At the turn of the 20th Century, the industrial revolution in Britain was breaking new ground in the as-yet-unknown field of socio-economics. The human compromises made in the name of global economic domination would eventually create a new left-of-centre politic to balance the then hitherto unchallenged affluent right. Union movements, the Labour party and, minimum working standards for manual labour ensued. Recognition of, and fair treatment for, the individual employees that keep large enterprises running is only fair. This is a natural progression in the socio-economic development of any society or economy. The spoils of entrepreneurial endeavour can only be enjoyed with the fair treatment and remuneration of the labour that makes it possible.
This stage of development in a society is reached at different stages and times and only ever happens in a painfully and naturally cathartic manner. The 1984 Union Carbide chemical disaster in Bhopal, India, is a perfectly painful example of sub-standard worker safety in developing economic regions. The chemical leak, which killed thousands of people within days, was caused by fundamental deficiencies in safety systems which would never be
tolerated in the USA at that time. Union Carbide managed to extricate themselves from this disaster by dint of a $450mm payment, which was covered by insurance, and sailed off into the sunset. India learned a lot from this and so, its own socio-economic development moved on to ensure better conditions and safeguards for her manual workforce.
Union pressure on private enterprise to protect the interests of skilled and manual employees holds an important place in the socio-economic development of every nation. Most countries see it holding a constant, yet evolving, presence within their economy, in order to protect the rights and interests of all participants (including skilled and manual labour) in their economy. That said, as a country's general level of affluence increases, it's ability to support certain industry changes and so with it, must the labourforce. As the cost of living in a country increases, so must the wages its workers are paid. This overhead is one of the largest costs for any industry and so, will go a long way towards deciding the profitability of any company and, ultimately, the viability of industry at large.
In the 1980's, the viability of coal mining in the UK became terminal and so, the cathartic period of painful strikes, depression and, ultimately, the breaking of the unions by Thatcher's conservative government ensued. For all the upheaval, and continued economic difficulty felt in certain parts of the UK, this was generally perceived to be unavoidable and vital to the development of the UK as an economy. The industry was no longer competitive with foreign alternatives and could not survive. The UK had to bite the bullet and, re-train and re-educate its workforce.
The American auto industry represents roughly 4% of US GDP and it's three largest employers are Ford, General Motors and, Chrysler. These companies are all well known as household names for their struggles as industrial giants of the old American economy. GM's share of the US market has fallen over the last 30 years from about 50% to a mere 20% and, its position as the world's largest car manufacturer has been lost to Japan's Toyota. This is only partly due to the gas-guzzling incompatibility of its fleet with the eye-watering volatility in gasoline prices over recent years. The average difference in production price between a car made by GM and a car made by Toyota is roughly $2,000. This makes for a staggering disadvantage for the likes of GM when competing for the business of the man in the street. The extra production cost must be factored into the sticker price on the forecourt, otherwise it eats into the already thin profit margin. In the case of the big three US auto manufacturers, this profit margin is rendered negligible at best, and negative frequently. For a long time through the latest economic boom, they were happy to sell cars for no profit, in order to lock the buyer into a finance plan. The business model was more of a large finance company, with a small manufacturing subsidiary, than the other way around. Cheap leverage allowed the likes of GM to pile these finance agreements high and shave off a thin margin on each one. Now that leverage is no longer available, the business model is defunct. While a rising tide lifts all boats, including GM's, now that the tide has gone back out again, it seems GM were swimming without any trunks.
This higher cost base is almost exclusively created by staggeringly egregious worker conditions demanded, and achieved, by the United Auto Workers of America (UAW) which represent the unionised workforce of the big three US car manufacturers. Such is the staggeringly powerful nature of the employment conditions enjoyed by employees of Ford, GM, and Chrysler that even the concession of generic drugs, instead of branded medication, within the employee health insurance agreements, would make a 10-figure difference to the combined annual overheads of the 3 car makers. Put simply, the unions have made their business completely unprofitable. In contrast, the US-based manufacturing operations of the Asian competition are all profitable businesses in their own right, employing over 110,000 workers and, crucially, are not unionised.
Many other industries manage to preserve their economic viability within developed and affluent countries because of an inherent understanding of these basic financial requirements, by their respective unions, for the long-term survival of the companies that employ their members. Countries like Germany and France consistently manage to maintain a profitable manufacturing base due to the realistic attitude of their labour unions and a frugal control over inflation and personal debt. Without these fundamental socio-economic qualities, a viable manufacturing base is near impossible.
The big three US car makers last week went to Washington to ask for a $25bn share of Hank Paulson's TARP rescue fund. If current trading conditions are maintained, $25bn should keep them in operation for another 6 months before they burn through it and come back for another $25bn. The inevitable path to disaster is pretty evident, and $50bn would be the cost of the one-way ticket. Forcing them into bankruptcy, and the protection from creditors that Chapter 11 legislation provides, would allow them to restructure their business and obligations entirely, and force the unions to renegotiate their employment conditions. This would obviously lead to a large amount of redundancies in Detroit however, $25bn spent on re-training and re-educating this workforce would provide far better long-term value-for-money than a few more months in the sun (sic).
I'm all for the left-of-centre political ideals that protect the little guy, push for better public healthcare, ensure nurses and teachers make a decent wage, and stop society completely forgetting some basic human principles. That said, unions must realise the necessity for the industry in which they operate to be viable. Otherwise, they can drag a whole economy down with them.
As I mentioned in a previous article, Detroit will be the Coventry of the US economic bailout. The James Connolly of its socio-economic development. Somewhere along the way, Motown lost its soul. Lets hope the rest of America still has some.
WNgC
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