Dirt Diggers Digest

When we hear about poor third world workers being exploited by a rapacious foreign corporation, we tend to assume the company is based in the United States, Europe or Japan. An article in the new issue of Bloomberg Markets magazine is the latest indication that we probably need to add China to that mental list.

Young Workers, Deadly Mines is a remarkable exposé by Simon Clark, Michael Smith and Franz Wild about child workers in the Democratic Republic of Congo (DRC) in central Africa. The DRC, formerly Zaire, is a mineral-rich country that suffered for more than a quarter-century under the kleptocratic Mobutu regime and then endured years of civil war that involved several neighboring countries. Some foreign companies enabled the violence by continuing to purchase gold and diamonds from militia groups.

Clark, Smith and Wild show that foreign business interests are once again profiting from the misery of the people of the DRC. The problem is concentrated in the Katanga region, which contains large deposits of copper and cobalt, two substance very much in demand on the international market. There, “freelance” miners, including young children, work crude, hand-dug mines to extract ore that is sold to middlemen, who in turn sell to nearby smelters run by Chinese companies such as Zhejiang Huayou Cobalt Nickel Materials Co. (logo). The cobalt is shipped to China and is ultimately sold to companies such as Sony and Samsung for use in making cellphone batteries. The child workers, toiling in hazardous and unsanitary conditions, earn the equivalent of about $3 a day.

The article reports that more than 60 of Katanga’s 75 mineral processing plants are owned by Chinese companies and some 90 percent of the region’s mineral output is sent to China, whose fast-growing economy has an insatiable appetite for raw materials. The Bloomberg Markets article notes that Chinese extractive companies are operating in a number of other African countries aside from the DRC, such as Zambia, Niger, Sudan, Ethiopia and Zimbabwe.

The latest Fortune Global 500 list contains 29 corporations based in China, including three with revenues in excess of $100 billion. We need to know a lot more about companies such as these and how they are behaving abroad as well as at home.

Mubadala Development Company, an investment fund controlled by the government of the Emirate of Abu Dhabi (photo), announced Tuesday that it was forming an extensive partnership with U.S.-based industrial powerhouse General Electric. The fund, which said it intends to become one of GE’s top ten institutional investors, will collaborate with the company in areas such as commercial finance, development of clean-energy technology, aviation maintenance and oilfield services. The finance joint venture alone will involve a combined investment of $8 billion.

We’ve gotten used to wobbly U.S. financial institutions such as Citigroup and Merrill Lynch turning to sovereign wealth funds for infusions of capital. Are we now going to see major U.S. industrials do the same? GE, which is not ailing like the financials, will no doubt insist that it is not being propped up by Mubadala but is simply exploiting common areas of interest with the fund.

Even if the arrangement is not an indication of financial weakness, it is another sign that GE is abandoning its status as a U.S. company. The process has been underway for quite some time. Twenty years ago, then-CEO Jack Welch was describing GE as “boundaryless,” and he used the company’s global reach, among other things, to weaken labor unions. Welch—known as Neutron Jack because, like a neutron bomb, he eliminated workers while allowing buildings to remain standing—was also notorious for his statement that factories would ideally be built on barges so they could be readily transported to wherever labor costs were lowest.

Over the past decade, GE has made massive investments abroad, opening not only production facilities but also research & development centers in countries such as India and China. Meanwhile, it is dumping major U.S. operations such as its century-old home appliance business.

The results can be seen in the company’s financial statements. A decade ago, GE bragged in its annual report (p.39) that it “made a positive 1997 contribution of approximately $6.3 billion to the U.S. balance of trade.” The company’s 2007 report does not even mention how much it exported from the United States, while disclosing (p.99) that only 35 percent of its property, plant and equipment is now located on American soil.

So, while GE dazzles us with its “eco-imagination” ads touting its commitment to renewable energy, the company is hooking up with a tiny Middle Eastern country that is awash with petrodollars. American workers and communities, meanwhile, are left to pick up the pieces.

It took 20 years but Volkswagen is finally going to try making cars in the United States again. Today the German automaker announced plans to invest $1 billion on a production facility in Chattanooga, Tennessee that will turn out vehicles for the North American market. The move is seen as the only way the company can, given the strong euro, hope to increase its meager U.S. market share.

The initial coverage of the announcement I saw did not mention the circumstances under which VW abandoned its previous U.S. manufacturing initiative. In April 1978 the company opened an assembly plant in Pennsylvania to produce its Rabbit model. A few months later, the workers, represented by a newly formed local of the United Auto Workers, shocked the company—as well as their parent union—by staging a wildcat strike to protest the fact that they were being paid less than their counterparts at the plants owned by the Big Three. Stopping production of the Rabbit, the workers chanted “No Money, No Bunny.”

The workers eventually returned to work, but labor relations at the plant remained tense as the UAW, compelled by members of the local, pressured the company to narrow the wage gap. VW was also confronted with a lawsuit charging that it discriminated against black employees. Finally, in 1988, VW gave up and closed the plant.

It appears that VW is being more cautious this time. It has followed in the footsteps of other foreign automakers that have located their U.S. plants in Southern right-to-work states or other areas with low union density. Thus is Toyota in states such as Kentucky, Alabama and Mississippi; Nissan in Tennessee and Mississippi; BMW in South Carolina; Mercedes in Alabama; Kia in Georgia; and Hyundai in Alabama. The scarcity of unions may be the real commonality that Tennessee Gov. Phil Bredesen had in mind when he said today that VW chose his state because of “shared values.”

The Southern states have rewarded foreign car companies not only with non-union labor but also with lavish economic development subsidies—in many cases more than $100 million per plant. Volkswagen’s package from Tennessee is still being negotiated. Gov. Bredesen today said only that the deal is “complicated,” which should probably be taken as code for “extravagant.”

Government giveaways and docile labor: Volkswagen may not have had it so good since the era when the People’s Car was born.

U.S. and British oil majors such as Exxon Mobil, Chevron, BP and Shell can’t wait to unfurl their own “mission accomplished” banner in Iraq, signaling that they have been given access to the country’s massive oil reserves that have been largely neglected in the past five war-torn years. Recent signs suggested they were well on their way. One New York Times article on June 19 reported they were “in the final stage of negotiations,” while another this morning revealed that U.S. government advisers in Iraq have been involved in designing those deals.

Today was supposed to be the day that Iraq would finally begin making good on the principal that “to the victors go the spoils.” Instead, the U.S. and UK companies, like children trying to raid the cookie jar just before dinner, had their hands slapped by Iraqi Oil Minister Hussein al-Shahristani. Award of the initial contracts, designed to cover technical services, was put off, the minister said, because the companies “refused to offer consultancy based on fees as they wanted a share of the oil.”

Instead, Shahristani released a list of 35 companies from around the world that have been prequalifed to bid on the bigger prize—contracts involving long-term drilling rights in six of the country’s major oil fields. Exxon Mobil and the other majors had to suffer the indignity of being put on a par not only with smaller U.S. producers (such as Anadarko and Occidental) but also companies from countries such as Japan (Nippon Oil), Italy (Eni), Russia (Lukoil and Gazprom Neft), China (CNOOC and Sinochem), Spain (Repsol YPF), Norway (Statoil Hydro), India (ONGC), Malaysia (Petronas Gas) and Indonesia (Pertamina). Also on the list was France’s Total S.A., which had already been mentioned along with the U.S. and UK majors as a contender for the technical services contracts.

Iraq excluded oil companies such as France’s Perenco and U.S.-based Calibre Energy that had signed disputed agreements with officials in Iraq’s Kurdish region. Yet it is interesting that Shahristani’s prequalified list includes two companies that were accused of being involved with kickbacks paid to the government of Saddam Hussein in connection with the United Nations oil-for-food program during the 1990s: China’s Sinochem and Russia’s Lukoil, each of which were prominently featured in the final report of an independent investigation led by Paul Volcker.

Is it possible that Iraq is more inclined to reward companies that allegedly collaborated with the Saddam Hussein regime than major oil producers from the countries that “liberated” his nation from that regime but continue to occupy it five years later?