Tuesday, October 2, 2007

UAW/GM (Free Trade)

An opinion comment on the UAW/GM deal posted here for discussion. Criticism is welcome, however kindly refrain from labels such as “communist”, “socialist”, and “protectionist”. Rather, please post thoughtful comments that address the issues raised.

“The UAW’s Awakening”, an article that appeared in the WSJ Online and can be found here - http://online.wsj.com/article/SB119103039313343439.html (subscription required) [and here in print - September 29, 2007; Page A8] - discusses the recent deal struck between GM and the UAW. The deal includes some major givebacks by the Union, and the article in essence makes the claim that this was inevitable given global competition. US workers cannot maintain their hold over business when business is competing with global producers or the inevitable result is bankruptcy. I have several issues with this basic assumption.

My first point is that GM is not suffering just at the hands of global competition. It is largely domestic foreign manufacturers cleaning its clock. This is not globalization, but rather opening our vast consumer market to foreign competitors without restriction. I would like the writer of the WSJ article to compare the openness of the US consumer market for autos to other markets around the globe. Will we begin to see there is a large political element to the destruction of UAW power? In addition, if GM management had focused on managing its product line to better meet the needs of its customers rather than on building gas hog SUVs would GM be in its current situation? (Remember that tax incentive to purchase vehicles over 5,000 pounds congress passed after 9/11? Did GM have a hand in that? Was that an example of the free market at work? For those of you who react to this article by worshipping free markets, please address how this incentive, which naturally skewed the allocation of consumption resources in GM's favor, is a free market phenomenon.)

My second point is an even if. Even if we assume it is globalization that is undermining GM's ability to compete given its current labor contracts, what if anything is being done to protect the US workforce from the impact of poor labor conditions around the globe? Apparently it is better to allow labor to be exploited so long as it is “over there.” Unfortunately, the impact over here is seen in the reduced standard of living domestic autoworkers will now be forced to accept.

Finally, if globalization is causing a reduction in the ability of the US to profit from its economic endeavors, why are the stock market, corporate profits, and corporate officer compensation at all time highs? It seems painfully obvious that what is occurring is a shift from labor to capital masked by terms like “globalization” and “free market economy.” In reality, we gave up on completely free markets long ago when labor was at the door with sticks and rocks. Our democratic form of government was able to react and to reverse the imbalance of power of business over labor by passing laws to protect workers. By opening our borders to imports from overseas where labor has limited rights, we are bypassing those laws. Who benefits most from this? Follow the money….

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Paul said...

Situations like cost saving technologies and a lowering in the barrier to enter the auto market are awakenings, obvious ones, which may or may not be related to UAW and its relationship with GM. However, how much of a role does this relationship play in GM's "profit equation". The three points made are valid ones, however, i like to believe that every cent counts. Would this deal be statistically significant in avoiding a company loss? Is the article's assumption that basic?

I think this deal is signicant (and not basic) because the relationship of the worker and the company is always important. If a happy worker makes a productive worker, then such a deal cannot be ignored as basic. Why? Well this deal could snowball into a future deal down the line, where a reduced standard of living may not have to be forced on domestic autoworkers (for the record I am not agreeing with whether this should or should not happen, rather, whether it could). Is this the beginning of a 12 step program?

Mike said...

I'm not sure how shifting the cost of health care from GM to the UAW changes anything. The GM workers are still going to require health care coverage and unless something is done about the cost of health care itself, the UAW worker will require an increase in wages to cover the increased health care costs. GM still will be paying the bill because they are paying the workers wages. This is similar to the some current proposals in congress to nationalize health care. The problem is the cost of health care itself and simply shifting who pays for it does not solve the problem. Perhaps as a nation we should focus on things that are increasing our health care costs such as the obesity epidemic and its relationship to a wide range of health problems, or even our increased air pollution that is directly increasing asthma and allergies nationally.

Anonymous said...

I agree with Mike. I hope to do a post on this issue some day. Health care costs are out of control and the industry seems immune from efficiency improvements from technology. I also wonder about the food chain and whether that has a direct impact on the level of obesity.