Union-busting for the big three
Posted
Dec 09 2008, 11:57 AM
by
Minyanville
Rating:
Unions, like democracy, work perfectly on paper. But both suffer a disconnect between concept and execution.
Unions first sprung up in 18th-century Europe when women and children joined armies of poorly paid male factory workers. As individuals, the factory workers were powerless to negotiate with their bosses. A union gave them a collective voice. They could band together to say, "You're getting rich off our labor, and you need to share that wealth with us -- or we'll stop working." The factory owner would then have an incentive to improve wages and conditions.
Who but a factory owner could argue with its logic or fairness?
Unfortunately, somewhere along the way, unions forgot that the relationship between workers and owners is symbiotic. The two entities are natural allies, not enemies. Unions got drunk on their own power, and began working against the long-term profitability of their own companies.
According to the U.S. Bureau of Labor Statistics, there are currently 15 million unionized workers in the US, which accounts for 12% of all workers. About 35% of public sector workers are unionized, compared to 7% of private industry workers. On average, a union worker makes 33% more than a non-unionized worker. Four out of five union workers have employer-financed pension plans. Only one-half of non-unionized workers do.
General Motors, Ford and Chrysler are all badly run companies with uninspiring product lines. In fact, most of their wounds are self-inflicted - but the unions have certainly done their share of the damage. And is there any sight more pathetic than those fleshy CEOs begging Congress for money?
It's not like there haven't been warning signs.
Even if GM made good cars, the legacy costs would kill the company. When GM made the pension deal in 1962, it had 464,000 US employees, and was paying benefits to 40,000 retirees and their spouses.
So for every retiree, there were about 11 workers on the factory floor. Then they started automating, replacing people with machines. By 2007, the workforce had shrunk to 141,000 -- but the company was now paying benefits to 450,000 retirees.
The math doesn't work. And chucking $25 billion at the Big Three isn't going to make it work.
There are only two solutions that will work:
One, let the free market do its thing. Reward excellence. Kill the weak. Say goodbye to the Big Three. New U.S. auto companies will emerge, and they will learn from their mistakes and make better cars at higher profits.
Two, execute a managed bankruptcy that will require the automakers to renegotiate their contracts with -- and yes, break their promises to -- the unionized retirees.
Neither of these solutions is pleasant. In fact, both are extremely painful. But the hurt is there anyway. Half a million Americans lost their jobs in November. I know what it's like to pound the pavement looking for work, worried about my family, my house, my future. Those are long days -- but sometimes they're necessary.
The most important thing is to stay firmly rooted in reality. And the reality is that Toyota makes better cars than GM. And they aren't paying billions of dollars to ex-employees.
Another reality is that the system is self-correcting. The job market is currently flooded with educated, motivated, trained workers. That's a very good environment for entrepreneurs to start new businesses in.
I believe in democracy. I believe in unions. But I do not believe that GM, Ford or Chrysler can survive in their current form. The bailout is merely a temporary painkiller. It will wear off, and the disease will remain. Better to spend the $25 billion on hiring more elementary school teachers, or building a new electrical grid. That will be better for the economy in the long run.
Top Stocks blogging partner Todd Harrison is founder & CEO of Minyanville.com. This post was written by Minyanville Contributor Guy Bennet.
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GM Still Finding Innovative Ways To Beg
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