The Practical Philosopher's Blog

Using the practical application of timeless wisdom to address modern issues

Unions kill the Golden Goose. Again.

When it comes to assessing why the Big 3 automakers are on the verge of going out business, it can be described in one word: Unions.

 

Take a look at the industries that have major union presence: Airlines- almost all bankrupt/failed several times, Steel industry-bankrupt, and, of course, Auto makers.

 

In the auto industry, they have been an economic anchor that has been strangling these companies for years. The average cost per hour that artificial union demands have created is around $73-$74 (Big 3 average) per hour. Compare that with their non-unionized competitors’ cost of $48 (Toyota) per hour and it’s no surprise why they are failing.

 

Unions are also tied to the other interesting question: Why were the Big 3 were so heavily into large SUV and Truck vehicles? It suddenly occurred to me that if you were paying $1800-$2000 in extra union costs per vehicle, the only models with enough profit margin and salability would be the largest and most expensive vehicles. $2000 added to the price tag of a $10,000-$15,000 vehicle would be a 13%-20% addition in price or reduction in profit. $2000 added to a $25,000-$40,000 SUV or Truck would equate to only a 5%-8% price or profit impact.

 

I have tried for the longest time to figure out what value, if any, unions brought to the marketplace or businesses originally. The only circumstance where they might have once had value was during the age of pensions. They once might have been a strong collective voice to stop a company from firing someone at 15-19 years of service to avoid paying a 20 year service pension. But even then, a company that betrayed employees like that would lose workers and talent to companies that rewarded worker loyalty. Today we have the portability of 401k funds.

 

Unions are clearly Socialist enterprises that create nothing. Everything that they claim they to do for workers, they do manually and poorly. The free market does the same things automatically and with efficiency.

 

Wages? A company’s purpose is not to pay a worker a ‘living wage’ or a wage called for by arbitrary social or political influences outside the business. If the wage is too low, you go to a different company paying better wages. If no company in your industry is paying better wages, you get new work skills and make a career change. If a company loses too many employees, it will automatically raise wages to keep necessary talent.

 

Jobs? If your company doesn’t make a product that people want efficiently and affordably, it fails and the jobs are lost. That market share and jobs will re-appear in other more successful companies aligned to the marketplace. Or, if the company is an automaker, they go through bankruptcy to shed the union contracts that destroyed them in the first place.

 

Unions are a business parasite. They claim to be a force for ‘helping’ workers earn a ‘fair’ wage. But what is result? Uncompetitive companies that go out of business. How does destroying a company and the jobs it created help anyone? If doesn’t, unless you are a union manager or administrator.

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Filed under: Economy, , ,

4 Responses

  1. truthwalker says:

    The problem isn’t unions. The problem is market distortion caused by unions acting badly. I worked in Firestone Plant which had been UAW, but there was wildcat strike and the new union was the Steelworkers. Firestone knew that they had to be good to the Steelworkers Union or they would get the UAW back. The Steelworkers Union, on the other hand, knew they had to be good to Firestone or UAW to would be back for them.

    The UAW and the SU were competing for the laborers. Firestone was competing with the workers against the unions. Between all the competition, it was the most hard working place I’ve ever been in. 12 hr days, 105 degrees in the plant year round…and we made $28 dollars an hour with benefits. Hardwork and fantastic pay. We were one of the most cost effective Firestone plants on earth. Despite the enormous pay difference, we ran cheaper than many Mexican plants, because our output was so huge.

    It’s when you see unions distorting the market that they suck. If a union has to beat the hell out of people to keep them from taking their jobs, and still people come, then it is pretty clear that the strike is about greed. On the other hand if the union strikes, and no one will take the jobs, the union is doing it’s job of providing collective bargaining. It’s not unions that are the problem, it’s dirty unions. (And the UAW is one of the dirtiest)

    The car companies are also to blame. The car companies could have fought the unions, but when profits were good, they paid protection money to them instead of using it as the ideal chance to fight them. They were greedy and made stupid deals.

    Some unions are parasites. So are some companies. When you really think about it, a union is a company. They are a service provider. The UAW has links to organized crime. So does Dole, who in south America pays protection money to local warlords to keep them from harassing their laborers.

    The problem is not unions. The problem is government meddling in favor in unions, then more government meddling to save the companies the unions would have never been strong enough to kill if the government hadn’t helped them.

    • pracphilosblog says:

      Truthwalker, It was very interesting to hear a perspective from someone inside the unions.

      But I have to distinctly disagree that unions weren’t/aren’t the problem.

      Your first comment seems to be that the unions had to be ‘good’ or they would lose workers or control to another union.

      I think this misses the point that the businesses would be better off with no unions at all.

      The workers would be just as, or more efficient, without unions. If a worker was not doing well or showing up in any regular business, he or she would be fired. Unions block that natural market mechanism.

      No union presence would also be the best way to keep a US factory from being moved to places like Mexico or China. Unions, in the name of artificial, short term wage demands and other costs, will always end up destroying a domestic company’s competitiveness. It’s merely a question of now or later.

      I lived in Canada for two years and saw local company after company disappear. They either went out of business, got bought up by a better performing foreign competitor, or moved to a cheaper country market because of a Socialist attitude of the ‘obligation’ of businesses to provide workers a job at some artificial wage/cost level.

      I don’t see the car companies too much at fault, other than having a too-rigid management mentality. They have been offering (see details in my original post) mostly SUV’s, trucks, and mini-vans because they are the only cars they can sell that will make a profit with the additional $1600-2000 per vehicle that union costs add. They will 100% fail if they follow the command-economy (and ignorant) dictates of Congress or a ‘Car Czar’ (even that title has a Communist overtone).

      The fact is that the overwhelming majorities of businesses in the US are non-unionized and have made this country the most economically prosperous in the world.

      The fact is the objective lack of value of Unions in a free-market economy has led to their ever diminishing numbers.

      Finally, the government has meddled worst in making free-market damaging laws. The car companies are restricted from just firing workers to get rid of strangling union demands and costs by the National Labor Relations Act of 1935. Without that, the Big 3 would have ejected unions and been more able to react to the market changes versus the terrible state they are in now.

  2. truthwalker says:

    I agree with every negative thing you say about unions, but respectfully disagree with your conclusion that the market would be better without them, because I believe that any anti union law would be as bad as any pro union law.

    I put forward the idea that the real problem with unions is the fact that they are 501(c), tax free groups. What they should be is tax paying service providers, providing the service of collective bargaining.

    But because they don’t pay taxes, every dollar they get goes 30% farther the money of the people they represent, or the money of the companies those people work for. We know how much Exxon Mobil bribed… eh hem, lobbied congress last year, 300 million. (For which they got 30 billion in subsidies, good investment.) We have no real idea how much the AFL-CIO spread around.

    I think unions can be a force of good. All we have to do is remove their tax exemptions and make them compete in a fair market for the attention of workers, employers, and producers with everyone else.

    I agree, unions suck the life out of companies. But I don’t think the problem is not the theory of unions, but the existing practice, a practice that could be changed with laws that don’t promote or demote unions, but force them to compete fairly for money and thought with all of the other hundreds of causes out there.

  3. Ivan Ivanovich says:

    I read this with interest. Having been on both sides of the Union/Management question, I think the question of who is at fault is a complicated one. Early union activities were a necessary thing considering the excessive power of companies and their managers. Workers needed protection from arbitrary actions of supervisors and some power to set wages more in line with fairness. One only needs to read about the sweatshops of the early 20th century to see the imbalance that was present. Fortunately, the union organizers took the capitalist approach by promoting the idea that labor was a commodity that could be bought at the right price. By the time I joined the UAW in 1964 it was already corrupted and an arm of the Democratic Party. Promoting workers became a secondary purpose while promoting liberal politics was their main objective. Companies like General Motors caved into the union and became themselves tools of socialism. When I moved out of the auto companies to a non-union supplier position I observed many situation where jobs I could have completed alone in 4 hours took four supervisors and eight workers to complete in 8 hours. For the most part, I blame the company for this. They are the ones who signed a contract saying that it takes 4 different trades to change out a pump.
    On the bailout question, I said a month ago, when the three auto CEO’s flew to DC, the best thing the UAW could do would be to volunteer to take a 10% cut across the board. Since they are still hanging onto their position of NO cuts, I say screw them and let them deal with Supply vs. Demand.

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