Tag Archives: Capitalism

Autoworkers: “I’m Sticking to the Union… Till the Day I Die”

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(Welcome, Corner readers, and thanks to Cornerite Iain Murray for his continuing support. Thanks also to Mickey Kaus for linking, with a permalink no less — sorry about the crack below about the Kausfiles template!)

In an article on Slate, Mickey Kaus explains why the Detroit automakers are in trouble:

There are some obvious culprits: shortsighted American managers, schlocky designers, an insular corporate culture. Here’s another: the very structure of Wagner Act unionism. The problem isn’t so much wages as work rules–internal strictures that make it hard for unionized competitors to constantly adapt and change production processes the way the Japanese do.Now that everyone is criticizing work rules, it’s easy to forget that they don’t represent a perversion of the collective bargaining process–they are the intended result of that process, and were once celebrated as such.

Kaus doesn’t explicitly advocate or oppose bankruptcy in the article. From what I’ve reviewed of his earlier writing, he doesn’t seem to have taken a position one way or another — rather, he has repeatedly pointed out the problems and the flaws with both bankruptcy and a bailout. (That link is to his blog homepage — his archaic “Kausfiles” template has very few permalinks, so you have to just keep scrolling or searching except when he puts up a major article.)

Legacy of the 1935 Wagner Act

But to me, his current article explains vividly why bankruptcy is the only solution for Detroit. He quotes from another writer’s 1983 article:

Under the Wagner Act, management manages. What the union does is complain, and negotiate for a rule limiting management’s right to do what the union doesn’t like. A worker protests that his job should be classified as “drilling special and heavy” instead of “drilling general.” The parties butt heads, a decision is reached, and a new rule is deposited like another layer of sediment. At some GM plants, distinct job categories evolved for each spot on the assembly line (e.g., “headlining installer”). In Japanese auto plants, where they spend their time building cars instead of creating job categories, there is only one nonsupervisory job classification: “production.”

Note that the above was written 25 years ago — the problem already was clear, and now the “layers of sediment” have had another quarter-century to accumulate. Kaus continues, describing the situation today:

Yes, faced with successful Japanese rivals, Detroit and its union have been trying to reduce the number of work rules–but the process has been slow, like pulling teeth, especially because the UAW defers to its locals.

Confessions of a Union Man

I’ve been professionally aligned with “management” for the past quarter century, but before that I briefly was an unpaid, elected union official. (It was the Newspaper Guild, an anemic junior varsity union in a dying industry, but still. I was the head of a roughly 40-person unit at The Home News, a small New Jersey daily. It’s now Home News Tribune Courier News, and the Guild unit didn’t survive the mergers.)

My point, and I do have one, is that I’ve seen enough of the behavior of highly paid top union officials to understand that their focus is not on the best interests of their members. Their focus is on protecting their lucrative jobs, and the only way they know to do that is to be perceived by the members as being willing to fight to the bitter end to protect existing contracts.

But in bankruptcy court, the contracts (theoretically, at least) can be voided. And that’s the level of change that will be required to put the U.S. auto industry on solid competitive footing with foreign automakers.

A Shout-Out to #TCOT

In the past few days, my humble blog has had a welcome flurry of attention because of a post I wrote describing the interaction between Ford’s head of social media, Scott Monty, and a new virtual organization called Top Conservatives on Twitter (TCOT). (What is Twitter, you ask? Here is a primer.) Having voted for Clinton twice I’m still not used to thinking of myself as a conservative, but I’m currently the 655th top conservative on Twitter, according to the group’s list.

I’ve been moving up the ranks as more people sign on to follow my “Tweets” because of the publicity. [Are YOU following me on Twitter?] The original post got linked to from The Corner, sending hundreds of visitors my way and spawning other threads in the conservative blogosphere. I later did a followup post expressing admiration for Monty’s grace under pressure.

The Ford Story

My BFF Scott Monty is working hard to get the public to understand that the auto bailout defeated last week in Congress was not a “Big 3” bailout. As I said in an earlier post,

Interestingly, Ford is not seeking bailout money at this time, but supports the bailout “to address the near-term liquidity issues of GM and Chrysler, as our industry is highly interdependent and a failure of one of our competitors could affect us all.”

Monty argues, convincingly to my mind, that under CEO Alan Mulally — a former Boeing exec who never worked for a car company before two years ago — Ford has gone much further than GM and Chrysler toward adjusting its business model to the emerging realities. TCOT is racing to try to reinforce that story — dozens of volunteers (including, to some degree, me) have mobilized over the weekend for Operation Ford Motor, an effort to help differentiate Ford from the others, while striking a blow for capitalism and the principles of market discipline.

The proposed purpose of Operation Ford Motor is based on the following concepts:

– To recognize Ford Motor Company’s efforts at avoiding accepting government bailout money.

– To provide input to Ford Motor Company on why it is important to remain free-market focused, and not accept government loans.

– Partner with Ford in making its example of a market-based approach the standard for American business without relying on taxpayer dollars.

– Lay the groundwork for a market-based approach to turning around the auto industry, and the economy at large.

This nascent potential partnership is fragile on both sides. Monty has been unfailingly polite, but has cautioned that he can make no commitment on behalf of Ford. He also pointed out, in comments on a blog I just can’t find right now, that the company cannot become too closely aligned with any particular ideology. And TCOT may well bail out of this project if members come to disapprove of Ford’s actions.

I admire Monty and hope he and his company are successful in telling The Ford Story and differentiating Ford from the Big Other Two. Ford has already won some concessions from the UAW, and has refocused its business and avoided a cash crunch — it’s by far the healthiest of the three. But let’s say Chrysler and GM go bankrupt and shrink dramatically, while Ford avoids bankruptcy. Ford could end up at a competitive disadvantage because the other companies are able to put more pressure on the union.

As I said at the beginning of this adventure, way back on Friday morning: “I don’t know what if anything will come of this, but it’s fascinating.”

Eloquent Economic Commentary from Ayaan Hirsi Ali

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Ayaan Hirsi Ali, my hero, sings the praises of open markets in a tightly edited, 6-minute video on the Templeton Foundation site, part of a series of discussions about “big questions” such as “Does the free market corrode moral character?”

English is at least her fourth language — she was born in Saudi Arabia, came of age in Kenya, won election to Parliament in Holland, then fled to the United States in the face of Islamic death threats — and yet the 39-year-old Ali provides one of the most powerful descriptions of the virtues of capitalism that I’ve heard anywhere. A remarkable person.

Congress May Have a Spine on Auto Bailout

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Here’s why Congress ought to hold the line and refuse to bail out the automakers (emphasis added):

Requiring car companies to meet corporate average fuel economy (CAFE) standards forces them to lose money on small cars that people don’t want so they can sell big cars that people do want, at least until gas prices soar out of sight. Proof positive came last month, when the Toyota Sequoia and Honda Pilot SUVs posted big gains while sales of most other cars plunged. The obvious reason: gasoline prices plunged too.

The reason Europe has fuel-efficient cars is high gas prices, not CAFE laws. What’s more, the only times that Americans have switched to smaller cars is 1973, 1979 and the spring of 2008, when gas prices here were high. So the time has come for Congress to stop pretending that fuel-economy can be legislated and to put market forces to work. That means raising gasoline taxes — offset by cuts in income taxes and by gas vouchers for needy people. These measures would succeed at raising fuel economy and in reducing automotive emissions where the CAFE law has failed.

The Rube Goldberg system of intricate, loophole-ridden fuel efficiency standards has been tried (in the U.S.) and failed. The simple expedient of high gas taxes has been tried (in Europe) and succeeded. Q.E.D.

What do the CAFE standards have to do with the bailout? In the Rube Goldberg link above. Holman Jenkins describes how the CAFE standards help entrench the unions. Refusing to bail out the automakers would address the union issue from the other direction — by giving automakers the ability to renegotiate existing labor (and dealer) contracts in bankruptcy court.

But the more powerful link between the two is reliance on the magic of capitalism. Market forces are more powerful and more reliable than complicated legislation, but the market forces have to be allowed to do their job, and the proper incentives have to be in place. That means that companies that make bad decisions over a period of decades have to be allowed to fail.

There is reason to hope that Congress may do the right thing — because they’re hearing from their constituents (emphasis added):

Congressional leaders are concerned that public opinion has turned strongly against help for the automakers. A CNN/Opinion Research Corp. poll of nearly 1,100 Americans conducted earlier this week found 61% oppose a bailout, while only 36% support it. Even in the Midwest, home to most of the automakers’ remaining plants, 53% of those polled opposed federal help.

That was a stunning reversal of polls taken before the CEOs last trip to Capitol Hill. A poll Nov. 11 and 12 conducted by Peter D. Hart Research Associates found 55% supported federal assistance for automakers at that time, and only 30% who believed they should not get federal help.

On the last trip to DC, of course, the auto executives caught a lot of heat for arriving on their separate corporate jets, and presumably that symbolism is fueling the shift in public opinion. (This time, they arrived in hybrid cars and vehicles.) The cost of the corporate jets are a round-off error compared to the automakers’ overall expenses. But populist indignation may help Congress do the right thing on the bailout, because they can be seen as “punishing” the executives as well as the unions.

Reasons for Republicans to be Thankful

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Jennifer Rubin offers some Thanksgiving cheer at Pajamas Media. I don’t agree with every word of her post, but I love these parts:

First, President-elect Barack Obama won by assuring voters he would pursue tax cuts, victory in Afghanistan, prevent Iran from acquiring nuclear weapons, and go “line by line” through the federal budget to eliminate waste and unneeded programs. We can doubt his sincerity or ability to achieve these ends, but he won by recognizing and espousing center-right principles. If he pursues some or all of them, the country will be the better for it. If he doesn’t, he is unlikely to succeed or maintain the broad-based popularity needed to keep Democrats in power.

Second, Hillary Clinton, James L. Jones, and Robert Gates are on tap to fill key national security roles. This is not the crew to bug out of Iraq before the job is done, repeal FISA, rush off to meet with Ahmadinejad, or support a 25% cut in defense spending. On national security, the president-elect in essence has conceded that the Left’s vision is impractical and dangerous. …

Ninth, President George W. Bush and General David Petraeus persevered against tremendous odds and have placed us on the verge of one of the great military turnarounds in our history. We can disagree about the wisdom of the decision to go to war in Iraq, but a victory with a stable Iraq allied with the U.S. and a humiliated al-Qaeda is now within our grasp. By avoiding defeat and empowering an Arab nation to take up arms and defeat Islamic terrorists, Bush and Petraeus furthered the security of the U.S., the region, and our allies around the world.

Rubin’s post is headlined “Ten Reasons for Conservatives to be Thankful.” I substituted “Republicans” in my headline because after describing myself as a liberal for most of my life, I can’t quite get my brain wrapped around the idea that I’m a conservative. I’m certainly right-of-center on economic and national security issues, but I’m pro-choice and I favor marriage equality for same-sex couples. I guess that makes me a libertarian… except hard-core libertarians tend to oppose the Iraq war, which I strongly support.

Also, once you get too far out on the libertarian spectrum you’ve got anarchy. This 64-question libertarian purity test gives you extra purity points for a desire to abolish government, privatize roads, police forces, etc. I’m a big fan of capitalism and market-based incentives, but I think we need some government.

Here’s a much shorter quiz (10 questions) to help locate your political identity. Here’s the result I got:


Bullseye. Happy Thanksgiving.

Mr. Obama: Declare War on Rube Goldberg

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In today’s Wall Street Journal, Holman Jenkins identifies the key culprit in the current economic woes. It’s not Hank Paulson or Hank Greenberg or Stan O’Neal or even George Bush. The most formidable enemy of the American economy is Rube Goldberg.

Jenkins starts by discussing the complex set of rules that have enabled autoworkers to win the contracts that have crippled the American auto industry:

… the single biggest factor in preserving the UAW’s monopolistic power has not been labor law but Congress’s fuel-economy rules. These effectively have required the Big Three to lose tens of billions making small cars at a loss in UAW factories. Not only were the companies obliged to forgo profits they might have earned importing such cars, but CAFE deprived them of crucial leverage to control labor costs by threatening to move jobs to a factory in Spain or Taiwan or Poland.

The CAFE standards — a Rube Goldberg system known formally as Corporate Average Fuel Economy standards — distort the automobile marketplace while dismally failing at their fundamental reason for existence, which is to reduce carbon emissions. Jenkins then ties the proposed auto bailout to the financial meltdown and other issues (emphasis added):

A whole lot of Rube Goldbergism is coming home to roost, in the auto business, in the mortgage market, in the health-care market, in farm policy. We need to simple-down. The economy has a giant adjustment ahead, paying off debts, going from a heavy absorber of foreign capital and goods to a rebalanced relationship with the world.

The good news is that we have a natively resilient, flexible economy capable of making these adjustments — unless bound up in Rube Goldbergian mandates. Barack Obama, bless his heart, may or may not be ready for what’s coming his way. Yet his objectives are perfectly amenable to the simple-down approach.

He asked on Monday for Detroit to deliver a “plan” somehow to reconcile, at long last, the fantasy life of Washington, with nobody losing a job, with super energy-efficient cars, and yet somehow all this being done at a profit to Detroit.

Here’s a plan, but it requires Mr. Obama to play a role too, finally relinquishing such chronic free-lunchism where autos are concerned. He should simply get rid of the CAFE rules and impose a gasoline tax to move the country to a “new energy economy,” if he really believes in panicky climate predictions and/or that “energy independence” would be a net improver of American welfare. And be prepared for Detroit to shift jobs offshore if the UAW won’t concede competitive labor agreements.

Economist Greg Mankiw has been a champion of a gasoline tax for years, periodically welcoming new members in the Pigou Club, a collection of economists and pundits who favor Pigouvian taxes, which Wikipedia describes as “a tax levied to correct the negative externalities of a market activity.” Mankiw does a thorough job of advocating for a gas tax in his Pigou Club Manifesto. Here’s my shorthand version: Raising the gas tax substantially would automagically lead to more fuel-efficient cars, and the tax revenues raised could be used for good purposes such as reducing other taxes and remediating carbon emissions.

Having already established my credentials to offer “improvements” to Mankiw’s ideas, I want to point out that his specific proposal, which seemed bold when he unveiled it two years ago, now looks quaint:

I would like to see Congress increase the gas tax by $1 per gallon, phased in gradually by 10 cents per year over the next decade.

After watching gas prices go from $2 to $4 and back to $2 in a matter of months, it now seems clear that a series of annual 10-cent increases would go virtually unnoticed, thereby reducing the desired effect. But that’s a quibble — maybe it should be 50 cents annually for four years, or whatever.

Today’s WSJ also has a tantalizing hint that Mr. Obama might be amenable to taking on Rube Goldberg:

As part of his plan to kill government programs “that have outlived their usefulness,” the President-elect singled out farm subsidies for the rich. If he really means it, this would be big news.

Indeed it would — especially if it were a first step toward eliminating the Goldbergian farm subsidies altogether, along with the negative externalities they entail.

Bankruptcy is the Right Medicine for Automakers

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Look at the bright side – GM stock
only has $3 farther to fall. (From Yahoo Finance)

The more I read and think about a potential further bailout of the auto industry, the nuttier the idea sounds.

Michael E. Levine is a former airline executive, so he knows about bankruptcy. He puts it this way in today’s Wall Street Journal:

General Motors is a once-great company caught in a web of relationships designed for another era. It should not be fed while still caught, because that will leave it trapped until we get tired of feeding it. Then it will die. The only possibility of saving it is to take the risk of cutting it free. In other words, GM should be allowed to go bankrupt.

Even one of the auto industry’s hometown papers, the Detroit News, said in an editorial Friday that bankruptcy might be preferable to the appointment of an automotive “czar,” an idea that has been floated by the Obama transition team.

It’s also been suggested that the government will take an equity stake in the companies and demand seats on their boards. That would almost certainly restrict the ability of the automakers to shut plants and lay off workers.

For all practical purposes, these moves would nationalize the auto industry and make its return to profitable, independent operation even more of a long shot. Presumably, an automotive “czar” could manage all of this meddling.

If that’s the case, Detroit’s automakers might want to rethink whether it’s safer for them to be in the bankruptcy courts than beneath the oppressive wing of a federal overseer.

Bankruptcy doesn’t mean GM goes out of business, and it certainly doesn’t mean the entire American car industry goes out of business. Bankruptcy protection would allow GM to reorganize, shrink substantially, and renegotiate its ruinous contracts with unions and dealers.

Levine describes the problem:

Foreign-owned manufacturers who build cars with American workers pay wages similar to GM’s. But their expenses for benefits are a fraction of GM’s. GM is contractually required to support thousands of workers in the UAW’s “Jobs Bank” program, which guarantees nearly full wages and benefits for workers who lose their jobs due to automation or plant closure. It supports more retirees than current workers. It owns or leases enormous amounts of property for facilities it’s not using and probably will never use again, and is obliged to support revenue bonds for municipalities that issued them to build these facilities. It has other contractual obligations such as health coverage for union retirees. All of these commitments drain its cash every month. Moreover, GM supports myriad suppliers and supports a huge infrastructure of firms and localities that depend on it. Many of them have contractual claims; they all have moral claims. They all want GM to be more or less what it is.

But GM can’t continue to be what it is. The beauty of the bankruptcy system is that it would give GM leverage to pursue cost-cutting more aggressively than would otherwise be possible. The longer that corrective action is delayed, the more traumatic the eventual restructuring will be.

Yes, there’s a perception issue involved in bailing out the “Wall Street fat cats” while refusing to help manufacturing industries and their blue-collar workers. That’s why it’s a bad idea for government to get involved in picking winners and losers in the first place. But the financial industry is special a special case, because of its critical role in making the entire economy function. The purpose of the rescue plan was not to bail out financial firms, but to unfreeze the credit markets, the lifeblood of the entire economy. Any proposed bailouts of other industries have to be held to a much higher standard

Bailouts: Further Down the Slippery Slope

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David Brooks makes the case against an auto industry bailout more eloquently than I did:

A Detroit bailout would set a precedent for every single politically connected corporation in America. There already is a long line of lobbyists bidding for federal money. If Detroit gets money, then everyone would have a case. After all, are the employees of Circuit City or the newspaper industry inferior to the employees of Chrysler? …

But the larger principle is over the nature of America’s political system. Is this country going to slide into progressive corporatism, a merger of corporate and federal power that will inevitably stifle competition, empower corporate and federal bureaucrats and protect entrenched interests? Or is the U.S. going to stick with its historic model: Helping workers weather the storms of a dynamic economy, but preserving the dynamism that is the core of the country’s success.

Now the states are getting into the act in seeking a federal bailout:

The idea is getting a strong bipartisan push from governors across the country, with California Republican Gov. Arnold Schwarzenegger and New York Democratic Gov. David Paterson among the chief proponents. Both are blaming Washington for their states’ mounting troubles. …

California Assembly Speaker Karen Bass said Congress should view states “as deserving of help as much as banks and automakers and everyone else in line for funds.” If Congress can give $700 billion to financial institutions, she asked: “Can we have $5 (billion) or $6 (billion)?”

Never mind $5 billion — a mere $5 million would have a profoundly positive effect on another deserving recipient. What I envision here is not exactly a bailout, but rather an innovative “pay-for-work” program…

The Slippery Slope of Government Bailouts

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Stephen Bainbridge has done the best job I’ve seen of describing why bailing out the U.S. automobile industry — as proposed by Congressional Democratic leaders — would be a terrible mistake. Point by point he shows why the public interest would be better served by letting the big automakers go bankrupt, because bankruptcy reorganization would give them the leverage they need to modify ruinous contracts with unions and dealers.

Using GM as an example, he summarizes:

Letting GM avoid bankruptcy by giving it a federal bailout ought to be unthinkable, because of the very real risk that a federal bailout will come with conditions that preclude GM from fixing its core problems. It’s likely to preserve the gold plated union contracts, the excess payroll numbers, the excess plant capacity, and the excess number of dealers.

This helps illustrate why it was conservative Republicans, rather than Democrats, who led the initial opposition to the Wall Street rescue plan, and succeeded in voting down the first proposal. Stereotypes would lead a person to believe that Republicans would be more sympathetic to Wall Street than Democrats. But the conservatives were not opposing Wall Street — they were opposing creeping socialism. They knew that other troubled industries would soon be jockeying for position at the government trough.

If belief in capitalism and free markets means anything, it means the markets must be able to reallocate capital to more productive uses. It means reckless or uncompetitive companies have to be allowed to fail. Viewed through this filter, any financial calamity caused by allowing the giant Wall Street firms to fail could be considered a necessary side effect of adhering to capitalist principles.

I’m an ardent capitalist, but I quickly became persuaded that a Wall Street bailout was a necessary evil. (I’m sure Hank Paulson would have been relieved to learn that I was on board.) The financial services industry is a special case, because the flow of capital affects virtually every business, government and individual in the world.

The credit markets effectively were frozen, and 15 years as a Wall Street gumby has helped me understand what a potentially devastating problem that is. The short-term credit markets are like oxygen for banks and big companies. They have to be able to breathe capital in and out on a daily basis to meet their daily needs. It was only a matter of time — and not very much time — before even healthy blue-chip companies would be unable to issue paychecks on schedule, to pick just one example of the potential for panic.

The analogy that comes to mind for the Wall Street bailout is, let’s say your child misbehaves and you tell her she’s grounded for a week. On principal, you should not then allow her to go see a movie two days later, no matter how much she pleads. However, if the house catches fire, you need to set principle aside and let her escape.

The automakers are a completely different story. Bankruptcy reorganization would be a severe financial blow to huge numbers of individuals and communities — but it would not bring the entire economy to a halt.

Krauthammer Explains the Election

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I’ve argued before that it is deeply ironic that the financial crisis benefited the Democrats this year, since the Democrats drove the reckless expansion of access to mortgages that led to the crisis, while Republicans — specifically, McCain and the Bush Administration — were sounding alarms.

As usual, Charles Krauthammer has the explanation:

This was not just a meltdown but a panic. For an agonizing few days, there was a collapse of faith in the entire financial system — a run on banks, panicky money-market withdrawals, flights to safety, the impulse to hide one’s savings under a mattress.

This did not just have the obvious effect of turning people against the incumbent party, however great or tenuous its responsibility for the crisis. It had the more profound effect of making people seek shelter in government.

After all, if even Goldman Sachs was getting government protection, why not you? And offering the comfort and safety of government is the Democratic Party’s vocation. With a Republican White House having partially nationalized the banks and just about everything else, McCain’s final anti-Obama maneuver — Joe the Plumber spread-the-wealth charges of socialism — became almost comical.

In my next life, I want to be Charles Krauthammer, ideally without the whole paralysis thing. My path from liberal to neocon has paralleled his, and he has an uncanny ability to state, with perfect clarity, insights on current events that are only beginning to rattle around in my head.

Evidence That Obama May Not Be a Socialist

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Here’s hoping that whatever socialist tendencies President-elect Obama may have will be tempered by recognition of the success of his remarkably entrepreneurial, decentralized campaign.

Bret Swanson floats this idea in today’s WSJ (free link), in a piece headlined “Obama Ran A Capitalist Campaign.” Some excerpts:

The results of Mr. Obama’s decentralized Web effort were staggering: 8,000 Web-based affinity groups, 50,000 local events, 1.5 million Web volunteers, and 3.1 million donors who contributed almost $700 million. …

The key question now is how will Mr. Obama govern? Will he stick with the policies he ran on or adopt the approach that he won with?

The only way a president can maximize economic growth is to unleash diffuse networks of entrepreneurs. As economist Bob Litan of the Kauffman Foundation says, “Government can’t compel growth.” But Mr. Obama’s plans — “card check” legislation to allow workers to unionize a workplace without a secret ballot election; curbing free trade; a government-led “green economy”; and higher tax rates on capital and entrepreneurs — do not reflect his campaign’s deep trust in individuals.

A thought experiment, Mr. President-elect: What if as your campaign raised more and more money it was taxed away and given to Mr. McCain to level the field? Or think of this: What if you were not allowed to opt out of the public financing scheme that left Mr. McCain with a paltry $84 million, about a quarter of your autumn total?

Opting out of monopolistic, closed or centralized systems is often the path to innovation. Sometimes we opt out through the relaxation of regulations. More often, technology allows us to leap, obliterate or ignore the obstacles altogether.

Further evidence that Obama understands the magic of capitalism can be seen from the fact that he has attracted a prominent critic from his left: Anti-Corporate Buffoon Ralph Nader, who asked on election day if Obama would be Uncle Sam or “Uncle Tom.” This offered a rare opportunity to see a Fox News anchor who has Obama’s back (4:48):

P.S.: It also provides a rare example of a criticism of Obama that actually IS racial code.