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Sunday, January 29, 2006

Ransacking the American Dream

Today’s New York Times carries this article, by Eduordo Porter, that gives the following reason that the Labor Movement has been weakened so much over the past half century. Porter claims it's because Big Labor is a victim of its own success. According to his theory, because unions have driven up workers’ wages and benefits packages in whole industries, they are no longer competitive in a global market where trade liberalization has replaced protectionist policies.

Because industries, such as the U.S. auto industry, can no longer compete efficiently in the global marketplace, the percentage of higher wage union jobs is decreasing as the Big Three automakers lose market share to leaner, meaner non-unionized competitors from overseas. And even from non-union carmakers in this country.

Porter suggests, though, that there are areas where unions can grow, such as the public sector because the government has no competition and therefore doesn’t have to worry about higher wages leading to shrinking profits and lost market share. Another industry that wouldn't face competition and pressure from overseas markets is the hospital industry, which means that unions can hope to experience growth there.

And Eduordo Porter ends with the one suggestion that I actually approve of. He suggests that unions take on one large, extremely successful retail giant that already has eliminated virtually all its competition and so isn’t as vulnerable to lost market share. Yeah, he’s saying organize Wal Mart.

Which, by the way, the United Food and Commercial Workers (UFCW) actually is attempting to do. They are already throwing all their resources into the effort to stem the race to the bottom of the wage and benefits barrel by organizing the worst offender. And that is, indeed, Wal Mart.

There are, however, gaps in Porter's logic in this piece. First of all, as much as the U.S. auto industry would like to blame the high price of labor for all its economic woes, that’s only part of the story. The larger reason for its loss of market share is because it has insisted on continuing to push gas-guzzling SUVs while the price of oil has soared. As Jon Stewart cracked on his television show the other night, “What the hell did they expect to happened?”

The Big Three lost market share to foreign cars because they haven’t had an original idea in years. And they ignored reality on the ground. While they induced buyers with zero-interest rate payment plans and huge slashes in prices, foreign carmakers were building hybrids that earned consumers tax breaks and easy access to express car lanes for rush hour commutes. And lower gas prices. So when the price of a barrel of crude oil began hitting $70, which car would you care to guess the consumer purchased? That has as much to do with loss of market share and loss of profit as the alleged millstone around the U.S. auto industry's neck from high priced labor.

The same lack of ability to be competitive because of a poor business model and the inability to give customers the quality of product and service that the competition provides is more to blame for other industries' failures as well.

However, there’s an even bigger question as to how uncompetitive decent wages actually make a company. Most corporations have been reporting record profits except in a few genuinely ailing industries, such as the airline industry. And even there, the lack of quality service and the exorbitant salaries squandered on ineffective CEOs and top executives is as much to blame as for their business failure as high wages and generous pension plans for their workers. After all, one of the most consistently successful airlines has excellent relations with their unions. That would be Southwest, which manages to provide a generous package to employees and still make a profit because people actually enjoy flying with them.

But the high salaries and exorbitant benefits packages and perks paid to CEOs, top corporate executives, and managers can't be ignored as a source of loss of profit share. Those salaries, especially in companies that aren't in financial health, definitely eat into profits every bit as much as generous pensions for ordinary workers. Yet, you virtually never hear a business writer, let alone a corporate board of directors, suggest that maybe a CEO is being paid too much, even when the company is going belly up. Everybody expects accountability from the guy who turns the screw in the widget for $20 an hour. But who holds the executive who makes millions of dollars a year for screwing up and driving the company into bankruptcy?

In fact, as this article, also in today’s New York Times, points out, wealth has increased by as much as almost 54 percent for the nation’s wealthiest 1 percent, who own over 57 percent of corporate wealth. Meanwhile, for every group below that 1 percent, it has decreased. And for the poorest fifth, it has decreased by 57 percent. Americans should be worried about the growing disparity between the wealthiest 1 percent and everybody else. We are losing our middle-class and turning into a nation governed by a tiny aristocracy with a vast class of poor people under them. That can lead not just to economic but also political instability over time.

It's also immoral. In fact, it's the ransacking of the American Dream. Is that the legacy we want to leave to our children?

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