The transformation of local politics: manufacturing plant closures and governing coalition fragmentation

POLITICALGEOFF,

Vol. 13, No. 6, November 1994,515-539

The transformation of local politics: manufacturing plant closures and governing coalition fragmentation MICKEYLAURIA

College of Urban and Public A&airs,Universi~ of New Orleans, New Orleans, LA 70148, USA

ABSTRACK A theoretical problem remains in the urban regime literature in that the connection between &al strain and regime fragmentation and thus the potential for coalition breakdown is not fuliy elaborated. Whelan et al. (1994) demonstrate that a shifting electoral coahtion, in particular the emergence of a black majority electorate, can also lead to regime instability and fragmentation and the subsequent political struggles for dominance in an emerging governing coalition. In this paper a second mechanism for regime change is suggested; that is, that under conditions of economic restructuring and the subsequent fiscal strain, non-local actors, in this case national political actors operating primarily through party connections, can manipulate local political dependencies to forge governing coalition fragmentation and a regime change in a particular direction. This first finding is important because it highlights the often neglected role of party politics in the governing co~itio~urb~ regime and the local state literature. Secondly, the complexity of state relations uncovered here does not bode well for a theoretically coherent concept of the local state but does display how the historical development of local social relations interacts with the state apparatus at the state and national level to create a particular ‘local’ politics. Finally, this transformation requires a shift in the location of political consensus building from the local democratic political electoral arena to a non-democratic quasi-public arena: a corporate-led governing coalition.

[Cjontemporary shutdowns, relocations, and dismanthngs reveal not simply movements of capital and misfortunes of communities, but more importantly shifts in the relations of power between corporations on the one hand, and communities and unions on the other. Ultimately they force a reconsideration of basic issues: the relationship of large scale property to community, and the adequacy of the historical form through which working people in America have chosen to organize themselves and protect their rights on the job. The basic story with plant closures to put it differently, is a political one, and it raises serious questions for citizens even beyond the precincts of the affected communities. (Lustig, 1985: 126).

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The transformation of loculpolitics

516 Introduction

Urban regimes and the tbeoreticalp/oblem

The urban regime conceptualization’

of transition

has been used by many scholars of urban politics

(see Cox, 1991a, 1991b, for a critical assessment Fainstein, 1991 for their rejoinders). the insights of urban economics theory of urban regimes

of this literature;

and Stone, I991 and

Todd Swanstrom argues that regime theory integrates with the insights of urban politics. For Swanstrom

‘a

can capture the variety of urban politics while still achieving a

useful level of generalization’

(1988:

107-108).

According

to Swanstrom,

the type of

regime developed in a city will be determined by economic pressures, capital accumulation and class composition. In addition, political leadership and its values influence the nature of the regime. At the core of regime theory is the idea that dominant governing

coalitions,

over periods

of time, decide

policy and provide a vision for the

future development of the city (see Bassett and Harlow, 1990; Vicari and Molotch, 1990; and Harding, 1992 for an international perspective). The convergence implied here involves the theoretical

recognition

of the importance

of an analytic focus on both the

politics within the state apparatus (see Clark and Dear, 1984; Gurr and King, 1987; and King and Gurr, 1988 for arguments

that analytic focus should be placed here) and the politics

within civil society over influence on the state apparatus in particular (Esping-Anderson

et

al., 1976, Fainstein et al., 1986, Smith and Feagin, 1987) and local governance in general (see Mollenkopf, 1983; Duncan and Goodwin, 1982,1988; Duncan etal., 1988; Stone, 1989; Horan, 1990, 1991). According to Pecorella (1987: 69-70) fiscal crises (contrary to fiscal strain) are the consequences of those ‘historical junctures when regime fragmentation coincides with economic weakness’. Under these circumstances finance capital with the assistance of extra-local politicians (state and federal) may assume directive power over local policy. A new coalition develops, fiscal stability is fostered, and a new regime argument is that during periods of fiscal stability local politics becomes

emerges. The more open to

outside group demands (particularly to ‘attentive non-elites’) and coalitions shift. Due to periodic economic recession (unfortunately a theoretically unspecified fiscal strain) retrenchment policies become a necessity. The political distribution of local resources then becomes a zero sum game with a shrinking pool of resources and the coalition becomes unstable. If the strain deepens and the coalition begins to breakdown, fiscal crisis ensues and finance capital and extra-local politicians may emerge to forge another regime transition. Shefter’s (1985) analysis of New York’s fiscal crisis and resolution forged by external powers is exemplary. This argument is problematic in that the connection between fiscal strain and regime fragmentation and thus the potential for coalition breakdown is not fully elaborated. Although for example Pecorella (1987) argues that fiscal crises result from the coincidence of regime fragmentation and economic weakness, he also argues that fiscal strain creates a zero sum game that leads to an intensification of the competition for resources which leads to the breakdown of the coalition. As you can see we are left with a circular argument. Thus what needs further theoretical elaboration is how, why and when regime fragmentation develops and creates the conditions necessary to transform fiscal strain to fiscal crises. Another conceptual problem with the fiscal crises/regime theory school is that they argue for a combining of political and economic logic or for the analysis of the conflict between the two, as if they were separable in the first place. In discarding the deterministic and functional nature of ‘jumbo political economy’, these authors appear to have forgotten

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a key insight in that work; that economic logic is political, not that there are political ramifications of economic principals or economic ramifications of political principals. Thus it is important to recognize that society is a political economy, the logics of economics and politics are intertwined and inseparable. The historical separation is a mystification. And it is this mystification that is currently constraining political theory in academia and legitimizing regime changes in practice. Notice how Shefter’s otherwise classic study (1985) fails to emphasize the key role played by party politics in the resolution process of New York City’s fiscal crisis of 1975. In recognition of these theoretical problems, Whelan et al. (1994) demonstrate that a shifting electoral coalition base, in particular the emergence of a black majority electorate, can lead to governing coalition fragmentation and thus to regime instability and the subsequent political struggles for dominance in a newly emerging governing coalition. In this paper I suggest a second mechanism for coalition fragmentation and regime transition: that is, that under conditions of economic restructuring and the subsequent fiscal strain, non-local actors, in this case national political actors operating primarily through party connections, can manipulate local political dependencies to forge governing coalition fragmentation and a regime transition in a particular direction for their own purposes, Thefocus of loculpolitics Another unresolved theoretical debate concerns the role of the local state; whether the focus of urban politics revolves around collective consumption issues and/or production issues (see Goodwin et al., 1993 for a ‘regulation theory’ approach to this historical development in England). It is clear that recently, say for the last 10 years, local government has been increasingly involved in production issues (Goodman, 1979; Boddy, 1983; Clark and Rich, 1985; Berkowitz, 1988; Leitner and Sheppard, 1989; Fitzgerald Ely and Cox, 1990; Clarke, 1991). Wong’s (1985: Table 4) data also support this argument. He shows that local government expenditures on developmental functions (particularly utilities) using their own fiscal resources increased by 5.4 percent (from 19.7 percent to 24.1 percent) of their budget from 1975 to 1983. Thus there clearly has been a transformation in the focus of local politics. This is the second meaning of my phrase, the transformation of local politics. Jones and Bachelor (1986: 213) argue that the increased mobility of capital has changed the relationship between local governments and business. They suggest that while business people are less interested in directly controlling local governments, politicians are more concerned with influencing business decisions, thus the new emphasis in planning activities euphemistically called urban entrepreneurialism (Duckworth et al., 1986; Judd and Ready, 1986; Eisinger, 1988; Bellone, 1988; Harvey, 1989; Babcock, 1990; Leitner, 1990; Miron, 1992; see also Leitner and Garner, 1993 for an excellent synthetic discussion of these issues). This transformation may be fostered because the use of economic constraints is more effective and less revealing (see Peterson, 1981; Wong, 1985). Thus capital is able to work through quasi-public economic development organizations (see Stoker, 1987; Hula, 1990) rather tan trying to control city politics directly through elected officials. There is reason to believe that the above work has converged in a fruitful direction of governing coalitions and urban regimes (see literature reviews by Clarke and Kirby, 1990; Leitner, 1992; Levine, 1992; Jonas, 1993). What I shall argue is that this transformation appears to require a shift of political consensus building from the local democratic political electoral arena to a non-democratic quasi-public arena (a consensus seeking para-apparatus): a corporate-led governing coalition.

518

The ~~~fo~~~on

Research des@z: a ~~~~a~~~e

of local politics

case study

The lack of theoretical understanding of these transformations or regime transition suggested to me the need for more empirical work, specifically utilizing a case study research design. By case study research design I mean, following Yin (1989: 23), empirical analysis which investigates phenomena in context where the boundaries between the phenomenon and its context are not clearly evident. As argued elsewhere (Lauria, 1985, 1993), a case study approach is particularly suitable to analysis based in a social constructionist ontology. From this perspective the analysis of local politics as the political manifestation of the historical development of local social relations becomes revealing. In other words, it is the combination of my social constructionist approach and the use of an explanatory case study research design that allows me to reveal the causal relations involved in theoretically contingent political actions. In a previous case study evaluating the role of the local state during the threat of a manufacturing plant closure in Dubuque, Iowa (Lauria, 1986) it became apparent that the state in its various branches and levels intervenes in multiple and often contradictory fashions. Secondly, the various actors reacted in an u&hoc fashion, each trying to preserve their own short-term interest. Finally, a consensus-seeking para-apparatus developed because it appeared that local government was failing to resolve the local crises (see also Kraetke and Schmoll, 1991: 546-547). These findings suggested that the local state, or more appropriately that the local governing coalition, was restructuring in relation to changing economic conditions (see Hudson and Sadler, 1986; King, 1987; Body-Gendrot, 1987; Perry, 1987; Smith, 1988;Warde, 1988; Fainstein, 1990; Goodwin et al., 1993). The problem that remained inexplicable, within a single case design, was the limited set of actions negotiated and evaluated by the actors involved in the Dubuque scenario. This limited set of actions ultimately led to the adoption of an externally supported internal (management) buyout of the Dubuque plant as a strategy to keep the plant open. Meanwhile less than 100 miles away in Waterloo-Cedar Falls, the creation of an Employee Stock Ownership Program was chosen as a strategy to avoid plant closure. This type of strategy was not even considered in the Dubuque scenario. These differential outcomes suggested the existence of different local political coalitions. Thus an analysis of the employee buyout of Path’s Waterloo-Cedar Falls plant seemed the appropriate case for an evaluation of a theoretical replication of the Dubuque findings. In general, a theoretical replication is useful in a multiple-case research design when there is a theoretical reason to expect a different outcome in a similar case (see Lauria, I993 for a detailed discussion of multiple-case design and the need for replications). If this different outcome is discovered in conducting such a replication, then the theoretical propositions that led to this differential expectation are supported. The two cases are similar in that Waterloo-Cedar Falls also involved a meatpacking plant in Iowa and thus was subject to a similar sectoral and regional economic evolution. Also Waterloo-Cedar Falls was dependent upon a few large employers and most if not all community actors had a stake and thus a role to play in the resolution process. Finally, as in the Dubuque case, the federal government. was involved in the process via the Economic Development Administration (EDA) and the Urban Development Action Grant (UDAG) program. In this comparative analysis, the theoretical replication involves an inversion: although the Waterloo-Cedar Falls experience provided a similar case which had produced some slightly different resuits, I had no theoretical explication. Thus my expectation was that a comparative analysis of the Dubuque and Waterloo-Cedar Falls cases would be useful for further theory building (see Burawoy et at., 1991: 8 for a similar approach to ‘reconstructing social theories’).

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Since this was a theory-building exercise, I chose an explanation-building general analytic strategy (see Yin, 1989: 105-126).* The first explanation-building iteration was the development of a theoretically directed historical narrative focusing on the social relationships between the plant owners and managers, the community at large (business and electorate), the various segments of organized labor, and politicians. Using newspaper articles, key informant interviews and the archival resources of a city council member, I developed a detailed chronology, a list of actors and the overt roles they played, a historical narrative, and lists of unanswered and answered questions. At this point, it may be necessary to clarify the distinction I make between the chronology and the historical narrative. Although both are theoretically directed, the chronology consists solely of bits of theoretically important information, while the historical narrative is more interpretive and requires interrogation by multiple sources of evidence. The historical narrative is used to make sense of the chronology and to identify inconsistencies within the chronology an&or theoretical propositions. The analysis was then used to delineate further data needs, a list of people to be interviewed, and a set of open-ended questions to be used as the interview instrument. Thus in the second iteration of explanation building, missing data were collected or surrogate information collected and analyzed, and interviews conducted (taped and transcribed). The new data and interview information were integrated into the chronology and subsequently into the historical narrative of the Waterloo-Cedar Falls case presented below. Abstractions were then teased from the narrative and used in theory evaluation and reconstruction as presented in the concluding discussion. Local politics and the threat of a plant closure Rath S early woes: setting

the agenda for state intervention

Rath Packing Company’s lOO-plus-year history has been far from unmarred

by problems. Rath had experienced financial woes that can be traced back to previous decades. In 1955, although Rath reported record profits of $3.6 million on $265 million in sales, Path’s management announced that earnings were low compared with other industries and especially ‘in view of the need for capital expenditures to improve our facilities’. This same year, Path attempted to merge with Needham Packing Company of Sioux City, but was blocked by the Iowa Supreme Court. Rath also attempted a merger with Bermec Corporation, a cattle breeder and vehicle lessor, but ‘Wall Street didn’t like the arithmetic’. Plant modernization in the next few years was regarded by many to be inadequate. Nevertheless, Path continued paying dividends to stockholders until 1961. A former middle-management employee said ‘there was a feeling that too much was being paid out to stock holders’ at that time. Marketing was considered another shortcoming of the company. Rath had concentrated selling its brand-name products to Mom-and-Pop grocery stores, and looked at chain-store sales as merely a way to get rid of its extra product. When Path finally awakened to the predominance of supermarkets, other packers had much of the market already locked up. Throughout the 1950s and early 1960s suspensions and work stoppages plagued Rath. At this time, employees at the Waterloo-Cedar Falls plant numbered over 5000. In 1961 Path officials attempted to make workload revisions after installing new equipment. A dispute resulted in which Path suspended 775 employees. The depth of the financial problems first became apparent in the 1960s. After a $1.4 million profit in fiscal year 1960, Rath lost $1.9 million in 1961. After a slow comeback, Rath dropped almost completely out of the beef business.

520

The

transformation

0flocalpOliticS

The year I967 was financially a crucial one for Rath. After experiencing more losses, Rath’s bank and insurance company lenders wanted assurance that they would be paid the $22.4 million total owed by Rath. Rath borrowed $14 million at 6 percent over the prime interest rate from James Talcott, Inc. to begin paying back these lenders. These debts were not settled until 1973. In 1968, Rath’s new president, Harry Slife, a Waterloo attorney, managed to reduce losses, and in 1969 Rath went back into the black. By 1971, profits soared to $3.8 million from operations, plus another $3.9 million credit from tax loss carryovers. Slife sought to improve Rath’s marketing program as well as its labor climate. Slife warned, however, that because of 1972’s anticipated hog shortages and President Nixon’s price controls, people should not be led to believe Rath was out of danger. Rath was also feeling the effects of a change in the meatpacking industry in general, remaining primarily a slaughtering operation while their competitors were converting to the more profitable food processing operations. In 1973, Rath considered closing its Waterloo-Cedar Falls plant, but decided against it because of the burden of severance pay. In 1974 Rath purchased Stark, Wetzel, Inc. in Indianapolis, Indiana, a meat processor, to balance its slaughtering operations. The processor turned out to be weaker than expected, however. Also in 1974, Slife resigned as president, to be replaced by J. C. Walker, a Texan who had worked 30 years for Armour and Company, and who had been vice-president of slaughter operations at American Beef Packers, Inc. In Walder’s first year, Rath lost $7.3 million. It has been suggested that much of the loss was because Stark, Wetzel, Inc. had not been well integrated into the overall program. Shortly thereafter Talcott informed Rath that its line of credit was being reduced. Toward the end of 1975, Rath officials, with the help of local, county and state representatives, began seeking federal assistance for the ailing company. On 11 November, an application for a $6 million loan guarantee was filed with the Economic Development Administration (EDA) of the Department of Commerce. The EDA guaranteed 90 percent of the loan to be made by a consortium of eight banks and savings and loans, headed locally by the National Bank of Waterloo. A Pittsburgh bank agreed to take $4 million of the loan on the condition that its exposure on the loan be fully covered. Additionally, the lenders required that the loan be secured by Rath real estate and buildings worth at least $8 million. Endorsing the application were Waterloo Mayor Leo Rooff (Republican)‘, Black Hawk County Board of Supervisors Chai~oman Lynn Cutler (Democrat), 3rd District Congressman Charles Grassley (Republican), himself a Rath employee from 1951 to 1957, and Iowa’s US Senator Dick Clark (Democrat). Rath’s situation was indeed grave. An additional 100 workers had been laid off, bringing the total to 350 displaced workers for 1975. The company had lost over $6 million in fiscal year 1975, and reported an additional $2.7 million loss for the first quarter of fiscal year 1976. Rath had not paid a dividend on its common stock since 1961. When applying for the loan guarantee, management made clear the severity of the situation; Rath faced closing its doors. Officials were hopeful the loan guarnatee would enable Rath to rehire all laid-off workers in the coming fall. Congressman Grassley emphasized that the loan could add another $5 million yearly to the Waterloo-Cedar Falls economy. After the sale of Rath’s two feed mills, taking Rath out of the feed business, and another pending quarterly loss, in February 1976 the Department of Commerce approved the loan guarantee. On 10 March, Rath signed the papers to receive the loan. This first loan, however, was not enough to offset two additional quarterly losses in March and June totaling over $2.5 million. After two months of negotiation, the labor contract with Local F-46 ~~~mated Meat

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Cutters and Butchers Workmen of North America was finally approved on 5 November 1976. Despite Path’s financial difficulties (a loss of over $7 million in fiscal year 1976), the new employee contract, approved by 94 percent of voting union members, requested a 15 cent per hour raise in base pay to $6.32, and subsequent raises of 20 cents the second year and 25 cents the third. In addition, the contract called for an improved cost-of-living formula and an increase in night premiums. On 5 December, Bath’s office workers also approved the contract. Problems between labor and management were to continue in 1977: 125 employees were suspended for four days in late July for refusing to work 9% hour days. In a Waterloo Courier story, the union was quoted as saying, ‘when the management at Path laid off I3 people for a 6-week period at the beginning of the summer, it agreed to make employees work 9% hour shifts’. The stated reason for the union’s firm stand was to protect workers, whose average age was 55, from heavy job loads during the summer. Rath reported mixed financial news in 1977. In its first fiscal quarter, the earnings amounted to over $1.6 million, and included a $780 000 extraordinary credit due to a net operation loss carryover. Bath’s plant at Indianapolis reported a $377000 operating cost loss that same quarter. But for fiscal year 1977 Path had cut losses to $999 000. 7;be state gets in deeper as labor holds the line

The better financial picture would not carry into 1978. Although Bath showed a meager profit of $524000 in the first fiscal quarter, the second quarter resulted in a loss of $2.1 million. Path officials emphasized early in the year that employees would probably have to make concessions eventually. Management pointed out that fringe benefit costs were 63 percent of labor costs, that the average Path employee was receiving five to six weeks of vacation per year, and that pension benefits had increased dramatically with the last labor contract. On 11 May 1978 employees received a letter from management asking for a delay until 1 January 1979 in cost-of-living increases that had been slated to go into effect on 1 July 1978, a wage cut of 50 cents per hour from the current base pay rate of $7.06 per hour from 5 June to 3 September 1978, and a waiver of one week vacation time. Additionally, administrative and salaried workers were to take a 7 percent salary cut for the three-month period. These requests excluded Path employees in Texas and California. Bath’s unions, Local P-46 and Local P-1278, refused to hold elections on the cuts, saying the company had not given solid reasons for the proposals. McGuire (Bath’s president since October 1976) had been quoted as saying, ‘the poor fresh pork situation caused most of the $2.1 million loss, a major disruption at Columbus Junction added to the headache, while bellies jumped 25 cents which turned off much of the bacon business’. Lyle Taylor, president of Local P-46, countered that he believed it was a ‘mistake’ to ask workers to make sacrifices in income and vacation time. He went on to say, ‘we resent the company using such strong arm tactics on the people and the communities’. In response to continued financial difficulties, Black Hawk County government officials, the Waterloo Chamber of Commerce, and Path’s management and labor people met on 23 May to try to work out long-range solutions for Path’s problems. The meeting’s aim was to gather information on Path’s needs in order to present Path’s case to the federal government in the hope of obtaining another guaranteed loan. Path was already meeting with its lenders to discuss stretching out payments on the $4 million still owed on the original $6 million federally insured loan. The lenders and the EDA did agree to a six-month deferral on two of Bath’s $428000 principal payments, but required that Bath

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Thetransformation of local politics

maintain payments of the interest. The 23 May meeting resulted in two reports, one by the Waterloo Chamber of Commerce, and the other by the Iowa Northland Regional Economic Development Commission, which were presented to HUD officials on 7 June. The reports stressed the importance of Rath to regional economic stability.* Rath officials believed that spending $10.2 million on capital improvements and promotion could realize an annual profit of $5.7 million.5 After the 7 June Washington meeting, Walter Archibald, Chief of the Industrial Resources Division of the EDA Office of Technical Assistance, met Rath officials to discuss ways to expedite the applications for federal financial aid. Senator Dick Clark, who, more than 30 years earlier, had worked at Rath, promised he would work with Rath and EDA officials to extend the $6 million EDA-guaranteed loan. He also assured that a technical assistance grant would be made, with the EDA paying for most of the feasibility study. Two weeks later, the EDA did indeed approve the technical assistance grant to the Iowa Northland Regional Council of Governments, which had initiated a Rath Study Committee. The Study Committee met the Black Hawk County Economic Development Committee on 5 May to examine Rath’s financial plight. The EDA would pay $60000 of the estimated $80 000 cost of a study to evaluate the short-term profitability improvements that had been proposed by management, and to incorporate them into a long-range plan for the company. The consultants’ report would then be used to obtain additional federal funds. According to Lynn Cutler, chairwoman of the Black Hawk County Economic Development Committee, Rath was being given special attention in Washington. Cutler cited as evidence that Rath was dealing directly with HUD rather than through the regional office, and that the EDA had dropped its match requirement for the $60 000 technical assistance grant. The study of Rath was begun of 18 July. Nine days later, Robert Embry, HUD Assistant Secretary, toured the Waterloo-Cedar Falls plant. Embry’s visit was viewed as unusual, considering his high rank. Embry would be the person directly responsible for the award of any HUD funds, but Embry remarked that President Carter was also extremely interested in Rath’s future, saying that Carter’s philosophy was to prevent large economic disruptions. While admitting no experience with meatpacking development, Embry remarked that at first glance Rath would be best off with a new plant. Embry went on to say, ‘the main thing we’ll be looking at is what the private sector is willing to do. We won’t make grants if the situation is hopeless.‘John W. Nordstrom, of Globe Engineering Co., indicated two weeks later that premiminaty reports found that less than half of Rath’s space was being used efficiently and that the present multistory facility and equipment was costing $5 million a year to maintain. He suggested that Rath abandon its present plant by 1983. While federal and local officials may have been sympathetic to Ram’s cause, the State of Iowa enraged the EDA earlier that June by requiring that Rath pay $800 000 into a trust fund for workmen’s compensation. Previously, Rath had been self-insured. The EDA believed this added cost could jeopardize their plans to save Rath. Responding to the threat, the EDA gave additional funds to a consulting group for Rath, but requested that the City of Waterloo hire a coordinator for all the groups working with the company. The Internal Revenue Service had already agreed to let Rath wait until the coming year to pay $5 860 000 Rath owed to its employee pension fund, $1 million of which was an installment on deferred 1975 payments. Rath’s lender, James Talcott, Inc., had refused to finance the repayment because Rath had only $2 million borrowing capacity available and all the company’s other assets were pledged as collateral for other loans Jack Watson, senior assistant to President Carter, gave further assurances to Lynn Cutler that the White House was still interested in saving Rath. HUD Secretary Patricia Harris, after a meeting with Senator Dick Clark, gave her support to help Waterloo officials obtain a UDAG, but gave no

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guarantee. However, these efforts did not prevent large lay-offs in the summer of 1978. On 19 June operations at the Columbus Junction plant were suspended, affecting 270 workers. On 22 September, 90 administrative, supervisory and clerical employees were laid off in an effort to save money. The savings were to go to boost production. One week later, 360 production workers, all with more than 20 years experience, were also laid off. In the fiscal year 1978, Rath lost $6.4 million. An attempt to obtain a $3 million loan from local lenders was thwarted by an Iowa state law forbidding a second position on a mortgage. On 2 October, the Black Hawk County Economic Development Committee created a non-profit corporation to seek an additional $3 million to help Rath meet operating costs. The Waterloo City Council began preparing a UDAG application for at least $4.5 million. Mayor Rooff, however, warned m~agement and union officials that they had better show signs of working together or he would drop his efforts. The final consultants’ report recommended making short-term corrections in the plant’s facilities and management, expected to cost about $4.3 million, so that Rath could survive until the construction of a new plant. These corrections were needed immediately, and were expected to save approximately $6.4 million annually. The consultants also recommended three subsequent options, depending upon the level of federal funding received. If a high level of federal funding were obtained (between $45 million and $48 million, with Waterloo providing an additional $5 million), Rath should construct a new slaughterhouse and meat processing plant. This option would retain 1050 of Rath’s 1800 Waterloo-Cedar Falls employees with current salaries and benefits, with the remainder receiving severance pay and being retrained or retired. For a moderate level of funding (between $26 million and $32.5 million), Rath should build only the new meat processing plant. Only about 500 Waterloo-Cedar Falls workers would be retained. If low-level funding were received, Rath should spend $6.4 million on short-term corrections. It was generally recognized at that time that Rath would not be able to acquire the financing to achieve a long-term viable solution. Nevertheless, it was anticipated that I&h’s Waterloo-Cedar Falls employment could be kept at three-quarters to half of current employment levels if the preparations necessary to achieve a long-term viable solution were started immediately. A worker purchase of the Waterloo-Cedar Falls plant was discussed. This involved Rath’s divesting itself of the Waterloo-Cedar Falls plant and a drop in employee wages, and thus was not considered a good solution. Early in October 1978 a special team of EDA officials in Denver helped James Ihele of the Iowa Northland and Regional Economic Development Commission prepare the $3 million grant request. The requirement for local matching funds was waived, as well as the restrictions against Rath’s receiving the loan because of the prior $6 million loan. This second grant was given the EDA’s highest priority. On IO October, just eight days after the application was prepared, the EDA approved the $3 million grant to the Black Hawk County Economic Development Committee, Inc., who would then loan $2.98 million to Rath at 6 percent interest, to be repaid within 90 to I20 days. The money would then be reloaned to the company to begin implementation of plant and operation improvements. The newly formed non-profit corporation’s president was Lynn Cutler. tier a public hearing on 16 October, the Waterloo City Council agreed to send in a $463 million UDAG application for short-term capital improvements at Rath. Mayor Rooff emphasized that this was the cheapest way to go, compared with the loss of jobs, decreased tax base, reduced local consumption, and high unemployment benefit and welfare payments. Roof also emphasized, however, that philosophically he did not support the bailout.

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On 10 November, Columbus Junction community leaders met Rath officials to discuss reopening the Columbus Junction plant and restoring the 274 jobs lost when the plant had closed in June. The unemployment rate in Louisa County had jumped from 2.8 percent to 7.9 percent after the June closing. Louisa County had been made eligible for EDA-guaranteed loans, but was not eligible for other types of financial aid because Columbus Junction had not been designated a ‘growth area’ by the federal government. The group of Columbus Junction community leaders was told it would take $4 million to reopen the plant. James Thele said the previous studies of Rath ‘kind of skipped over’ the Columbus Junction plant. Tom Houston, Iowa Superintendent of Banking and president of the Columbus Junction State Bank, said Rath officials had told the community leaders in the 10 November meeting that the facility had been profitable in all but one of its 17 years of operation. One suggestion Thele made to town leaders was to buy the building and lease it to Rath or another packing company. The Black Hawk County Economic Development Committee granted extensions on 1 January, 13 February, and 16 March on Rath’s payments of the principal due on the $3 million loan. By 13 February, the committee was examining whether to use the $3 million to prop up Rath again or to prepare for a closing by directing the funds to job training and relocation. But Rath had lost over $21 million in the previous six years. Rath had approximately $447 million in liabilities, $24 million of which was for employee retirement and pension funds. Lyle Taylor, Local P-46 President, reported that if Rath were to close, its 1100 union employees could lose as much as 40 percent of their pensions. ESOP: leveragedprivate capital or a form of labor-management

cooperation?

On 7 March 1979 the officials of Local P-46 proposed in a letter to Rath President McGuire that employees buy the controlling interest at Rath for $3.6 million through a $20-per-week payroll deduction to purchase Rath stock. Employees would buy 1.8 million shares of unissued Rath stock at a price of $2 per share. Rath was currently trading at $2.25 per share, with stockholders holding 1.2 million shares. Additionally, the Rath Board of Directors would be expanded to include four employee-appointed representatives in addition to the seven present board members. Taylor said the proposal would also involve a profit-sharing program amounting to 50 percent of pretax profits. None of these profits would be disbursed to employees until the pension funding was back on schedule in compliance with the law. The next day, union workers voted 97 percent (627 to 22) to support the employee-purchase plan at Rath. A Waterloo-Cedar Falls delegation, meeting HUD officials in Washington, DC on 12 March, was told that the employee purchase of Rath would meet the government’s requirement for private capital assistance in connection with the $4.63 million UDAG. The delegation was composed of Mayor Leo Rooff, Black Hawk County Economic Development Committee President Lynn Cutler, Iowa’s US Senator John Culver (Democrat), Representative Charles Grassley, and a Rath management representative John Sheehan. The HUD officials gath Rath a week to firm up the plan to stay eligible for the UDAG. Two days later, Rath directors met in Chicago and discussed a proposal that Eastcliff Corporation, a consulting firm headed by John Sheehan, should buy Rath. Under Sheehan’s proposed three-year contract, the consulting firm would have taken over the active management of Rath, as well as the option on the 1.8 million unissued shares of stock, employees would receive 40 percent of the firm’s pretax profits, but would also accept a 25 percent wage cut. Sheehan claimed the corporation could induce Rath’s current lenders to increase their loans to Rath. Rath Board chairman Charles F. Swisher

MICKEY LALJRIA

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said that the union was strongly opposed to the proposal, and therefore, the Boad should reject it. The directors did decide, however, that some of Eastcliffs smaller recommendations should be implemented. Alternatively, in the case of an employee purchase, the board of directors said ‘some device must be found whereby the stock purchased by the employees would be for cash so than an infusion into the company of $3.6 million would be available at the outset’. Many government officials had favored Sheehan’s plan because Eastcliff had a good working relationship with a company that was in the process of buying Talcott’s Chicago branch, one of I&h’s leading private lenders. Since the $4.6 million UDAG was pending upon the ability to generate local money, some felt that the private money for Path would have been easier to come by with Sheehan’s plan. Talcott did not comment on the rejection of Sheehan’s proposal. Lyle Taylor said Sheehan’s plan just was not workable and contained potentially illegal proposals, including the proposal that Eastcliff Corporation buy 60 percent of the stock at $1.00 per share, and earn 10 percent of Ram’s pretax profits while earning $15 000 a year in consulting fees for eight years. State law forbade stock to be sold for less than par value. Sheehan, former governor of the Federal Reserve Board, commented later, ‘my plan would have called for a 25 percent cut in wages at Rath, and they still would have been overpaid relative to other packing plant employees in the US’. Lyle Taylor was quoted as saying that Sheehan’s proposal was not necessary since finding other persons interested in buying Path stock ‘should be no problem’. Charles Swischer pointed out a few days later just how important the international union had been in the rejection of Sheehan’s plan to purchase I&h. He was quoted as saying ‘they [the union] certainly called to our attention that this was a bargaining year . We have to assume they had something to do with it [the rejection].’ In August and September, 30 000 members of the Amalgamated Meatcutters and Butcher Workmen would be negotiating new labor contracts with various companies. The meatcutters had just recently lost a bitter and violent battle with Iowa Beef Processors over wages, working conditions and fringe benefits. Lyle Taylor admitted that had workers accepted a 25 percent cutback in wages and fringe benefits, it certainly would have had an effect on negotiations, but he insisted that the international union had not made an attempt to influence the local, On 25 March 1979 a tentative agreement was reached between Rath and the employees on the employee purchase plan. On 4 April, however, HUD delayed approvai of the IJDAG for three months, awaiting assurances of the availability of outside capital. At the same time, early in April, President Carter’s son, Skip, indicated to Rath that President Carter was trying to save Path not only to keep a business from collapsing or to keep the unemployment rate from rising, but also because ‘his father wants to help Iowa’s Senator John Culver, a Democrat who has been a big supporter of the President and is from the state that holds the first presidential caucuses in 1980’. Culver explained that this was why Rath was ‘on the front burner’. An ‘interim agreement’ between Rath and Local p-46 was reached on 13 April, and on Monday 15 April, the employee wages and escrow account was established. This was a special Eath account that diverted certain wages and finge benefits. On I6 April, Rath received another 30-day extension on its loan. Ten days later, the Black Hawk County Treasurer announced that Eath owed $500 000 in delinquent property taxes. Rath was given until 18 June to pay, or risk the selling of the claim on its property. The County Treasurer went on to say that Rath would have to pay either 10 percent annual interest to the holder of a tax lien or 12 percent a month if the city did not sell the ciaim. Either way, both were lower rates than Rath could get in commercial loans.

526

7?3etransformation of localpolitic\-

Rathhad also failed to pay Columbus Junction employees severance pay after the 19 June 1978 closing. On 24 May 1979, the employees filed suit for $800000. None of the federal money received in Waterloo could be used to settle the lawsuit. Rath subsequently reopened the Columbus Junction facility on 18 September 1979, and 140 of the 274 laid-off employees were called back to work. On 30 May, Local P-46 ratified the employee purchase plan by a four to one margin. The Rath Board of Directors on 4 June approved a series of deferred wages and fringe benefits proposed by the employees. On 6 July, Senator John Culver announced to Waterloo officials that he had received private assurances from HUD that the grant would be announced the coming week; however, this was not be realized. Three days later, the HUD Office of Regional Fair Housing and Equal Opportunity received a letter from a Rath employee charging Rath with racial discrimination. HUD officials, nevertheless, conveyed no message of any action they were planning to take. The next day, Senator Culver notified Mayor Rooff that the $4.63 million UDAG’ had been tentatively approved contingent upon Rath stockholders’ ratification of the employee purchase plan. Rath had rehired all laid-off employees and had actually hired new employees (1280). It was anticipated the new grant would allow more hiring. Although Rath was still losing money, losses had been cut substantially over the previous year. McGuire credited this to the higher proportion of sales of processed meat products and to the improved profitability of slaughtering hogs. It was not until I7 September that HUD officials notified Mayor Rooff by letter to say that the UDAG had been idefinitely postponed until Rath submitted records concerning its personnel policies and procedures. Although HUD officials had contacted Mayor Rooff three weeks earlier to require that the UDAG be channeled through the Black Hawk County Economic Development Committee, a move both Rooff and Community Development Director Dale Mercer both disagreed with, there had been no indication of any problems with the UDAG application. Local P-46 offered to serve as mediators between Rath and the black woman filing the discrimination complaint, as well as the others that were rumored to have surfaced. Rath, Local P-46, and two other unions had reached an agreement in principle on the employee purchase plan in mid-September. Initially workers would receive a split of $4 in cash and a choice of $16 or eight shares of stock per week. Other provisions covered redemption to workers who left Rath, borrowing from the trust, and increased contributions to the fund. The plan was still to be approved by shareholders and employees, as well as the appropriate regulatory agencies, including the Iowa Insurance Department, the US Department of Labor, and the SEC. In the fourth quarter of fiscal year 1979, Rath earned $1.006 million, including a $308 000 credit for an estimated refund in the settlement of a class action lawsuit against ‘certain manufacturers of folding cartons’. The gain, however, was shadowed by a $1.5 million loss for the fiscal year. This loss, however, was less than 25 percent of the previous year’s loss. By the end of September 1979, Rath had 1900 employees, with another 50 soon to begin. In mid-November 1979 the EDA approved another 90&y extension on the $3 million loan, which was to be due in the coming January. HUD gave local officials until 30 November to supply needed information for the $4.63 million UDAG, and additionally required information concerning deferred benefits and cost-of-living adjustments. HUD had stipulated that ‘there be deferred benefits in cost-of-living adjustments of not less than $2.97 million retroactive to June 1, 1979 and ending December 31, 1982’. This meant a rate of $990 000 per year. Also stipulated were deferred benefits of not less than $10.6 million from such things as sick leave, vacations and holiday pay.

MICKEY LALmL4

527

On 20 November, nine Rath workers filed a $9 million lawsuit contending that the 13 April ‘interim agreement’ diverting some of their pay and benefits into an escrow fund violated the Iowa Wage Payment Collection Law. In addition, the employees contended that they had been misled, and sought an injunction halting the withholding of pay. The plaintiffs claimed they were ‘led to believe that the compensation due them was being paid into the escrow account for the purchase of Eath stock, but contended that this was, in fact, not true. Instead, they said, the money was being diverted to Path for operating funds. They said half their vacation pay, four hours of pay for each holiday, and the first three days of sick pay in any one period of disability were presently being diverted. They contended that they had attempted to present their grievances to the local union, but met with ‘denial of assistance, harassment, and threats’. Due to the first quarter earnings of $1.071 million, compared with a loss the previous year when a strike at the Indianapolis plant cut into operations, on 27 February 1980, 83 percent of voting workers ratified a new three-year master contract calling for cost-of-living increases, changes in the insurance program and wage boosts.’ About 50 percent of Rath’s pre-tax profits would be given back to the employees as well, said Local P-46 President Taylor. He added, though, that it might be two or three years before Rath could ‘get this thing turned into a profitable situation’, referring to the employee profit-sharing plan. The Waterloo city Council was also optimistic. On 10 March, the Waterloo City Council approved a $4.63 million UDAG application that would be administered by the city, rather than the Black Hawk County Economic Development Committee. The committee would coordinate the grant and the previous $2.98 million federal grant. The next day the UDAG contract left for Washington, DC. Lyle Taylor said that the UDAG would require a $4.35 match for every dollar the government distributed. Approval still hinged on the outcome of the $9 million lawsuit, SEC approval, Iowa Department of Insurance approval, and Rath stockholders’ approval. Rath also needed to inform HUD what the company intended to mortgage to secure the loan from the City of Waterloo. In mid-April, Charles Soladay, Rath’s Vice-President of Finance, told the Black Hawk County Economic Development Committee that the first draft of a proxy statement for Rath’s stockholders had been prepared. This draft proxy was also to be sent to the SEC. In May, Rath’s Board of Directors approved the plan. In June, it was decided that $4.5 million of the UDAG would be loaned to Eath for 10 years at 3 percent interest. The Waterloo City Council also decided that since Rath was doing better, Eath’s sewage treatment credit would be reduced from 50 percent to 25 percent. The Council anticipated that, by 1981, Rath would pay the entire bill for sewage treatment. In a Des Maims Register article, Rath said it would cooperate to the ‘extent practicable’ with the voting trust plans of Local P-46, but indicated it would not be a party to the proposed voting trust. Rath also said an employee would not have to deposit his share in the voting trust as a condition of participating in the plan. The plan would be available to all bargaining unit employees represented by the Local and to individual workers who elected to participate prior to the commencement of the plan. It was anticipated that distribution of the 1.8 million shares would be completed within 24 months. Eath stockholders, who were entitled to one vote per share, approved the plan on 16 June, with approval of over 85 percent of the voting shares. However, they lacked enough proxy votes to authorize reduction of the par value of Rath stock from $10 to $1 per share, and to increase the total number of shares by 100000 to 3.1 million. The stockholders also approved the appointments of 10 new Ram board members in addition to the previous six members. Three of the 10 were Local P-46 members8 The 10 ‘provisional directors’ joined Rath’s six ‘regular directors’.9

528

ne ~~~f~~ti~

of localpditics

On 17 June the Black Hawk County Economic Development Committee approved another 30&y extension of the loan to Eath. However in doing so, Lynn Cutler, Chairwoman, said she hoped this would be the last extension needed since final stockholder approval of the employee purchase plan and subsequent qualification for the federal grant should be completed before this extension would expire. The Black Hawk County Economic Development Committee also made a $15 000 grant to Rath to hire a consultant to draw up a trust for the employees’ stock purchase when the employee purchase plan went into effect. The US Department of Labor still had not given final approval to the trust. Lyle Taylor said the Department of Labor defined the trust as an employee benefit association, and, as such, it could not own more than 10 percent of the stock of any one company. Taylor also said the Department had the legislative authority to grant an exemption to the rule, but had never done so. The proposed trust would hold Eath stock For the employees. When an employee retired or died the trust would purchase the stock from that employee. Taylor stressed the importance of keeping Rath control in the hands of the employees. Local P-46 members approved the employee stock purchase plan on 19June. On 27 June, 57 percent of voting stockholders approved reducing stock par value to $1 per share (a necessity because Iowa law forbade the sale of stock at less than par value) and increasing the total number of shares from 3 million to 3.1 million. On 2 July, Judge Edward J. McManus of Cedar Rapids turned down appeals from the eight suing Rath employees, saying the court did not have jurisdiction in labor disputes. The next day, Larry O’Connor, lawyer for the employees, appealed the case to the 8th Circuit Court of Appeals in St Louis. He concluded that the Norris-LaGuardia Act of 1932, on which McManus had based his judgment, does indeed limit the power of granting injunctions in labor disputes. He also noted that this was not a typical dispute between employer and employee but, rather, between workers and their union. By early July about $5 million had accumulated in the escrow account set up in April 1979, largely from the deferral of wages and benefits. As soon as HUD gave final approval to the employee stock purchase plan and the loan arrangements were finalized, this money would be released to Path. The money, about $7 million total, would be credited to earnings in the fourth quarter in fiscal year 1980. On 7 July 1980 the employee stock ownership plan went into effect, Workers began to receive 10 shares of stock per week, valued at $2 per share. Rath employees Leonard Dodson and Earl Murray were added to the Earh Board of Directors’ Executive Committee four days later, and to the full board at the first meeting of the expanded Board of Directors. Other members of the executive committee were Board Chairman Charles F. Swisher, Path President and Chief Executive Officer Emmet McGuire, and Senior Vice President of Sales and Marketing John Lambert. Also during the 11 July meeting, all Path company officers were re-elected. lo Board Chairman Swisher said Path’s employee control of the Board of Directors was the nation’s first. Path was now the largest corporation to be employee owned. On I5 July the Black Hawk County Economic Development Committee had to approve another 31-day extension of the loan to Path. However, Lyle Taylor was able to inject some hopeful news at the meeting; the consultant hired by tith had been able to draw up a plan that met the Department of Labor trust rules. Two weeks later, HUD relaxed the deadline for Path UDAG application materials, which were to be due the next day. Included in the needed materials was a signed four-way contract between the City of Waterloo, Path, the Black Hawk County Economic Development Committee and Local P-46. Additionally, Rath desired to make some changes in the contract that UDAG and the City of Waterloo had

MKXEY huiu~

529

signed on 10 March. Since each federal dollar acquired a local match of $4.37, $20 226 000 in match money was needed. All that HUD still needed was information about whether the new $4.63 million grant would conflict with the terms of the previous $2.98 million grant. The next week, US Senators Donald Stewart of Alabama, chairman of the Senate Finance Committee, and Russell Long of Louisiana, filed a complaint with HUD, further delaying the release of the UDAG. The two senators’ complaint dealt with the amount of taxes paid by employees on the purchase of Rath stock. Lyle Taylor admitted that the employees were paying considerably more taxes on the stock than the $2 purchase price would indicate. Since Rath stock was valued on the market at $4 per share, the present arrangement could cost employees between $800000 and $1 million in extra taxes during the stock dis~ibution period. Under the new trust system, workers would not be taxed until they cashed in their stock. Lyle Taylor said workers had origIn~ly expected to have only $20 a week deducted, but they discovered later that a deduction of as much as $50 was necessary to cover the expected taxes on the market value of Rath stock. Rath was paying additional social security taxes as well, due to the revised employee earnings. HUD, while not investigating Rath, nevertheless decided to wait to see if another plan would be adopted. In response to the complaint, on I7 September, Rath’s Board of Directors approved the creation of a trust for the employees’ stock purchases, in an effort to reduce the taxes being paid by the employees. Union members and stockholders did not approve the trust fund until December, with union members voting 87.5 percent in favor of the trust fund. On 23 October, HUD’s office in Omaha notified Dale Mercer that the $4.63 million was being released. Beginning on 30 December 1980, Rath would begin to make quarterly interest payments at 3 percent interest for three years. Beginning on 30 December 1983, Ratb would make equal quarterly principal payments in addition to the 3 percent interest payments. Rath would have 10 years to repay the loan. The local match of $20 226 000 came from the $3 million loan from the Black Hawk County Economic Development Committee, the sale of stock to Rath employees, and from the escrow account for the deferral of some of the wages and benefits of employees. It was determined that Rath would get the $4.63 million not as a lump sum but as it began capital improvements. After three more years of almost continuous ever-increasing quarterly financial loses, Rath finally filed for bankruptcy on 1 November 1983.

Abstracting

to theory: the transformation

of local politics

It is clear from both the Dubuque and Waterloo-Cedar Falls cases that local government has failed as a consensus-seeking state apparatus-at least under circumstances of manufacturing plant closures in response to sectoral and regional economic restructuring. One should also note in the Waterloo-Cedar Falls case the struggle between Mayor Rooff (Waterloo) and the Black Hawk County Economic Development Committee (the consensus-seeking para-apparatus) over the administration of the UDAG grant. Not surprisingly in terms of the argument presented below, HUD officials insisted that Waterloo-Cedar Falls channel the grant through the Black Hawk County Economic Development Committee. Thus, a segment of the state at the federal level was recognizing governing coalition ~agmen~~on and encouraging the regime transition in a particular direction; that of corporate-led decision making over local economic politics. This is also an important finding because it highlights the often neglected roIe of party politics in the governing coalition/urban regime and the local state literature. Since the

530

7&e transfotwzatibnof local politics

decline of the urban political machine in the US (Erie, 1988), the primary arena and mechanism for local political party influence, scholars of local politics have assumed the corresponding decline of the significant influence of party politics at the local level. In a sense this is a logical assumption; the indigenous base for political party influence at the local level did in some senses decline, but concomitantly political party influence from the state and national levels increased. In fact, the political activities that led to the decline of the urban machine can be seen as a political strategy on the part of extra local politicians to gain greater control of local politics as a means of maintaining and/or regaining control of the political party in general (Piven, 1972; Piven and Cloward, 1971,1973; Erie, 1988). This political party control increases their electoral strength, their strength in political negotiations with non-political elites, and their control over the state and/or national state apparatus. I would like to suggest that party politics affects local politics primarily through the use of extra-local political power and extra-local economic resources. First, extra-local political power and economic resources can affect the range of options (and often the particular development option) that is viewed as most promising at the local level, e.g., witness the decline of the CDBG and the end of revenue-sharing programs and the proliferation in the use of industrial revenue bonds and UDAGs in the 1980s (see Leitner, 1990). Extra-local politicians affect the range of local development options in three fashions: (1) through bureaucratic manipulation of the state apparatus at the state and national level to support particular local projects (the Rath case documents this well), (2) through earmarking particular local projects onto legislation and logrolling for particular local projects during the legislative process, and (3) through creating specific eligibility criteria and project criteria within particular legislative programs. This latter method will clearly affect which cities are most competitive for the extra-local resources and what types of projects are favored and/or allowed (e.g., Urban Renewal, Model Cities, CDBG, and UDAG-see particularly the effects of Rams attempts to meet the leveraging criteria). Secondly, extra-local political power and economic resources can affect local electoral outcomes and thus local governing coalitions and possibly regimes in two fashions: (1) through political support and campaign resources during local electoral campaigns, and (2) through increasing the effectiveness of local politicians in obtaining extra-local economic resources, the ability to get things done, e.g., in this case the HUD’s attempts to force the channelling of the $4.6 million UDAG through the BHCEDC, chaired by liberal democrat Lynn Cuder, rather than the City of Waterloo, whose mayor was a non-partisan republican. This effectiveness increases the local politician’s electoral strength and strength in political negotiations with non-political elites within the governing coalition of their particular metropolitan area. In looking at other communities faced with a similar but broader threat of economic restructuring we can see the same sort of local political transformation develop (see Squires, 1989; Leo and Fenton, 1990; Leitner, 1990). First, this development is part of broader ideological development in that the state is no longer viewed as an effective consensus-seeking apparatus as documented by the establishment of ‘Blue Ribbon Commissions’ to develop consensus concerning major political problems. The state political apparatus in general and local government in particular does not seem to represent adequately the relevant interests and there is a perception of a lack of the expertise necessary to comprehend and thus develop consensus around solutions to community problems. In terms of economic development, especially in response to economic rest~cmring, local government is viewed as an inappropriate body because decision making takes too Iong, con~dentiali~ cannot be guaranteed, the effective actors

MICKEY LAuruA

531

are not represented, and public accountability can create problems in maintaining competitiveness in an otherwise private environment (Berkowitz, 1988; Frieden, 1990; Clarke, 1991; Leitner and Garner, 1993; see also Turok, 1992; and Healey et al., 1992 for a tangential discussion of property-led urban regeneration). Thus there are attempts by large mobile capital and/or extra-local politicians to take advantage of and/or forge coalition fragmentation in order to encourage regime transition toward a corporate-led governing coalition. The extra-local politicians’ interest in this new corporate-led governing coalition is in the increased influence, and thus political strength, it provides for themselves and their political party. Thefocus of local politics andpolitical transformation The second theoretical issue concerning the restructuring of local politics stemming from this research relates to the debate over whether the focus of urban politics revolves around collective consumption issues and/or production issues. It is clear that recently local government has been increasingly involved in production issues. The increased mobility of capital has changed the relationship between local governments and business. Politicians are more concerned with influencing business decisions, thus the new emphasis in planning activities euphemistically called urban entrepreneurialism. This transformation is fostered because the use of economic constraints is more effective and less revealing (see Peterson, 1981; Wong, 1985), thus capital is able to work through quasi-public economic development organizations rather than trying to control city politics directly through elected officials. Since local government has historically been the domain of locally dependent (and thus less mobile) capital, the interest of large mobile capital appears to be, on the one hand, increasing influence on local politics by encouraging its local managers to be more involved civically, while on the other hand and more importantly, by-passing local government and encouraging the establishment and growth of these consensus-seeking para-apparatuses concerned with economic development and ultimately a new corporate-led governing coalition. Now the specific representation and its relative input in this new local politics is dependent on the historical development of the local social relations (see Leitner, 1990). It may be that in the older industrial areas (upper Midwest being a prime example) labor is almost always a significant actor (Detroit-Poletown case being a significant exception, see Jones and Bachelor, 1986), but in the Southwest, according to Joe Feagin’s work on Houston (1985,1989), labor is virtually absent. Another factor may be the percentage of the local labor force involved. In other words, the larger the percentage of a locality’s labor force under threat, the higher the probability that a corporatist politics will develop with labor as a significant actor in the governing coalition. Clearly, in the Rath case, mobile capital was able to get off the hook, in essence avoiding the political economic consequences of its investment decisions (see also Clark, 1993: 31). Its devaluation of Path stock was subsidized by the employee buyout. Its unfunded pension obligations were transferred to the new corporation. The fiscal strain of mass unemployment, the multiplier effect on immobile capital, the potential political upheaval at the local level, and its political effect on the extra-local levels were avoided. In the Dubuque case mentioned earlier (see Lauria, 1986) similar results ensued. The internally leveraged buyout was subsidized by the federal government, allowing Dubuque Pack (the old parent company) to pursue its new investment concerns. The fiscal strain of mass unemployment, the multiplier effect on immobile capital, the potential political upheaval at the local level, and its political effect on the extral-local levels was avoided with the

The transfomuuion of local politics

532

creation of FDL foods. At the same time, wages were brought down much closer to the new ‘industry standard’. It may be that the creation of economic development commissions (corporate consensus-seeking para-apparatuses) is a political strategy for the maximization of profits by mobile capital (see Clark 1989,1990a, 1990b, 199Oc, 1991,1993 for analysis of corporate restructuring as a political strategy to cut costs) in its dual battle with local immobile capital’s concern with the growth machine (Molotch, 1976; Molotch and Logan, 1984; Swanstrom 1985) and labor and service-dependent residents’ concern with collective consumption. 7;be complexity of state relations andpoliticai

transformution

The Rath analysis literally replicates and supports three of the major findings of the Dubuque case, that is: that the constrained action and interaction of individuals and organizations molded the directions of the resolution process in a seemingly ad hoc fashion; a consensus-seeking para-apparatus emerged (the creation of the Black Hawk County Economic Development Committee, Inc. [BHCEDC]; and finally the state in its various branches and levels intervened in multiple ways and at times in contradictory fashions (see Table I). This latter finding, in the Rath case, needs some unraveling. At the national level, extra-local politicians (US Senators) worked positively through political party connections within the bureaucracy (EDA and HUD) to assist the restructuring of Rath and Waterloo-Cedar Falls politics through the creation and funding of the BHCEDC. The only contradictory activities within the national bureaucracy were minor: the EPA regulatory concerns, some HUD caution concerning private capital TABLE 1.

I948

1955 July 1975

20 February 1976 17 June 1978

June 1978 27June 1978

14 July I978

20 September

1978

29 September

1978

6 October 1978

10 October

1978

Contradictory state intervention

The Iowa National Guard is dispatched to quell rioting that erupted after a striking worker was shot to death by a non-union employee Rath attempts to merge with Needham Packing Company but is blocked by the Iowa Supreme Court Rath’s Waterloo-Cedar Falls plant fails EPA particulate emissions standards A $6 million loan guarantee is approved by the EDA US Senator Dick Clark announces he will work with Rath and federal officials to extend the $6 million EDA guaranteed loan. He assures that a technical grant will be made The State of Iowa requires previously self-insured Rath to pay $800 000 into a trust fund for workmen’s compensation Robert Embry, HUD Assistant Secretary, tours Rams Waterloo-Cedar Falls plant. Embry announces that President Carter is also taking an active interest in Rath EDA drops its 25 percent match requirement and approves $60 000 grant to the Iowa Northland Regional Council of Governments for a technical study of Ram’s future options HUD Secretary, Patricia Harris, after meeting with Senator Clark, gives her support to help Waterloo officials obtain a UDAG Iowa State law, which forbids a second position on a mortgage, thwarts Rath’s attempt to obtain a $3 million loan from local lenders The Denver office of the EDA notifies Lynn Cutler, Black Hawk County Commissioner, that some of the requirements for the EDA grant have been waived The Black Hawk County Economic Development Committee, Inc., a non-profit economic development corporation, is formed to receive the $3 million EDA grant. Lynn Cutler is President of the corporation

16 October 1978 I January 1979 12 March 1979 4 April 1979 26 April 1979 6 June 1979 20 August 1979 29 August 1979

17 September

1979

13 November 1979

20 November

1979

10 April 1980

2 July 1980

11 August 1980

23 October 1980 16 February 1981 6 August 1982 3 September 1982 14 September I982 1 December 1982 6 April I983

11 May 1983

9 June 1983 14 June 1983 13July 1983 15 September 1 November

1983 1983

Waterloo City Council agrees to apply for a $4.63 million UDAG Rath is given a 90-day extension on its EDA loan (further extensions are made until G September I983 HUD officials inform the City of Waterloo that the employee purchase will meet their requirements for private capital investment HUD delays approval of the UDAG for three months awaiting assurance of the availability of other private investment Black Hawk County Treasurer announces that Rath owes $500 000 in property taxes and gives Rath an 18 June 1979 deadline US Senator John Culver announces that he has received private reassurances from HUD officials that it will announce a grant next week Rath forced to reopen Columbus Junction due to an $800 000 lawsuit concerning unpaid severance pay Mayor Rooff announces that HUD officials will require that the UDAG be channeled through the Black Hawk County Economic Development Committee, Inc. Mayor Rooff receives a letter from HUD saying the UDAG has been indefinitely postponed due to allegations of racial discrimination at Rath HUD gives local officials until 11 November 1979 to supply needed information for the UDAG, and requires cost-of-living adjustments and deferred benefit information Nine Rath employees file a $9 million lawsuit contending the employee stock purchase agreement violates the Iowa Wage Payment Collection Law The Waterloo City Council approves the $4.63 million IJDAG contract. During the same meeting they decide that since Rath is on stronger legs, its sewage treatment credit will be reduced from 50 percent to 25 percent in 1980 and to zero in 1981 Judge Edward E. McManus of Cedar Rapids turns down appeals from eight Rath employees concerning the Iowa Wage Payment Collection Law violation, saying the court does not have jurisdiction in labor disputes US Senators Russell Long (Louisiana) and Donald Stewart (Alabama) file complaints concerning the taxes being paid on the stock purchase with HUD delaying the release of the UDAG HUD releases the $4.63 million UDAG The 8th US Circuit Court of Appeals in St Louis upholds McManus’s dismissal of the case by the eight Rath employees Rath asks the IRS for a waiver of the money owed to its pension fund Rath announces its intention to terminate its pension fund; under a 1974 law the federal government must pick up responsibility for the fund Rath pays $780 000 to its pension fund ~re~ent is reached between Rath and the US Pension Benefit Guaranty Corporation Ram gets cheese contract from the Iowa Department of Social Services to cut, package, store and transport bulk cheese for use at the Iowa commodities distributions to low-income people The National Labor Relations Board issues an unfair labor practice against Ram, alleging Local 46 bypassed the certified bargaining representative in its 24 February 1983 wage deferral The EDA refused another extension of the loan guarantee The City of Waterloo guarantees up to 5200 000 of Rams debt The US Pension Benefit Guaranty Corporation confirms that Rath has requested an extension on its 81.7 million payment due on 9 September I983 The US Pension Benefit Guaranty Corporation begins negotiating with Rath over an extension of its due payment Rath files for bankruptcy

534

%e transformation

of locul politics

investment and allegations over racial discrimination, the internal party political maneuvers involving the southern Senators from Louisiana and Alabama, and the US Pension Benefit Guaranty Corporation’s negotiations (see Clark, 1990a, 1990b, 199Oc, 1991, and 1993 for a detailed analysis of corporate strategy and this portion of the state apparatus). The significant contradictory activities came from the national-level legal apparatus: the suit concerning the unpaid severance pay from Columbus Junction plant closure and the National Labor Relations Review Board’s ruling on Rath’s unfair labor practice concerning the wage deferral (see Clark, 1990d, 1992a, 1992b for an analysis of the board’s activities and regulatory activities in general within the state apparatus). At the state level, party politics seemed to be relatively absent, excluding the significant cheese contract from the Iowa Department of Social Services. Again it was the state-level legal apparatus that kept throwing wrenches in Rath’s plans: most significantly the requirement of a trust fund for workers’ compensation, but also the Iowa Supreme Court merger ruling, and the no second position on a mortgage ruling. Finally, at the local level the state’s activities were very supportive of Rath’s restructuring (excluding Waterloo City sewage credit cut and Black Hawk County demanding back property taxes) but rather combative over the control of the federal funds and placement of economic development decision making in the BHCEDC. There is no reason to believe that the sewerage credit and back property taxes were not political chips in this larger struggle. The complexity and porosity of state relations in this case, and in the Dubuque case, do not bode well for a theoretically coherent concept of the local state but do display how the historical development of local social relations interacts with the state apparatus at the state and national level to create a particular ‘local’ politics (see Cox and Mair, 1988, 1989, 1991; Leitner, 1990; and Goodwin et al., 1993 for different theoretical cuts on this development). Thus, what appeared prior to analysis as a differential outcome in the Rath case turns out to be, in terms of the restructuring of local politics in response to the threat of a manufacturing plant closure, theoretically quite similar to the Dubuque results. In this sense, although the Rath case study was intended as a theoretical replication of the Dubuque case study, it turns out to be a literal replication.

Notes 1. Stephen L. Elkin (1985) first introduced the concept of ‘urban regime’. In brief, Elkin’s conceptualization tied land use interests, city politicians and functional bureaucracies into a theory of urban politics. Elkin argued that over time, land use interests in a city seek policy outcomes which further urban development and reduce public disputes. Thus, the land use interests seek alliances with city politicians. In turn, city politicians are required to maintain the allegiance of blocks of voters. The bureaucracies, which delivered the city services, respond positively to the land use alliance on issues deemed essential for promoting the economic position of the city (Elkin, 1985, 1987 focused on the distribution of police services). Stone (1987, 1989, and Stone et al., 1991) most significantly developed regime theory. 2. The reader will notice that I refer to Yin’s Case Study Research: Design and Methods extensively throughout this article. I do so because I view his book as the most comprehensive and persuasive treatment of the subject in the literature (see also Plan, 1988; Stoecker, 1991). I find his approach particularly useful for three reeasons. First he exposes a non-empiricist approach to case study research by emphasizing the importance of theory in designing and conducting case study research and he insists on the use of a non-sampling logic in the way one uses the findings from case study research. He argues that the concern over the representative nature of particular case studies is misplaced; that this is an unfortunate transference of a particular external validity check relevant only to statistical analysis, i.e., one’s findings from a particular sample must be

MICKEY LALRL4

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externally valid to the population one is generalizing about. He argues that the external validity checks developed in experimental design are more appropriate to case study analysis. In other words, it is more appropriate to generalize from the findings of a case(s) about theoretical processes-not about empirical populations. This is particularly important for it resolves much of the traditional methodological criticism of case study research. The position is consistent with my epistemological position, that this distinction between the two types of generalization is directly analogous to the ‘realist’ distinction between the process of generalization versus abstraction. Secondly, he constructs a well-thought-out process for designing and conducting case study research. He does this because, although case study analysis need not be concerned with threats to statistical validity, researchers still need to guard against particular methodological threats to the validity of case study findings (e.g., construct, internal, external and reliability). In other words, his methodological prescriptions are an attempt to provide critical scholars with a basis for developing a consensus concerning the methodological standards from which to evaluate case study research. Finally, he has independently arrived at a similar iterative approach to explanatory case study analysis. 3. The City of Waterloo has non-partisan elections and prides itself on keeping party politics out of local elections. Leo Rooff was a republican prior to running for mayor and after resigning from mayor for health reasons. 4. The Chamber of Commerce report estimated that each payroll dollar multiplied about 3% times before it left the community. Closing Rath would immediately throw 1900 people out of work in Waterloo-Cedar Falls, but, as Waterloo officials pointed out, ‘ripple effects’ would ultimately affect 10 545 jobs. Total economic loss could exceed $171 million per year, sending the Waterloo-Cedar Falls area unemployment rate to 15 percent. The Iowa Northland Regional Economic Development Commission report added that the loss of Rath would also have a detrimental effect on the local agricultural economy, since Rath obtained approximately 35 percent of its $119 million in livestock purchases from local producers. Retail and service industries would face the $32 million payroll loss. Additionally, since the average Rath employees were in their fifties, with an above percentage being minorities, displaced workers would be difficult to place in other employment. 5. The suggested improvements were: the installation of a wastewater pretreatment process, a new smoked meat and sliced bacon layout, relocation of ham-canning operations, relocation of beef fabrication, changes in sausage and wiener processing procedures, promotion of newly introduced products, development of markets closer to Waterloo, entering the food service industry market on a national scale, addition of management experts in various areas, and the reduction of interest expenses on current loans. 6. $4.13 million of the grant was for capital improvements at Rath, with the remaining $320 000 to be used for contingencies and administrative expenses. 7. Not counting the cost-of-living increases that the employees would receive with inflationary changes, a common laborer who made $8.86 an hour in January 1980 would make $9.46 an hour during the third year of the contract. A 15 cent increase in wages was retroactive to the previous September, a 20 cent increase was for the coming September, and another 25 cent increase was for September 1981. 8. The 10 new ‘provisional’ members were: Glen Bass, Rath laboratory technician and Local P-46 member; Dick Clark, former US senator from Iowa; Walter Cunningham, principal of East Waterloo High School; Leonard Dodson, executive vice-president of Olson Construction Company of Lincoln, Nebraska; Robert Fulton, Waterloo lawyer and former lieutenant governor of Iowa; Dr Tove Helland Hammer, assistant professor of organizational behavior at Cornell University, New York; Ralph Helstein, president emeritus of Amalgamated Meatcutters and Butcher Workmen; Earl Murray, Rath shipping clerk and Local P-46 member; Joseph Sidney Oberman, retired Rath executive; and Phyliss Wakers, Rath computer operator and member of Local 1278, UFCW. Lyle Taylor pointed out that this marked the first time blacks and women were represented on the Board of Directors. Cunningham was black, and Hammer and Walters were women.

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9. The regular directors were: Arthur J Frey; John F. Lambert; Emmet McGuire; Howard G. Rath, Jr, a Los Angeles lawyer; Charles F. Swischer, chairman of the board; and Jack Thomas, a retired Rath executive vice-president. 10. Company officers were: John R DeGroot, vice-president and national sales manager, retail division; Ivan E. Pihl, vice-president and operations manager of the Waterloo and Columbus Junction plants; Charles W. Soladay, treasurer and vice-president of finance and administration; H. Paul Getjerts, controller; John H. Stevens, secretary and director of employee relations; and Berneice Brown, assistant secretary.

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