Without competition, Big 3 and UAW made deals causing problems now
Sunday, October 23, 2005
By Mark J. Perry
Michigan's unemployment rate has been the highest in the country almost every month this year, Delphi has declared bankruptcy, and GM's financial problems are mounting as its market share continues to hit all-time low levels and its debt is downgraded to junk status.
The source of many of these
serious economic problems in
Without the strict discipline of market competition, both sides pursued short-run, self-interested goals and could never have imagined that their actions in the 1970s would create the serious future troubles they both face today.
For example, the UAW consistently negotiated incredibly generous wage and benefit packages for its members that advanced worker conditions but laid the groundwork for major problems decades later.
Economic theory clearly tells us that the more successful a union is at achieving above-market compensation, the greater the likelihood that those unionized industries or companies will eventually suffer losses in market share, employment and output. This is exactly the situation today, with GM's market share and UAW membership at all-time lows.
The above-market compensation gains of the UAW led ultimately to long-run losses in union employment, as the UAW gradually priced its overpaid members out of the globally competitive labor market.
In the undisciplined years of the past, GM management could maintain labor peace by conceding to above-market pension and health care benefits for retirees, which didn't affect the bottom line much in the short run, but imposed huge legacy costs on distant future periods. Those once seemingly distant quarters have arrived, and the overly generous benefits for workers that GM management accepted have mounted to the current level of $80 billion in future liabilities just for health care costs alone to cover more than 1 million workers and retirees.
The big issue today that is really
If any one single factor eventually drives GM into bankruptcy, it will be the explosion of legacy costs for its aging retirees who will continue to live longer and longer in the future.
To these problems, add the
increasingly intense global competition of recent years, and you have all the
necessary ingredients for a domestic industry that is now in serious trouble.
The UAW has gradually lost its labor monopoly on the supply of autoworkers
and must now compete with nonunionized American
In the more static days of the
past, GM and the UAW had a business model that worked, but it has now fallen
apart as the twin forces of globalization and an aging
population have exposed the flaws of an outdated way of doing
business. It's now time to face reality:
Simply put, the excesses and
undisciplined behavior of the UAW and GM in the past will no longer be
tolerated in today's global economy, to the ultimate benefit of both American
© 2005 Flint Journal. Used with permission
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