Fat Steve's Blatherings

Sunday, July 31, 2005

More on Unions, or, A Reply to Ralph


      From the thirties through the fifties, unions corrected manifold abuses of managements, and improved the economy at the same time as they bettered the wages and working conditions of their members.  But since the fifties, they've lost their way.  Changed circumstance call for different approaches, and previously unknown abuses need new remedies.  The union movement could and should be in the forefront.  Alas, they're stuck in the past, and steadily deteriorating.

At Length:

      In my Monday post on unions, I said:
      About all that's left of the union movement today is public sector unions, some big old companies on the edge of bankruptcy, and work that employs mostly illegal aliens.  As it is, I think the union movement is going to just keep withering away.  And I don't like that.  Unions served a purpose, and someday we'll need them again.

     This brought a request from my good buddy Ralph, who commented:
      I would like to see you expand on the Unions could be useful again sometime theme.  Having killed all the for profit companies where they are entrenched, their only base is government - unfortunately the Japanese are not willing to compete in government services.  Even the airlines - many of which are employee-owned are dying because of labor costs.

      OK, Ralph, for a friend I'll do anything within reason, and quite a few things beyond reason.

      Imagine you're working on an assembly line, and you need to go to the toilet.  You tell the foreman, he says go, and then you march over to a toilet that's in the middle of the floor, with privacy barriers only a few feet high, and try to do your business while everyone watches you.  Outrageous, no?  Well, that was one of the stories I came across from a pre-union Detroit automaker.  Another example: you're working at a factory, and it isn't heated above fifty in winter.  This saves the owner money, and the cold will make the employees work harder to keep warm.  That was something I was told about by an "inside" ironworker in Seattle.

      Or consider Henry Ford.  He realized that if he increased wages at his factory, he'd decrease turnover.  This would save him training costs and improve productivity, so much so that he'd make a bigger profit than he was getting when he paid them low wages.  He did it, and it worked.  Then he proceeded to mistreat and annoy those workers so greatly that, thirty years after his death, I heard stories from Ford employees about what bastard he was, and how his goon squad had harassed and beaten them.

      And then there were the bad industries, like mining, whose managements preferred beatings, shootings, dynamitings, and arsons to namby-pamby humiliation.

      Until you read about the routine brutality, insult, and mistreatment of employees that used to take place in this country, you don't understand the union movement.

      Another angle: I once read a pair of articles about a furniture company.  The first had a title something like "I Swore We'd Never Have a Union," and was by the company president.  He vented his wrath, but said that when any of the anti-union employees complained, he'd tell them there was nothing he could do.  The second article was a commentary on the first article, written by a pair of professional union busters.  They sneered at the company president.  He doesn't want a union, and neither do some of his employees?  Well, remind them that they can circulate a decertification petition.  If a certain percentage of the employees sign it, the National Labor Relations Board will conduct an election, and if the majority don't want the union, out it goes.

      The union busters then made their key point: companies get unionized when the employees don't trust management to run things properly.  One example from the furniture company: there was a job that was paid at a piece rate, and the rate was grossly unfair because it was so high.  When other employees complained that the sanders got a huge paycheck for work that wasn't any more skilled or demanding than what they were doing for far less, the president tried to fix the problem — and failed.  This meant that what you earned at the factory depended on what department you were assigned to.  After the union came in, they got some real experts to retime the job, and adjust the rates down fairly.  No wonder the company ended up with a union, the busters said, the president didn't know what he was doing.

      Ralph, you said that the unions have killed or are killing “all the for profit companies where they are entrenched.”  Well, the unions are strong in the Detroit auto companies — and in the '70s and '80s, Detroit nearly went out of business.  The company managements claimed it was all due to the “unfair competition” of Japanese auto makers, but the truth was that the Big Three were making crappy, unreliable cars, and they used twice as much labor per auto as the Nips.  When W. Edwards Deming and Joseph Juran told post-WWII companies in the U.S. that they should practice better quality control, they were ignored.  When they said the same things to companies in Japan, they were listened to, and their ideas were implemented.  Quality guru Phil Crosby said that whenever he implemented a quality control program in a unionized factory, he started by meeting with the union and telling them that the key to quality control was doing things right the first time, which would cut waste and increase the companies profit.  The unions, he said, were always enthusiastic supporters of the effort.

      The U.S. car companies refused to make sub-compacts (the profit margin wasn't high enough), and they had crappy quality control.  That gave Toyota et al a protected niche market, from which they presently expanded to take over a huge share of all the auto markets.  That wasn't the unions' fault.

      But then there was a famous map of the U.S. on many an auto executive's office wall.  It labeled New England as the ‘land of effete snobs’, the South as the ‘land of gun racks in pickup trucks,’ the West Coast as the ‘land of fruits and nuts,’, and the Midwest as ‘the land of people like us.’  The auto executives despised maybe half the population of the U.S., didn't want to make cars that the despised liked, and still somehow thought they'd always have them for customers.  Wrong — and also, not something the unions caused.

      Right now, Detroit is crying over their high pension costs, and the high medical costs for employees and retirees.  The reason the costs are out of control is because the companies gave the unions “defined benefit” packages (where the company promises to deliver something, regardless of the cost), rather than “defined contribution” packages (where the company agrees to pay so much into a fund, and that's the limit of their liability).  How did they ever get into this fix?  Well, pick up Peter Drucker's book Adventures of a Bystander, and you find out that the idea was hatched by the management of General Motors.  They were certain that the stock market would always rise, the company's pension fund would consistently beat the market, the company would always have plenty of money, market share, and customers, and nothing could ever go wrong . . . go wrong . . . go wrong . . .

      Just about every company allegedly ‘wrecked by the greedy unions’ turns out, on closer inspection, to have been wrecked by incompetent management.  In an interview, Drucker once said that he considered only about 2% of U.S. companies well managed.  Some years later, someone quoted that to him, and Drucker said something like ‘Gee, I must have been feeling really optimistic that day.’The auto companies who were in the wrong markets with bad products, the steel companies that set their faces against new technology, the airlines whose business strategy was ‘the government will always guarantee us a profit’, the companies that lost money on three fourths of their products and didn't know it, who thought they could figure the cost of an item too a hundredth of a cent without really knowing the price to the nearest dollar — they were being run by incompetents and fools, when they weren't being robbed by crooks.  The only place the unions were to blame was in not kicking management in the butt and insisting they get their act together.

      But human nature hasn't change appreciably in historic times, at least as far as I can see.  Some people are sadists, some are so greedy they can't think well, some are entirely oriented on the short term, many measure their success by relative income rather than absolute income, and too damned many are fools.  Relax the pressure on them for very long, and the abuses, mistreatment, degradation, and stupidity will come back.  That's why the decline of unions worries me.

      As I tried to say in the original post, the problem with today's unions is their failure to adapt.  After the unions reached their high tide, some companies got smart.  They started treating their employees more-or-less fairly, and paying reasonable wages.  That led the employees to say ‘Why join a union, and pay dues, when I already have good wages and good benefits’?  In every industry supposedly ruined by unions, you can usually find a U.S. company that pays wages about as high as the unionized company, and runs at a profit to boot.  The unions defined themselves as being ‘against management’.  That worked when management was behaving in an obviously bad fashion, but failed when management changed tactics.  Drucker was pointing out that by the early seventies.

      The unions need to concern themselves that the company is being managed well.  An example: many managements take outrageous salary and bonuses.  To manage their companies for short term stock market gains, and to Hell with the long term.  The high executives have "golden parachutes" that ensure they'll walk away from the company as millionaires, even if they run the company into the ground.  The unions should be acting to limit the CEOs salaries, and make them take stock options instead.  Further, the unions should require that when the option is executed, a clock starts running where the first year, if the person who executed the option wants to sell it back, he has to offer 98% of it to the company at the price he paid for it.  The second year, he has to offer 94% at the original price, the third year 88%, the fourth 80&%, the fifth year 70%, the sixth year 58%, the seventh year 44%%, the eighth year 28%%, the ninth year 10%.  This would force managements to look at the long term environment for their companies.

      Another example would be for the unions to press Washington to make stock dividends tax free, up to at least twice the median per capita income.  Right now, a company totals up its revenue, deducts expenses, pays corporate income tax, and then has after tax profit.  If the money is paid out as a dividend, the taxman hits it again as ‘ordinary income’.  If the company reinvests, they may drive up the stock price, and then the increase is a ‘long term capital gain’, taxed at a much lower rate.  This tempts stupid managements to do stupid things, trying to get a higher stock price, and scares smarter managements into doing stupid things anyway, to prevent hostile takeovers.  If the stock dividends were tax free, the stock holders would press for dividends, the excess cash would drain out of the companies, and the takeover artists would be frustrated.

      Yet a third example would be for the unions to demand the phase out of defined benefit plans, replacing them with defined contribution plans.  When the economy is booming, and the stock market is rising, the managements put too little in the plans.  When recession hits, or the stock market tanks, companies get driven into bankruptcy by the fixed obligations.  If the unions were doing their job, they'd allow the companies to cut back on contributions during recession, but require them to make it up with interest when the economy turned up.  Or the union might demand that the defined contribution to the pension and medical funds would be a fixed multiple of the pay and benefits paid out to management.

      A lot of people would say that how the company runs isn't the unions' business.  I say business is to important to be left to the management.  Unions need to adopt a flexible strategy of opposing management when it's abusive, supporting it when it's doing the right things, running some activities themselves, and keeping an eye on the health of the business.  If they don't, they won't survive.

      But as my Marxist buddy Eric F. says, the people running today's unions are “absolutely wretched . . . people who couldn't fight their way out of a wet paper bag. They don't even try, really”.  And he should know: he used to be a union organizer.

      So, Ralph, that's why I wish the union movement wasn't in such a mess.  When it ran right, it did the economy a lot of good.  Today, it's falling apart, and a lot of abuses are happening.  Properly run unions could do many valuable services for their members, their companies, and their country, if they could get it through their heads that it isn't 1935 any more.

      By the way, please keep this under your hat.  Saying good things about unions might get me kicked out of the Known Fascists Society.



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