescence of the Picket Line: Taking the Battle to the Courts and Capitol Hill
• Chapter III: Primetime, 60 Minutes and Michael Moore: The Media Campaign
• Chapter IV: Was It Worth the Fight?
• Bibliography
• Index