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"If a politician found he had cannibals among his constituents, he would promise them missionaries for dinner."
- Henry Louis Mencken

"I'm a Republican and I'm going to run in the Republican primary and on the Republican ticket."
- Senator Arlen Specter, Newsweek, April 4th, 2009

In a major about face from his stance less than one month ago, Senator Arlen Specter, Republican from Pennsylvania, announced that he is switching parties earlier today.  The literal implications of this are that, assuming Al Franken from Minnesota gets confirmed, the Democrats will have 60 seats in the Senate, which is a filibuster-proof majority.

In the statement announcing his decision, Specter said the following:

"Since then, I have traveled the state, talked to Republican leaders and office-holders and my supporters and I have carefully examined public opinion. It has become clear to me that the stimulus vote caused a schism which makes our differences irreconcilable."

After voting in favor of Obama's stimulus package, one of three Republicans that did so, and then travelling his state and talking to members of his own party, it became clear to Specter that his nomination for the Republican party in Pennsylvania  2010 would be at risk.  Coincident to this, Pat Toomey, head of the anti-tax Club for Growth, stepped down from that post in mid-April with the intention of running in the 2010 primary.  In 2004, Specter barely beat Toomey in the primary by 17,000 votes out of a million cast.  Undeniably, that margin would have shrunk or gone away with Specter's support of the Obama stimulus package and polls showed Toomey ahead by double digits versus Specter, which made Specter's decision that much easier.

Specter now has to appeal to a different constituency in the Pennsylvania primary.  He can do this in both promises, as to Mencken's quote above, or in actions.  Quite frankly, if I were a Democrat in Pennsylvania I would want to see some actions from Specter in the next 18 months to prove his party allegiance before I would cast my vote for him in the primary.  Even in the most recent congress, he voted over 61% of the time with his Republican colleagues.  That number will shrink, likely below 50%.

That said, in his statement today, Specter did hedge himself in order to assert his independence when he stated:

"My change in party affiliation does not mean that I will be a party-line voter any more for the Democrats that I have been for the Republicans. Unlike Senator Jeffords' switch, which changed party control, I will not be an automatic 60th vote for cloture. For example, my position on Employees Free Choice (card check) will not change."

Given that Specter had previously voted for cloture in 2007 on Employee Free Choice, before he spoke out against it (if you will), I would consider this issue very much in play, among many issues, despite his referencing it in the quote above.

Now my Dad was a former labor leader in Canada, so I do not have a bias either for or against unionization, but it is reasonable to assume that the passage of this act will increase unionization as union representatives will no longer be selected solely by a secret ballot based NLRB election.  Under the Employee Free Choice Act, the NLRB would be required to certify a bargaining representative if the majority of employees sign cards, which obviously introduces the factor of peer pressure in determining representation as union members collect these signatures from their colleagues.  As was stated in Supreme Court decision NLRB versus Gissel Packing: "A secret ballot election is the most satisfactory - indeed the preferred - method of ascertaining whether a union has majority support." Indeed.

Unionization obviously has differing impacts on different segments of the economy, but for those businesses that are dependent on labor, the rise in labor cost could be dramatic.  According to estimates by the Economic Policy Institute, if 5 million service workers join unions they would "get an average raise of 22%", which would add up to "$34 billion in total new wages". While this is obviously a positive outcome for the service worker, assuming they're able to keep their jobs, the impact on the margins of their employers can only be negative.

Make no mistake about it, the balance of power in the United States has officially swung to the left and as a result we should analyze both risk and reward accordingly with this new geo-political input.

Daryl G. Jones
Managing Director