Tuesday, December 16, 2008

Who Is at Fault for the Decline of the Big Three? - Michael Barone


Flash forward to 1970, when the UAW was negotiating its contract with General Motors, a story told by William Serrin in The Company and the Union. Taylorism was still the reigning philosophy of management, and workers really hated their jobs. I remember hearing a UAW political operative tell me, with horror in his voice, that a colleague who deviated from UAW discipline "was sent back to the line." So the big UAW demand that year was "30 and out"—assembly line workers could retire after 30 years on the job. This in turn led the union to demand generous retiree benefits. A worker who retired at 51 wouldn't be eligible for Medicare for 14 years, and therefore the UAW negotiated incredibly generous medical benefits—elective dental work with no copayment is one that sticks in my mind.

The UAW also created a constituency within itself of retirees who have voting rights in union elections just as actual workers do, and there are now something like three times as many GM retirees as GM employees as voting members of the UAW. Retiree benefits account for the lion's share of the difference between GM's labor costs and the labor costs of foreign automakers in the United States.

General Motors in 1970 thought it could afford this. Didn't it "control" half the U.S. auto market? Couldn't it generate any level of demand it wanted through advertising? That's what as learned a sage as John Kenneth Galbraith had argued in his bestselling The New Industrial State, published in 1967. GM in 1970 didn't fear competition; its greatest fear was that the Justice Department would bring an antitrust case to break it up.

But of course it turned out that GM and Ford and Chrysler were in 1970 just on the verge of getting serious competition from foreign automakers. 

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