Regulation and Union Corruption

Regulation and Union Corruption
by Jim Powell, Posted March 14, 2011

The International Brotherhood of Teamsters has been a hotbed of violence and corruption ever since it started in 1903. Cornelius Shea was the Detroit-based union's first president, and he constantly battled rivals. He was charged with graft, criminal libel, and mail fraud, and was indicted for conspiracy to restrain trade, commit violence, and prevent nonunion people from working. During elections for union officers, his supporters got into many fist fights. Shea was convicted of abandoning his wife and two children when he was living with a prostitute in a Chicago brothel. Later, after he stabbed her 27 times, he was convicted of attempted murder and imprisoned at Sing Sing.

Meanwhile, the Teamsters used force or the threat of force to sign up tens of thousands of men who drove taxis, milk trucks, laundry wagons, bakery trucks, and other vehicles. But membership rolls tumbled during the Great Depression. Like other unions, though, the Teamsters got a boost from Franklin Roosevelt's National Industrial Recovery Act (1933). They got a bigger boost from the National Labor Relations Act (1935) that supported a closed shop and forced union dues.

Few people seem to know that Roosevelt gave a special boost to the Teamsters when he signed the Motor Carrier Act in 1935. Apparently he was oblivious to the ways that restrictions on the market promote corruption. The Motor Carrier Act extended the regulatory authority of the Interstate Commerce Commission to cover the bus and trucking industries. The ICC had been established in 1887 to regulate railroad freight rates. As far as the trucking industry was concerned, ICC regulation meant establishing barriers to entry that enforced regional trucking cartels. Trucking companies were permitted to operate only if they had obtained an ICC license ("a certificate of public convenience and necessity"). As economist Thomas Gale Moore explained, "Truckers already operating in 1935 could automatically get certificates. New trucking companies, on the other hand, found it extremely difficult to get certificates." In addition, the ICC restricted the routes that trucking companies could take and the geographical area they could serve.

All those ICC restrictions made it easier for the Teamsters to establish bargaining monopolies. Once it had organized licensed companies, the union had the industry by the throat. Whoever wanted to drive a truck had to deal with the union.

Moreover, the Motor Carrier Act authorized the ICC to directly suppress price competition. Any trucking company wishing to change a rate had to file a notice with the ICC 30 days before the change was to take effect. Competitors could inspect filings about proposed rate changes. If anybody protested, a proposed rate change was suspended until the ICC could investigate its legality, which might take forever.

The Teamsters aggressively pushed for more lucrative contracts, confident that there wouldn't be any nonunion competitors offering to provide trucking services for less. Teamster bosses had been concerned that owner-drivers of trucks -- who were paid by the load, not by the hour -- might underprice unionized companies, but the ICC made that impossible.


The rise of Jimmy Hoffa

Jimmy Hoffa, one of the most important figures in the history of the Teamsters, began his climb to the top during the New Deal era. He was born in Brazil, Indiana, the son of a coal miner. The family moved to Detroit, and he dropped out of school in the ninth grade. He became interested in unions and liked the idea of fighting employers.

He was hired by Teamsters Local 299. He seemed to enjoy the violence involved with struggles to unionize a company. There were beatings, shootings, and riots. "In the early days," Hoffa recalled, "every strike was a fight. I was in a lot of fights, got my head broke, got banged around. My brother got shot." Hoffa spent quite a bit of time in jail.

Hoffa learned how to take full advantage of Roosevelt's labor laws. He helped to organize long-haul truckers who carried goods from one city to another. He used selective strikes to intimidate warehouse companies into signing Teamster contracts, and then he demanded that no truck driver be permitted to pick up or deliver goods at the warehouses unless the driver was a dues-paying Teamster. After unionizing both ends of a route, Hoffa proceeded to unionize all the trucking business in between. By 1939, Hoffa's Central States Drivers Council, with 46 Teamster locals, had achieved a hammerlock on warehouses and trucking companies in 12 midwestern states. Teamster membership soared to 420,000.

Hoffa was totally devoted to power. He knew how to inflict maximum pain on trucking companies -- calling a strike, for example, when a warehouse company would lose a lot of money if perishable produce wasn't shipped immediately. He was scary because he was fearless. He was a masterful negotiator because he knew how much all the contract terms were worth.

Hoffa was a vicious, violent man. When he encountered Walter Sheriden, one of his tormenters in the U.S. Department of Justice, he said, "Walter, I hear you have cancer. How long does it take to work?" On another occasion, after he heard that one of his critics, the newspaper columnist Victor Reisel, had been blinded by a union thug who threw acid in his eyes, Hoffa remarked, "Too bad that son of a bitch didn't have it thrown on the hands he types with."

Hoffa vastly expanded the geographical area covered by Teamsters contracts. Consequently, Teamster terms became more uniform throughout the United States. Hoffa demanded the right to strike if grievances weren't resolved, and he made himself the ultimate arbiter of Teamster grievances. He achieved higher earnings for most truckers, and they remained loyal even as his corruption became front-page news.

Fights between Teamsters and other unions became common sights around Detroit. In 1941, Hoffa realized that he couldn't achieve supremacy by himself. He called Santo Perrone, a Mafia boss who provided Hoffa with all the thugs he needed. Within a year, rival unions were driven out of Detroit. Hoffa had cemented ties to the underworld that would continue for the rest of his life. He became a labor racketeer.


Hoffa's associates

Hoffa dealt with more and more mobsters: Frank Livorsi, a New York narcotics trafficker; Morris Dalitz, who headed organized crime operations in Cleveland; William Presser, who dominated the Ohio jukebox business; Paul Dorfman, president of the mob-controlled Chicago Scrap Handlers Union; Tom and John Dioguardi, convicted extortionists; Santo Perrone's son-in-law Vincent Meli, president of Star Coverall Supply Company (Hoffa had prospective customers picketed if they didn't use Star). With monopoly bargaining power, swelling membership and forced union dues, it's no wonder the Teamsters developed a reputation as the most corrupt American labor union. Hoffa couldn't have done it without Roosevelt's National Labor Relations Act and the Motor Carrier Act.

Hoffa was quite brazen with his members' money. For example, starting in 1949, he established the Michigan Conference of Teamsters Welfare Fund and the Central States Health and Welfare Fund. These funds invested their assets, about $250,000, solely in preferred stock of the Chicago-based Union Casualty Agency owned by mobster Paul Dorfman's wife, Rose, and his inexperienced stepson, Allen. The stock didn't pay interest or dividends. This investment in a mob-controlled insurance agency wasn't reported to the fund trustees. An audit revealed that proper business records were lacking. There was an investigation, and 135 times Paul and Allen Dorfman cited their Fifth Amendment right not to answer questions that might incriminate them.

Organized crime and labor union corruption made headlines across the country. In 1950, Sen. Estes Kefauver's Select Committee to Investigate Organized Crime in Interstate Commerce traveled to 15 cities and held televised hearings. A succession of mobsters dodged questions, citing their Fifth Amendment right not to incriminate themselves. Kefauver's road show visited Detroit, and Hoffa was on their hot seat.

Michigan Congressman Clare E. Hoffman subsequently chaired an investigation of Detroit racketeering. He reported that "there existed a gigantic, wicked conspiracy to, through the use of force, threats of force, and economic pressure, extort and collect millions of dollars not only from unorganized workers but from members of unions who are in good standing, from independent businessmen, and, on occasion, from the Federal Government itself."

Hoffa became amazingly reckless in the way he spent forced union dues. He sponsored Sun Valley, Inc., a project in Titusville, Florida (near Orlando), that was supposed to be a retirement community for Teamsters. It was managed by Henry Lower, an escaped convict and drug dealer. Lower bought the property for $150,000 -- or $18.75 for each of 8,000 lots. He had made a down payment of $6,000 that was borrowed from Teamsters Local 985 which, in turn, had borrowed the money from Hoffa's Local 299. Teamster business agents persuaded their fellow members to buy almost 2,000 lots for $150 apiece. Lots were offered to the general public for $550 per lot. Hoffa transferred $400,000 from Local 299's Detroit bank account to an Orlando bank. Lower subsequently pocketed $340,000, some of which he used for his schemes that had nothing to do with Sun Valley.

All appeared to be going well, except that lot owners couldn't access their property because Lower never had roads built. He didn't build water or sewer lines, either. The whole thing was a swindle. The only people who seem to have made money from their investment were those whose lots happened to be where the federal government was acquiring land for Interstate 95. How could Hoffa be so reckless? Simple: he was playing with other people's money, and he knew there would be more money where that came from -- namely, forced union dues.

Hoffa's pal Frank Fitzsimmons was in almost as much trouble. Soon after he was indicted for bribery during the 1950s, he called on Howard C. Craven, an elderly and virtually deaf owner of the Exhibitors Service Company. It distributed movie reels to Detroit theaters, and Craven was having trouble with his truck drivers. Fitzsimmons demanded 90 percent of Craven's profits and promised that Craven would gain a monopoly of movie-reel distribution in the Detroit market. But after paying off Fitzsimmons, Craven found that he wasn't making any more money than he did before. Fitzsimmons demanded more money -- thousands of dollars. He had a Teamster accountant seize control of Craven's books. When Craven protested, Fitzsimmons ordered a strike against the company. Teamsters' trucks blocked entrances to Craven's building, shutting down the business.

Terrified, Craven sold the business for the best offer he could get, which was $7,000. The new owner turned out to be Frank Fitzsimmons. The company's books, prepared by the Teamsters accountant, showed that Craven owed Fitzsimmons $7,000, so Fitzsimmons acquired the business for nothing. Fitzsimmons changed the name of the company to Theater Trucking Services and listed it in the name of his son, his nephew, his brother-in-law, and Jimmy Hoffa's wife. By the time that there was an investigation of the dubious deal, Craven's original financial records were "lost." Fitzsimmons similarly extorted assets from other movie-reel distributors, beer distributors, and trucking companies.

Hoffa's enforcer Rolland McMaster did his fair share of shakedowns, too. William Runninger, owner of Aero Cartage, called McMaster for thoughts about how he could get more business -- specifically, from McLouth Steel Corporation, a big Detroit steel producer. McMaster was the Teamsters representative for Runninger's largest account, Douglas Trucking Lines, which worked for McLouth. Soon Runninger was making a lot of money handling business with McLouth. McMaster stopped by to collect his "commission" -- half of Runninger's net worth. Extortion enabled McMaster to become the owner of Powers Trucking Company (1950), Reed Transportation Company (1953), Ram Transport Corporation (1954), and Aggregates Transport Company (1956), too.


Indictments and politics

Jimmy Hoffa continued to expand his power base in the Teamsters after Dave Beck had become president of the union. In 1957, when Beck resigned following his conviction for bribery, Hoffa succeeded him and gained complete control. By 1964, he had brought virtually all long-haul drivers in the United States under a single Teamster contract. He wielded vast power, since a Teamster strike could shut down a business from shipping or receiving anything needed for its operations. Hoffa used "quickie" strikes, secondary boycotts, and other tactics to get what he wanted.

In 1957 he was indicted for bribing John Cheasty, a staff member on Sen. John McLellan's committee that investigated labor union bosses who stole union funds and had ties to organized crime. Because Robert Kennedy worked for McLellan's committee, Hoffa helped Richard Nixon when he ran for president in 1960 against Kennedy's brother Jack.

That year, Hoffa went on trial for defrauding Teamsters members. Two years later, he was on trial for extortion. The jury was deadlocked, but he was indicted for influencing the outcome by bribing a juror. He was convicted and sentenced to eight years in prison. In 1964, Hoffa and several associates went on trial for misappropriating $1.7 million of Teamster pension funds and improperly borrowing $20 million. He was convicted and sentenced to five years in prison. While appealing those cases, he was elected to another term as president of the Teamsters. He lost his appeals, and on March 7, 1967, he entered a federal prison in Pennsylvania.

Although the Teamsters supported Democratic presidential candidate Hubert Humphrey in 1968, Hoffa personally helped Nixon again. He arranged for organized crime figures to give Nixon campaign contributions. Nixon, of course, won the election, and on December 23, 1971, he returned Hoffa's favors by commuting the prison sentence to time already served. Hoffa, however, was banned from holding Teamsters union office until 1980.

Nonetheless, Hoffa began plotting to regain his dominance of the Teamsters. That brought him into conflict with his old pal Frank Fitzsimmons, who liked being the Teamsters' boss. Moreover, organized crime bosses had made lucrative deals with the Teamsters since Hoffa went to prison. Those deals would have been upset if he was back in command, perhaps because he would have demanded a big cut for himself. Hoffa disappeared on July 30, 1975, sometime after 2:45 p.m. ­ apparently a mob hit. He was last seen in the parking lot of the Red Fox Restaurant, Bloomfield Township, Oakland County, Michigan.

Even if Hoffa hadn't run afoul of the mob, he would have found that times were achanging. More and more people had come to recognize that government regulation was a fraud. The idea behind regulation was that noble public servants -- political appointees -- would help keep markets honest. But mostly what public servants did was create special privileges that enabled politically connected interests to victimize everyone else. The Interstate Commerce Commission, whose jurisdiction expanded to cover trucking during the New Deal, made it possible for Teamsters bosses to gain the power that corrupted them. President Gerald Ford called for partial deregulation. President Jimmy Carter presided over substantial deregulation in 1978, and Congress passed the Motor Carrier Act of 1980. New companies were permitted to enter the trucking business, market restrictions were eliminated, and free-market -- discount -- trucking rates became legal for the first time in more than four decades.

Within five years, trucking rates declined about 25 percent. The number of new trucking companies increased dramatically -- doubling from about 20,000 in 1980 to 40,000 in 1990. Deregulation made it much easier for non-union drivers to get jobs in the trucking industry.

Some 200 unionized trucking companies went out of business in the years following deregulation. The contracts, the corruption, and the disruptions associated with the Teamsters all made it harder to survive in a competitive marketplace. Between the 1970s and the 1990s, the number of drivers covered by the Teamsters' National Master Freight Agreement plunged by about 60 percent. Total trucking employment increased, as trucks hauled about three-quarters of freight in the United States.

There are still serious questions about the Teamsters union, now run by James P. Hoffa, son of the legendary racketeer, but corruption appears to be less of an issue than it used to be, thanks to the partial repeal of the New Deal.

http://www.fff.org/freedom/fd1011d.asp