(Un)Fa(i)rallon in the Endowment: Tracking Yale's Global Capitalism
Amanda Ciafone
Working Group on Globalization and Culture, Yale University
Working Paper for “Breaking Down the Ivory Tower: The University in the Creation of Another World,” World Social Forum, January 2005
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It IS time for intellectual and university workers to imagine how knowledges and
the “social and political possibilities” of the academy can be mobilized to “participate in
the active constitution of alternative globalizations and democratic futures.”1 The project
is more urgent than ever as our universities are not only learning the tenets of economic
globalization, but professing them around the world. The contradiction between
academic ideals and economic priorities in the global university is often more visible, and
challenged, on the local level. But the disjuncture between the university’s mission and
its method has some of its most detrimental consequences far outside the view from the
ivy towers. At Yale University the Graduate Employees and Students Organization
(GESO) is working to highlight this disjuncture, by tracking the global capitalism of U.S.
university endowments. U.S. university endowments constitute $230 billion2 in a global
financial market that has undergone massive deregulation and internationalization in the
last three decades. Many universities hold billions of dollars in hedge funds and private
equity investments that have little regulation, transparency, or accountability. In one of
the largest of these funds run by Farallon Capital Management, GESO researchers
uncovered the economic, social, political, and environmental destructiveness of their
university’s capital. Forming the UnFarallon Coalition with various student groups
across the nation, GESO has taken up the project of researching and disclosing these
investments, using the information they uncover to educate and organize around
universities’ global capitalism. As a case study, the UnFarallon campaign suggests how
1 Jackie Smith and Imre Szeman, “Mobilizing Knowledges: An Intellectual Agenda for World Social Forum, January 2005” November 6, 2004. 2 Jonathon Peterson, “In Pursuit of Learning Investments’ Whereabouts,” Los Angeles Times, December 19, 2004.
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retracing the global flows of capital from our own universities maps a network for the
formation of new solidarities and alternative globalizations.
“The superb management of the Endowment…[by the] investment team has
greatly enhanced the University's ability to carry out its mission,” Yale’s President
Richard Levin said recently. “I know I speak for the faculty, students, alumni and staff of
Yale in thanking the Investments Office for its outstanding performance over many
years.”3 But there are many who do not believe Yale’s investments enhance the
university’s ability to carry out its mission, nor provide such thanks. In 2002 the
Graduate Employees and Students Organization (GESO), which had been fighting to win
union recognition at Yale for over a decade, uncovered the history of Yale’s investment
in the 100,000 acre Baca Ranch in Colorado. Yale became part owner of the ranch
through the hedge fund Farallon Capital Management of San Francisco. But Yale’s
capital and Farallon were not becoming ranchers. Instead, they were speculating in
water, planning to win water rights and sell the water from an aquifer deep below the
ranch. The water scheme was a high risk project, with virulent local opposition to the
exportation of water, which could potentially desiccate “hundreds of thousands of acres
of irrigated croplands and wetlands” and threaten its neighbor, the Great Sand Dunes
National Park and Preserve.4 In exchange for the risk, Farallon and its investors were
expecting to yield a higher net return – between 45% and 61%, or $44 to $67 million,
3 Tom Conroy, “Yale Earns 19.4% Return on its Endowment,” Yale News Release, October 12, 2004. http://www.yale.edu/opa/newsr/04-10-12-02.all.html (accessed January 3, 2005). 4 Erin Smith, “Colorado Debates Who Should Use San Luis Valley’s Water,” Pueblo Chieftain, August 4, 1998; Mark Hunter, “Yale’s Land-Sale Profits Will Go To Dunes Park,” Denver Post, January 25, 2002; Mark Hunter, “Yale Helped Fund Plan To Sell San Luis Water, School’s Secret Investment Sparks Outrage In Valley,” Denver Post, January 25, 2002; www.unfarallon.info/bacaranch.asp; “Colorado Water Speculation and the Great Sand Dunes,” www.yaleinsider.org/article.jsp?id=7 (accessed December 12, 2004).
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within four years.5 In order to extract the water profits from Baca Ranch its investors
waged a legal and political campaign for Baca's water rights, including a lawsuit against
the Interior Secretary and two controversial ballot initiatives. Local residents of the
already economically depressed farming area spent more than $1 million in fighting the
ballot initiatives.6 When the ballot initiatives were voted down and the last hopes of
gaining the rights to export the water were gone, Farallon abandoned the water project,
deciding instead to sell the land. In April 2001, the Nature Conservancy agreed to buy
Baca Ranch for $32 million, more than twice its original selling price, leaving Yale and
Farallon with a 40% profit on their original investment.7 But when GESO and the Yale
unions broke the story, Yale’s name made it into local and national news reports. With
public scrutiny and political pressure mounting, Yale pledged to donate the profits from
the sale to the Nature Conservancy.8
Where else was Yale’s money? What was it doing? GESO committed a full time
researcher to track Yale’s endowment, focusing especially on the secretive investments of
hedge funds and private equity ventures like those managed by Farallon. Searching the
financial news, scouring Yale’s tax forms, appealing to the Freedom of Information Act
where possible, and making use of allies around the country, GESO researchers followed
the trail of Yale’s global capitalism despite the lack of transparency and great
geographical distance. Thus far, researchers have uncovered the privatization of a bank
5 Deposition of Jason Fish, August 7, 2001, Exhibit 405, Cabeza de Vaca v. Vaca Partners, 15; “Reply To Counterclaims and Third-Party Complaint and Cross-Claim,” CV 01-D-83, Exhibit 1; www.unfarallon.info/bacaranch.asp (accessed December 12, 2004). 6 Mark Hunter, “Yale Helped Fund Plan To Sell San Luis Water. School’s Secret Investment Sparks Outrage In Valley,” Denver Post, January 24, 2002; www.unfarallon.info/bacaranch.asp (accessed December 12, 2004) 7 Deposition of Jason Fish, August 7, 2001, 33 & 68; “Intervening Plaintiff Peter Hornick’s Brief in Opposition To Motion By Defendants For Summary Judgment…” CV 01-D-0083, August 30, 2001, 2; www.unfarallon.info/bacaranch.asp (accessed December 12, 2004). 8 www.unfarallon.info/bacaranch.asp (accessed December 12, 2004).
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and price-gauging in the privatization of the power industry in Indonesia; conflicts of
interest in Russia’s emerging bond market; a Panamanian bank that finances a destructive
crude oil pipeline; and in Argentina, the privatization and subsequent duopolistic rate-
hikes of a telecommunications company, the privatization of a natural gas company, and
the threat of layoffs of 6,000 textile workers.9 When GESO finds information, it
performs the disclosure that Yale and its investment managers prohibit. They created a
website, www.UnFarallon.info to piece together what is known about Yale’s capital, post
documentation on Yale’s investments with Farallon, and share advice on endowment
research and activism. In the process they have forged relationships with other national
and student activist groups – the United Students Against Sweatshops (USAS), Students
Resisting and Transforming Corporations (STARC), the Rainforest Action Network
(RAN), and UT-Watch (a University of Texas student group) – to form a coalition of
labor, sweatshop, anti-corporate, and environmental activists to share information, co-
sponsor the website, and organize actions. This summer student and labor activists from
around the country came to New Haven to train with GESO researchers and share lessons
from their home institutions. Over the last year UnFarallon has become a national
campaign, with activists at a number of the wealthiest universities in the U.S. petitioning
their university administrations for increased disclosure and oversight of investments,
holding teach-ins to educate their campuses, and making the invisibility of university
endowments’ global capitalism hyper-visible with street theater and performance art in
Days of Action.
9 www.unfarallon.info/investments.asp (accessed December 12, 2004).
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March 3, 2004: Bringing the world to the Yale Investments Office.
April 16, 2004: “We are a group of high net worth student activists who are dedicated to fighting for a university that puts the pursuit of profit, and of maximum investment returns, above all else,” the ironic Stakeholders for the Aggressive Management of the Endowment (S.H.A.M.E.) take a lesson from Baca Ranch and pump and sell the water from Yale’s fountains.
November 17, 2004: Stanford University students see their “missing” endowment on the side of a milk carton: “Missing: $12.2 billion, One Endowment, Do you know where it is invested?”10
10 www.unfarallon.info/pictures.asp (accessed January 17, 2005).
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This paper situates the UnFarallon campaign within two interrelated histories: the
recent history of university endowments in global financial markets and the history of
student and labor activism around university investments especially in the local context
of Yale University. Lastly, in looking at activists’ tactics and goals, this paper proposes
the campaign’s possibilities for reeducation and transnational solidarities through the
networks of Yale’s global capitalism.
Yale’s Coffers
Investment of the endowment, the largest source of revenue at Yale, has become
the behind-doors business of the university. How have university investments come to
play such a large role in the financing of higher education? University endowments are
huge tax-exempt investment portfolios and a wealth reserve to safeguard the university
through extreme fiscal crisis, like the Great Depression of the 1930s, and to pay for large
capital expenditures like new buildings. After World War II, the entry of massive
numbers of new students to universities on the federally funded GI Bill and the state’s
interests in Cold War research and development expanded the cultural importance and
financial power of the university in the United States. But with the fiscal crisis of the
1970s, the flow of public money to higher education receded. Both federal and state
governments decreased their funding of colleges and universities. In order to expand or
even maintain resources, universities and their faculties increasingly turned to
competitive, market-driven funding in the form of research grants and contracts,
corporate-university partnerships, entrepreneurial research and patenting (made possible
by the Bayh-Doyle Act of 1980), the recruitment of more and higher fee-paying students,
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and, I would add, greater return from the endowment. In the last fiscal year Yale’s
endowment contributed the largest portion of the yearly budget compared to all other
sources of revenue, 30% or $502 million, compared to 16% or $146 million just ten years
ago.11 Sheila Slaughter and Larry Leslie call these marketlike efforts of this new
entrepreneurial university, “academic capitalism.”12 Although they focus primarily on
the corporatization of university research, the history and trends they identify apply to
university endowments as well. Considering the role of endowment investments adds a
new dimension to their narrative of corporatization. Slaughter and Leslie see the 1980s
as a turning point in the financing of higher education, when “globalization accelerated
the movement of faculty and universities toward the market.”13 Economic globalization
and the opening up of world markets increased competition from Pacific Rim countries
and drove corporations in the established industrialized nations to focus on new
technologies for global competitiveness. Corporations turned to the academy to research
and develop these technologies, often with entrepreneurial universities and faculty eager
to participate.14 But while profiting from the rhetoric of national economic buoyancy
through alliances with U.S. corporations, universities were hedging their bets by
investing their excess capital in many of those competing global emerging markets.
11 Next were “grant and contract income, 29%,” “medical services, 15%,” and “student income, net 13%.” “Yale University Financial Report, 2003-2004,” http://www.yale.edu/finance/fr/index.html (accessed January 5, 2005). 12 Sheila Slaughter and Larry L. Leslie, Academic Capitalism: Politics, Policies, and the Entrepreneurial University (Baltimore: The Johns Hopkins University Press, 1997), 8. David Noble in America By Design (New York, 1977) points out that many U.S. universities were set up by and connected to corporate capital from their inception, but there does seem to be a marked shift from the 1980s on. 13 Sheila Slaughter and Larry L. Leslie, Academic Capitalism: Politics, Policies, and the Entrepreneurial University (Baltimore: The Johns Hopkins University Press, 1997), 5. 14 Sheila Slaughter and Larry L. Leslie, Academic Capitalism: Politics, Policies, and the Entrepreneurial University (Baltimore: The Johns Hopkins University Press, 1997), 6; Sheila Slaughter and Gary Rhoades, Academic Capitalism and the New Economy: Markets, State and Higher Education, (Baltimore: Johns Hopkins University Press, 2004).
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Global investment of the endowment began to expand at almost the same time as
globalization drove greater university-industrial cooperative profiting. As part of the
transition “from Fordism to flexible accumulation” that David Harvey describes in The
Condition of Postmodernity, in the 1970s and 80s, after the fiscal crisis and dismantling
of the Bretton Woods system, the global financial system underwent a complete
reorganization.15 Neoliberal deregulation and financial innovation configured a new,
highly integrated global system of international capital flows. Supra state economic
institutions, namely the International Monetary Fund and the World Bank, pushed the
agenda of opening up global markets and privatizing the commons, leaving indebted
nations to the vagrancy of transnational capital. Electronic communications media
enabled near-instantaneous coordination of financial flows over vast spaces, while the
unending creativity of finance capitalists generated new means of gambling in the global
market: stateless capital like Eurodollars, currency trades, and various forms of hedging,
futures, derivatives, shorts, etc.
The formation of a global stock market, of global commodity (even debt) futures markets, of currency and interest rate swaps, together with an accelerated geographical mobility of funds, meant, for the first time, the formation of a single world market for money and credit supply…This ‘bewildering’ world of high finance encloses an equally bewildering variety of cross-cutting activities, in which banks borrow massively short-term from other banks, insurance companies and pension funds assemble such vast pools of investment funds as to function as dominant ‘market makers,’ while industrial, merchant, and landed capital become so integrated into financial operations and structures that it becomes increasingly difficult to tell where commercial and industrial interests begin and strictly financial interests end.16
15 David Harvey, The Condition of Postmodernity: An Enquiry Into the Origins of Cultural Change, (Oxford, UK: Blackwell, 1990), 160-197. 16 David Harvey, The Condition of Postmodernity: An Enquiry Into the Origins of Cultural Change, (Oxford, UK: Blackwell, 1990), 161.
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Yale has changed its endowment investment strategies to fit this transition in finance
capital. Whereas publicly traded securities, bonds, and cash used to make up the majority
of Yale’s investments, in the late 80s and 90s Yale shifted its investments into “a variety
of financial instruments, venture capital, real estate and ‘distressed property’
investments.”17 As of last year’s financial report, “foreign equity, private equity, absolute
return strategies, and real assets now represent more than three-quarters of the
endowment.”18
To Harvey, this ‘bewildering world of high finance’ is characterized by the ‘paper
entrepreneurialism’ of profit seeking without producing actual goods or services:
[T]he techniques vary from sophisticated ‘creative accounting’ through careful monitoring of international markets and political conditions by multinationals, so they can profit from relative shifts in currency values or interest rates, to straight corporate raiding and asset-stripping of rival or even totally unrelated corporations…to gain paper profits without troubling with actual production.19
Yale has pioneered endowment ‘paper profits’ provided by hedge funds and private
equity. Yale’s Chief Investments Officer, David Swensen, literally ‘wrote the book’ on
it; it was called Pioneering Portfolio Management: An Unconventional Approach to
Institutional Investment (2000). And Harvard Business School profiled Yale’s
investments as a teaching tool for new approaches to endowment management.20
Although even the financial press finds them hard to define, hedge funds like Farallon’s
are “basically private investment pools for wealthy, financially sophisticated investors”
as they “very often use speculative investment and trading strategies” by anticipating 17 Gordon Lafer, “Land and Labor in the Post-Industrial University Town: Remaking Social Geography,” Political Geography, 22 (2003), 95. 18 “Financial Report, 2003-2004,” Yale University Division of Finance, http://www.yale.edu/finance/fr/finrep03-04.pdf (accessed January 5, 2005). 19 David Harvey, The Condition of Postmodernity: An Enquiry Into the Origins of Cultural Change, (Oxford, UK: Blackwell, 1990), 162. 20 Josh Lerner, “Yale University Investments Office: July 2000,” (Boston, MA: Harvard Business School Publishing, 2001).
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market movements, which come with high risks and sometimes high returns.21 Farallon
also manages private equity, like Yale’s limited partnership in Baca Ranch. Both types
of investments are highly secretive and oppose greater transparency as a threat to their
performance, and are thus nearly impossible to monitor and control.22 They do not have
to tell investors, the public, or the government where they invest their money.23 Hedge
funds and private equity funds are at the center of a growing debate over disclosure and
socially and environmentally responsible investing, as they increasingly manage the
money of university endowments and public pension funds.24
The massive endowments of private universities have emerged only in the last
twenty years in this global financial system. The Chronicle of Higher Education’s 2003
survey of endowments notes,
Twenty years ago, colleges tended to view their endowments as rainy-day funds. In 1981 Harvard University was the only single-campus institution to have outgrown the convention of measuring institutional wealth in the millions. Its endowment weighed in at $1.7 billion. Two decades later, unprecedented fundraising success and spectacular investment returns have expanded the universe of billion-dollar endowments to 39. Harvard’s endowment has grown to $18 billion as of last year [now up to 22.6 billion]25—a couple of hundred million more than the combined values of the 192 institutions that participated in the 1981 survey.26
21 “Capitalism’s New Kings,” The Economist, November 27, 2004, 9; “Funds of Hedge Fund: Higher Costs and Risks for Higher Potential Returns,” NASD, August 23, 2002, http://www.nasd.com/Investor/Alerts/alert_hedgefunds.htm (accessed January 5, 2005) 22 James Rubin, “Yale’s Investment Practices Under Fire,” The Yale Herald, September 13, 2002. 23 www.unfarallon.info/hedgefund.asp (accessed December 12, 2005). 24 “A Survey of Private Equity,” The Economist, November 27, 2004, 3. 25 Stephanie Strom, “Fund Advisers At Harvard See Pay Drop,” New York Times, November 23, 2004, A10. 26 J. Pulley, “Another Downer of a Year for College Endowments,” Chronicle of Higher Education, January 24, 2003.
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And Yale follows with the second largest endowment; in the past decade it has grown
from $3.6 billion to its current $12.7 billion.27 The deregulation and internationalization
of the finance industry has been a boon for Yale’s endowment. With an average
annualized return of 16.8% over the last decade, the endowment grows by millions of
dollars per day. Last year, Yale “targeted” spending 5% of the endowment (the actual
rate was only 4.54%), while the endowment earned a 19.4% return. In other words, the
$502 million dollars contributed by the endowment to the yearly operating budget is in
actuality less than a quarter (23.9%) of just last year’s interest on the endowment -- $2.1
billion (for perspective, last year’s interest on the endowment was roughly equal to the
national GDP of the Republic of the Congo, and more than the national GDPs of 18 of
the world’s nations combined).28
If Marx rifled around in the coffers of the ivy towers he wouldn’t be surprised by
what he saw: the tendency of capitalism to produce overaccumulation and its dialectical
partner, crisis, when “idle capital and idle labour supply…exist side by side with no
apparent way to bring these idle resources together to accomplish socially useful tasks.”29
To absorb this capital overaccumulation and contain its crisis, university endowments
rely on the classic “temporal” and “spatial” fixes. As Harvey characterizes it, in part
“temporal displacement entails either a switch of resources from meeting current needs to
27 Tom Conroy, “Yale Earns 19.4% Return on its Endowment,” Yale News Release, October 12, 2004. http://www.yale.edu/opa/newsr/04-10-12-02.all.html (accessed January 3, 2005); “Financial Report, 2003-2004,” Yale University Division of Finance, http://www.yale.edu/finance/fr/finrep03-04.pdf (accessed January 5, 2005). 28 Tom Conroy, “Yale Earns 19.4% Return on its Endowment,” Yale News Release, October 12, 2004. http://www.yale.edu/opa/newsr/04-10-12-02.all.html (accessed January 3, 2005); “Financial Report, 2003-2004,” Yale University Division of Finance, http://www.yale.edu/finance/fr/finrep03-04.pdf (accessed January 5, 2005); “The World Factbook: Rank Order -- GDP,” CIA, http://www.cia.gov/cia/publications/factbook/rankorder/2001rank.html (accessed January 5, 2005). 29 David Harvey, The Condition of Postmodernity: An Enquiry Into the Origins of Cultural Change, (Oxford, UK, Blackwell, 1990), 180.
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exploring future uses.”30 Excess capital can be absorbed through long-term “investments
in plant, physical and social infrastructures, and the like.” Yale absorbs excess capital in
new buildings and reinvestment in the endowment for future use.31 As we have already
seen in the rise of investment in global markets, Yale’s endowment also pursued a
“spatial fix” to its overaccumulation of capital. The “spatial fix,” “entails the production
of new spaces within which capitalist production can proceed (through infrastructural
investments, for example), the growth of trade and direct investments, and the
exploration of new possibilities for the exploitation of labour power.” But crises over
Yale’s investments continuously arise, both on its campus, and around the world; they
have rarely, however, arisen together.
UnFarallon’s Research and Global Crises
When activists refer to “Farallon,” they mean Farallon Capital Management,
LLC, the fourth largest hedge fund in the world with about $9.86 billion dollars of assets
under management, run by Senior Managing Member and Yale graduate Thomas Steyer.
UnFarallon activists uncovered that Farallon invests endowment money for several
universities including Bowdoin College, Brandeis University, Case Western Reserve,
30 David Harvey, The Condition of Postmodernity: An Enquiry Into the Origins of Cultural Change, (Oxford, UK, Blackwell, 1990), 182-183. 31 Not surprisingly, of $202.1 million spend on buildings in 2004, 45% was spent in the medical school and science buildings, where the vast majority of the $491 million in grant and contract income is generated (29% of operating revenue), investing in a future source of revenue. Residential colleges, of great importance to attracting students and their tuition revenues (13% of operating revenue), received 26%. And no other single campus area received more than 8%. “In 1996, the University began devoting a steadily increasing amount of operating funds to the capital budget [new building, renovations, and repairs]. In 2003, however, the University significantly increased the transfer of operating funds to the capital budget by adopting an ambitious new policy to fund all capital maintenance and renovation of existing buildings from the operating budget within ten years.” In less than ten years, Yale will be maintaining all of its buildings from the operating budget, without having to dip into anything more than a percentage of one year’s interest on the endowment. (“Financial Report, 2003-2004,” Yale University Division of Finance, http://www.yale.edu/finance/fr/finrep03-04.pdf )
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Christian Theological Seminary, Denison University, Duke University, Mills College,
Oberlin College, Princeton University, Tufts University, University of Michigan,
University of Pennsylvania, University of Texas, Yale University, and others.32
UnFarallon researchers believe that Yale (and the Yale pension) has between 500
million to over 4 billion dollars in Farallon’s investments, vehicles, and partnerships.33
Between the secrecy surrounding private equity and the short selling of holdings it is
extremely difficult to track Farallon’s (and thus Yale’s) investments. The following are a
four case studies of Farallon investments. GESO researchers uncovered the majority of
the information, with more available at the UnFarallon campaign’s website,
www.unfarallon.info/investments.
Indonesia: Bank Central Asia and Paiton I
In 2002, when Farallon purchased a 51% stake of Indonesia’s Bank Central Asia
for $520 million dollars the fund could not avoid the high visibility of mainstream media
attention. Bank Central Asia was the “crown jewel” of Indonesia’s banking sector with
approximately $10 billion in assets and eight million customer accounts.34 In 1998, when
the Asian financial crisis brought on by foreign investment and currency speculation
brought Indonesia’s banks “to the brink of ruin,” the Indonesian government nationalized
the bank, bailing it out and taking on its debtors by replacing unpaid loans with
32 www.unfarallon.info (accessed January 3, 2005) collected from public records requests (for public universities) and mentions in the financial press. 33 Ben Begleiter, interview by author, New Haven, CT, November 9, 2004; Yale’s Form 990 filing with the Department of Treasury, Internal Revenue Service for tax year beginning July 1, 2002-June 30, 2003. 34 “Indonesian Bank Sale an Important Milestone in Restructuring”. Asia Pacific Bulletin. March 15, 2002, http://www.asiapacificbusiness.ca/apbn/pdfs/bulletin49.pdf; www.unfarallon.info/bca.asp.
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government bonds.35 In line with demands from the IMF, the sale of Bank Central Asia
was seen as crucial to the overall success of the government’s privatization program:
“international lenders and the IMF placed great emphasis on BCA’s divestment as a
yardstick of economic reform, threatening to withhold financial aid if it was not
completed.”36 Private investors could now buy an Asian bank on the cheap. Although it
offered 25 rupiah a share less and has never run a bank, Farallon was chosen over other
bidders.37 In fact, Farallon had won a huge asset for Yale and its other investors; for the
$520 million it paid, it bought a bank predicted to earn $650 million in government
interest payments a year for the next few years.38 In actuality, the Indonesian government
was paying Farallon interest on its own bonds originally issued to save the bank that
Farallon now owns.
There was public outcry over the selling off of Bank Central Asia. One of the
most prominent critics was Indonesia’s State Minister for National Development
Planning Kwik Kian Gie. He questioned the logic of selling the government’s share of
35 Encouraged by the ‘Washington Consensus’ of the IMF and World Bank, Southeast Asian countries had radically deregulated their financial system including the dismantling of foreign exchange controls, tying national currency to the dollar, and fewer constraints on the portfolio management of financial institutions and commercial banks, etc. Rowan Callick, “Investors Yet To Be Sold On Asia’s Recovery Story,” Australian Financial Review, March 23, 2002; Angela Mackay, “How High Jinks in Jakarta Hoodwinked Standard.” Sunday Telegraph, March 17, 2002; www.unfarallon.info/bca/asp (accessed December 12, 2004). 36 “Indonesian Bank Sale an Important Milestone in Restructuring”. Asia Pacific Bulletin. March 15, 2002, http://www.asiapacificbusiness.ca/apbn/pdfs/bulletin49.pdf; www.unfarallon.info/bca.asp (accessed December 12, 2004). 37 Timothy Mapes, “U.S. Led Group is Picked to Buy Indonesian Bank”. Wall Street Journal. 15 March 2002; “IBRA receives 246.8 ml usd from Farallon for BCA stake.”AFX Asia, April 8, 2002; www.unfarallon.info/bca/asp (accesssed December 12, 2004). 38 ] Robert Go, “Economic Issues Cause Rift In Mega's Cabinet,” Straits Times Singapore, Feb 12, 2002; “BCA Sale: A Quagmire of Intrigue,” http://www.laksamana.net/vnews.cfm?ncat=36&news_id=1923, January 30, 2002; Vaudine England, “Nipped In The Bid,” South China Morning Post, April 16 2002; “Indonesian Bank Sale an Important Milestone in Restructuring”. Asia Pacific Bulletin. March 15, 2002, http://www.asiapacificbusiness.ca/apbn/pdfs/bulletin49.pdf; www.unfarallon.info/bca.asp (accessed December 12, 2004).
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the bank before the government’s bonds had been repaid, warning that the private foreign
owners “would continue to enjoy government subsidies to the tune of millions of dollars,
[since] BCA’s earnings are reliant on Bank Indonesia certificates (SBIs) and government
bonds that were injected as part of the bank’s rescue package.”39
But it was the workers who had been most affected by the financial crisis of the
previous years who also had the most to fear from the privatization of their bank. They
made their voices heard. In 2002, about 6,000 Bank Central Asia workers protested
against the sale, citing the probability of job cuts and changes in employee benefits, even
threatening to strike if the government ignored their demands.40 During a two-week
protest in January 2003, academics, government officials and workers again called on the
Indonesian government to “stop selling state assets to investors using special purpose
vehicles registered in tax havens due to the lack of transparency.”41 Farallon (and thus
Yale) had purchased Bank Central Asia through a special purpose vehicle called FarIndo
Holdings registered in the island nation and tax haven of Mauritius, where companies go
for tax efficiency and identity secrecy.42
Observers also wondered how behind closed doors Farallon beat out the higher
bid from experienced British bank investor Standard Chartered. London’s Sunday
Telegraph asked, “How could Standard Chartered, with a 100-year history in the country,
have lost to such an outsider?” and answered, “Jakarta is all about who you know, and
39 “BCA Sale: A Quagmire of Intrigue,” http://www.laksamana.net/vnews.cfm?ncat=36&news_id=1923, January 30, 2002; www.unfarallon.info/bca/asp (accessed December 12, 2004). 40 “Ibra decides to pay 140 rupiah/share div to BCA’s new shareholders.” AFX Asia, Oct. 7, 2002. 41 Rendi A. Witular, “Gov’t Must Stop Selling Assets To Dubious SPVs.” Jakarta Post, Jan. 4, 2003; www.unfarallon.info/bca/asp (accessed December 12, 2004). 42 Rendi A. Witular, “Gov’t Must Stop Selling Assets To Dubious SPVs.” Jakarta Post, Jan. 4, 2003; www.unfarallon.info/bca/asp (accessed December 12, 2004).
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clearly Farallon has a great contacts book stemming from a couple of distressed debt
deals it has done there over the past couple of years.”43 Although “the secretive San
Francisco fund does not have a track record in running financial institutions,” the Asia
Pacific Bulletin noted, “it knows Indonesia well though, with more than US $1 billion
invested there since 1997.”44
Some of Farallon’s (Yale’s) money was invested in Paiton I, Indonesia’s first
private power venture and “one of the most expensive power deals of the decade.”45 As
the first private power project in the country the huge Paiton I coal burning power plant
set the tone for subsequent private power ventures which “cut overpriced, politically
influenced deals that undermined the Indonesian economy.”46 Although little is known
about Farallon’s connection to the Paiton project, the financial press revealed that
Farallon held a “controlling position in the $180 million [bond] issue” of Indonesia’s
Paiton I plant.47 But much is known about the nature of the Paiton I project; three Wall
Street Journal investigative articles detail the crony capitalism, price gauging, and
environmental risks surrounding the plant in Indonesia.48
43 Angela Mackay, “How High Jinks in Jakarta Hoodwinked Standard,” Sunday Telegraph, March 17, 2002; www.unfarallon.info/bca/asp (accessed December 12, 2004). 44 “Indonesian Bank Sale an Important Milestone in Restructuring”. Asia Pacific Bulletin. http://www.asiapacificbusiness.ca/apbn/pdfs/bulletin49.pdf. 15 March 2002; www.unfarallon.info/bca.asp (accessed December 12, 2004). 45 Peter Waldman and Jay Solomon, “Wasted Energy: How U.S. Companies and Suharto’s Circle Electrified Indonesia – Power Deals That Cut In First Family and Friends Are Now Under Attack – Mission-GE Sets the Tone.” Wall Street. Journal, December 23, 1998, A1; www.unfarallon.info/paiton.asp (accessed December 12, 2004). 46 Peter Waldman and Jay Solomon, “Wasted Energy: How U.S. Companies and Suharto’s Circle Electrified Indonesia – Power Deals That Cut In First Family and Friends Are Now Under Attack – Mission-GE Sets the Tone,” Wall Street. Journal, December 23, 1998. 47 "Paiton Energy: Asia Pacific Refinancing Deal of the Year 2002," Project Finance, April 1, 2003; www.unfarallon.info/paiton.asp (accessed December 12, 2004). 48 Peter Waldman and Jay Solomon, “Wasted Energy: How U.S. Companies and Suharto’s Circle Electrified Indonesia – Power Deals That Cut In First Family and Friends Are Now Under Attack –
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According to the Wall Street Journal, only one of Indonesia’s private power
contracts had ever been competitively bid. Under the Suharto regime in Indonesia, most
of the billions of dollars of foreign power investments “went through cronies and
relatives of Mr. Suharto.” Paiton I, “bagged one of the richest private-power contracts of
the 1990s when its local partner, a relative of Mr. Suharto by marriage who received
shares in the project essentially free, sealed the deal by getting Mr. Suharto himself to
weigh in in favor…at a key juncture in price negotiations.”49 Only one of Indonesia’s
subsequent 25 private power plants went through a competitive bidding process.50 Local
partners also received free ownership stakes, coal contracts, and loans for investment in
the project that were “staple of Suharto crony capitalism.”51 After the fall of the Suharto
regime, the new government was quick to commission an independent audit of Farallon’s
Paiton project. Canadian auditors concluded that “the engineering procurement and
construction costs of developing Indonesia’s largest, foreign-owned power plant were
inflated by as much as 72%.”52
Paiton I, and the many plants that followed, produced power for sale to
Indonesia’s state-owned electric utility, PLN. Djiteng Marsudi, the head of the now
Mission-GE Sets the Tone,” Wall Street. Journal, December 23, 1998, A1; Jay Solomon, “Indonesia Drops Fight To Void Foreign Deal To Buy Energy.” Wall Street Journal, December 21, 1999, p. A14; Jay Solomon, “Costs of Power Plant In Indonesia Inflated,” Wall Street Journal, December 26, 2000, A7; Peter Waldman, “Washington's Tilt to Business Stirs a Backlash in Indonesia: Defense of Suharto-Era Deals Shows How Interest Groups Can Sway Foreign Policy,” Wall Street Journal, February 11, 2004. 49 Peter Waldman and Jay Solomon, “Wasted Energy: How U.S. Companies and Suharto’s Circle Electrified Indonesia – Power Deals That Cut In First Family and Friends Are Now Under Attack – Mission-GE Sets the Tone.” Wall Street Journal, December 23, 1998. 50 Peter Waldman and Jay Solomon, “Wasted Energy: How U.S. Companies and Suharto’s Circle Electrified Indonesia – Power Deals That Cut In First Family and Friends Are Now Under Attack – Mission-GE Sets the Tone.” Wall Street Journal, December 23, 1998. 51 Peter Waldman and Jay Solomon, “Wasted Energy: How U.S. Companies and Suharto’s Circle Electrified Indonesia – Power Deals That Cut In First Family and Friends Are Now Under Attack – Mission-GE Sets the Tone.” Wall Street Journal, December 23, 1998. 52 Jay Solomon, “Costs of Power Plant In Indonesia Inflated,” Wall Street Journal, December 26, 2000, A7.
Ciafone Working Paper 19
bankrupt PLN, has said: “the U.S. power companies dictated terms to us because they
had Indonesia’s first family behind them…resisting them was like suicide.”53 According
to Deutsche Bank, electric power cost PLN 30% more than the average in the rest of the
world. “Adjusted for local purchasing power, the contracted cost of private electricity is
60% more than in the neighboring Philippines and 20 times as much as in the U.S.”54
PLN was unhappy with the cost of Paiton’s electricity, but unwillingly agreed to a thirty-
year contract for electricity for 8.6 cents an hour. Paiton’s price was 32% higher than the
5.8 cents charged by Indonesia’s only competitively bid private power project. However,
by 1998 when the Asian financial crisis hit, Indonesians could only afford less than 2
cents per hour, and with their citizens in poverty, the government made up the difference
with subsidies.55
Originally, local criticism of the deal was muffled by Suharto’s authoritarian
regime and the booming Indonesian economy. But when the Asian financial crisis hit
Indonesia, and Suharto departed, PLN filed a lawsuit to cancel its contract with Paiton I.
PLN alleged that the project benefited from corruption and from links to the Suharto
family, and claimed it could not afford to buy the power at the contracted rates. But
Paiton’s U.S. lenders and the U.S. government pressured Indonesia to respect the power-
project contracts that were the product of a corrupt regime, even as they celebrated
Suharto’s exit. Simultaneously, the International Monetary Fund, working with the
53 Peter Waldman and Jay Solomon, “Wasted Energy: How U.S. Companies and Suharto’s Circle Electrified Indonesia – Power Deals That Cut In First Family and Friends Are Now Under Attack – Mission-GE Sets the Tone.” Wall Street Journal, December 23, 1998. 54 Peter Waldman and Jay Solomon, “Wasted Energy: How U.S. Companies and Suharto’s Circle Electrified Indonesia – Power Deals That Cut In First Family and Friends Are Now Under Attack – Mission-GE Sets the Tone.” Wall Street Journal, December 23, 1998; www.unfarallon.info/paiton.asp 55 Peter Waldman and Jay Solomon, “Wasted Energy: How U.S. Companies and Suharto’s Circle Electrified Indonesia – Power Deals That Cut In First Family and Friends Are Now Under Attack – Mission-GE Sets the Tone.” Wall Street Journal, December 23, 1998; www.unfarallon.info/paiton.asp
Ciafone Working Paper 20
Clinton administration, prescribed a program of economic austerity for Indonesia.56 The
cocktail of higher interest rates and lower government spending worsened Indonesia’s
economic depression and nearly half of the Indonesia population sank in to poverty.57
The PLN ultimately dropped the suit, under the pressure from Paiton’s U.S. lenders, and
in 2003 finally negotiated a rate in the 5-cent range.[25] Economist Joseph Stiglitz has
said of this time period, "the moment Indonesians threw out Suharto, we told them they
had to honor contracts that favored his cronies. People are asking, 'What kind of principle
is that?'…We imposed Pax Americana, yet it wasn't a pax that tried to create a fair global
regime but one reflecting our own commercial interests."58
In January 2003, under pressure from the IMF, the administration of Indonesian
president Megawati attempted once again to reduce its subsidy of electricity, fuel and
telephone rates. Indonesians protested for two weeks, calling for her expulsion. The
subsidies were largely restored.59 Edmund Williams, the chief political counselor at the
U.S. embassy in Jakarta from 1996 to 1999, has reflected on the time: "Protecting the
interests of major investors and creditors was at the center of the table in everything we
56 Peter Waldman, “Power and Peril: America’s Supremacy and Its Limits; Heavy Hand: Washington’s Tilt to Business Stirs a Backlash in Indonesia; Defense of Suharto-Era Deals Shows How Interest Groups Can Sway Foreign Policy,” Wall Street Journal, February 11, 2004, A1. 57 Peter Waldman, “Power and Peril: America’s Supremacy and Its Limits; Heavy Hand: Washington’s Tilt to Business Stirs a Backlash in Indonesia; Defense of Suharto-Era Deals Shows How Interest Groups Can Sway Foreign Policy,” Wall Street Journal, February 11, 2004, A1. 58 Peter Waldman, “Power and Peril: America’s Supremacy and Its Limits; Heavy Hand: Washington’s Tilt to Business Stirs a Backlash in Indonesia; Defense of Suharto-Era Deals Shows How Interest Groups Can Sway Foreign Policy,” Wall Street Journal, February 11, 2004, A1. 59 "Indonesians Brace For Mass Strikes, Protests Over Price Hikes," Straits Times, January 5, 2003; "Jakarta backs down on price hike," BBC News, January 16, 2003.
Ciafone Working Paper 21
did. Concerns about stability made it to the margins. Concerns about human rights,
democracy, corruption never made it onto the table at all."60
According to the Wall Street Journal’s reports, the Paiton I project was pushed
through over the warnings of Indonesian government planners that it was too much for an
already overburdened and inefficient power grid. Indonesian government power
consultants had urged the Suharto administration to explore more sustainable alternatives,
like gas-fired and geothermal power plants, instead of coal. According to the consultants,
Suharto and Indonesia’s then Technology Minister B.J. Habibie, who would become
Indonesia’s president, “hand-picked developers to lead the charge into big, high-risk,
coal-fired power stations.”61 Surprising, as Indonesia has massive proven natural gas
reserves and is currently “the world’s largest exporter of liquefied natural gas.”62 “It does
not make sense to support another coal plant in a country where alternatives are readily
available,” says John Son, of the environmental advocacy group Friends of the Earth.
“Coal is the most carbon-rich fossil fuel as it releases 29% more carbon per unit of
energy than oil, and 80% more than natural gas…‘clean coal’ technologies do not
necessarily result in a better project.”63 “Two decades of rapid economic development,
significant population expansion, and regulatory neglect have placed much of Indonesia's
environment in jeopardy,” reports the U.S. Department of Energy; “air and water
60 Peter Waldman, “Power and Peril: America’s Supremacy and Its Limits; Heavy Hand: Washington’s Tilt to Business Stirs a Backlash in Indonesia; Defense of Suharto-Era Deals Shows How Interest Groups Can Sway Foreign Policy,” Wall Street Journal, February 11, 2004, A1. 61 “OPIC, Ex-Im, and Climate Change: Business as Usual?; An Analysis of U.S. Government Support for Fossil Fueled Development Abroad, 1992-1998,” Institute for Policy Studies, Friend of the Earth, and the International Trade Information Service, April 28, 1999, www.foe.org/res/pubs/pdf/climatesummary.pdf (accessed December 2, 2004). 62 U.S. Department of Energy, http://www.eia.doe.gov/cabs/indonesa.html; www.unfarallon.info/paiton/asp (accessed December 12, 2004). 63 Friends of the Earth, Letter from analyst John Son to Ex-Im President John Harmon, January, 2000 as cited in www.unfarallon.info/paiton.asp (accessed December 12, 2004).
Ciafone Working Paper 22
pollution have reached critical levels, especially on the most populated island of
Java...there is concern that an increase in the use of indigenous coal will increase
Indonesia’s carbon emissions in the coming years.”64 Yale’s investments in Paiton I may
have lasting environmental effects on Indonesia, as well as the entire world: “The
country is home to the world's largest reef system and one of the world's largest rain
forests, both of which are home to thousands of unique species. Moreover, Indonesia's
huge forests function as one of the world's main "carbon sinks" (natural means of
sequestering world carbon emissions). The preservation of such sinks is an important
aspect of avoiding climate change.”65
Latin America: Bladex and Alpargatas
In 2001, Farallon Capital Management became a major investor in the Panama
City-based Banco Latinamericano de Exportaciones, S.A. (Bladex). Bladex had just
recently lent financial backing to a proposed heavy crude pipeline, the Oleoducto de
Crudos Pesados (OCP), in Ecuador.
A consortium of financial interests (including Bladex and thus Farallon and Yale)
built the pipeline over the threats of environmental and human loss, even as they faced
massive protests over the pipeline’s route. The route of the OCP “traverses several
pristine protected areas including the Mindo Nambillo Cloud forest reserve” and the
64 “Indonesia Country Analysis Brief,” U.S. Department of Energy, http://www.eia.doe.gov/cabs/indonesa.html, http://www.eia.doe.gov/emeu/cabs/indoe.html#ENVIRO (accessed December 12, 2004). 65 “Indonesia Country Analysis Brief,” U.S. Department of Energy, http://www.eia.doe.gov/cabs/indonesa.html, http://www.eia.doe.gov/emeu/cabs/indoe.html#ENVIRO (accessed December 12, 2004).
Ciafone Working Paper 23
territory of indigenous people.66 The Cloud forest residents opposed the construction of
the pipeline, concerned that it would “tear through the region, which has 450 species of
birds—half as many as all the species in North America—and many types of butterflies,
orchids and trees, and is an important eco-tourist destination.”67 The pipeline also
transects some 20 medium to large sized municipalities putting human life at risk. In
Yaraqui (population 9,000) the pipeline lies only 600 meters from the city center and 400
meters from a large high school. The pipeline is even close to Quito’s drinking water
supply, in the seismically active Papallacta region.68 Seismic activity causing mudslides
and volcanic eruptions poses a very real threat to the pipeline, and any damage to the
pipeline constitutes an environmental threat.
“These fears [of seismic activity] are not unfounded. In November 2002, construction of the pipeline was halted after the eruption of the Reventador volcano, 93-km east of the capital, Quito, which damaged equipment and the OCP pipeline. And, in June 2001, landslides ruptured the [state run] Sote pipeline, spilling over 7,000 barrels of crude into the surrounding Andean forests.”69
Ecuador’s environment and people have already suffered from the geological luck of
living over one of the global economies most precious resources, while reaping few of its
benefits. The older, state-run Trans-Ecuadorian Pipeline has had more than 60 major
ruptures resulting in 614,000 barrels of spilled oil (more than twice the 260,000 barrels
66 Kevin Koenig, Janet Lloyd, Daniela Meltzer, Lauren Schowe, and Atossa Soltani, “The New Heavy Crude Pipeline in Ecuador,” Amazon Watch, June 2001; www.unfarallon.info/bladex.asp (accessed January 5, 2005). 67 Juan Forero, “Oil Pipeline Forges Ahead in Ecuador,” New York Times, October 30, 2002; www.unfarallon.info/bladex.asp (accessed January 5, 2005). 68 Robert Goodland, “Independent Compliance Assessment of OCP with the World Bank’s Environmental and Social Policies,” 12; www.unfarallon.info/bladex.asp. Robert Goodland is a former World Bank official who authored most of the social and environmental safeguard policies for the World Bank Group, and after his retirement from the Bank, independently analyzed the OCP. 69 “Pipelines: Ecuador: Oil Reserves Inch Open” Petroleum Economist, February 16, 2004; www.unfarallon.info/bladex/asp (January 5, 2005).
Ciafone Working Paper 24
that were spilled by the Exxon Valdez) since its construction in 1972.70 In 1998, a
landslide disrupted two major pipelines near the port town of Esmeraldas. “Oil flowed
down the streets of the town and into the river. Around 10 pm, a spark ignited the oil.
Twelve people died from the flames, six more were never found.”71 The OCP “may have
been responsible for an oil spill before it even went into operation,” reported PBS, as
Ecuador’s state-run oil company faulted heavy machinery used to construct the new OCP
as the cause of a rupture in the older state-run pipeline. The rupture spilled 10,000
barrels of oil into a river that flows into a water source for the capital city of Quito.72
Oil extraction has had dramatic environmental and health consequences in
Ecuador. A comparison of Ecuadorians living in oil-contaminated areas versus non-
contaminated areas showed “a higher occurrence of abortion, elevated rates of fungal
infection, dermatitis, headache and nausea.”73 In 1993, a team of Harvard scientists and
doctors sent to Ecuador found that “drinking, bathing and fishing water samples
contained levels of PAHs [polycyclic aromatic hydrocarbons] 10 to 1,000 times greater
than the U.S. Environmental Protection Agency’s safety guidelines”74 PAHs are believed
70 Tom Knudson, “Staining the Amazon: Tropics Suffer To Satisfy State’s Oil Demand.” The Sacramento Bee, May 25, 2003, http://www.sacbee.com/static/live/news/projects/denial/c1_1.html ; www.unfarallon.info/bladex.asp (accessed January 5, 2005). 71 www.unfarallon.info/bladex.asp (accessed January 5, 2005); Tom Knudson, “Staining the Amazon: Tropics Suffer To Satisfy State’s Oil Demand,” The Sacramento Bee, May 25, 2003, http://www.sacbee.com/static/live/news/projects/denial/c1_1.html . 72 “Extreme Oil,” PBS, http://www.pbs.org/wnet/extremeoil/journey/ecuador.html (accessed January 5, 2005); www.unfarallon.info/bladex.asp (accessed January 5, 2005). 73 Rights Violations in the Ecuadorian Amazon: The Human Consequences of Oil Development, The Center For Economic and Social Rights, March 1994, 9; www.unfarallon.info/bladex.asp (accessed January 5, 2005). 74 Rights Violations in the Ecuadorian Amazon: The Human Consequences of Oil Development, The Center For Economic and Social Rights, March 1994, xi; www.unfarallon.info/bladex.asp (accessed January 5, 2005).
Ciafone Working Paper 25
to be cancer-causing.75 But some of the environmental impact is more obvious. An
Ecuadorian farmer reports, “Sometimes when we collect rainwater in pots, the water is
black.”76
Builders of the OCP showed as much compassion to the people of Ecuador as
they did to the environment. The Ecuadorian National Congress alleged that OCP used
illegal tactics in the purchasing of land from local residents. Former World Bank official
Robert Goodland, who assessed the pipeline according to the Bank’s environmental and
social policies, writes:
An extraordinary mission from Ecuador's National Congress met with 200 affected people in Lago Agrio between 16 & 18 May 2002, documenting OCP's non-payment of compensation, or paying less than the agreed amount, or fraud, deception, and malversation, intimidation and imprisonment for not signing, police brutality, women and children assaulted by police, battering with machine guns, police throwing tear-gas canisters into occupied dwellings which also housed women and children. This Congressional Hearing writes (my unofficial translation of a partly illegible copy) that neither the Lago Agrio authorities, nor the Interior Minister are responsible, because the police are not under their control. The police are exclusively under OCP's control (which also pays them).77
Goodland also found that the OCP had “ignore[d] the requirement…for an analysis of
OCP’s impacts on vulnerable ethnic minorities and AfroEcuadorians, and [did] not
provide for an indigenous people’s development plan.”78 Similarly, another analysis of
the OCP concluded: “Construction of OCP on indigenous territory without proper
75 http://www.atsdr.cdc.gov/toxprofiles/phs69.html; www.unfarallon.info/bladex.asp (accessed January 5, 2005) 76 Tom Knudson, “Staining the Amazon: Tropics Suffer To Satisfy State’s Oil Demand.” The Sacramento Bee, May 25, 2003, http://www.sacbee.com/static/live/news/projects/denial/c1_1.html ; www.unfarallon.info/bladex.asp (accessed January 5, 2005). 77 Robert Goodland, “Independent Compliance Assessment of OCP with the World Bank’s Environmental and Social Policies,” September 9, 2002, 20, http://www.unfarallon.info/pdf/Bladexgoodland.pdf (accessed January 5, 2005); www.unfarallon.info/bladex.asp (accessed January 5, 2005). 78 Robert Goodland, “Independent Compliance Assessment of OCP with the World Bank’s Environmental and Social Policies,” September 9, 2002, 23, http://www.unfarallon.info/pdf/Bladexgoodland.pdf (accessed January 5, 2005); www.unfarallon.info/bladex.asp (accessed January 5, 2005).
Ciafone Working Paper 26
consultation… shows a total abandonment… of compliance with treaties and
international agreements on human rights.”79
Ecuadorians, especially Ecuador’s native peoples, have demonstrated their
opposition to the pipeline and its route through the Cloud forest, often in the face of
violence. In February 2002, thousands of people took to the streets and “at least 300
people were wounded in conflicts with the Ecuadorian military during 10 days of violent
demonstrations in the Amazon region over the new OCP pipeline.”80 A group of
environmental activists formed a tree-sitters camp in the Mindo Nambillo Protected
Cloud Forest in an effort to stop construction of the pipeline. They maintained a
permanent presence there for over two months until they were evicted by Ecuadorian
police.81 Fourteen activists engaged in acts of civil disobedience to protest the pipeline in
March 2002 and another 100 people marched in the streets of Lago Agrio in August.82
In a January 2003 protest of about 100 local residents in El Reventador, protestors
ascended a hill to stop a construction crew. The police were waiting and demanded they
leave. As the journalist described it: “The crowd refuses to budge. The police pull on
their gas masks and launch tear gas, and protesters quickly retreat from the acrid white
79 J. Martinez-Alier, et. al., “Conclusiones de la Mision Internacional de Observacion del OCP, 2001,” quoted in Robert Goodland, “Independent Compliance Assessment of OCP with the World Bank’s Environmental and Social Policies,” September 9, 2002, 22, http://www.unfarallon.info/pdf/Bladexgoodland.pdf (accessed January 5, 2005); www.unfarallon.info/bladex.asp (accessed January 5, 2005). 80 Tom Knudson, “Staining the Amazon: Tropics Suffer To Satisfy State’s Oil Demand.” The Sacramento Bee, May 25, 2003, http://www.sacbee.com/static/live/news/projects/denial/c1_1.html ; www.unfarallon.info/bladex.asp (accessed January 5, 2005). 81 “Ecuadorian Military Forcibly Evicts Environmentalists in Mindo!” Friends of the Earth, March 25, 2002, http://www.foe.org.au/ci/ci_ecuador_evictions.htm (accessed January 5, 2005); “Ecuador: Peasant Arrested in Lago Agrio Under OCP Demand,” Friends of the Earth, August 2, 2002, http://www.foe.org.au/mr/mr_9_8_02.htm (accessed January 5, 2005). 82 Tim Mansel, “Ecuador’s Oil Pollution Fears,” BBC News, April 15, 2002, http://news.bbc.co.uk/1/hi/world/americas/1930671.stm (accessed January 5, 2005).
Ciafone Working Paper 27
cloud.”83 Throughout the construction of the pipeline there have been accusations of
unlawful arrests and detentions.84 But even as controversy over the pipeline mounted,
Farallon continued to invest in Bladex, eventually owning 3 million shares with a value
of almost $50 million. As of last January, Farallon controlled 11.3% of Bladex’s stock.85
In 1999, Farallon made a new investment in Latin America, joining with two
other U.S. companies (NewBridge and Oaktree) and a subsidiary of the World Bank to
buy a 93% stake in Alpargatas, “one of Argentina’s principal textile and footwear
manufacturers.”86 Alpargatas had lost much of its business to imports when Argentina
opened up its economy in the early 1990s, after two decades of a closed market.87 The
group took control over the indebted company by paying off $400 million of the
company’s $640 million debt.88 As an Argentine financial paper reported it, changes
were made to Alpargatas’ board to reflect “Alpargatas’ new controlling structure, headed
by US groups Newbridge and Farallon.”89
Just months later, Alpargatas’ workers “were shocked…when the company
announced plans to close its domestic plants and lay off half its 6,000 workers,” the Latin
Trade reported. Alpargatas planned to transfer operations to neighboring Brazil to cut
83 Matthew Mclearn, “Down the Tube,” Canadian Business Magazine, March 17, 2003; www.unfarallon.info/bladex.asp (accessed January 5, 2005). 84 “Ecuadorian Military Forcibly Evicts Environmentalists in Mindo!” Friends of the Earth, March 25, 2002, http://www.foe.org.au/ci/ci_ecuador_evictions.htm (accessed January 5, 2005); “Ecuador: Peasant Arrested in Lago Agrio Under OCP Demand,” Friends of the Earth, August 2, 2002, http://www.foe.org.au/mr/mr_9_8_02.htm (accessed January 5, 2005). 85 www.unfarallon.info/bladex/asp (accessed January 5, 2005). 86 “Mass Exodus,” Latin Trade, May 2000; www.unfarallon.info/alpargatas.asp (accessed January 6, 2005). 87 Marcelo Neuman and Fernando Marquina, “A Good Fit In Argentina,” Industrial Engineer: IE, January, 2004, 40. 88Argentinisches Tageblatt, March 4, 2000, 10, http://www.tageblatt.com.ar/archivo/2000/03/04-03-00.pdf; www.unfarallon.info/alpargatas.asp (accessed January 6, 2005). 89 “Alpargatas Refinances Debts,” Ambito Financiero, December 29, 2000; “Gotelli Remains CEO of Alpargatas,” Ambito Financiero, August 15, 2000; www.unfarallon.info/alpargatas.asp (access January 6, 2005)
Ciafone Working Paper 28
costs.90 In the meantime, the company failed to pay workers’ back wages for several
months and closed a number of its plants, even after it reported turning “negative assets
of $200m into positive $40,” by the end of 2000.91 Alpargatas workers took to the
streets. Over 300 Alpargatas workers in Santa Rosa, Argentina staged protests in the
spring of 2001, “including blocking the main Ruta Nacional 35 motorway in support of
their claim for the factory to be reopened and payments owed to them made.” Workers at
plants in Florencio Verla and Corrientes “held demonstrations calling for the settlement
of unpaid wages and for their jobs to be reinstated.”92
Amid Argentina’s fiscal crisis as a result of global currency speculation,
Alpargatas began lobbying the Argentine government for protective legislation. “The
decision of the Argentinian footwear and textile group Alpargatas to make almost its
entire workforce redundant appears to be irrevocable and could only be reversed if the
Argentinean government maintains the measures to protect the sector against imports
from Brazil and Southeast Asia when they expire in 2002.” Ironically, about one year
later Alpargatas announced “that it would become a commercial operation in the near
future and [would] cease its industrial activities… Alpargatas will import goods from
Brazil and China.”93 The move would have made redundant 4200 of the company’s 5000
workers. But the company postponed its restructuring plan “following a draft agreement
90 “Mass exodus,” Latin Trade, May 2000; www.unfarallon.info/alpargatas.asp (accessed January 6, 2005). 91 “Alpargatas Refinances Debts,” Ambito Financiero, December 29, 2000; “Alpargatas Factory To Be Reopened In La Pampa,” Buenos Aires Economico, April 27, 2001; “Alpargatas To Reopen Plant,” Ambito Financiero, May 16, 2001; www.unfarallon.info/alpargatas/asp (accessed January 6, 2005). 92 “Alpargatas Factory To Be Reopened In La Pampa,” Buenos Aires Economico, April 27, 2001; “Alpargatas To Reopen Plant,” Ambito Financiero, May 16, 2001; www.unfarallon.info/alpargatas.asp (accessed January 6, 2005). 93 “Alpargatas Could Shut Plants and Cut 4,200 Jobs,” Ambito Financiero, March 14, 2001; “Government Puts Pressure on Alpargtas,” Buenos Aires Economico, April 26, 2001; www.unfarallon.info/alpargatas.asp (accessed January 6, 2005).
Ciafone Working Paper 29
with the government” which “promised to purchase goods produced at these plants
(which will be distributed as part of its social security programme) provided that the
company sells them at below market prices and does not cut any jobs over the next 18
months.”94 In 2004, Alpargatas once again restructured its debt, with the involvement of
one of its main shareholders, Farallon (and Yale), suggesting the threat of another labor
restructuring on the horizon.95
Activism and Crises in the Towers
The UnFarallon coalition builds upon a legacy of activism around university
endowments. At various historical moments students, alumni, workers, and community
members have challenged universities to examine the role of their finances in war, racial
discrimination, economic exploitation, political repression, and environmental
destruction. In the 1960s and 70s, anti-Vietnam war activists protested (often facing
violent reprisals) their universities’ involvement in the military-industrial complex and
demanded divestment from companies like Dow Chemical, manufacturer of napalm. In
the same period, dozens of U.S. universities also faced the very different tactics and
demands of Campaign GM. Campaign GM called for universities to leverage their
continued ownership of General Motors stock for progressive reforms by voting on a
94 “Alpargatas Could Shut Plants and Cut 4,200 Jobs,” Ambito Financiero, March 14, 2001; www.unfarallon.info/alpargatas.asp (accessed January 6, 2005). 95 “Alpargatas Looks to Restructure Its Debt,” La Nacion, March 19, 2004, http://lanacion.com.ar/Archivo/Nota.asp?nota_id=583162 (access January 6, 2005).
Ciafone Working Paper 30
variety of shareholder resolutions on the disclosure and oversight of environmental,
minority hiring, and safety concerns.96
At once, these battles over university endowments have been both local and
global. Setting historic precedent, activists demanded and often won complete
divestment of their universities’ investments in corporations doing business with
apartheid South Africa. In the same years in university cities like New Haven, activists
called on universities to invest more responsibly in their own communities and face their
local problems of poverty, segregation, and discrimination.
Campaigns calling on universities to cease investing in or procuring goods from
particular corporations have only increased as the richest universities actively position
themselves in the global marketplace. Examples of recent activism include: Free Burma
Coalition (PepsiCo, Texaco, UNOCAL), Free Nigeria Movement (Shell, Mobil, Coca-
Cola), United Farmworkers (strawberries), Pineros y Campesinos Unidos del Noroeste
(Gardenburger, NORPAC), Students for a Free Tibet (China), Student Environmental
Action Coalition (Burma, tropical hardwoods, Exxon, Nigeria), East Timor Action
Network (Indonesia), Jobs with Justice (union busters), Global Exchange/National Labor
Committee/UNITE!/United Students Against Sweatshops (sweatshops), and the
Democratic Socialists of America Youth Section (various).97
These campaigns have yielded victories on specific investments and at times even
on the nature and oversight of university investing. As a result of early activism at Yale,
in 1969 a group of students and faculty convened a series of seminars on socially
96 John Simon, Charles W. Powers, and Jon P. Gunneman, The Ethical Investor: Universities and Corporate Responsibility (New Haven: Yale University Press, 1972), 3, http://www.acir.yale.edu/pdf/EthicalInvestor.pdf . 97 Ben Manski, “In The Hands of Youth: The Growing Struggle for Democracy and Education,” Campus Inc: Corporate Power in the Ivory Tower (Amherst, NY: Prometheus Books, 2000), 395.
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responsible investing that led to the publication of The Ethical Investor: Universities and
Corporate Responsibility. The book “established criteria and procedures by which a
university could respond to requests from members of its community to consider factors
in addition to economic return when making investment decisions and exercising rights
as shareholder,” and became the model for the ethical policies of numerous universities.98
It advises that universities choose investments “based solely on maximum-return
principles” but “require[s] the university to take shareholder action to deal with company
practices which appear to inflict significant social injury.”99 Universities can vote on
shareholder proxies (but not propose their own), communicate with corporate
management, or sell the holding if the “social injury appears to be ‘grave.’”100
Universities should not sell investments because of a company’s socially injurious
practice “unless these practices are grave and unless all methods of correcting the
practices have failed or appear doomed to fail.” But at the same time, “if correction of
social injury (or the process of correction) reduces the return sufficiently to make the
stock unattractive under conventional maximum-return criteria, the Guidelines require the
university to sell the stock.”101 The authors make it quite explicit: under no
98 “Committee History and Mission,” Yale Advisory Committee on Investor Responsibility, www.acir.yale.edu (accessed December 3, 2005). 99 John Simon, Charles W. Powers, and Jon P. Gunneman, The Ethical Investor: Universities and Corporate Responsibility (New Haven: Yale University Press, 1972), 8-9, http://www.acir.yale.edu/pdf/EthicalInvestor.pdf . 100 John Simon, Charles W. Powers, and Jon P. Gunneman, The Ethical Investor: Universities and Corporate Responsibility (New Haven: Yale University Press, 1972), 10, http://www.acir.yale.edu/pdf/EthicalInvestor.pdf . 101 John Simon, Charles W. Powers, and Jon P. Gunneman, The Ethical Investor: Universities and Corporate Responsibility (New Haven: Yale University Press, 1972), 10-11, http://www.acir.yale.edu/pdf/EthicalInvestor.pdf .
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circumstances should a university take “affirmative action for social improvement” with
its investments.102
The authors also proposed, and the university established, two committees for
investment review: the Corporation Committee on Investor Responsibility (CCIR),
composed of Fellows of the Corporation, and the Advisory Committee on Investor
Responsibility (ACIR), composed of two students (one undergraduate and one graduate),
two alumni, two faculty and two staff members. The CCIR recommends policy to the
full Corporation, and is advised by the ACIR on how to vote in shareholder proxy
resolutions. But their decisions are rarely made public. The ACIR’s oversight is also
limited to Yale’s investments in public equities. Ben Begleiter, GESO’s researcher for
the UnFarallon campaign, argues: “Stocks in Yale’s name account for less than 3% of
Yale’s holdings…the ACIR has control over nothing.”103 The CCIR and ACIR have
suggested that their “ethical investing policies” could be applied to private investments as
well. But as there are no shareholder proxy votes in private investments, proposals for
action would have to come from campus activism, which is almost impossibly hindered
by the lack of disclosure by both the university and its outside investment managers.
Given the complexities and speed of the ‘bewildering world’ of private equity investing
and hedge funds, many even wonder what Yale knows about its own investments. A
Yale School of Management Professor explained:
"[Private equity] funds are set up as limited partnerships and limited partners have no say whatsoever in what investment decisions are made…The amount of disclosure made by the management company to the limited partners vary—there are no well established
102 John Simon, Charles W. Powers, and Jon P. Gunneman, The Ethical Investor: Universities and Corporate Responsibility (New Haven: Yale University Press, 1972), 6, http://www.acir.yale.edu/pdf/EthicalInvestor.pdf . 103 Ben Begleiter, interview by author, New Haven, CT, January 14, 2005.
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standards. Typically there is an annual report that includes a brief description of each of the investments, but this can be released 12 to 15 months after the investment is made."104 What is the purpose of the Farallon campaign? What would be a victory for the
UnFarallon activists? Is UnFarallon the end or the means? Many would like to see the
policies for disclosure and oversight to be broadened to include universities’ new forms
of global capitalism. An array of constituencies has taken up this cause. As high tuitions
and private donations compose a larger share of some universities’ institutional revenues,
students, parents, and alumni have become important “clients” who wield some power.105
They have begun to demand more transparency and accountability as stipulations to their
money. Students and alumni have formed groups to advocate for socially responsible
investment (SRI) of university endowments, and have even proposed alternative giving
funds.106 Having learned important lessons from the sweatshop movement, endowment
activists know that divestment, like boycotts, can often punish the most vulnerable
workers and communities. Investment activists have demonstrated an increased
sophistication in their tactics and demands often asking for their universities to leverage
their investments to make positive change. While this shift to socially responsible
investing is still capitalist in nature and mired in debate over what kind of investment is
actually “socially responsible” or “ethical,” it should not be taken lightly, as it marks a
growing recognition that capitalism is a system with destructive results, even if activists
aim only to restrain and improve upon it. U.S. university endowments could constitute a
powerful force in the global financial marketplace with their more than $230 billion of 104 James Rubin, “Yale’s Investment Practices Under Fire,” The Yale Herald, September 13, 2002. 105 Sheila Slaughter and Larry L. Leslie, Academic Capitalism: Politics, Policies, and the Entrepreneurial University (Baltimore: The Johns Hopkins University Press, 1997), 237. 106 William Baue, “SRI Gains Momentum in University and College Endowment Investments,” Institutional Shareowner, December 4, 2002, http://www.institutionalshareowner.com/article.mpl?sfArticleId=981 (accessed January 20, 2005), Responsible Endowments Coalition, http://www.sriendowment.org/index.php (accessed January 20, 2005).
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investments.107 There is also a direct relationship between Yale’s investing and its
workers: it pays their wages and funds their pensions. "The union looks at Yale's
endowment because we care how our pension funds are invested," a union activist
commented. "We believe that Yale should be an ethically responsible investor.”108 Thus,
as Begleiter and other activists insist, “universities as investors could promote the values
they claim to have.”109 At Yale Begleiter would like to see three things: 1) disclosure of
the list of Yale’s outside financial managers and where they are investing; 2) expansion
of the oversight by the ACIR and CCIR to include fund managers and private equity
(without these first two demands, there can be no real debate about what constitutes
“socially injurious” investing and what kind of capitalist Yale should be); and 3)…for
Yale to finally recognize GESO.110
The UnFarallon campaign emerges from a particular local context of labor
organizing at Yale and GESO’s now long fight for union recognition. Locally, one of the
most immediate consequences is a group of Yale-trained researchers eager to put their
skills to labor activism. The federation of unions at Yale – service and maintenance
employees, clerical and technical workers, graduate teachers, and hospital workers, and
their allies in the community – have frequently highlighted the disjunctures between the
university’s mission and its methods through various “corporate campaigns,” inspired by
the models of their affiliated international unions UNITE-HERE and SEIU. The unions
conduct corporate campaigns both to “shame” Yale into correcting discrete wrongs, as 107 Jonathon Peterson, “In Pursuit of Learning Investments’ Whereabouts,” Los Angeles Times, December 19, 2004. 108 James Rubin, “Yale’s Investment Practices Under Fire,” The Yale Herald, September 13, 2002. Interestingly, one of the most powerful moments of the last strike at Yale was the occupation of the investments office by retired workers over inadequate and late pension payments, demonstrating the increased awareness of the location of financial power in the university. 109 Ben Begleiter, interview by author, New Haven, CT, January 14, 2005. 110 Ben Begleiter, interview by author, New Haven, CT, January 14, 2005.
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well as to leverage them onto the broader union program, whether at the time that
involves contract negotiations, recognition of new union drives, retiree benefits, or a
“social contract” with the community.111 In researching Yale’s investments, union
members try to reconstruct and expose the economic capital buttressing Yale’s cultural
capital.112 Begleiter explains that Yale is sensitive to the ways in which UnFarallon’s
actions mar their reputation with both the public and the investment industry; Yale does
not like “to be thought of as a capitalistic investor,” nor does it like to be seen as a
financial liability to its investment partners.113 With UnFarallon, the unions hope a sense
of GESO’s persistent and growing attention to Yale’s investments will add another point
of pressure on the Yale administration to recognize the prospective union of graduate
teachers. But it is also in UnFarallon’s best interest for GESO to win union recognition.
Local organizing at the center of the neoliberal university, and its goals of wealth and
power redistribution in this case to graduate teachers and researchers, can have a
powerful effect across the global network of Yale’s capitalism.
As a recent labor consultancy report characterized the situation, "Union power is
derived by attacking Yale's reputation. Doing so effectively requires forming alliances
with others and expanding the battleground beyond the bargaining table and the campus
itself."114 UnFarallon is another aspect of a growing social movement unionism in New
Haven.115 By taking up the UnFarallon campaign GESO has expanded its allegiances
and its battleground. The prospective union of graduate teachers is well-positioned for
111 For a discussion of the organizing tradition at Yale and social movement unionism, see Sumanth Gopinath’s essay in this series. 112 Pierre Bourdieu, “The Forms of Capital,” trans. 1986. 113 Ben Begleiter, interview by author, New Haven, CT, January 14, 2005. 114 James Rubin, “Yale’s Investment Practices Under Fire,” The Yale Herald, September 13, 2002. 115 See Sumanth Gopinath’s essay.
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these kinds of new formations. Identifying as both students and workers on campus they
have direct connections to both student and labor organizations like United Students
Against Sweatshops and UNITE-HERE. Whereas the vast majority of the research has
been conducted by GESO members and former graduate students who are now employed
by the unions, many of the protests have been organized by an affiliated group of Yale
undergraduates. The UnFarallon campaign provides an opportunity to involve
community members with different histories of activism – labor, environmental, legal,
and especially those in global justice. It also challenges GESO members who may have
no more than a hazy understanding of the benefits of a union contract to see the larger
system in which their intellectual work exists. When I put the question to Begleiter
directly: “What is this campaign really about? Is it really about getting to Yale?” At the
beginning it probably was, he admits, pointing out that taking on a multi-billion dollar
intransigent employer is no small matter. But then he dives into the description of the
information they uncovered about Yale’s capital in pipelines in Ecuador and Sudan.
“People died to pay my stipend,” Begleiter finishes, “its different for me now.” Thus, the
UnFarallon campaign is a productive means as well as an end. It teaches and organizes
students and workers on the Yale campus by demonstrating how capitalism and
globalization work on their campus and half way around the world. It opens up
discussions, both theoretical and practical, about the place of universities in the global
economy.
If the UnFarallon campaign as a “means” demonstrates how capitalism works on
the Yale campus and in Indonesia, it also provides a means to connect the two. In Gauri
Viswanathan writing about Yale’s financial windfall from a previous global moment, he
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theorizes the relationship between Elihu Yale’s profits in the British East India
Corporation and the financing and naming of Yale. Viswanathan applies Edward Said’s
concept of “filiation and affiliation,” which suggests a shift from the familial
relationships of a pre-capitalist order towards affiliative relationships with the transition
to a global capitalism marked by the growth of institutions and corporations.116
UnFarallon’s retracing of the flow of Yale’s capital maps a network of affiliative
relations that could be used to form and mobilize alternative, counter-hegemonic
affiliations and solidarities.
UnFarallon’s new solidarities are characteristic of the “industrial unionism” and
community organizing at Yale, which has challenged the divisions between workers and
communities – with service and maintenance employees helping to organize clerical and
technical workers, all supporting the drives for unionization of graduate teachers and
researchers and hospital workers, insisting on the connection between the university and
the university hospital, fighting for community benefits agreements with Yale-New
Haven hospital and against the corporatization of a depositor-owned bank, etc. – through
the ties of Yale’s capital. Some of these new global afiliative relations are forming. An
international journalist recently found GESO’s research on some of Yale’s oil
investments that have become the focus of community organizing in his city. Ben
Begleiter hopes it will lead to collaborative action between GESO and local activists.117
A personal project here at the World Social Forum is to seek out Argentinean textile
116 Gauri Viswanathan, “The Naming of Yale College: British Imperialism and American Higher Education,” Cultures of United States Imperialism, eds. Amy Kaplan and Donald Pease, (Durham, NC: Duke University Press, 1993). 117 I am leaving this purposely vague by request from Ben Begleiter and the research team.
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unionists, Ecuadorian indigenous activists, and Indonesian environmentalists, and
reconnect Yale’s capital to empower the possibility of collective action.
Through UnFarallon, GESO members learn about the new world economy that
we call globalization, and can begin to locate themselves within it. While recognizing the
increasing global division of labor and its extreme inequalities, the cultural and
intellectual workers of GESO could begin the process of creating solidarities with the
new working classes of the world based on their shared relationship to Yale’s capital and
their positionality in the same economic system. Another world becomes easier to
imagine, and possible.
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