Thursday, April 2, 2009

A Package for Labor

Behind the debate over whether GM and Chrysler should be bailed out or dispatched into bankruptcy is the curious history of the US labor movement. Unlike most other industrialized countries, where unions fought for and achieved a role in economy-wide institutions, the US fashioned its labor movement employer-by-employer and occasionally industry-by-industry. The result was, even in its heyday during the 1950s, a lopsided unionism that had great clout in a few sectors and regions and was virtually absent everywhere else. During the long decades of decline, the remaining union redoubts, like the top tier of auto manufacturing (final assembly and the top rung of suppliers), became islands in a sea of unbridled employer power. This is why the demand that the UAW run up the white flag as part of an auto bailout challenges what is left of the labor movement as a whole.

In fact, autos present us with a paradox. America desperately needs a revitalized labor movement, and smashing the union that has been at the heart of labor’s struggle ever since the sit-downs of the last depression is hardly the way to begin. The retiree benefits that have emerged as the main item of dispute—should the assets that fund them be converted into the funny money of common stock?—are the legacy of this struggle, guarantees that all workers should have but only a few were able to win. At the same time, it makes no economic sense at all for the auto industry to serve as a funding mechanism for a small piece of an otherwise absent welfare state. The sector needs to shrink, and it needs a clean financial slate that only big concessions from bondholders and workers can provide. So how to reconcile these two perspectives?

The only solution is for labor to be able to break out of its bunker mentality and gain a broad presence throughout the economy. There are two parts to this. First, a large portion of the legacy obligations of the auto producers and other unionized manufacturers should be socialized as part of a general reform of social insurance in the US. As Jamie Galbraith has eloquently argued, this is a time for expanding Social Security, not cutting it. And some form of universal health insurance, kickstarted by a fund like the one Obama has proposed, would address the health aspects of auto’s retiree overhang. In fact, this is what UAW pioneers like Walter Reuther wanted all along, but they had to fall back on collective bargaining when the political channel was shut down by resurgent Republicanism after WWII.

The second part has to do with active workers. The tragedy of UAW givebacks is that any other job these workers might find will be so much worse. This points us toward the solution: quick passage of the Employee Free Choice Act and a commitment to worker representation as a central feature of the next economy. The truth is, we are going to see a lot of restructuring once the economy recovers; this is a dreadful economic episode, but it is also a period of creative destruction. To speed up the recovery and accelerate the shift to an economically and environmentally sustainable future, we will need rapid disinvestment in some industries and the creation of new capacity in others. This will also have a geographical side; the new world is always built at some distance from the old. The only way to do this in a labor-friendly way is for workers to have a say everywhere, and this means systematic labor law reform. (The EFCA is just a beginning; there is a much larger agenda that reaches beyond the single mechanism of collective bargaining.)

Politically, we need a package deal: substantial abrogation of the UAW contract benefits combined with pro-labor reforms in labor law and the social safety net. I know this is tricky: you put it all on the table and run the risk that the benefits are eviscerated while none of the reforms go through. Nevertheless, this seems to me to be the only coherent way to think about the situation.

1 comment:

TheTrucker said...

Reality is not necessarily nice. There is no way that the auto industry owners can make good on the promises made to the UAW. And while I agree that the owners should be metaphorically strung up that will do the workers no good. And so we are left with what you have said, Peter.

If this country had a decent social insurance system we would not have this problem with the UAW or unions in general. Trade unions would continue to exist in order to provide competency and work place safety and the like. But the current problem should illustrate the fact that the private sector cannot guarantee retirement and medical benefits.

The discussion also spills over into the dispute concerning SS funding. The SS system is in trouble (not admitted by rose colored glasses) because the need for wage labor and wages paid to labor continue to fall. Labor unions are not going to fix that because technological innovation and _real_ capital development reduce the need for labor.

It has been suggested that the wage tax mechanism for funding SS was necessary to keep the system safe from the Republicans (my description of the evil doers which I believe to be totally accurate). It has been suggested that any attempt to draw support from anything other than wages will be attacked as an assault on capital and on capitalism. The rhetoric of the Republicans certainly supports this suggestion.

I submit that the political problem of social insurance support is one of a failure to distinguish capital (which is earned and therefore subject to rightful private ownership) from natural resources which are totally unearned and therefore not subject to rightful private ownership. It is that rightful private ownership comes into existence in the hands that create the objects of ownership. That which is not "produced" is not subject to privatization and there is no economic gain from such privatization. The lust for interest and profit compels the creator of capital and the result is more and better _real_ capital and an increase in productivity. That does not happen with natural resources. Such resources are fixed in supply and no system of rewards will increase the amount. This is why I am so supportive of natural resource taxation (coal and oil) in support of general welfare.

When I look at the social insurance systems I see the perfect example of how economic rent should be redistributed in a way that is progressively beneficial. But the economics profession continues to allow the rentiers to masquerade as "capitalists" and to claim that any effort to redistribute economic rent is an attack on capitalism. And this is why the economists must hide behind wage taxes and labor unions. It is a failure to appreciate the difference between land and capital and a failure to properly educate the voters.