dirty
EOG Master
Once Upon a Time in America
[FONT=Garamond, Times]Why GM and the UAW's postwar economic vision failed.[/FONT]
[FONT=Verdana, Times]
BY MICHAEL BARONE
Sunday, November 27, 2005 12:01 a.m. EST
The end, or the beginning of the end, of a familiar and comfortable world: That's how General Motors' announcement last week of massive layoffs and plant closings, following the bankruptcy of Delphi last month, strikes one who grew up in the Detroit area in the two decades immediately after World War II. In that world, it was easy to imagine you were at the center of the economy. Detroit was then the fifth-largest metropolitan area, the home of the Big Three auto companies and the United Auto Workers--national institutions of the greatest importance. The news media followed the negotiations between the UAW and the Big Three company it picked as a target every few years, and it was assumed that the wages and benefits agreed to would set a pattern for the whole economy.
And a very good economy it seemed to be. Left behind were the Depression and the anxious years of World War II. The UAW was able to negotiate big hourly pay increases and generous medical and pension benefits as well. With no effective competition, the Big Three could pass along the cost of UAW contracts to consumers who seemed willing to pay more for dramatically restyled and heavily advertised cars. General Motors' president, Harlow Curtice, was Time's Man of the Year for 1955. This was a recognition not just of an individual (I wonder how able an executive Curtice was) but of a system; Time might have honored UAW's longtime president, Walter Reuther.
The success of the Big Three and the UAW seemed a fit symbol of America's postwar economic dynamism. In fact, this was an economy characterized not by dynamism but by stasis, to use Virginia Postrel's term in "The Future and Its Enemies." New Deal legislation had been designed not for economic growth but for protection from the downward spiral of deflation. Those laws, not least by encouraging unions, strove to prop up wages and prices and to provide security to workers and existing firms. Keynesian economics was employed to flatten out the business cycle as much as possible and to reduce unemployment.
By the mid-1960s, it was generally agreed that this system worked and would continue indefinitely. The Big Three could always make money by rolling out the big cars families needed to go up north each summer. As John Kenneth Galbraith then argued, auto makers could induce consumers to buy as many cars as they wanted to sell by clever advertising. UAW workers could always look forward to ever-increasing wages and benefits. The big demand in the 1970 contract negotiations was retirement for auto workers in their early 50s. The confrontational labor-management politics of the 1940s and 1950s was replaced by consensus, as Henry Ford II joined Reuther in endorsing LBJ in 1964.
Reuther, a man of great energy and ability, wanted to use the UAW as an entering wedge to transform America into a Scandinavian-style welfare state. His contracts would set the pattern for national wages; the union movement would expand into new industries and unionize most of the economy; growth would enable workers to enjoy not only high wages, but job security, medical benefits, generous pensions. They would be protected against competition by large corporations. Reuther employed a Scandinavian architect to build Solidarity House, the union's headquarters on the Detroit River, and Black Lake, its educational center in northern Michigan. Reuther, like Marx, and like so many other social democrats, envisioned workers devoting their increasing leisure hours to pursuing the culture that seemed so inaccessible to workers earlier in the century.
The problem was that the default character of the economy, after the shocks of depression and war, turned out to be not stasis but dynamism. Private-sector unionization peaked in the mid-1950s; employment in unionized firms grew less than in nonunion firms. Union leaders believed that Section 14(b) of the Taft-Hartley Act, which allowed state right-to-work laws, was preventing unionization in the South, the Great Plains and much of the West. But the attempt to repeal 14(b) was one of the few defeats for LBJ's Democrats in the 1965-66 Congress.
The Big Three auto firms--and the UAW--would soon face competition from foreign firms and an unforeseen demand for cars not large enough to take the family up north every summer. Attempts to wall themselves off from foreign competition either failed legislatively or produced perverse results. Faced with domestic-content laws, Japanese and European firms built large plants in the U.S. with nonunion work forces. That has left the Big Three and their spinoffs, like Delphi, with redundant work forces and huge legacy costs in the form of generous pensions and open-ended retiree health benefits.
Union-driven legacy costs have already forced many steel companies and airlines into bankruptcy, with pension obligations fobbed off on the Pension Benefit Guaranty Corp. The Big Three auto companies might as well do the same. At least there aren't that many big unionized private industries left to fall. Besides, taxpayers and politicians angry at costs imposed by unions--particularly in the public sector--can always change the rules and reduce unions' bargaining leverage. Just as the economic marketplace eventually reduced the power of the old industrial unions, the political marketplace could, in time, reduce the power of the "post-industrial" unions.
The attempt to protect workers from all risk has turned out to be very risky indeed, since in a dynamic economy large corporations are subject to competition from firms with lower costs. In the auto industry the result is significant pain for those who relied on the Big Three and the UAW; but the result is also a vastly faster growing economy and many more opportunities than provided by the European welfare states.
A broader result has also been the consolidation of a more demotic, market-based culture. On the Michigan freeways going up north, the big attractions are not the UAW's cultural haven of Black Lake but Indian casinos and outlet malls, places where people throng to win sudden riches or to take advantage of low prices on brand-name goods. The attempt, made when the economy seemed static, to promise security and leisure and restrained good taste, has failed. We remain, as we have been in most of our history, a nation of hustlers (as historian Walter A. McDougall so strikingly put it)--a people who strive mightily to get ahead and advance their interests, enjoying the sometimes vulgar opportunities a dynamic economy provides. Mr. Barone is a senior writer at U.S. News & World Report and a contributor to the Fox News Channel. [/FONT]<SECTION:CONTENT_FOOTER>
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[FONT=Garamond, Times]Why GM and the UAW's postwar economic vision failed.[/FONT]
[FONT=Verdana, Times]
BY MICHAEL BARONE
Sunday, November 27, 2005 12:01 a.m. EST
The end, or the beginning of the end, of a familiar and comfortable world: That's how General Motors' announcement last week of massive layoffs and plant closings, following the bankruptcy of Delphi last month, strikes one who grew up in the Detroit area in the two decades immediately after World War II. In that world, it was easy to imagine you were at the center of the economy. Detroit was then the fifth-largest metropolitan area, the home of the Big Three auto companies and the United Auto Workers--national institutions of the greatest importance. The news media followed the negotiations between the UAW and the Big Three company it picked as a target every few years, and it was assumed that the wages and benefits agreed to would set a pattern for the whole economy.
And a very good economy it seemed to be. Left behind were the Depression and the anxious years of World War II. The UAW was able to negotiate big hourly pay increases and generous medical and pension benefits as well. With no effective competition, the Big Three could pass along the cost of UAW contracts to consumers who seemed willing to pay more for dramatically restyled and heavily advertised cars. General Motors' president, Harlow Curtice, was Time's Man of the Year for 1955. This was a recognition not just of an individual (I wonder how able an executive Curtice was) but of a system; Time might have honored UAW's longtime president, Walter Reuther. The success of the Big Three and the UAW seemed a fit symbol of America's postwar economic dynamism. In fact, this was an economy characterized not by dynamism but by stasis, to use Virginia Postrel's term in "The Future and Its Enemies." New Deal legislation had been designed not for economic growth but for protection from the downward spiral of deflation. Those laws, not least by encouraging unions, strove to prop up wages and prices and to provide security to workers and existing firms. Keynesian economics was employed to flatten out the business cycle as much as possible and to reduce unemployment.
By the mid-1960s, it was generally agreed that this system worked and would continue indefinitely. The Big Three could always make money by rolling out the big cars families needed to go up north each summer. As John Kenneth Galbraith then argued, auto makers could induce consumers to buy as many cars as they wanted to sell by clever advertising. UAW workers could always look forward to ever-increasing wages and benefits. The big demand in the 1970 contract negotiations was retirement for auto workers in their early 50s. The confrontational labor-management politics of the 1940s and 1950s was replaced by consensus, as Henry Ford II joined Reuther in endorsing LBJ in 1964.
Reuther, a man of great energy and ability, wanted to use the UAW as an entering wedge to transform America into a Scandinavian-style welfare state. His contracts would set the pattern for national wages; the union movement would expand into new industries and unionize most of the economy; growth would enable workers to enjoy not only high wages, but job security, medical benefits, generous pensions. They would be protected against competition by large corporations. Reuther employed a Scandinavian architect to build Solidarity House, the union's headquarters on the Detroit River, and Black Lake, its educational center in northern Michigan. Reuther, like Marx, and like so many other social democrats, envisioned workers devoting their increasing leisure hours to pursuing the culture that seemed so inaccessible to workers earlier in the century.
The problem was that the default character of the economy, after the shocks of depression and war, turned out to be not stasis but dynamism. Private-sector unionization peaked in the mid-1950s; employment in unionized firms grew less than in nonunion firms. Union leaders believed that Section 14(b) of the Taft-Hartley Act, which allowed state right-to-work laws, was preventing unionization in the South, the Great Plains and much of the West. But the attempt to repeal 14(b) was one of the few defeats for LBJ's Democrats in the 1965-66 Congress.
The Big Three auto firms--and the UAW--would soon face competition from foreign firms and an unforeseen demand for cars not large enough to take the family up north every summer. Attempts to wall themselves off from foreign competition either failed legislatively or produced perverse results. Faced with domestic-content laws, Japanese and European firms built large plants in the U.S. with nonunion work forces. That has left the Big Three and their spinoffs, like Delphi, with redundant work forces and huge legacy costs in the form of generous pensions and open-ended retiree health benefits.
Union-driven legacy costs have already forced many steel companies and airlines into bankruptcy, with pension obligations fobbed off on the Pension Benefit Guaranty Corp. The Big Three auto companies might as well do the same. At least there aren't that many big unionized private industries left to fall. Besides, taxpayers and politicians angry at costs imposed by unions--particularly in the public sector--can always change the rules and reduce unions' bargaining leverage. Just as the economic marketplace eventually reduced the power of the old industrial unions, the political marketplace could, in time, reduce the power of the "post-industrial" unions.
The attempt to protect workers from all risk has turned out to be very risky indeed, since in a dynamic economy large corporations are subject to competition from firms with lower costs. In the auto industry the result is significant pain for those who relied on the Big Three and the UAW; but the result is also a vastly faster growing economy and many more opportunities than provided by the European welfare states.
A broader result has also been the consolidation of a more demotic, market-based culture. On the Michigan freeways going up north, the big attractions are not the UAW's cultural haven of Black Lake but Indian casinos and outlet malls, places where people throng to win sudden riches or to take advantage of low prices on brand-name goods. The attempt, made when the economy seemed static, to promise security and leisure and restrained good taste, has failed. We remain, as we have been in most of our history, a nation of hustlers (as historian Walter A. McDougall so strikingly put it)--a people who strive mightily to get ahead and advance their interests, enjoying the sometimes vulgar opportunities a dynamic economy provides. Mr. Barone is a senior writer at U.S. News & World Report and a contributor to the Fox News Channel. [/FONT]<SECTION:CONTENT_FOOTER>
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