Jewish World Review April 12, 2006 / 14 Nissan 5766 |
If Washington wants to see the future of America's welfare state, study Detroit
It is better to be fired by General Motors than it is to
be hired by most companies. Remember this when you are rightly ridiculing
the riotous French who have successfully insisted that even workers under
26 should have property rights to their jobs. Remember because the
accelerating crisis of private-sector welfare states such as GM prefigures
the coming crisis of the public sector's entitlements.
France has been convulsed by young people whose sense of entitlement
was affronted by a law now withdrawn in a triumph of mob rule that
would have allowed employers to fire a young worker in the first two years
of employment. Detroit's crisis also involves an entitlement mentality.
Under contracts negotiated, beginning in 1984, with the United Auto
Workers, there are about 14,700 laid-off autoworkers in the Jobs Bank.
About 7,500 of them are from GM. They get paid most of their wages and
benefits between $100,000 and $130,000 a year, for an annual cost to GM
of $750 million to $900 million.
The former workers expected to be 17,000 by next year are
required to do nothing that adds value to the auto companies. Some attend
classes given by GM. The Wall Street Journal reports that one worker took a
class in which he learned how to play Trivial Pursuit.
The French idea that a worker should have a property right in a job is
a product of statism and scarcity: Government supposedly is responsible for
allocating jobs which, in a collectivist society disdainful of capitalism,
are presumed to be permanently scarce. That presumption is self-fulfilling:
The more difficult it is to fire an employee, the more reluctant employers
are to hire.
Detroit's Jobs Bank, which was GM's idea, is a product of an
oligopoly's the Big Three domestic automakers still were such in 1984
misplaced sense of permanent abundance: They assumed that layoffs, if any,
would be brief because expansion of demand for their products would
generally be automatic. This mentality was self-defeating. It caused
management to focus not on producing desirable products but on running
private-sector welfare states, allocating much of the supposedly assured
cash flow to fund employees' benefits. And labor's myopic focus was on
extracting benefits from the corporation-as-welfare-state, not on the
long-term vitality of the corporate employer.
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The crisis now engulfing the UAW and the companies entered a new stage
with last year's bankruptcy of Delphi, the nation's largest manufacturer of
automobile parts. That was the pebble that presaged an avalanche.
The avalanche may mean two large things; it certainly means one.
Perhaps it means the bankruptcy of GM. Certainly it means, for the UAW and
for organized labor generally, the worst crisis since the National Labor
Relations Act of 1935 enabled private-sector unionization. In 1969, the
UAW's active membership peaked at 1.53 million. Today it is 640,000 and,
depending on the success of the buyout incentives and continuing failure to
stabilize the domestic automakers' market share, might dip below 600,000.
A current GM commercial, featuring cars from the 1950s and 1960s and
today, ends with three words on the television screen: ``Then. Now.
Always.'' The third word is the commercial's point. It aims to reassure
customers that GM will always be here. The message is: Do not be deterred
when the word ``bankruptcy'' is bandied.
Simultaneously, however, GM is hoping that more than 40,000 of its
employees and Delphi's; GM owned Delphi until 1999, and still has
obligations to many Delphi workers will accept buyouts ranging from
$35,000 to $140,000. But for most employees, the buyout proposals make
economic sense only if they believe there is a likelihood of something
worse bankruptcy, which would terminate their entitlements.
Were GM to use bankruptcy to end contracts and lower compensation
costs, what would become of Ford, whose costs are now similar to GM's? Jay
Palmer of Barron's says Ford cannot win concessions from workers by
credibly threatening bankruptcy because ``CEO Bill Ford and other
descendants of founder Henry Ford own roughly 40 percent of the company's
voting equity. A bankruptcy would in one stroke eliminate a huge chunk of
their fortune and effectively sever the family's ties with the company.''
Bankruptcy seeking judicial permission to shred contracts
improvidently entered into should be so costly that it cannot become a
routine management tool for private-sector welfare states. And America's
welfare state cannot seek what is called ``bankruptcy protection.'' Detroit
today is having what Washington will eventually have a wrenching
rendezvous with promises that seemed compassionate, or at least convenient,
when originally made but that cannot be kept without ruinous consequences.
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