Heretical Realities of the New World?

George McGovern says business is not the enemy of labor. Workers and unions must recognize that the world has changed to avoid making self-destructive demands in wage negotiations. That does not mean the fight for social justice should be abandoned, but globalization forces the battle for health and economic security to be relocated to other arenas such as government supported universal healthcare:

The end of 'more', by George S. McGovern, Commentary, LA Times: I have never wavered in my support for policies that relieve poverty and improve the standard of living of American workers. As a lifelong liberal, I supported Medicare and Medicaid, civil rights, Social Security and workplace safety requirements. Today, I strongly support universal healthcare.

And I have always been a supporter of the labor movement. ... But lately I have seen developments that have me worried. And I have been reminded of legendary union leader John L. Lewis, who was once asked what his miners were after. His answer? "More." It was a funny answer, and perhaps it was honest too. But these days, it's not a very effective strategy, and we are seeing some unfortunate and unintended consequences of Lewis' "more" philosophy.

Delphi Corp., the biggest auto parts supplier in the country ... is bankrupt. One big reason is that the company's unionized workers earn ... more than twice what some of its competitors pay. General Motors and Ford ... have stated that they will lay off 30,000 workers each. ... Airlines have come under similar pressure. The bankruptcy stories ... are driven in large part by the compensation packages and work rules that unions have won... "More" has, unfortunately, become "too much" in a global and far more competitive economy.

Many of my friends will consider this view heretical. But it is based on stark reality. Some progressive union leaders, facing this economic reality, have come to the same conclusion. Others are holding fast. ...

It's very difficult to ... say that "more" is not always possible. It can be galling to hear companies argue that they have to cut wages and benefits for hourly workers — even as they reward top executives with millions of dollars in stock options. The chief executive of Wal-Mart earns $27 million a year... But let's assume that the chief executive got 27 cents instead ... Wal-Mart ... hourly workers ... would each receive a bonus of less than $20. It's not executive pay that has created this new world.

I understand the attraction of asking business — the perceived "deep pockets" — to shoulder more of the responsibility for social welfare. But there are plenty of businesses that don't have deep pockets. And many large corporations operate with razor-thin profit margins...

The current frenzy over Wal-Mart is instructive. Its size is unprecedented. Yet ... profit ... amounts to less than four cents on the dollar. Raise the cost of employing people, and the company will eliminate jobs. Its business model only works on low prices, which require low labor costs. Whether that is fair or not is a debate for another time. It is instructive, however, that consumers continue to enjoy these low prices and that thousands of applicants continue to apply for those jobs.

Maryland recently passed a law aimed at requiring Wal-Mart to spend more on health insurance. This is ... extremely flawed... We need universal coverage, not piecemeal legislation... The fact is, demanding more from business based on sales or the number of employees is not always the best way to achieve a just result.

Although I believe we should allow businesses to pay employees based on their skill level, I also believe we should supplement the wages of those who earn the least. Universal healthcare provided by the federal government is one way to supplement income. It is also a way of relieving hard-pressed businesses of one of their highest cost burdens. ... Another way to benefit workers financially is the earned income tax credit. ... It also has the virtue of being supported by a progressive tax system, in which the rich are asked to pay more.

Liberals must never abandon their core principles of justice and equality. But union leaders who still see American businesses as the enemy must update that vision.

While negotiators should be reasonable, I'm not yet willing to concede that, in general, workers and firms negotiate on equal footing.

Comments

[anne]

Simple idiocy, although I had a vision of the President ordering National Guard troops to work at Wal-Mart and protect America properly, so who knows.

[NinjaPlease]

"I understand the attraction of asking business — the perceived "deep pockets" — to shoulder more of the responsibility for social welfare. But there are plenty of businesses that don't have deep pockets. And many large corporations operate with razor-thin profit margins..."

"Delphi Corp., the biggest auto parts supplier in the country ... is bankrupt. One big reason is that the company's unionized workers earn ... more than twice what some of its competitors pay."

Excuse me while I ignore this author for the rest of my life.

"Workers and unions must recognize that the world has changed to avoid making self-destructive demands in wage negotiations."

Ah yes, it's the workers fault for wanting over $10 per hour in a globalized economy, and of course if you don't take what they offer they cut the jobs, it's a negotiation, you see?

Think back to 1994. Did you not see this coming?

[me]

What Bull Shit.

From OxyMoron Rush Limbaugh, he alwasy proclaimed. Folks, you have to look at the total cost of that employee. Its not just the pay, but the insurance, retirement, unemployement tax.

So there, from America's favorite conservative drug addict, you have it. When Delphi, IBM, or whomever, held out paying you dollars to save on your own becuase they were putting it in your retirement and couldn't afford to give you the cash, now they come along and say it is a different world. Bussh Shit. That is my deferred income. Give me back in cash what you withheld from me all those years and we will call it even.

The new American Dream seems to be a race to see who can work for the least, while the CEOs compete to be the first billionaire. Oops, sorry, United Health Group already did that for McGuire.

[save_the_rustbelt]

I've been on both sides of this equation, and it is rarely equal.

Globalization is making negotiations even less equal.

The only workers with great leverage are 1) skilled construction trades and 2) government employees (you don't want illegal aliens updating refineries or driving $200K paving machines).

As far as Delphi, I been following the UAW and the Big 3 (and parts makers) for 40+ years, have a lot of retiree friends, and the inescapable conclusion is that the UAW used its power to screw itself.

I call the phenomena "drilling holes in your own boat."

Featherbedding, substance abuse, corruption, you name it, the UAW has mastered it. The featherbedding has been lessened the past 15 years, but the other problems remain.

And of course, GM and Ford have a 30 year legacy of incompetent management.

I think my views of blue collar workers are well known here. "More trade at all costs" will be our downfall. Who bears the costs?

[Bruce Wilder]

"The chief executive of Wal-Mart earns $27 million a year"

"earns"?????

[save_the_rustbelt]

"earns"?????

Reading memos and playing golf is brutal work.

[donna]

After seeing the bunkers and mansions of the Waltons, I will never ever set foot in a WalMart again. People who profit like that from other's labor and build bunkers to protect themselves from the worker uprising obviously know what's coming.

[Winslow R.]

How much did George McGovern 'earn' writing that article for Walmart?

In the last few days I've written several 'embarrassing' posts. I thought it would take 20 years before unions were blamed for our current problems, and I thought it would be Republicans.

Today, Steve Roach of Morgan Stanley is blaming the Fed.

I worry increasingly that history will not treat the recent record of central banking kindly.

http://www.morganstanley.com/GEFdata/digests/20060522-mon.html

[Robert Feinberg]

If fair treatment of employees by paying them a decent, living wage wipes out Walmart's profits, is it the fault of the employee for demanding adequate compensation or of the company's flawed business model?

The government subsidizes these types of corporations by allowing them to pay poverty-level wages.

[save_the_rustbelt]

"WASHINGTON - The Laborers' Union, which represents 700,000 workers in the construction industry, has decided to leave the AFL-CIO, officials said."

The old coalition is breaking up, slowing but cetainly.

The Laborers were always the poor kinfolk of the skilled trades (I'm an alumni) and until the 80s was the only place an African-American could break into the construction trades.

[Blissex]

«Liberals must never abandon their core principles of justice and equality. But union leaders who still see American businesses as the enemy must update that vision.»

Well, American businesses are not the enemy -- they are just the counterparty in negotiations to determine how the pie is shared, and as another comment says, they have got increasing leverage:

«Globalization is making negotiations even less equal.»

McGovern does well to point out that:

«[ ... Wal*Mart .... ] thousands of applicants continue to apply for those jobs.»

as that is a very regrettable but unavoidable sign of the times. I read somewhere that 25% of USA workers make less than the what was the minimum wage 30 years ago (inflation adjusted).

However the UAW wasn't «drilling holes in your own boat» they were merely getting the best possible deal for their current members, and damn their future members and shareholders. Because their logic was ''if we don't get what we can can now, we'll never get it''.

However the biggest problems is indeed that politicians are very, very fond of unfunded mandates (for example the whole patent system) and in effect employer provided healthcare is a particularly ugly unfunded mandate:

«Maryland recently passed a law aimed at requiring Wal-Mart to spend more on health insurance. [ ... ] The fact is, demanding more from business based on sales or the number of employees is not always the best way to achieve a just result.»

While I agree that:

«Universal healthcare provided by the federal government is one way to supplement income.»

also because it is efficient. However there are two big problems with this:

«It is also a way of relieving hard-pressed businesses of one of their highest cost burdens.»

because there are two large groups of businesses who are perfectly happy with employer provided health care:

* Those that provide none.
* Those happy that employees are even more terrified of losing their jobs because that means losing their health or even their life.

I suspect that most businesses today are in those two categories.

There is another problem with a universal health system: most of the better off already enjoy pretty good private care and fairly safe jobs and they are at best indifferent...

[baileyman]

George evidently doesn't recognize that it's labor/comany/management in this three part game. Currently, managements and other high level hires of capital have the advantage. Delphi was one of the clearest examples how managment can stiff both the others and take home most of the goodies.

[dilbert dogbert]

I thought the "More" response was from Sam Gompers. Who knows?

[Tom Geraghty]

many large corporations operate with razor-thin profit margins...

The current frenzy over Wal-Mart is instructive. . . . Its business model only works on low prices, which require low labor costs.

Let's see:

Walmart:

ROE 22.74%
ROA 10.19%
ROI 14.81%

Gross Margin 1.44%
Op Margin 5.61%
Profit Margin 4.02%

Div Yield 1.44%

Costco:

ROE 12.18%
ROA 6.40%
ROI 11.05%

Gross Margin 12.37%
Op Margin 2.77%
Profit Margin 2.96%

Div Yield 0.92%

Yeah, cry me a river about Walmart's "razor-thin profit margins."

If Walmart execs were willing to accept Costco levels of profitability they could pay their workers a lot more. Why does the Walmart "business model" require ROE and profit margin roughly double that of Costco?

[Tom Geraghty]

Even better:

Officers and Compensation

Walmart:

Glass, David D Chairman of the Executive Committee, Director $3,011,862

Schoewe, Thomas M Chief Financial Officer, Executive Vice President $2,601,232

Hyde, Thomas D Executive Vice President and Corporate Secretary $1,857,747

Costco:

Brotman, Jeffrey H -- Chairman of the Board $514,309

Galanti, Richard A -- Chief Financial Officer, Executive Vice President, Director $584,039

Zook, Dennis R -- Executive Vice President, Chief Operating Officer, Southwest and Mexico Divisions $555,668

Sinegal, James D -- President, Chief Executive Officer and Director $497,971

DiCerchio, Richard D -- Senior Executive Vice President, COO - Merchandising, Distribution, Construction, Director $618,597

I wonder how much of their actual compensation this includes?

[johnchx]

So...George McGovern advocates an economically literate liberalism, and heads explode all over the internet. Sigh.

Tom Gerghaty wrote: "If Walmart execs were willing to accept Costco levels of profitability they could pay their workers a lot more."

Are you actually under the impression that Costco execs happily and generously decided to "accept" a 12% return on equity in order to be nicer to their employees? A little gift from Costco's stockholders to Costco's employees (and other suppliers)? Are you insane? Costco's execs are working *like mad* to figure out how to match WalMart's results...and so far they are failing. Which may have something to do with why they get paid rather less than their "peers" in Bentonville.

Markets are amoral. Bolting on some cartels, whether for oil or for labor, doesn't make markets any less amoral, just less efficient.

Personally, I am very pleased to see more liberals -- especially traditional, "old line" liberals like McGovern -- being willing to at least discuss strategies for attaining our values and goals (like broadly shared prosperity, *regardless* of the state of the labor market at any particular point in time) without needlessly -- and harmfully -- distorting the markets themselves.

[anne]

An economically literate liberalism could be, say, pushing leaving Iraq immediately and using the $10 billion a month that is being so fiercely wasted for revenue sharing with the states for infrastructure development which would strengthen the labor market. But, I am too young to be an old line liberal and too economically illiterate what a better balance for labor could mean. I will always be too young.

[anne]

There is my slogan for labor; less, less, less. By the way, do they still have stores in Europe? Stores with union employees? Stores that do rather well, so my portfolio indicates? I forget.

[Tom Geraghty]

johnchx--

Spare me your bullshit "economic literacy." You and McGovern are political illiterates.

The fact is that Walmart's and other firms' decisions to lowball workers on wages and benefits is not driven by economic necessity or efficiency considerations. It is largely a political decision to distribute enterprise returns to shareholders and executives rather then workers. It is an example of what economists decry as "rent-seeking" when it happens in the public sector.

The existence of a firm like Costco shows that alternative efficient business models are possible. Costco workers are well-paid, receive good benefits, and thus labor turnover is lower and labor productivity is higher. Costco is by all accounts a profitable (although it seems to be willing to accept a somewhat lower level of profitability than Walmart), well-managed firm. Increasing wages does not increase labor costs and thus need not jeopardize employment, as long as the wage increase is justified by productivity gains.

The choice of business models is therefore just as much a question of politics - who gets what - as of economic necessity.

[johnchx]

Tom Geraghty wrote: "You and McGovern are political illiterates."

Perhaps. Speaking only for myself, I can say that I find the use of the term "political decision" (below) mystifying, so perhaps I truly am politically illiterate.

I'd hesitate to level the same charge against a former U.S. Senator, presidential candidate, and architect of the Democratic Party's primary-centric nominating process, but that's just me. I think a lifetime spent in public service, fighting to make the country a better place for ordinary Americans, merits just a smidgen of respect.

Tom G continues: "The fact is that Walmart's and other firms' decisions to lowball workers on wages and benefits is not driven by economic necessity or efficiency considerations. It is largely a political decision to distribute enterprise returns to shareholders and executives rather then workers."

Maybe it's my political illiteracy talking, but I've got no idea what this means. Borrowing Tom's charming phrase, my "bullshit economic literacy" tells me that firms try to reduce their costs...that is, they try to minimize the input costs associated with producing each unit of output. Minimizing the input costs for each unit of output is what the word "efficiency" means. I'm not sure what, if anything, is gained by calling this a "political decision."

Perhaps "political decision" is meant to emphasize that it represents a voluntary choice, a strategy consciously selected from among alternatives. If that's the intent, then I surely agree. It is a choice, much the same way that the decision to use computers instead of armies of clerks to process a firm's monthly payroll is a choice.

The thing is, there are right choices and wrong choices. And measured by return on equity, WalMart makes better choices than competitors like CostCo. And over time, investors in other firms are going to require them to improve their choices -- either by doing what WalMart does, or by finding some other way to make themselves as profitable as WalMart. (Market skeptics call this a "race to the bottom," and if one believes that such a race to the bottom is possible, then one must equivalently believe that the choices are indeed matters of "economic necessity.")

Now, if no firm had ever decided to try to save money by using a computer to do its payroll, America would have a lot more payroll clerk jobs than it does today. So perhaps whatever firm first computerized its payroll is a terrible villian. They didn't "have to" put all those clerical employees out of work. Surely firms were "efficient enough" or "profitable enough" without automated payroll.

But prohibiting innovation is, in general, a poor prescription for economic policy. And there are better ways to accomplish our goals.

[anne]

Likely I should have been kinder, but the problem I have is thinking that Wal-Mart is not a market in itself or does not control much of the markets in which it operates. Then, balancing a Wal-Mart to an extent is making a market more competitive not less. So with labor. The problem then is inducing more balance, which may even be gaining slightly.

[Tom Geraghty]

johnchx --

You (inadvertantly) bring up exactly what is at issue here: return on equity is the sole measure of efficiency.

I realize I may be in a minority here, but I think this idea that firms' sole objective should be maximizing shareholders' returns is part of what is wrong with US capitalism -- the failure of wages to keep up with productivity, the worst job creation for any economic recovery since World War II, the vast increase in economic inequality over the last 25 years -- these are not outcomes that any "sensible" liberal should welcome.

This better sums up my view:

. . . a new principle should guide corporate
governance: Employees who invest and put at risk their human capital
should have the same rights to information and voice in corporate
governance as do investors who put at risk their financial capital.
-- Thomas Kochan, MIT Workplace Center, Regaining Control of Our Destiny: A Working Families' Agenda for America

Again, this is not simply a question of economic efficiency. This is a fundamental difference in values about how an economy should be run. I reject the notion that we just have to accept slow job creation, slow wage growth, and rising inequality.

Maybe you disagree, but it's lousy politics for liberals to just say "sorry, folks, nothing we can do about this."

And no, this is not a issue of "blocking innovation." To the extent that Walmart's returns are a result of effective management, and using technology to increase efficiency, bravo. And as long as enough of those profits are used to make additional investments that further increase productivity, all to the good.

However, to the extent that Walmart's profits are due to an explicit "low-road" strategy of holding wages and benefits down despite rising productivity, high labor turnover, illegal union-busting, forced overtime, and generally not equitably sharing the efficiency gains that their workers make possible, then I oppose that and believe that public policy should push Walmart to adopt a different labor management strategy.

[Tom Geraghty]

Here are a couple of references that document what I am talking about -- firms have actively managed economic change in ways that exacerbate inequality, and alternative strategies are possible:

The Inequality Economy: How New Corporate Practices Redistribute Income to the Top

a number of new corporate practices -- separately and in combination -- had a significant impact on rising overall inequality in the United States. Such practices include deregulation, mergers and acquisitions, rising executive pay, subcontracting, and technological re-engineering.

Corporate Governance and the "Job Loss" Recovery

The recent recovery continued a trend that started in the mid-1970s of a growing divergence between capital and labor incomes. This trend appears to be largely due to a shift in the balance of corporate governance. A growing concentration of financial assets among institutional investors was juxtaposed by a declining unionization rate. Consequently, institutional investors had the incentives and increasingly the ability to allocate a growing share of corporate resources towards capital, particularly in the form of share repurchases and dividend payouts instead.

I doubt those wedded to the notion of shareholder value uber alles will be convinced, but for more open-minded types, here you are.

[anne]

Interestingly and well argued :)

[anne]

Employer-employee balance....

http://delong.typepad.com/sdj/2006/05/the_family_as_f.html#comment-17712700

May 24, 2006

The Family as Firing Offense: A Nice Piece by the Washington Post's Ruth Marcus

Family and medical leave. Ruth Marcus writes:

The Family as Firing Offense: The school nurse and I are on a first-name basis these days. "Hi, Ruth," she says with a practiced tone, regret blended with calm. "It's Elizabeth" -- and, because she's a pro, immediately, "Not an emergency." And then she relates the ailment du jour -- Julia with suspected strep, again; Emma with a wire poking out of her braces, again. So I sigh, pack up my papers (or, less frequently, call my husband, and he packs up his) and head over to school.

This may sound like it's going to be one of those self-pitying Mother's Day columns. It's not. I've done my fair share of agonizing in print about the implacable tensions between work and family, but I'm moved this Mother's Day to feel rather sheepish about such laments.

The reason for my embarrassment is a report by the Center for WorkLife Law at the University of California at Hastings: "One Sick Child Away From Being Fired: When Opting Out is Not an Option." With that stark title, the report punctures the entitled, self-referential perspective from which journalists tend to write about working mothers.

As the author, law professor Joan C. Williams, writes, "The media tend to cover work/family conflict as the story of professional mothers 'opting out' of fast-track careers" -- an "overly autobiographical approach" that, however unintentionally, misrepresents the full nature of the problem and skews the discussion of potential solutions.

Guilty as charged.

Williams studied almost 100 union arbitrations that, she writes, "provide a unique window into how work and family responsibilities clash in the lives of bus drivers, telephone workers, construction linemen, nurse's aides, carpenters, welders, janitors and others." Many are mothers, but this is not just a female problem. Divorced fathers, and families that patch together tag-team care, with parents working different shifts, are similarly vulnerable. Indeed, nearly everyone is a potential victim of child-care plans gone awry: Among working-class couples, only 16 percent have families in which one parent is the breadwinner and the other stays home.

The stories Williams relates are foreign to those of us lucky enough to have flexible jobs and understanding bosses -- for whom it's no big deal to step out in the middle of the day to go to the school play. A bus driver is fired when she arrives three minutes late because of her son's asthma attack; a packer loses her job for leaving work because her daughter is in the emergency room with a head injury. A police officer is suspended for failing to report for unscheduled duty; she had arranged baby-sitting for her three children for her regular 4 p.m. shift, but couldn't -- without notice -- find baby-sitting for the noon-to-4 slot she'd been ordered to work...

[Blissex]

«The stories Williams relates are foreign to those of us lucky enough to have flexible jobs and understanding bosses -- for whom it's no big deal to step out in the middle of the day to go to the school play.»

But look at the flip side: does this mean that workers without a family have less rights and should be in effect paid less than workers with a family? Does it mean that for these jobs should be less flexible and bosses less understanding?

For example, many companies, when downsizing time comes, will fire workers without a family in preference to those with, because of well meaning paternalism.

So, should workers without a family be discriminated against in favour of those with a family?

Isn't the idea that some categories of worker be given some kind of free pass because of their status a sort of unfunded welfare mandate on employers?

Of course many more callous employers will instead discriminate against workers with a family or about to have a family (e.g. pregnant women) because their status implies higher costs and complications, often mandated by law or by public relations considerations.

I personally reckon that all unfunded mandates imposed on employers (or otherwise) are a very bad idea, especially if they are not universal, because either the employer does not resist them and then creates categories of more-equal-than-others employees, or resists them and then the unfunded mandate backfires.

In the end what matters is that there be plentiful jobs and good welfare/insurance against mishaps.

Consider for example the pregnant employee problem: maternity leave is in effect a tax on hiring younger women. This means that many employers try to avoid the tax by not hiring them or not promoting them.

The better scenario would be if employers were free to fire pregnant women, but these could easily find a new job and in the meantime draw pregnancy insurance/welfare.

The current situation not just imposes a counterproductive tax on employing women, but also discriminates against pregnant women who are unemployed, never mind women and men who are not or cannot be pregnant.