I've been hoping that someone would take the time to write a diary on this, but I haven't seen anything. While there's been tremendous focus on the continuing subprime mortgage crisis, there's been little attention given to the looming cataclysmic confrontation between the United Auto Workers (UAW) union and the Big Three automakers (GM, Ford, and Chrysler.) The current contract between the UAW and the Big Three expires tonight at midnight, and while Ford and Chrysler have indefinite extensions to their contracts, GM has been chosen as the strike target.
DETROIT -- The United Auto Workers union likely chose General Motors Corp. as the lead company in labor talks with the Detroit Three because GM is considered the healthiest and the UAW wants to prevent the nation's largest automaker from moving more manufacturing overseas, industry analysts said.
Two local union officials said they received notice Thursday afternoon that GM would be the lead company in the contract negotiations and the UAW's potential strike target. The officials spoke on condition of anonymity because the talks are private.
Many of you may be unfamiliar with the language used here, so I want to give a little background.
First, where workers are organized, the union negotiates a contract that specifies the terms of work, benefits, and pay. Unlike in most employment relations where large employers are able to exploit power and information assymetries, with the union two largely equal players are at the table. I could write an entire diary about this, but to simpify (grossly) the key distinction is that where the company knows the wages and benefits paid to all their employees, employees rarely know this, nor have in depth information about the amount of money that their work generates for the company. In short, most of the assumptions neccesary for the free markets to function that economists dismiss with ceterus paribus (Latin, "all other things being equal," sounds much more scientific than abracadbra despite often being its functional equivalent) are not valid.
Just to present graphic proof of the impact that this has, a few charts.
Few (of my generation) realize that there was a time when 1 in 3 American workers belong to a labor organization, and that in the industrial Midwest (Indiana, Ohio, Michigan, etc) the private sector rates were even higher. This being built in large part upon the might that was the United Auto Workers union in its heyday under Walter Reuther in the 1960's.
American never had state socialism, because we didn't need it. The union made us strong. For a generation of UAW families, the union contract meant that Dad (or Mom) brought home enough pay to give us a middle class living, guaranteed health insurance (vision, dental too) with no co-pay, and the security that came from knowing that it was all binding. The working class became middle class, because if they worked they were guaranteed a living wage and benefits. But those days are gone, the company long ago introduced co-pays, and there's a constant fear that the plant will be closed.
And the story in the media is that American workers no longer have the right to expect a living wage and health care benefits. Because American workers are slothful, lazy creatures that exhibit a human character slighly above that of drug addicts. Of course the media would never lie to us, if there were even an inkling of evidence that the there was in fact a divergence in productivity growth (making more stuff) and inflation-adjusted wage growth, they would tell us right?
Those lying little sonsabitches, ever since union density (the % of the workforce represented by a labor organization) began to fall in the 1960s, wages have not risen at the same rate as productivity. Workers are making more stuff, yet they are not being paid for it. Why, because while workers stand together in unions they are able to overcome those power and information assymetries, but when workers are forced to stand alone at the table, the company has all the information about wages and the power to affect the production of the firm on their side.
Even that apostle of the free market, Adam Smith, understood this.
"What are the common wages of labor depends everywhere upon the contract usually made between those two parties (workmen - and masters), whose interests are by no means the same. The workmen desire to get as much, the masters to give as little as possible. The former are as disposed to combine in order to raise, the latter in order to lower the wages of labor."
"We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labor above their actual rate."
"Masters, too, sometimes enter into particular combinations to sink the wages of labour even below this rate. These are always conducted with the utmost silence and secrecy, till the moment of execution, and when the workmen yield, as they sometimes do, without resistance, though severely felt by them, they are never heard of by other people."
"Such combinations, however, are frequently resisted by a contrary defensive combination of the workmen; who sometimes too, without any provocation of this kind, combine of their own accord to raise the price of their labor."
"But whether their combinations be offensive or defensive, they are always abundantly heard of. In order to bring the point to a speedy decision, they have always recourse to the loudest clamour, and sometimes to the most shocking violence and outrage ."
Even Adam Smith realized that power and information assymetries plague the employment relationship when capital is allowed to combine into corporations, but workers are forbidden to do so. As was the case until the abolition of anti-combination laws in 19th century Britain, and is increasingly the case in this country as restrictions are placed on the ability of workers to combine into unions. However, those who would speak his name as though it invokes the sacred have conveniently forgotten to read this part of the book. That's the problem with fundamentalist zealots though.
And for the last 40 years American labor has been under attack, and the ability of the working class to combine into unions that they might have a middle class living has been degraded. When workers unite, and stand together they can negotiate as equals with their employers. And when the company wants to keep the fruits of their labor (i.e. when there is a productivity increase but wages are held stagnant), the workers can go on strike.
And this gets back to the UAW and what's happening today. When wages are set on the "free market" with workers divided and the company united, the inevitable tendency is that they will descend to a level sufficient only to keep a man alive and nothing more. When workers unite, they can can share in what they put on the table, and if the company isn't interested in playing fair, then workers can refuse to put more on the table if it will benefit the company alone. They can go on strike.
Traditionally, negotiations between the Big Three and the UAW have followed a pattern negotiation model. In this, the UAW chooses a strike target, a company against whom they wil strike if no agreement can be made. And they get the best deal that they can get from them, and them use that deal as a template for contracts with the other two. Before the arrival of foreign non-union manufacturers, this meant that the UAW was able to negotiate an industry wide wage that meant that no company had a competitive advantage from paying subpar wages. The arrival of Toyota, Honda, and the rest in the US has challenged this, and more ominously "free trade" deals have opened the door to offshoring production to contries where even the meager protections of US labor law are not present.
As you read this, union halls in Cadillac, Michigan, Lordstown, Ohio, and elsewhere are being readied for use as strike headquarters. The impact of a national strike would be dramatic. 180,000 GM workers off the job, probably somewhere around hald again that laid off at suppliers as GM plants are idled. And all this concentrated for the most part in 3-5 states in the Midwest.
The sticking point in negotiations between the UAW and GM is the creation of a new union run Volunteer Employee Benefits Association (VEBA) that would assume the responsibility for health insurance from the company. Previous deals of this sort where struck between Goodyear and the Steelworker's and auto supply firm Dana and the UAW.
For employers, the advantages of such arrangements are obvious: They can remove a huge unfunded liability from their financial statements. With that liability eliminated, employers’ credit ratings are likely to improve, making future borrowing both easier and cheaper.
Union members, in turn, also benefit. Through the employer contributions to the VEBAs, what had been unfunded promises to provide retiree health-care benefits are backed by hard dollars that can’t be used for any purpose other than to pay for benefits.
"The promise was rich, but the delivery could be zero" if a company later went bankrupt and liquidated, said Steve Ferruggia, a principal with Buck Consultants in Secaucus, N.J.....
An auto industry VEBA would dwarf the Goodyear and Dana VEBAs. At the end of last year, General Motors Corp. alone had $47 billion in unfunded retiree health-care liabilities.
While a VEBA for any of the Big Three automakers would be gigantic, putting together a VEBA of such size would have certain advantages, Mr. Ferruggia said. Large VEBAs, for example, would be better able to weather fluctuations in investment performance than smaller ones.
Unlike pension benefits which are guaranteed through the Pension Benefit Guarantee Corporation (PBGC), retiree healthcare benefits are not guaranteed by any government insurance program. There is tremendous skepticism among the rank and file about this, what happened at LTV, where the company didn't fully fund the VEBA and it went bankrupt looms over the whole process. But in the end, the UAW is likely to agree to the creation of a VEBA that will assume healthcare liabilities. However, the UAW and GM are at loggerheads because GM wants to discount their current liability to something on the order of 50-75% of what the owe under current contracts. Thus, a strike is a strong possibility in order to extract the closest amount to what is actually owed to workers.
I'd like to close with this. Even if you don't give a damn about the UAW or organized labor, this matters. Because the creation of a new union run insurance system would introduce a significant new player into the national debate on healthcare. And I have no doubt that the possibility of a UAW VEBA and the influence of David Bonior are what lead the Edwards campaign to propose the healthcare plan that they did. The idea being to use the power of union VEBAs to fuel the creation of a government run healthcare plan that will bring a single payer plan through the power of the market. And the thing is that there's a strong possibility that it would actually work.