California is a "Developing" Economy, and Guess Who's Developing It?, or Blum's Business with the Bechtels.

Past chair of the UC board of Regents, Richard Blum, has been an ongoing target of student and worker protests, and for good reason. Although he created a center at UC Berkeley for the study of global poverty, his policies as a UC Regent have been cited by workers as creating poverty in California by keeping pay at campuses low and making UC unaffordable to working families. Students have been equally upset with Blum's votes and opinions on increasing student fees. As chairman of the search committee, Blum literally hand-picked Mark Yudof to succeed Robert Dynes as UC President. All in all Blum has been a guiding force in privatizing the UC since his appointment 7 years ago. Just as he specializes in leveraged buyouts and privatization of publicly traded companies, Blum seems to be practicing his same basic business philosophy on the university.

Blum likes to portray himself as an enlightened liberal businessman. He's friends with the Dalai Lama. He sits on the boards of the Carter Center and the Wilderness Society. He gives tens of thousands of dollars to liberal Democratic causes and candidates. He backed Obama's campaign for the presidency (literally, he's wearing the blue scarf in this photo).

But at the same time this is a man who made windfall profits off the wars in Iraq and Afghanistan by investing in companies like URS and Perini, two multi-billion dollar contractors. This is a man who has invested in companies owning high-tech maquiladoras on the US-Mexico border where military components are built for the DoD.

Blum's personal wealth is immense. Invested primarily through his equity group, Blum Capital, his dollars trace a complex web through a multitude of companies and funds.

Years ago when UC students were challenging the Regents as managers of the nation's two nuclear weapons development laboratories Blum became a target of protests yet again. His majority ownership stake and Vice President position at URS Corp. directly tied him, financially, to the nuclear weapons establishment. At the time URS was being paid by the Los Alamos nuclear weapons laboratory for construction and engineering services. This blatantly clashed with his role as a UC Regent, supposedly overseeing weapons lab as a public servant and deliberating on the future of UC-Lab relationship in an objective manner. Students revealed Blum's for-profit interest in Los Alamos through this corporation and forced him to quietly sell off his stocks and resign his position at URS. Reporting on this link by Keay Davidson at the SF Chronicle was so embarrassing that UC's Counsel had to issue a statement denying that this was a conflict of interest.

In the end the UC partnered with the Bechtel Corporation to put in a bid for the two nuke labs (http://lanl.gov and http://www.llnl.gov), successfully winning new multi-billion dollar management contracts. Blum divested from URS and denied any personal stake in the nuclear weapons enterprise. But two years after the UC-Bechtel partnership took over at Los Alamos a funny thing happened. Blum's former company URS bought a smaller construction firm named Washington Group International. WGI just so happened to be a junior partner in the UC-Bechtel team running Los Alamos (http://www.lansllc.com/about.htm). Thus while Blum made a modest exist from URS, URS made a big entrance into the US nuclear weapons complex as a de-facto co-manager of Los Alamos Laboratory. Blum's friend and URS colleague Martin Koffel explained the purchase saying "[it] positions us strategically in markets we think have very aggressive long-term growth profiles. That includes power and a very important prospect is nuclear."


In opposition to these shady deals that were stacking up between 2003 and 2007, UC students dug deep into Blum's business dealings, as well as those of other UC Regents and UCOP executives. What we found deeply bothered us (here's just one example). We did this research and fought this battle not only because we oppose the militarism, environmental racism, and imperialism that is synonymous with the UC's weapons labs, but also because we firmly believed, and still believe, that UC's management of the weapons labs since 1943 has had a most toxic and corrosive effect on the UC's governance. It affects all aspects of UC, from decisions on student fees to research policies, to the bonding of grounds and buildings and the selection of Chancellors and UC Presidents.

We adopted a simple but disturbing thesis: because UC runs highly secretive weapons labs; because these two labs are in fact as large in budgetary, employment, and physical terms as the average UC campus; because of the profits, secrecy, and power that is invested in the Regents as managers of the political-economy of nuclear weapons spending; the UC as a whole, under the leadership of its Regents, and Office of the President, became as much like a massive arms manufacturing corporation as a university. What shared governance we ever thought we had was hollowly betrayed by the fact that a few men, appointed by the governor to twelve year terms, wielded so much power. A tight knit, self-selecting group of men who have always controlled the core committees of the UC Regents (finance, investments, long range planning, and DOE labs) have dominated the Board's overall agenda. In recent years men like Blum, Gerald Parsky, and now Russell Gould, have steered the UC down a path that has advocated privatization through fee increases and all kinds of fishy links with business corporations. Through their alter-egos as bankers, lawyers, and capitalists extraordinaire, they have worked to buffer the state's regressive tax and spending policies, and helped devise the very austerity measures currently being hoisted upon the people of California across all public sectors, not just within the university.


One of the Regents' most important partnerships with a corporation is their for-profit Limited Liability Company formed with the Bechtel Group. In 2005 UC and Bechtel bid for the Los Alamos Lab's management contract. Eventually another UC-Bechtel LLC was created to manage the Lawrence Livermore Lab, LANL's twin ~$2 billion nuke facility.

At the time the reasons why the Regents were so willing to team up with Bechtel were perfectly clear. Bechtel was a Bush administration favorite, and with unrivaled connections in the Departments of Energy, Defense, and State, Bechtel consistently gets lucrative contracts.

But the personal and financial links that made this partnership happen weren't so clear. Subsequent research showed that then UC Chair Gerald Parsky had close links to the inner circle at Bechtel, most obviously through his mentor, George P. Shultz, the former Bechtel president (and still senior adviser) who ran Reagan's State Dept. and Nixon's Treasury Dept. Parsky worked for Shultz in the Nixon and Ford White Houses and later was handed a job at a prestigious Los Angeles law firm, again with help from Shultz. Shultz has kept busy in recent years as a professor at Stanford, a Hoover Institute fellow, and a key player in the Schwarzenegger administration's economic planning, and an important proponent of the "war on terror." So Parsky had a major friend at Bechtel through Shultz.

Thus when former UC President Robert Dynes' calendar was acquired by this researcher last year it was little surprise to see that Shultz's former lieutenant Gerald Parsky made the personal introductions between Dynes and Riley Bechtel. Over coffee at 50 Beale Street, Bechtel's San Francisco headquarters, the partnership was born.


But now the story gets even more complex, the threads more difficult to follow, the information even more disturbing.

It appears that Richard Blum has been a for-profit business partner with the Bechtel family and its closest associates for many years now, giving the UC-Bechtel link even more coherence. This relationship seems to have gotten off the ground in 1997 when Blum Capital and the Fremont Group bought into a little known company called Kinetic Concepts to the tune of $875 million. Kinetic Concepts is a medical technologies manufacturing company now valued at $2.4 billion. Blum Capital purchased 26% of the company while Fremont got a 40% stake.

Fremont Group is the Bechtel family's capital investment vehicle.

Fremont Group's major shareholders include the Bechtels, but also George P. Shultz (and a roster of many unnamed, secretive investors including members of the Saudi elite). Not to be out buddied by Parsky's connections to the "Bechtelians," Blum is not only doing business with them, he also appointed Shultz to the board of his UC Berkeley Center for the Study of Developing Economies. In addition to pooling their money together, Blum also steers the "liberal" Brookings Institution with other Bechtel-connected executives like the Fremont Group's president and CEO Alan Dachs.

Blum and the Bechtels have millions riding on Kinetic Concepts. Last year the company made an interesting comment in its Annual Report about the possibility of healthcare reform legislation coming before the Congress:

"The demand for our products is highly dependent on the policies of third-party payers such as Medicare, Medicaid, private insurance and managed care organizations that reimburse us for the sale and rental of our products. If coverage or payment policies of these third-party payers are revised in light of increased efforts to control healthcare spending or otherwise, the amount we may be reimbursed or the demand for our products may decrease."

Kinetic Concepts is actively lobbying the White House to shape healthcare reform legislation. A recent AP article reports that "Joel Johnson, a lobbyist with close ties to Rahm Emanuel, appears to have met with his friend one-on-one in May," and that "Johnson, a partner at the Glover Park Group, lobbies for several health interests including United Healthcare Services Inc. and Kinetic Concepts Inc., a medical products maker." Kinetic Concepts has spent hundreds of thousands of dollars in the last two years on lobbying to ensure that reforms do not cut into their profits. You can browse their lobbying activity here.

Tom Daschle, Obama's first choice for Secretary of Health and Human Services, the man who was supposed to drive healthcare reform through the Congress, was also briefly a business partner of Richard C. Blum's. They sat alongside one another on the board of the largest commercial real estate firm in the world, CB Richard Ellis for a stint after Daschle left the Senate. Daschle later resigned from CBRE in 2008 in connection with his troubles gaining confirmation as HHS Sec.

Blum still controls CBRE.

And like any good political power broker and friend, Blum did invite Daschle to be on the board of his Berkeley Developing Economies center. Healthcare reform legislation very much resembling a handout to the insurance industry is making its way through Congress. The UC Regents just increased student fees by 32%. "Developing economies," eh?


dave said...

great work darwin, as always - i'd love to hear more on the connection between stimulus spending directing private sector growth, and "sustainability" measures on campuses to drive forward the regents' massive capital projects plans -

AJ said...

Highly enlightening piece on the complex web of endless webs... yet another bum, I mean Blum deal.

Mike said...

Great piece with impressive details about Blum's dealings. Darwin, are you opposed to all UC/National Lab links so long as the National Labs are involved in nuclear/hydrogen bomb research? There are many more departments at the National Lab working on scientific research not related to designing nukes than the nuclear weapons department (X division).

Darwin BondGraham said...

Hi Mike,

My position on LANL and LLNL is that both labs should be de-funded immediately by about half their entire annual budgets. So a $1 billion dollar cut today would be about right. This billion could be taken out of their "weapons activities" budgets. The remaining $.5 billion or so spent at the labs by DOE should be used on environmental stewardship.

Ultimately both LANL and LLNL should be closed down entirely.

There isn't much other science going on at the labs, certainly not innovative and cutting edge work, and what there is could easily be re-located to different labs and universities that are much better equipped to do this research. LANL and LLNL are mostly only equipped to do high-end nuclear weapons work.

Having these labs do medical or environmental research is like putting a day care center inside a supermax prison. It just doesn't make sense in the end. It's like that old Sesame Street song: http://www.youtube.com/watch?v=FClGhto1vIg&feature=related

Read the budgets for the labs. The vast majority of the work and funding at the labs is for "weapons activities," or else activities like nuclear waste storage related to weapons research. Don't take my word for it, download and look at the budgets here: http://www.nnsa.energy.gov/about/documents/NNSA_Budget.pdf
See page 535 for LLNL and 543 for LANL.

Another case in point: LANL is currently manufacturing plutonium bomb pits. To ramp up this mission they are seeking to build a multi-billion dollar plutonium facility called the CMRR. If built, in constant dollar terms it would be the largest construction project in New Mexico's history, excepting perhaps the interstate freeways that run through the state.

The labs are nuclear weapons facilities, and perceptions to the contrary are mostly due to the lab's PR staff and managers who have made concerted efforts in recent years to play themselves up as having different missions that are valuable. Both labs do this because they are wary of being closed down (a very real fear in 1991); after all, can't 1 nuke lab do the work that 2 currently do? Couldn't we save loads of money with just one nuke lab? Reps. in the Congress still ask this today. So fearing closure they posture as being valuable beyond the weapons mission that is their bread and butter. There are other reasons they pretend and desire to have wider significance, all of which I think are dangerous.

In other words, these are nuclear weapons labs. It's the core mission.

Mike said...


Interesting link there to the budgets, thank you for that.

The reason for my question is that I graduated UCSB as a Chemical Engineer (we know each other via my long time girlfriend Nicole Rangel) and during my sophomore year I interned at Los Alamos National Labs working as a cancer researcher (the goal was to use simulation to approximate cancer growth in tissues). I agree completely that nuclear weapons are dangerous, and should be removed from the world, however I disagree that $1 billion is completely wasted by researching nuclear weapons.

During my summer in New Mexico I lived with an impressive post-doctoral candidate who was working in the weapons division, his work was not something we could discuss, but the goal of his team was to understand the dynamics of explosions. Granted, this information is most likely used to create more complex explosive devices, however I can think of two useful applications of this information: better understanding of big bang dynamics, precise detail about cell wall explosion. It is dangerous business creating, storing and testing detonation of radioactive material, but would you rather it be done by a facility that doesn't have the public oversight that UC must adhere to?

Regardless of where the money comes from it will fuel nuclear weapons research and my opinion is that housing all types of scientific and engineering research in a facility that is a supermax prison in a world of day care centers offers fantastic opportunities to UC students for research and UC system with international credibility. The attention (whether it be disdain or support) is useful to an institution that supports many more benevolent scientific researchers throughout the university than weapons researchers.

Without a clear path to nuclear weapons abolition, reducing National Labs budgets will force nuclear weapons research to be privatized, is that a better alternative than having the UC overseeing the Naitonal Labs?

Darwin BondGraham said...

Hi Mike,

Interesting points.

My response is to pose some questions back to you.

You ask, "...would you rather it [nuclear weapons research] be done by a facility that doesn't have the public oversight that UC must adhere to?"

Can you give any specific details of what this "oversight" is or has been? I'd say it's a myth that UC is some benevolent overseer doing things for the public good.

The sad fact is that UC doesn't provide "public oversight." In fact UC's history of running the labs has been rather scandalous, a time filled with illegal waste dumping, lax environmental, labor, and security regulation, and much corruption around the weapons complex.

You also say that having UC run the labs is better than the alternate scenario - privatization.

The fact is that the labs are already privatized. The University of California doesn't run the labs.

Two for-profit corporate entities run the labs, LANS, LLC., and LLNS, LLC. These are limited liability companies that include Bechtel, the UC Regents (not the UC per se), BWXT, and URS as corporate partners, along with some junior partners. So the labs are already privatized, secretive, without public oversight. The Regents are in the nuke business, and they use the university's good name and resources as a whole to accomplish this.

I've tried getting lots of information about lab management through both the Freedom of Information Act and California Public Records Act, and the sad fact is that private corporate entities don't have to comply by these.

So as a pretty experienced watch-dog of the labs, I can't say they're any more open to public scrutiny with UC involved than if it were Lockheed Martin.