GM has posted the largest loss in automaker history, $38.7 billion for 2007. Almost all of that is a writedown of deferred tax assets--a masterpiece of big bath accounting. On a cash flow basis, the company seems anemic, but not fatally wounded.
Once again, the company is hoping to reduce costs by offering buyouts to more of its union employees. It's astonishing how lavish these buyout packages can be, and yet still save the company money--early retirement plus $45,000 is apparently cheaper than keeping them on the line. It's a sign of something deeply out of whack in the labor market when companies are consistently this desperate to shed workers--how can the UAW swing enough clout to keep the automakers tottering in and out of unprofitability? Is it good for anyone if they push the company into bankruptcy? Yes, yes, American automakers have a lot of problems, but their labor costs are by far the biggest and least tractable ones. You can't enhance your productivity and slash costs if you have to find some way to keep tens of thousands of extra workers occupied all day.
I'm sure that conservatives will claim this is a matter of labor law, but that doesn't offer a very good explanation; most other unionized industries are nowhere near this bad, and the other one that is (airlines) has some unique pathologies due to value-claiming by multiple unions that the auto industry shouldn't display. The UAW's behavior seems irrational enough, though explicable: it's essentially a cognitive bias problem, excess loss aversion. Faced with the certain loss of tens of thousands of jobs, the union is gambling that they can push the company to the edge of bankruptcy without going over. One assumes that other sorts of public choice problems also come into play: members who are likely to get laid off are probably more motivated voters than members who aren't.
But the company's behavior seems inexplicable. All three of the automakers are crippled by their deals with the union, not just because of wage and benefit costs, but because the union tends to strongly resist productivity enhancements that might cost jobs. Yet none of the automakers has taken any sort of stand. The company and the union are like two skydivers trying to share a small parachute--locked in each other's arms as they hurtle to their death, because neither wants to be the one to let go.
"Once again, the company is hoping to reduce costs by offering buyouts to more of its union employees."
Correction: GM is offering buyouts to all of its union employees.
The UAW seems irrational when you think of its effects on the medium-term viability of Ford and GM, and of the prospects of employment for younger or future UAW workers. But it seems more rational (if still harmful to everyone else) if you think of it from the perspective older UAW workers, who I would guess dominate the membership. They probably don't care if their employer is still around in ten years; they are just trying to squeeze as much out of it in the meantime as possible.
The problem is that GM never funded its obligations properly. It got cheap labor by agreeing to pay pensions. Instead of investing the savings in a big enough portfolio to pay those costs, they saw the savings as "free money" and paid them out as bonuses and dividends. It is precisely as if I took out a giant business loan, gave it all to my partners, and complained about those painful "legacy" interest costs keeping me down. Duh? I was supposed to invest that money in productivity enhancements that would be more than enough to pay back the loan plus interest.
The whole deal was stupid to begin with. Unions should have bargained for cash and invested the money themselves. But now that GM is stuck with it, the unions should be treated as the *most* senior creditors -- because their pensions are labor compensation, which, for work already done, is supposed to be senior to all loans. Until GM can fund its pensions on a termination basis (a price they won't even report), it should not be allowed to pay back any bonds. And dividends? Holy ****, why were they allowed to pay dividends this whole time?
My solution? GM can leverage itself to the hilt to eliminate *all* legacy costs by paying a *third party* to provide them, to eliminate conflict of interest. New junk bonds won't cover it? Great, them GM should be forced to do a secondary issue. Shareholders can pony up to pay off legacy costs or see their stake reduced.
I would personally like to see GM pay into a third-party fund for their warranties as well, since they've proven incapable of planning for legacy costs, and concern about solvency makes me wary about buying their products, because I might need warranty work -- and whose to say warranty costs would be senior to any of GM's other obligations?
And Megan_McArdle, as you reported before, buyouts will only eliminate the competent workers, since they have the most to gain from a buyout. People who can't get a job elsewhere won't take a buyout.
Shareholders can let go - sell the stock. The competent managers can let go, too, if they are willing to seek other employment. Ditto with union members. It is when our government does something foolish that we can't let go unless we move somewhere else. So we need to put more of our energies into worrying about governance than about the foolishness of Detroit.
They probably don't care if their employer is still around in ten years
But they do--a big part of their total comp is retiree medical and pension benefits. Those retiree costs are also a big part of the automakers' problems.
"But they do--a big part of their total comp is retiree medical and pension benefits."
Aren't these getting transitioned to union-run trust funds, or is GM not part of that deal?
I was reading Crain's Business Journal a while back in Detroit Airport. It had an article about a DC area engineering firm that opened a branch in Detroit. They were scaling back because they couldn't get local engineers to work at pay that reflected local costs (about 10% less than DC area). This was attributed to years of Big Three high pay rates.
High pay brought not only labor peace for hourly staff, but political peace from every one else. You could use this influence to buy protection from state goverment in Lansing, greens in D.C. or other regulatory threats
Does there come a day when the overseas assets equal the value of the outstanding shares, and it makes sense for someone to do a buyout, and then reorganize in bankruptcy, voiding the pension obligations like some airlines have done, and simply end all manufacturing in North America, in order to limit the political fallout? It would be great to see bumper stickers imploring people to buy American with Toyota, and avoid foreign-made Chevys.
Taking a page from the Social Security playbook, eh?
Aren't these getting transitioned to union-run trust funds, or is GM not part of that deal?
Yes, but--(1) GM isn't (necessrily) funding the whole thing upfront, and (2)if they went chapter 7 (or 11), in addition to losing future contributions, the UAW's ability to re-trade the deal would disappear.
An example of the continuing obligation of GM:
"Up to 20 additional annual $165 million payments to the VEBA by GM. These “backstop” payments are worth up to $1.6 billion and will be made any time the VEBA’s funding level is projected to be insufficient to provide current benefit levels for at least 25 years from the date of the required payment."
Taking a page from the Social Security playbook, eh?
No, no -- see, there's a Trust Fund! GM could have solved all its problems by writing IOUs demoniated in some magical, undefaultable currency guaranteed by themselves.
Megan,
I think a reason that the auto companies seem to be in such great trouble with their unions, is that they are the last of the traditional heavy manufacturers left in the United States. Ask a former union steel worker about his pension and benefits, or the results those benefits had on the steel companies.
What is happening to many of these countries is similar to the problems we are having with social security and medicare. Ratio of working members to retired workers got too small, leading to unions needing higher dues to help the retired workers, they then needed higher pay from the companies to account for the union dues, while at the same time the companies themselves had much larger pension and health expenses than they had ever had before. Not all of these cost increases should have been forseen by the companies. One can't blame a GM exec for giving benefits based on the 60+ life expectancy of the day, only to see life expectancies shoot up over the next 15-20 years. Additionally, late in life health care has become much more expensive than it was in the past. Everything, from diagnostic tests, to drugs for chronic conditions, to surgeries has become more effective at keeping people alive, while also growing exponentially in cost.
Of course there is also the gross idiocy displayed by the American auto industry over the last 30 years, ably abetted by politicians on both sides of the aisle.
I believe the Japanese auto makers will be facing similar difficulties in the coming decades. Their companies are much younger in terms of current and former employees.
If you want to know how all this is going to play out, just read the story of how it all went wrong in Britain, about one generation earlier.
All three US companies will eventually end up in bankruptcy. There really is no way out of the hole.
You hit the nail on the head with this one, Megan.
The biggest problem with America today is that workers are being paid way, way too much. The only way to stop it would be a law mandating that every worker take a 10% pay cut each year. Once this law's in effect, corporate profits would soar. The stock market would rally. And investors would start getting big fat dividend checks, instead of the measly returns being paid now.
Unless we can do something to reign in out-of-control wages, our country is doomed--just like GM.
"I think a reason that the auto companies seem to be in such great trouble with their unions, is that they are the last of the traditional heavy manufacturers left in the United States."
Boeing, John Deere, United Technologies, GE, etc. are still doing heaving manufacturing in the U.S., and doing so quite profitably.
In regards to Megan's question of why don't the Big Three stand up to the unions, I don't really know, but I would speculate that, as close as GM might be to bankruptcy at this point in time, they really can't afford to stand up to the union. Their balance sheet for 2006 shows over $48 billion in debt, including 5.5 billion due within 12 months. Total equity is negative 5 billion.
For such a highly leveraged firm, a big labor showdown could quickly have it in default on its debt obligations, I would think. Just a guess, though.
Maybe when management and the board sit down and do the math they think that it might just be worth it for the union membership to bankrupt the company and take the residuals via their pensions?
It was traditional practice for the UAW to fight economic issues by launching a "health and safety" strike, during a contract period, at a key parts plant.
The result was that GM or Ford would have to shut down its assembly plants (since they didn't have the needed parts) and its other parts plants (since there was no point in making parts for cars that would not be assembled) and pay the workers of the closed plants (who are under contract) full unemployment benefits. Effectively, it allowed the UAW to strike company-wide on the automaker's dime.
Certainly, the automaker would challenge the strike at the NLRB, since economic strikes are illegal during contract periods. But the NLRB process was slow, and the union would always have some set of fig leaf claims about health and safety. How many months could an automaker fight the NLRB process while making nothing and paying near-full labor costs? And, of course, a UAW condition of any strike-ending contract was always that the automaker drop all NLRB claims.
So, the management teams at Ford and GM always had a simple enough choice; concede to the UAW or bankrupt the company. Now we're in owner-agent territory; which path was more likely to let the executives keep their jobs?
Oh, had state governments been willing to let the automaker off the hook for unemployment benefits, or some prosecutor taken an interest in the UAW's blatantly illegal tactics, there might have been some chance. But UAW members vote.
Now, since the spin-offs of Delphi and Visteon at the end of the 1990s, this UAW tactic has been less practical. But the contract baseline was already established. The last nine years have been one of the automakers trying to take back just some of what they lost in decades where they had to finance strikes against themselves.
I think you are correct, Yancey, and it will be interesting to see which of the large scale cyclical speculators get burned when it happens. Kirk Kerkorian has made a few billion guessing right on the troughs of stock prices among American auto makers, and if he lives long enough he may make one gigantic bet too many, or somebody else likely will. Then again, somebody like Kerkorian would be the most likely actor to do some very profitable chapter 11 machinations.
"but because the union tends to strongly resist productivity enhancements that might cost jobs."
Could anyone describe this in more detail?
jon, I agree with a lot of what you said, but this is wrong:
What is happening to many of these countries is similar to the problems we are having with social security and medicare. Ratio of working members to retired workers got too small, leading to unions needing higher dues to help the retired workers,
That's the "Malcom Gladwell" explanation. The problem is, company pension solvency has nothing to do with how many workers they have at any later time. A pension should be funded in advance, with investments set aside so as to match the future obligations, making all future profitability independent of how many pensioners there are. In a properly-run pension, the company could have *zero* workers and still be solvent.
Mortimer_Madler: That's very cute, but Megan_McArdle wasn't complaining about wages in general, but about *these* wages. Unions can demand whatever they want. They can't (yet!) force people to buy their cars, and currently, the value they add to the final product does not justify their wages, and therefore, being tied to the old payment schedules makes their work a losing proposition.
anony-mouse: The analagous move would be for GM to stuff its pension funds with sub-junior toxic waste junk bonds, which is exactly what they, in effect did. When talking about SS, the problem is that whenever you point out that an obligation from yourself to yourself is not an asset, defenders of SS immediately say "OMG ru saying teh govrmnt shud Dfalt?" when in reality, the argument is, "the trust fund bonds are not proof that the future obligations have been funded; other sources will have to pay them".
Yancey_Ward and Will_Allen: yes, that's exactly what will have to happen, and shows the moral hazard in the pension insurance. The possibility of canceling all these "unfair" legacy costs is what keeps share price from tanking and bonds from dropping to CCC.
Where's Gordon Gekko when you really need him?
Person:
"Unions should have bargained for cash and invested the money themselves"
I would argue that they never could have done that. It costs GM about 150k per employee per year only about 70k of that is cash compensation. The unions knew the American public would never support a strike with the goal of ever factory worker making 150k. They knew that they could extract 80k in "benifits" and win sympathy from the public.
Jmo: I was referring to the 1950s, not present negotiations.
Person,
No, I think even back in the day - the hourly compensation would reach a point where the public would start to question the strike. Then the UAW would say we really can't strike for $10/hr(in 1950 lets say) but we can strike for a pension that lets us retire at 50.
They needn't necessarily phrase it as a per-hour wage payment; it could just be a block "contribution" to a union-run fund. In any case, whoever ran it should have been under strict monitoring by the union. To the extent the union never even considered where their pensions would be coming from, they were foolish on their end as well.
I find it interesting that Megan shows her distaste of those dastardly unions because they bargained so hard, using the tools at their disposal. Yet just the other day she goes on about how fair and just it is that CEO's see skyrocketing pay. Why that's just the market, with CEO's bargaining for what they can get. When it's dirty workers doing the same, it's a different story.
In a related thread, there was some contention over when CEO pay was 'too much'. How does one determine what 'too much' is in a way that's not just some sort of wild guess that depends on prejudice at least as much as it does on a reliable metric? Mortimer has raised a similar issue (I _think_ this was satire) for the line workers. But oddly enough, there doesn't seem to be nearly as much disagreement over how determines the pay on the floor as there is on the pay in the corner office.
And finally:
Uh, respectfully, I disagree. The biggest problem these companies face is that no one is buying their cars. I haven't owned a car manufactured by the traditional Big Three since, well, maybe late 80's or early 90's. And it wasn't a price issue for me, it was a quality and preference issue.
If this is the typical reason - and I think it is - the problem has nothing to do with the assembly line workers, and everything to do with management. So what's the story on giving them the boot or cutting back on their compensation?
Anything?
At least with Ford, the Ford family is so rich and so out of touch with the real business world that they simply don't care about the losses Ford accrues.
The Ford family doesn't want to be seen as the bad guys.
I heard a sports reporter in Detroit on the radio say, "I wish the Ford family would fire the Detroit Lions Managment (they own the team)....And fire a lot of employees too."
SOV,
The problem is that the big 3 have a few thousand extra dollars in labor costs on each car they produce. (Compared to, say, Toyota's Tennesse production facilities)
If you tacked $3k onto the price of a Camri, or "sweated" out the extra costs with a cheap interior and cut corners, it suddenly become a much less attractive proposition.
This is not to say that GM's management is brilliantly competent, but they start with a distinct handicap, and they have yet to figure out how to make it up.
But oddly enough, there doesn't seem to be nearly as much disagreement over how determines the pay on the floor as there is on the pay in the corner office.
This is not hard to understand.
It's because there's a pretty thick market for automotive labor, with both union and non-union shops and lots of people who come and go as the wages please/displease them. Also, the direct cost of factory labor for a given car is easily calculated. Wage-wise, workers are almost interchangable productivity units. If UAW workers charge higher prices than non-UAW autoworkers, and aren't more productive in comparison, then they're overpaid.
Buying a CEO is like buying a unique good with few comps (like, say, an isolated vacation home with no similar homes nearby), and the value of that CEO's contributions are much harder to asses than the value of the guy at welding station 6. Maybe he has wonderful judgment and unmatched negotiating skills; maybe he gets lucky. Hard to say.
And surely you would agree that more people would buy Big Three cars--even lower-quality cars--if they were to be sold more cheaply than today?
it could just be a block "contribution" to a union-run fund
Oh, that would have worked well. The mobsters who would have taken over the UAW probably could have avoided any civil suits under an "attractive nuisance" theory. Give hundreds of millions to a union in the '50s--priceless!
More feasible would have been some sort of life insurance product with a cash balance available upon retirement.
Uh, respectfully, I disagree. The biggest problem these companies face is that no one is buying their cars.
Well they still have 50% of the domestic market, and that's not including the fact that Volvo, Land Rover, Jaguar, Mercedes, Saab, etc are all owned by the "Big Three." Maybe losing some market share wouldn't be so much of a problem if they didn't have so much "overhead" expense to have to recover?
If UAW workers charge higher prices than non-UAW autoworkers, and aren't more productive in comparison, then they're overpaid
Or perhaps the non-union workers are underpaid, since their lack of a union impedes their ability to negotiate to receive wages comparable to their productivity?
The problem is that GM never funded its obligations properly. It got cheap labor by agreeing to pay pensions.
i dont know about cheap labor, the average line worker at the local Delphi plant was firmly middle-class due to the low cost of living while having wages set in Saginaw
If they are saving money by buying people out, then the problem probably has nothing to do with the pay of a single worker, and more to do to the fact that they have thousands of useless workers that they can't fire.
Does this mean that the market did not accurately price the cost of the labor of these employees?
And as a separate issue:
Maybe, maybe not. This is again, anecdotal, but most of the people I know think, unfairly or not, that 'American' cars are of substandard quality, and that whether or not a particular model was priced at X thousands of dollars or $3,000 less would have relatively little to do with the decision of whether to 'buy American' or not.
I would tend to disagree. These people have made a lot of bad decisions over the years, it seems to me. Pointing to the workers just seems to me to be a way to evade responsibility for those decisions.
Look at it this way: have the management ever 'taken responsibility' in a meaningful way for any poor decision or sequences of poor decisions? Have they ever taken actual pay cuts, as opposed to stock options that didn't pan out so well?
Oh, I'll make a prediction too: even if GM sheds all these workers that cost so much, they _still_ will not be competitive in the sense that people will be flocking to buy their products.
Or perhaps the non-union workers are underpaid, since their lack of a union impedes their ability to negotiate to receive wages comparable to their productivity?
Slice it however you like, we have a basis for comparison, unlike with CEO pay.
"Does this mean that the market did not accurately price the cost of the labor of these employees?"
The market has nothing to do with it; the pay scale was determined by negotiations with the UAW. The market price for auto labor is clearly lower than the UAW wages. For example, Honda is offering $15-$18 per hour wages at its new plant in southern Indiana, and has no shortage of applicants, many of them experienced auto workers.
Pace, Rob.
But if their contributions are so hard to assess, then they are most manifestly _not_ being paid for 'worth'.
My own personal feeling is that CEO pay is high because the managerial class has a high opinion of themselves and what they bring to the table. Despite what the actual state of affairs are (how it is that a highly skilled man, a highly intelligent man who carries around in his all sorts of numerical methods, thousands of formulas and procedures the ability to solve differential equations, perform convolutions, etc. is deemed to be worth _less_ than a man whose biggest intellectual achievement is an MBA is beyond me.) So bringing on board a sort of super-manager is supposed to somehow make more sense than hiring people who are skilled and familiar with the product.
Oh, no doubt about that, elasticities and demand curves and whatnot being what they are. But I'm saying that the quality being what it is, and the price differenctial being what it is, are not necessarily in line, that is, if you could somehow magically spend an additional $3,000 dollars on each car without it appearing on the books, you would still have a substandard product.
Like it or not, true or not, Subaru/Toyota just has a better reputation than Ford/GM/Chrysler.
And it's not because of 'the workers'. It's because of the management.
heedless: This is not to say that GM's management is brilliantly competent, but they start with a distinct handicap, and they have yet to figure out how to make it up.
SOV: I would tend to disagree. These people have made a lot of bad decisions over the years, it seems to me. Pointing to the workers just seems to me to be a way to evade responsibility for those decisions.
Seems to me there are two fronts: unusually high costs, and poor sales revenue.
The workers act in their own short-term interests, accepting as much benefit as the unions are able to "win" for them. The unions act in their own short-term interests, extracting as much as they can from the company. And yes, the executives of the company act in their own short-term interests, allowing themselves to be coerced into making deals that are untenable in the long term.
Look at it this way: have the management ever 'taken responsibility' in a meaningful way for any poor decision or sequences of poor decisions? Have they ever taken actual pay cuts, as opposed to stock options that didn't pan out so well?
Nope. The directors & shareholders don't require this. There seems to be plenty of blame to go around.
ScentOfViolets:
"This is again, anecdotal, but most of the people I know think, unfairly or not, that 'American' cars are of substandard quality, and that whether or not a particular model was priced at X thousands of dollars or $3,000 less would have relatively little to do with the decision of whether to 'buy American' or not."
The reason American cars are of such poor quality is a $25,000 Camry contains $18,000 worth of parts, a $25,000 Chevy contains $15,000 worth of parts, $3,000 going to pay for union benifits. The $3,000 extra dollars Toyota has to spend goes to buy higher quality more sophisticate parts.
For example - a Chevy Malibu 4cyl has a 4 speed automatic transmission. A similar 4cyl Toyota Camry has a 5-speed automatic. That extra gear gives you both better acceleration and higher gas milage. Why doesn't Chevy spend the exta $500 on the extra gear? Because it needs to pay for those union benifits.
The problem is that the big 3 have a few thousand extra dollars in labor costs on each car they produce. (Compared to, say, Toyota's Tennesse production facilities)
Does this mean that the market did not accurately price the cost of the labor of these employees?
Well it was negotiation with a union, a monopoly supplier, not a real competitive market.
Also that type of contract worked well for a time. The problem is that it wasn't flexible. The advantage of markets is not that they get the price right for all time at one go, but that they can adjust. But the monopoly supplier here (the union) doesn't want to adjust, and also it gets support from the government. (If the companies tried to organize and form a united front against the unions the Feds would charge them with collusion, and there are other advantages unions get from federal and state governments)
As for the percieved lower quality - Well I think there is such a perception, but perhaps putting $3k per car (without charging more) in to approving quality, would in the long run be enough to reverse the image. Or alternatively dropping $3k off the price of each car would attract new buyers. Or they could make $3K more profit for each car, or spend $3k per car more in development or capital improvements, or any combination of the above.
I'm not saying that everything would be fine for the "big 3" if they could end this $3k disadvantage, but it certainly would help them a lot.
Right. It's all the employees and their high costs. All their fault.
Is that really what you're saying? It wasn't because of any bad decisions by the management, wasn't because of any failure to innovate, to produce cars that appealed to the consumer?
I might also add that it was the managers who agreed to the employee compensation packages; no one broke into the corporate boardrooms and held a gun to the collective management's head to sign on to a bad deal.
So something is broken. And it _ain't_ the employees.
Is that really what you're saying? It wasn't because of any bad decisions by the management, wasn't because of any failure to innovate, to produce cars that appealed to the consumer?
Not at all. I assume you missed my most recent post.
But if their contributions are so hard to assess, then they are most manifestly _not_ being paid for 'worth'.
It would be fairer to say that we don't know what their worth is; that is, you are right to say that there isn't a good metric. Certainly we can postulate a fine measure of worth--CEO X brings in $Y more than CEO Z because of his much better business decisions, and therefore is entitled to a cut of that as salary--we just can't use it because it's impossible to evaluate.
My point is not to defend CEO pay. My point is merely that there is a good metric for line workers, or rather several related good metrics: cost of labor vs. total cost of car (perhaps compared to industry averages), average productivity per hour (in dollars, calculated based on sales price), direct wage comparisons to other companies in the industry, etc.
So there is no contradiction in being unable to identify when a CEO is overpaid but being able to identify when a line worker is over paid.
if you could somehow magically spend an additional $3,000 dollars on each car without it appearing on the books, you would still have a substandard product.
I have no way to evaluate whether this is accurate or not; it seems like a rather detailed quantitative conclusion. I can say that I have a 2000 Ford Escort whose quality has been highly satisfactory to me, and that I bought it new because it was cheap.
To the "blame the management" crowd: I know I've said this somewhere before, but I'll say it again: problems stemming from legacy costs (and above-market wages count as a legacy cost) supercede and obviate any problem stemming from poor management, leadership, or engineering.
The proof? Assume one day some GM manager (or line worker or engineer or executive) is hit with such an amazing bolt of insight that he can produce superior designs, and manage the entire operation, all by himself, so they can lay off pretty much anyone else above the low-level workers. Would this miracle turn GM around?
No, because that worker would take his superhuman powers and go apply them at another car company, where they could pay him what he's worth (a little under the resulting gain in profits due to him), *without* deducting to pay the legacy costs for millions of people he's never met.
Now, assume a slightly inferior mortal and work from there.
GM and the rest of the Big Three have been bitching about legacy and medical costs for over 20 years.
When you have something you know is on the horizon for 20 years and you STILL haven't figured out a way around it, sorry, that's not the workers' fault. It's bloody bad management. Especially if management insists on their own continual stream of equity options, bonuses, and high salaries. Either fix it or shut up already.
(And my own experience of US-made cars by comparison to my 8-year old Nissan with over 130,000 miles on it makes me never, ever want to purchase a US car. )
There's no need to speculate on whether cost-cutting produces an inferior-quality car; ask anyone who has worked at one of the third-party suppliers.
One of my acquaintances, until recently, was a design engineer at such a parts house. At one point in the late 1990s, he commented on having watched two air conditioning compressor designs go through engineering. One was for Honda; the other was for GM. The former was built with a better quality design and superior materials, at a cost of few extra bucks per unit. Reason? That is what each manufacturer was willing to pay for.
Save a few bucks on one part here and a few bucks on another part there, and pretty soon you're talking about real money -- maybe even $3000. Thus, even if comparable car models at the respective plants were built by top-notch workers to the best possible standards of workmanship, the GM car is likely to have problems first. In practice, however, the merits of the GM assembly quality are also questionable, partly because the Japanese have had better management-labor relations in general and partly because of greater use of automation in Japanese facilities.
Now, I say my friend was in this position "until recently" because the ongoing woes of the domestic auto industry obviated the need for his services (as well as those of several other employees at the supplier). Interestingly, when an engeineer's services are no longer needed, he or she can be laid off and is expected to cope with the resulting disruption to finances and personal living circumstances. Given that this job was in central Michigan, the guy will probably have to move somewhere else in order to work. I also know that unlike a UAW assembly line worker, his services were not valued at a net compensation of $150k/year.
UAW workers, however, are difficult or impossible to relieve of duty even when there is no demand for their services. For those who were trying to drag in CEO pay: how many idle UAW workers at $150k/head does it take to blast way past the compensation of an overpaid Big Three CEO?
SoV, you are saying that the labor unions and the relatively high cost of labor for the Big Three has nothing to do with their problems? Are you really saying that the monopoly that the UAW has on Big Three labor isn't a problem?
Apparently our favorite economist didn't read today's NY Times, which said:
But go ahead, Megan, blame the unions.
Re: The market has nothing to do with it; the pay scale was determined by negotiations with the UAW.
So bargaining between buyer and seller has nothing to do with the market? Interesting idea, that!
Really? It has nothing to do with management decisions? Decisions, say, on the design of the car, servicing contracts, etc? It has nothing to do with the decisions to go after the crowd who want a bigger vehicle, like an SUV or a truck, nothing to do with innovation and producing a more up-to-date smaller car?
I don't know about that at all. You seem to be implying that all other things being equal, a $21,000 GM model is just as good as a $17,000 Toyota. That is most certainly not my experience.
I don't know about that at all. You seem to be implying that all other things being equal, a $21,000 GM model is just as good as a $17,000 Toyota. That is most certainly not my experience.
Cars don't normally work that way; there isn't an option box that says "same thing, but with higher-quality components across the board." Pricing differences are usually consumed in vehicle size differences or convenience packages.
Really? There were no other workers that could be employed? That's hard to believe. Do you have a source for this rather interesting claim?
Again, where did you ever get the idea that these unions were 'monopoly suppliers'? Or that the government is supportive of unions to the detriment of companies? This may, I say _may_ have been the case thirty or forty years ago. But the actual fact of the matter is that the government seems to be rather hostile towards unioins in general, and has been ever since Reagan took office.
That may or may not be true. What is definitely not true are that there are other industries that have not been competitive, even with plenty of help from the government to catch up and modernize. For example (unless things have turned around recently) the domestic steel industry. Is the lack of competitiveness there 'the workers' fault too?
So for (upper)management, the inducement is a 500-lb carrot vs a 300-lb carrot. It is not the carrot or the stick, which are the alternatives for most people.
This seems to me to be an excellent formula for being less than competitive.
Let's see:
Surely SoV is right that quality and design problems come at least in part from management; does anyone know what percentage of GM's budget goes to the (apparently less than stellar) management vs. to labor? That is, would firing that particular deadwood make any difference to the balance sheet? And why can't GM hire some decent design/marketing people if that's the problem?
Cars don't normally work that way; there isn't an option box that says "same thing, but with higher-quality components across the board." Pricing differences are usually consumed in vehicle size differences or convenience packages.
So we can't find a comparable car or two on each side to compare, right? Pit a Civic and a Tercel against a Focus and a Cavalier? Put an Avalon next to some boat-like Buick? For fun, we could require that both the "American" car and the "import" actually be built in the US, as many are.
It's worth remembering, too, that high prices don't mean better quality with German marques; they consistently show up at the bottom of Consumer Reports' rankings for reliability (but they look nice!)
This is _not_ the market in operation? These are two organizations, negotiating in the interests of their members, with no 'coercion' (even using the funny definition that libertarians use), no force, no fraud.
I do not think 'the market' means what you think it means.
Is the lack of competitiveness there 'the workers' fault too?
I don't know about the steel industry, but given that a major reason for manufacturing going overseas (like textiles, plastic trinkets) is lower labor costs, well, yes, you could choose to put it that way. Americans just won't work for the prices that are paid overseas.
Uh, SoV, you seem not to be familiar with American labor markets. There are no other workers that can be employed. The automakers are closed UAW shops. The labor union is a monopoly supplier. This is not even remotely contestable.
Good. You acknowledge that CEO pay doesn't have a lot to do with performance.
Good. You agree that there are metrics that can be evaluated fairly objectively.
Not so good. You have made an unjustifiable connection between metrics and pay.
Now, I would agree with you that there should be some sort of connection. But I don't see that working out in practice most of the time.
What seems to be the key factor is not productivity - you yourself acknowldege that this is not the case with CEO's, but with leverage and power. Iow, pay is often determined by non-economic factors.
Take management in these companies, for example, or airline managment. In a sane world where there were good metrics that were being followed, these people would be forced to take drastic pay cuts, in fact, cuts that would put their pay below what the typical line worker makes.
But that's not what happens, is it? The workers have relatively little say about how the company is run, yet if things turn out poorly, it's the guys at the bottom that take the hit 'for the good of the company'. Not the people who put the company in such straights to begin with. No, they may not have as big a bonus, their options might be so much scrap paper, but their overall compensation packages are still quite handsome.
Not the way they would have you believe things work in Econ 101 now, is it?
Your experiences closely parallel mine, both with management and automobiles.
You know, I don't really care if management makes out like bandits when times are good, so long as the people at the bottom get their due.
What really chaps me is that when times are bad, managment still makes out like bandits. No 'magic of the marketplace' for them. No 'personal responsibility', the sin qua non of someone who really believes in individualism as opposed to merely mouthing the words. That's for chumps.
You've got to be kidding me. There are actual laws on the books that forbid automakers (at least in plants in the U.S.) from hireing other workers?
Where could I find the text of such laws? I also seem to recall that not so long ago, the UAW was striking for, among other things, job security.
Why would they be striking for job security if they already had it? That doesn't make sense. Or am I remembering wrongly?
ScentOfViolets —
The UAW unlawfully had workers at plants under contract strike over economic issues. GM was then required by the government to pay the wages to the UAW workers at plants shut down as a consequence of the unlawful strike. The unemployment benefits then had UAW dues automatically deducted from them, that money going on to pay the strike benefits of the illegally striking workers.
Now, GM would quite often actually try to fight this by hiring replacement workers at the plants where the unlawful strike was happening, and resume production. At that point, the UAW employees at another plant would engage in job actions to shut down production. Since they are under contract at those plants, GM would have to deal with the job actions through normal grievance mechanisms, which would take weeks or months to process, during which GM still would be on the hook for the wages bill at every facility other than the one engaging in the illegal strike.
Obviously, this was more trouble than it was worth. With the country under the benevolent rule of Ronald Reagan, GM ceased employing UAW workers and hired non-union employees at all of its plants, just like it could replace top executives. With the UAW grip on the plants broken, GM adopted Japanese-style flexible job descriptions and work rules while eliminating featherbedding, and thus reduced the cost production of its automobiles by 40% without touching wages or benefits.
With literally billions of dollars freed up, GM was able to simultaneously improve the quality of its automobiles and reduce prices. When Japanese automakers tried to assault Cadillac's grip on the luxury car market with Infiniti and Lexus, the Japanese suffered heavy losses. At the same time, the lower-market U.S. cars slowly drove down Japanese sales. Rather than follow plans to expand to new plants in the U.S., the Japanese automakers were forced to retrench.
Oh, wait. That's what happened in the world where the union monopoly on Big Three labor actually ended when Reagan came along, instead of persisting to this day. Your mistake.
Seriously, SoV, your incredulity is theatrical, but in this case all you're underscoring is that you have no idea what you're talking about. GM can hire replacement workers during a strike, but it can't replace the union except through a decertification process that is theoretically extant but practically not possible. And in the case of the UAW, the union is sufficiently powerful that hiring replacement workers is also, as Oildrilling Lunatic points out, actually not possible.
Unless the workers strike, GM cannot get rid of them except by negotiated settlement; that's part of their contract. It can fire individual workers for cause, but the procedures for doing so are so convoluted that it is often easier just to pay the worker not to do anything. These aren't contested facts.
And don't forget the UAW's history of using violence, harassment, and destruction of property against replacement workers.
Rob Lyman wrote: So we can't find a comparable car or two on each side to compare, right? Pit a Civic and a Tercel against a Focus and a Cavalier? Put an Avalon next to some boat-like Buick? For fun, we could require that both the "American" car and the "import" actually be built in the US, as many are.
No, I agree with that comparison, and consider it valid. The SoV post I was responding to was suggesting that if the American manufacturers have hidden labor costs eating against their vehicles' quality, then one should be able to disprove it by comparing (her example) a $17k Japanese marque against a $21k American marque, and get equivalent quality.
That obviously doesn't work, because the obvious comparison is a comparable car at comparable price points, such as (your example) a Civic against a Focus, while the Focus is more likely to have cost-cutting measures contained in obscure areas such as (my example) the air conditioning compressor. Spending an extra $n000 on the American car doesn't buy the same car at better quality; it buys a larger car, or a car with more convenience packages, and the same shoddy air conditioning compressor still lives under the hood.
the rather miserable state of american autombile manufacturing is not the fault of management [b]or[/b] labor, but of management [b]and[/b] labor.
management designed inferior cars that nobody particularly wanted; labor built the cars in an inferior fashion that was notoriously well known (remember the dictum about not buying a car made on monday or friday?).
the interesting thing about all this is GM is actually producing some pretty reasonable automobiles at the moment (chevy malibu/saturn aura for instance).
Oh, another point. Weren't these union contracts negotiated and agreed to by competent, highly paid, professional managers? According to earlier posts, these managers EARN their pay, and are worth it because of their vision and extraordinary business acumen. How is it that these deals worked out so poorly for the company when the executives who signed off on them made out so well (salary, stock, other compensation, etc)?
I find it hard to believe the Megan (and others here) deify these managers (you know you do), while at the same time, decrying the results of their management. These superhuman Randian leaders surelly can't have made such staggeringly bad business decisions because the market couldn't be that screwed up, could it?
Hmph. It's interesting to me that GM and Exxon report losses and profits, respectively, of roughly equal amounts ($40 Billion) for the same period of time... indeed, many of the same market forces are prevailing upon each company's bottom line. Yet both provoke the same scorn from the same chattering people. I suppose the car industry executives will soon be testifying before congressional committees about their obscene losses. The only way for a business to survive in the U.S. (apparently) is by breaking even every year.
anonymouse,
As several people have stated, the UAW is a gov't supported monopoly. The market is distorted by this fact making truly "Randian" decisions impossible.
When the UAW goes on one of its "strategic" strikes, the auto makers are forced to foot the bill. They lose vast sums of money while the UAW loses nothing...until the whole house of cards comes crashing down. Then the UAW demands a government bailout.
In the meantime, I'll drive my nice, affordable, reliable Hyundai until my taxes go up to pay for this debacle.
And I was responding to the previous anonymous. My apologies to anonymouse, who is far more intelligent than that.
So let me get this straight. You are admitting that _in_theory_, no, it is not illegal to hire other workers, in fact, specific provisions for this are written into the contract. In theory, GM could always relocate their plants to say, Mexico. In theory, the contracts were freely entered into, there was no coercion (not even by the funny definition libertarians use), no force, no fraud.
Sounds to me like all is well in libertopia.
Oh, but you're saying that _in_practice_ this is not so, that _in_practice_ the workers are overcompensated(as a side note, don't _tell_ me that these are 'unconstested facts'; _show_ me.)
Iow, _in_practice_ economic resources are not being efficiently priced or allocated, _despite_ the fact that there is no overt coercion, force, or fraud.
CONGRATULATIONS! Sorry, I don't often use caps, but this point deserves it. You have just discovered that _in_practice_ wages are set differently than the theory would indicate.
This is a major, major point. You see, a lot of people would point to the declining wages of the bottom four-fifths of the population as an example that economic theory is just not working out as claimed. In fact, they are being paid a lot less than they are worth, but because of practical considerations, there's not a lot they can do about it. _In_practice_, most people are not free to hold out for the best job offer, or move to a different job when their old one becomes unsatisfactory. _In_practice_, the system is rigged against the little guy - always has been, always will be. Don't pretend that it isn't by pointing to some easily falsified theory that claims that everything is just fine, thank you very much.
And _in_practice_ we need government to address those issues, specifically, the issues that arise because of the disparity in power between employer and employee.
Why did you think unions arose in the first place? Was it, just maybe, because collective bargaining power is more to be reckoned with than an individuals?
Assume for the sake of argument that this is true (I don't want to be drawn into a side argument that shows every possibility of devolving into car talk); isn't this then a _management_ decision? A decision which, moreover (according to you) will guarantee that _all_ models will be of inferior quality, whatever the price?
That's some fine managin' decisions there; I guess you need to have an MBA to know why this makes sense.
That's a joke, right? The reason the wages aren't market clearing is a massive, massive government intervention on the side of the union. Your comment seems like a triumph of self-refutation.
_Exactly_. This goes to two separate but related issues. One is accuracy, the other is consistency. On the one hand, it's those darn peasants banding together, forcing their will on the big guys, forcing them to make bad decisions that hurt everyone.
I don't find this to be an accurate picture.
Otoh, apparently for these folks, it's all one way, that is, it's always the little guy imposing on the big guy; never the reverse.
And this goes to consitency.
Maybe it's just my prejudices, but I find the latter to be more offense than the former. Argue rightly, or argue wrongly, but at least be _consistent_, for gosh-sakes.
You keep on saying things like this as if they were fact. Not only is what you are saying vague to the point of uselessness, you give me absolutely not reason to believe that this is true: No cites, no studies, nothing.
Further, you are engaging in poor logic - you are trying to assume that government never intervenes in favor of employers or in favor of large corporations, but that they have no problem intervening for unions.
Huh?
That doesn't even pass the laugh test, let alone the smell test.
But is that really what you want to claim?
Do you want the record to show that Megan Mcardle claims that government never intervenes on the side of business?
I'd think long and hard about this one before rushing to answer. This goes to the heart of what you want this blog to be.
And quite frankly, there's already a Cafe Hayek.
'Several people have stated' means bupkas. Show me the laws that make this a reality. Megan has already admitted that those laws don't exist, but maybe you've got something else.
Or are you talking about laws about contract enforcement?
Yeah, those laws making a breach of contract a bad thing, those were done just to make life easy for the unions.
Uh-huh.
a lot of people would point to the declining wages of the bottom four-fifths of the population as an example that economic theory is just not working out as claimed
Huh?
May we also point to the recent emergence of universal peace and prosperity in the Middle East as an example of wise foreign policy and unparalleled management skills of G.W.Bush? I mean, if each of us is entitled to his own facts anyway?
SoV,
There is no law which prohibits GM from hiring non-union labor. But there is a contract with the UAW which prohibits it, which is explicitly contemplated in MI law here GM is forbidden by its contract to hire workers who will not pay union dues after a set probationary period (a truly "closed shop" with only union labor is illegal under Taft-Hartley). I don't know if the contract also forbids the hiring of scabs or offering higher wages during a strike but I find nothing in my admittedly cursory search of MI law which would forbid such a provision, and I presume the UAW is savvy enough to demand it.
Other states have "right to work" laws which forbid this kind of contract and require employers to make hiring and firing decisions 100% independent of union membership. Perhaps shockingly, these are the very states in which foreign manufacturers have chosen to locate their plants to produce the cars which you seem to prefer.
isn't this then a _management_ decision? A decision which, moreover (according to you) will guarantee that _all_ models will be of inferior quality, whatever the price?
Management is charged with the responsibility of selling cars at a profit. Since Americans aren't excessively brand-loyal or nationalistic when it comes to car purchases these days, if you have to sell an American-marque car at $21k in order to offer the same build quality and features of a Japanese-marque car at $17k, then the latter sells and the former sits on the lot until, to keep inventory moving, the automaker finally discounts it and sells it at break-even or loss.
So, management is faced with the unenviable choice of not selling cars and getting fired, or determining how to save costs across the board and selling an inferior quality vehicle. But whose fault is it that management has to confront a $3k/vehicle disadvantage in labor costs in this fashion? Saying that this is the fault of "management decisions" is like faulting the person who uses the fire extinguisher for making a mess.
Now, if you're proposing to get into the history of labor relations at the US automakes, I'm sure you can find plenty to blame with both management and labor, but labor sure hasn't acted like little angels throughout it all.
I'm also rather impressed that you're still trying to pretend that the history of labor regulations in the Big Three automakers is some sort of nebulous thing that most people don't know about and, on top of that, are now back to your usual snowjob of acting huffy, multiplying useless words, and demanding "cites". This stuff is not news to anyone who has even loosely followed the auto industry for any length of time. Go do your own homework, then come back when you have something useful to contribute to the discussion -- and not sooner, please.
http://www.heritage.org/Research/Labor/IB181.cfm
"if the worker does decide to join the strike, the employer is prohibited by law from firing, disciplining, or disadvantaging him for doing so"
Making it illegal to fire workers who refuse to work seems like a pretty significant gov't backing to me.
Solicitation of strikebreakers is also forbidden by MI law, although "strikebreakers" are people who repeatedly and customarily offer themselves for employment as strikebreakers or in the alternative, workers from another state or country. In theory, you could recruit people within the state who haven't been strikebreakers before, but your advertisements must declare that a strike is in progress.
I can't find a law that literally makes it illegal to fire strikers, but I haven't looked at the NLRA, and I don't really intend to, having worn down more than my share of statutory shoe-leather in this thread. Anybody who cares can look at www4.law.cornell.edu for the entire US code.
SOV, if you don't approve of our assessments of the labor situation, perhaps the WSJ? Almost too many money quotes to post:
and lest you think that management id completely inept at selling cars...
So how do they solve it?
http://online.wsj.com/article/SB117988467834511618.html?mod=todays_us_opinion
inventing new vehicle categories like minivans
Yes, that big UAW employer, Volkswagen, always innovating.
Yes, that big UAW employer, Volkswagen, always innovating.
1955 GMC L'Universelle:
https://www.gmphotostore.com/prodinfo.asp?number=53217233
So iow, no, there is no explicit government interference. In fact, the only government interference you can site is a statute that says essentially that contracts have to be honored.
Anybody talking about the Awsum Powrz of the UAW to bend large organizations to its will by using government interference going to back down on this one?
You mean to say that they are locating in states where they can pay the workers less, thus increasing their profit margin? I'm shocked, shocked, I tell you at the utter villainy of the unions.
Funny thing, that, but I can produce ample cites that say median income has stagnated for 30-odd years, that every income quintile save the top would be making more if the fruits of productivity gains had been more traditionally distributed instead of flowing towards the top fiver percent, that, say, a thirty-something male is making ten percent less than his thirty-something counterpart from three decades ago.
You really don't want to go there.
1955 GMC L'Universelle
Or, the 1950 VW Type 2.
Although in fairness, German unions have historically been very strong.
ScentOfViolets: "If the fruits of productivity gains had been more traditionally distributed instead of flowing towards the top fiver percent,"
Why do you think that is? What are those 15 million people doing that the other 285 million aren't?
Do you have the faintest idea why Americans aren't brand-loyal, patriotic purchases of American cars made in America by American car companies?
It's because they squandered that good will over a period of thirty to forty years. Geeze in 70's, when foreign automotive companies were finally getting their act together (see Deming, and what American management didn't want to hear) and Japanese imports were of comparable or superior quality, lots of people still 'bought American' because it was 'the right thing to do.' Speaking of Deming, here's a little something:
Or how about this:
No, the auto companies had plenty of goodwill to work with. They abused it over decades. I'm curious as to why you don't know these elementary facts.
So you're saying selling shoddy merchandise across a whole range of prices was a good decision. Uh-huh. Perhaps if they had actually produced some quality vehicles, albeit at a higher price than their foreign counterparts, they could have retained some brand loyalty.
I would also point out that management negotiated the contract with the unions; nobody held a gun to their head. As someone else has already pointed out, the decision to accept this contract falls solely under the heading of 'management decision'. The sorts of decision that they are supposedly paid the big bucks for.
And who has said anything otherwise? Certainly not me. I'm pointing out what a load of hooey management's 'blame the unions' is. I'm also pointing out that those same execs never seem to suffer the consequences of their bad decisions, that possibly this indicates something is broken, and of course, the larger point, which libertarians don't want to face, namely that wages, salaries, compensation, etc. are most assuredly not accounted for by the classic economic theory that underpinds so much of how they think the world works.
Chuckle. Feel free to point out where I've acted 'huffy'. 'Multiplying useless words', what is that supposed to mean? That you have a rather small, if not outright impoverished vocabulary? I'll certainly agree with that self-assessment. Demanding cites?
Yep, I'm sure guilty of that one. But the fact is, you insisting something is so doesn't make it so, the Bush philosophy notwithstanding. And the fact is, you are, to put it bluntly, not very well informed on the topic. Here's yet a few more cites, those things that you despise so much (I'm guessing you think that cites have some sort of 'liberal bias'):
And speaking of 'The Battle of the Overpass', let's see what's up:
No, really, having factual support for one's claims is much preferrable to being known as an unreliable motor-mouth whose veracity is suspect.
Finally, far from not knowing any history, my dad worked at Chevy until '64 or '65. I got an earful about how things were done . . . on both sides.
So don't presume to tell me what I am and am not familiar with.
If you want some advice: if you don't want to look like a fool again, make sure that what you are saying has some factual support, rather than assuming on the basis of ideology that things must have plausibly been a certain way, obviating you from doing any of that tedious research stuff.
(I'll note, again, that I think we see a pattern here from certain commentors which explains why right-wingers in academia are such a rarity.)
SoV - Megan answered your question about other workers already. "There are no other workers that can be employed. The automakers are closed UAW shops. The labor union is a monopoly supplier."
As for your other question/point -
Sure some companies, or even collections of all the companies in a particular industry in the US, aren't competitive. What's your point, that if an industry is having a tough time competing we shouldn't worry about its high labor costs but should just increase salaries?
If American companies in a particular industry can't compete the way they are currently structured then perhaps they should restructure. Unions aren't exactly good for allowing continual flexible restructuring.
And yes management in many companies has been poor. That doesn't lessen the burden of high labor prices and inflexible labor rules, if anything it just makes them worse.
I'll note, again, that I think we see a pattern here from certain commentors which explains why right-wingers in academia are such a rarity.
Did I miss the factual support for this claim, or were you putting it out as an example of something that one might assume on the basis of ideology that things must plausibly be a certain way?
I can produce ample cites
You're very welcome to do so. You do realize that you have made a statement quite contrary to most people's personal experiences, right? Certainly contrary to mine.
that say median income has stagnated for 30-odd years
In absolute dollars? In inflation-adjusted dollars? In buying power? A bit more specific please.
that every income quintile save the top would be making more if the fruits of productivity gains had been more traditionally distributed instead of flowing towards the top fiver percent
Does that control for [possible] dependency of productivity gains on the distribution formula and if so, how? In other words -- would that top 5% bust their butt innovating without potential payoff? Note that "top 5%" includes much more than executives and "old money" families and "top quintile" even more.
that, say, a thirty-something male is making ten percent less than his thirty-something counterpart from three decades ago
See questions about median income.
I suspect it is you who should be afraid of going there.
Takeflight:
I'm sure SoV was referring to the right's inability to handle the intellectual rigor necessary to teach classes such as:
"Queer Literary Culture", "Gender, Mathematics and Science", and "Interpreting the Queer Past: Methods and Problems in the History of Sexuality "
Just a few mentions from Berkeley's course catalog.
You must have missed the part where she admitted that this wasn't the case, that what she meant was that GM was bound to it's contract, a contract furthermore, that it freely entered into.
For her claim to make sense, the 'closed shop' would have to be legislated into law. And again, as she admitted, this just isn't so, and that there are specific provisions within the contract itself that allow GM to hire non-union workers.
Why would you think that is my point, when I have specifically stated otherwise? My point is that this reflexive blaming of lack of competitiveness on the high pay of the workers just won't fly. My other point is that for all the talk of reigning in labor costs, management traditional has a poor record of policing itself; as I said, rather than the carrot-or-stick approach that works so well with hoi poi, the CEO's are faced with the obscenely huge mutant carrot vs the fantastically large carrot. So maybe a better way to compete would be to fire some management-type chairwarmers and get some people in who can actually do the job.
And of course, my larger point, that no one seems to want to touch is - let's admit it - pay more often than not is _not_ set by good economic practices; it is set by distinctly non-eonomic factors, factors having more to do with relative power and less to do with actual metrics and good measurement theory. (whether it's unions or some other organization is immaterial; it's still not good. It's just that libertarians seem to have this aversion to admitting this happens if it's anyone other than the unions where this happens.)
My own personal theory is not only is this an economic inefficiency, it breeds cynicism and a distinct lack of can-doness or up-&-at-'em in the general public. Why work hard or try to do a job well if it doesn't count for anything, when it's not what you do and how well you do it, but who you know?
_Not_ good public policy.
You mean you missed the part where anonymouse sneered that cites, verification, all that sort of thing were the marks of babies and poor losers, an 'act' as a matter of fact? Who then went on to make comments about the state of someone elses' knowledge with absolutely no basis in fact? Who was made to look like a fool because he couldn't be bothered doing that research stuff?
That evidence?
But you're right, I should have made that a bit more carefully worded. I should have said something to the effect that someone who thinks that asking for cites or verification for a statement they've made is some sort of ploy is probably not going to do well in academia.
Bear in mind that I've never asked for some archived journal article complete with bibliography and that has been peer-reviewed. I just want some sort of verification I can look up for myself that's halfway reliable.
Saying that demanding cites for something that everyone knows is just some sort of an act, now _that's_ a rhetorical ploy.
Buying politicians, buying up and consolidating media, making sure that the 'right' are people appointed to the right positions(everything from judges to the heads of important Federal agencies - FEMA, the FDA and the like), setting up so called 'think-tanks', and using bought and paid for media to promote the notion that these are legitimate, respectible, intellectual, scientific sources of policy, rather than hack propaganda organs, like AEI, Cato, and the rest.
Nothing terribly unusual, iow, but nothing that particularly has to do with merit.
ScentOfViolets - So 5%, 1 out of 20, 15 million people are: "Buying politicians, buying up and consolidating media," etc?
That doesn't make any sense. I could see a few thousand people doing that, but not 15 million.
Do you really think that 1 our of every 20 people spends their time and money "Buying politicians, buying up and consolidating media"?
ScentOfViolets - So 5%, 1 out of 20, 15 million people are: "Buying politicians, buying up and consolidating media," etc?
That doesn't make any sense. I could see a few thousand people doing that, but not 15 million.
Do you really think that 1 our of every 20 people spends their time and money "Buying politicians, buying up and consolidating media"?
No, I didn't miss all that. Just noting a little irony.
Back on topic....I'm not asserting that management has always made the best decisions, and I agree that shareholders & boards should hold them more accountable than they do. I wonder if part of the problem is that those sitting on the boards are often CEOs of other companies and are thus peers and part of the same "fraternity."
But I think whether you like unions or not, and there are lots of reasons why I don't, it's clear that their presence is a contributing factor to the current financial problems faced by GM, et all. This is like the minumum wage - you can argue all day about whether it should be there, but at the end of the day you still can't ignore the detrimental effects it has on a business that has to compete with other firms that aren't subject to minimum wage law.
I also happen to think that unions promote the view that management and employees are enemies, and sometimes they make them such, and that makes it even harder to acheive real cooperation.
As for "explicit government interference" stemming from the NLRA, here are just a few gems:
- Labor unions are immune from prosecution under antitrust law. One union can represent all the workers in an entire industry, and unions that represent workers in different industries can affiliate with each other. But if all the auto companies got together to collude on price/quality/strategy they would be breaking the law.
- Competition from other unions and from nonunion representation, such as employee committees set up to cooperate with management on developing improvements in work rules and productivity, is blocked by law.
- Employees who may not want to be represented by the union have no choice but to pay for what they don't want, or be fired. Thus, the union can force people to pay for what it monopolistically provides no matter how poorly it performs. Sounds like a great plan. For unions.
- If the union really sucks, decertification & de-authorization campaigns are the only remedy. Individual employees cannot escape on their own, so the union has it's own ass covered pretty well here, too.
- Strikers have property rights to their jobs after a strike is settled, and during strikes they can - with impunity - attempt to block access to the nonstriking workers, suppliers, and customers.
Just my .02
Re: The reason the wages aren't market clearing is a massive, massive government intervention on the side of the union.
Huh? What massive government intervention? I don’t recall any government passing a law that requires management to give into whatever a union demands. Indeed, we have had one union-hostile GOP administration after another, separated only by four years of Carter and eight of Clinton (neither of whom were particularly labor friendly, Clinton especially being damned in those quarters for NAFTA). Unless you live in another universe with a different history, your comment above describes nothing in this reality.
re: Other states have "right to work" laws which forbid this kind of contract
Then it’s those laws that are a government intrusion into the marketplace for crying out loud! Why should the government arbitrarily forbid the making of a contract between two parties? Isn’t that the exact opposite of laissez faire?
Yeah, SoV, that's exactly what I meant by a snowjob, and multiplying useless words. A half dozen posts, twenty-odd paragraphs, fifty new tangents introduced, and you still didn't answer your own questions ore refute anyone else's point.
It's nice that in the past six hours you finally discovered how to use Google, which is what you should have done before making it so painfully plain that you have only a featherweight knowledge in this area, but better late than never I suppose.
Been fun, hope to play again. See you next thread, I imagine.
Sigh. No I don't. Is it really that hard to read? I am saying a small group has lobbied long and hard to tilt things their way, and since they have lots of money to begin with, they can do things the average citizen can't.
This shouldn't be hard to interpret. Next you'll being saying 'do you really think that _none_ of those 15 million people deserve their compensation'?
And if you do that, I'll conclude that you are doing nothing but playing word games, maliciously misinterpreting what I write, etc.
So don't go there, please.
Well, sorry I was unable to oblige.
Getting back to your claims:
That may be true. But the initial presumption,the initial post that kicked this thread off, was that it was _all_ the union's fault. Uh-uh.
What the!?!?!?! Are you seriously saying that collective bargaining is like business collusion? That is waaaaay over the top. Also, there is the slight fact that unions aren't businesses, so of course anti-trust law does not apply.
In fact, what you are talking about is explicitly lack of government interference. Government interference would be something on the order of 'right to work' laws, that - surprise - interfere on the side of business. Not unions.
And you know, none of the stuff you listed has diddly to do with government interference. That's all _contractual_. You know, an agreement between private, freely consenting parties?
You seem to be saying that if the government doesn't interfere for the sake of business, then they are de facto interfering on the side of the unions.
That is a rather difficult notion to swallow. But in any event, you have failed to demonstrate the claim.
Absolutely. Are you seriously saying that consolidating, exchanging information on pay, working conditions, employment policies, etc and coordinating bargaining policies isn't collusion?
Not even implicit collusion?
It doesn't affect labor market at all? It's not anticompetitive?
Just for fun, here's an interesting article by a professor at Cal State Hayward:
http://www.cbe.csueastbay.edu/~sbesc/99septcol.html
Hmmm...union employees pay a fee (dues) in exchange for collective representation services. So unions generate money by signing up new members and collecting dues. And they provide a "service."
Sounds like unions are businesses that sell representation.
But, nope - you're right - the law says they're not businesses so I guess it's all good.
So let me see if I have this right...
Contract (you know, an agreement between private, freely consenting parties) clauses requiring an employee to abstain from joining a union as a condition of employment = BAD, and are "government interference"
Contract clauses requiring all employees to either join the union, or pay union dues as a condition of employment = GOOD, are not "government interference"?
Guess it's all in your point of view, or your particular philosophical bent towards unions.
Sure, there's no such thing as a contract of adhesion or an unconscionable contract. Like one that might, say, remove an employee's right to self-determination or choice of representation?
Yes and you're wrong.
The Sherman Anti-Trust Act was originally used against unions more than businesses. It was ultimately used against more businesses, but unions are just as much an attempt to monopolize trade.
The UAW has 640,000 current members and 500,000 retired members. According to the UAW, union workers make 43% more in total compensation than non-union workers. In 1970, it had 1.6 million members and represented 95% of US auto workers. In late 2000, the UAW strike fund was $800 million dollars. The UAW has a bewildering number of departments. I'm not sure how you would consider it NOT a big business.
The Teamsters union has 1.4 million members (7% in Canada, 93% in the US).
The NEA has 3.2 million members, a 172 member board of directors(?!), 555 staff, and an annual budget of $307 million. And if that wasn't enough, the NEA and the AFT have formed a partnership (collusion? cartel?).
The AFT has over 1.4 million members and total net assets of over $100 million, including a $25 million "Militancy/Defense Fund".
So, yes, unions are big and powerful and are trying to monopolize the supply of labor.
ScentOfViolets:
Keeping in mind that the top 5% starts at $147,000 a year...
The top 0.0001% (Bill Gates, Rubert Murdoch, Larry Ellison, etc) seem to be the very people who employ many of those making 150k. Why would the top 0.0001% be tilting things to drive up the wages of their employees?
Could it be that what is really causing this rise is technology driven change that is increasing the rewards for skills and education?
And if the market is trying to raise the benifits of education, do you really want to stand in the way of that?
Do you really want to tax college graduates to keep the high school drop outs from falling to far? I sure don't.
No, you have it wrong. I am - I don't know how many times I have to say this - not arguing that unions are good, or that certain contractual clauses are good or bad.
If I have _ever_ said such a thing, anywhere, feel free to point it out.
What I am pointing out is that, contrary to what libertarians have said here, the unions do not enjoy some sort of implicit government support that gives them a superior bargaining position; quite the contrary for the last thirty years at least, as the record shows.
And that, indeed, to the extent that government does interfere, such as with 'right to work' laws, it interferes to further the interests of certain business (whadda surprise) and against the interests of unions.
So if unions are driving up wages higher than they 'should be', it's not because they have the government on their side.
Why can't you acknowledge this?
(I have a pretty good idea, but I want to hear what you have to say first.)
SoV, you're just wrong. Unions do enjoy government protection and have for many years. If nothing else, the fact that they are not prosecuted for anti-trust violations when they form a single entity to negotiate wages for an entire industry.
Even Republicans haven't been able to repeal all of the pro-Union laws on the books.
Do you ever argue for anything or do you just argue against everyone else?
Uh-huh. On your say-so. I asked you once before: how old are you, really, and what sort of education have you had?
And no, I tend to discuss economic manners quite seriously, and I have already made claims, and noted where I made claims, more than once.
I'd suggest you go back and reread.
And learn some history. And terminology.
I'm old enough.
You need to understand the history that you evidently read.
Since I've made claims, and several times too, and since you apparently can't read them - or understand them - I would say your little sally lacks a certain amount of force.
Particularly since you seem to be claiming that each individual working person is a 'business' or, alternatively that unions are 'businesses'.
But enough of this; it's quite clear that at this point you want to debate definitions to reach a predetermined conclusion. I don't do that sort of thing.
A word of advice that might cure some of your odd historical notions: yes, it is true that unions were prosecuted under the Sherman Act. It is also true that this was not the intent of the Sherman act, and that it's provisions were vague and broad, and left largely up to the courts to determine. Iow, the Sherman act was meant by Congress to reign in businesses; it was interpreted (can you say 'Activist Judges'?) to apply to unions (cartels). Hence the passage of the Clayton act, which specifically noted that unions and (I think) farming co-ops were _not_ covered. It seems that (he says dryly) that there was a certain amount of playing games with definitions, games which resulted in 'definitions' that went against fundamental priniciples of economics.
As I said, this is all old, easily accessible stuff. I would look here and here for starting points. I learned all of this reading about the history of the railroads(I loves me them steam locomotives), the Pullman strike and whatnot, so you might look up other more general accounts.
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