Public Enemy No. 1: Unions

The ideological bias (and at times, hypocrisy) inherent in the financial markets and media can be suffocating during moments like the recently concluded UAW press conference on the heels of the auto bailout failure. Watching allegedly knowledgeable people come on CNBC or Bloomberg and just spout talking-point nonsense is disappointing.

For background, I have worked for various union organizations as a political campaign staffer and as an organizer.  My ultimate impression, especially after the organizing experience, is that I don’t like unions. Personally, I remember working 12-15 hour days organizing county workers who made more money than me, worked fewer hours than me and told me they couldn’t attend meetings to preserve their wages and benefits (not mine) because Survivor was on that night.  Near my residence, we have state workers who actually have assigned crossing guards to help them cross a non-dangerous street that I regularly bike down.  No wonder California has such a fiscal problem.

Unions stifle innovation and forward-thinking, they structurally reward mediocrity as opposed to excellence, they are susceptible to power grabs and for the last few decades, they have failed their members. All that said, I still recognize their importance in our society as they are one of the few levers average people have to gain higher wages. Most people will never strive to attain excellence and for the benefit of all of us, societies need mechanisms and structures that allow these people to get by or else you get something akin to what Greece is experiencing now.

I couldn’t help noticing how for years, Ben Bernanke would go up to Capitol Hill and tell lawmakers that inflation expectations were contained in part because there was no wage inflation. I don’t know what the academic textbooks say but what did he think would happen as the price of nearly every essential living cost went up while wages stagnated or fell? Just because you don’t have unions picketing for higher wages doesn’t mean there’s no wage inflation pressure — it’s just manifested differently. In this case, Bernanke’s lack of imagination has delivered his worst nightmare — the spectre of deflation.  Ironically, Bernanke is now dreaming of ways to…ahem…inflate income to spur consumption.  Rebate checks, interest rate cuts, equity injections, tax credits for buying houses and cars, free money everywhere!  If we’re going to throw money around, maybe people should earn it through wage inflation rather than having the government spend everyone’s money to give it away.

But I digress. The financial press coverage of the auto bailout and the UAW’s role in its failure is laughable.  It was amusing to watch the CNBC talking heads turn to one of their union-hating guests and question Gettelfinger’s assertion that GM would still fail even if the union worked for free. The guest, despite his obvious bias and to his credit, confirmed Gettelfinger’s statement — current labor costs are a small percentage of input cost for the Big 3 automakers. Wages are not the issue because the UAW has been selling out their future membership for years now for the benefit of senior workers and past members.

The real danger in GM’s balance sheet (besides the massive debt) bears a striking resemblance to the danger lurking in the US balance sheet — retiree entitlements. GM needs the UAW to restructure its pension and retiree healthcare benefits.  Of the two, retiree healthcare is probably the scarier of the two.  When I researched Whirlpool earlier in the year, it was WHR’s retiree healthcare obligations that scared me off the stock. Not only was the obligation large relative to their balance sheet, the company projected retiree healthcare costs to grow only 5% annually over the long term which I found hard to swallow.

But like mortgage-backed security investors, retirees entered into a binding agreement and aren’t amenable to changing terms willy-nilly, especially since they’ve already fulfilled their end of the bargain. It’ll be quite a task for the union to get those folks onboard but all the hyperbole and ideology aside, that is the real issue.

I don’t care one way or the other if the UAW or the Big 3 get one over the other but this misinformation really chaps my hide.

7 Responses to “Public Enemy No. 1: Unions”

  1. Thomas Simon Says:

    While the retiree benefits and union wages are a problem for GM and the others, it is not the biggest problem. Unions beside negotiating for higher wages, which is their job, also has been meddling with creating very rigid “work rules”, limiting management’s ability to flexibly use the work force. This is a much bigger problem, stifling productivity and undermining morale. But the biggest problem they have is that we the people stopped buying the junk they produce. I have not seriously looked at an American car for 20 years. Neither did most of my friends and colleagues.

  2. Dax Says:

    I only caught part of the discussion on CNBC yesterday. But I thought Charlie Gasparino was appalling, trying to talk over the other speaker the entire time. On many occasions on TV Gasparino has both looked and sounded drunk, and yesterday he seemed to be completely off his face.

    The lack of any attempt at a political balance on CNBC makes no sense to me.

    US industry is collapsing under the weight of it’s healthcare costs. In most other countries these are not a corporate expense, so in the US they represent a huge surcharge on labor costs.

  3. Bill M Says:

    The problem with Unions is that they create inefficiency because they create a work environment where you only do what you are required to do. Unlike a non-union shop where you make a decent wage where you help your fellow workers. I have worked before for a Unionized company and I could not take all the inefficiency and over paid workers.

  4. Trig Palin Says:

    Unlike a non-union shop where you make a decent wage where you help your fellow workers

    Like Wal-Mart?

  5. Davy Bui Says:

    A couple of points:

    1) Bill M, on a personal basis, I agree with you. As a union organizer, I was part of a union and the structure of one is such that excellence is somewhat discentivized. Within 6 months of my arrival, one of the top honchos told me I was the best organizer she had. However, I was the most junior and thus lowest paid, with no hope of being caught up except for moving up.

    2) On the flip side, it seems to me to be suicide to structure a 70% consumer-based economy such that the vast majority of consumers have little leverage to increase their income. So unions may be a petri-dish for mediocrity but frankly, that’s okay because most people are quite fine with mediocrity. However, Bernanke is now finding out what happens when you need people to spend money (on houses, cars, TVs, computers, etc) and they don’t have the money and can’t increase income. That’s not a fancy economic argument — it’s just common sense.

    3) The lack of political balance or attempt at impartiality is dangerous because it propogandizes viewers, investors and executives, even if they resist. It is the nature of propoganda and humans that it works.

    4) Any management team that cannot “win” a labor dispute with a union post-Reagan is completely inept and needs to be replaced immediately. The shift toward conservative business policies and American overconsumption makes it fairly simple to starve unions out. The workers, like most people, hardly save and the unions probably spend more on politics than on strike funds.

    5) So much effort is spent demagoguing the UAW that most people don’t realize that the biggest union threats are county & state unions, especially SEIU. The thing that chaps my hide is the fact that CALPERS can lose a shitload of money and then notify their “members”, the various munipalities, that they’ll have to pay extra to make up for the shortfall. Where does that money come from? THE TAXPAYERS!!!! Why should we have to pay because a bunch of state workers and their pension fund can’t manage their retirement funds? Many of these guys can’t cross a street without a nanny but we have to pamper them for life??!!??

  6. Ray Tarkington Says:

    I am glad you spent time as an organizer and have some insight into the pitfalls of union’s. You have placed your finger on the Achilles heel of union’s- that they can disconnect the workers from the need for the company to make a profit. The fact that you worked for a public union that probably had civil service work rules already in place and had no need for profit or competition made it abundantly clear.
    I am glad that you also mentioned unions were also the best leverage the average worker could attain.
    My wife and I belong to 3 unions. 2 of the 3 (IBEW electricians and SAG actors) do not have seniority rules and in my opinion are how all unions should be structured. The employer picks the most productive/ best suited worker, the union obtains the wages and benefits.
    As far as the auto unions, they definitely used to suffer from the disconnect from competition I mentioned. Those days are over and I feel it is unfortunate that people like Mr. Simon believe that unions somehow affected design or reliability. I believe Dax is absolutely correct in describing the tremendous burden all manufacturing bears in competing with manufacturers that do not have to pay health and retirement costs directly. It is important to note that all European, Korean, carmakers are only non-union in America. Having said that I do believe it may be a waste giving the car companies bailout money without leveling the playing field and taking a much more proactive trading policies, including getting rid of our subsidies so we can demand all others do also.

  7. Davy Bui Says:

    Hi Ray,

    As with everything else in life, unions aren’t a simple matter of good/bad but varying, undulating shades of both. Though I wonder how 2 people manage to get sucked into 3 unions, they do serve a purpose.

    UAW is a convenient strawman but we know that’s not the big 3′s biggest problem. Of course, if the big 3 had overcome their ideological bias and supported universal healthcare a few decades back, they might have be more competitive now.

    Interesting to see that whole ruckus with SEIU and UHW out here in CA. Looks like a 21st century big labor power grab. I’m not privy to the details of the conflict but am inclined to side with UHW. If they want to secede, they should be able to do so — unions belong to the members, right? Sure.

    Meet Andy Stern, the new Jimmy Hoffa.

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