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Steven Pearlstein: Business v. labor story getting old

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By Steven Pearlstein
Wednesday, November 4, 2009

In the American narrative on global competitiveness, there are two enduring story lines.

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In one, unions use their power to strike to win wages, benefits and job protections that are so excessive that companies become uncompetitive and lose market share to imports or nonunion competitors, or are forced out of business. By the time the unions finally face reality and agree to make the necessary concessions, it's often too late.

In the other story line, incompetent corporate executives who aren't clever enough to come up with interesting products or efficient ways to make them try to keep their companies competitive by moving production to lower-cost locations overseas, or nonunion regions at home, creating a race to the bottom in which American workers cannot afford to buy the products they make.

Although the world tends to divide itself between people who believe one story line or the other, there is, in fact, a good deal of truth to both of them.

Consider, for example, Ford's announcement this week that it had finally achieved a profitable quarter after years of red ink and steep losses in market share.

To most of Ford's unionized auto workers, the results were a signal that after years of layoffs, pay freezes and benefit cuts, the latest concessions negotiated by union leaders were unnecessary. As they saw it, Ford's sales turnaround confirmed their long-held belief that all that was required to make Ford competitive again was for its overpaid executives to come up with cars that Americans wanted to buy.

The workers are right about the cars, of course, but dead wrong on the issue of Ford's financial viability. Ford will now be forced to compete at a cost disadvantage not only to foreign producers, but to GM and Chrysler, whose workers accepted steep concessions as part of their government bailouts. Moreover, a big reason Ford has been able to avoid bankruptcy and ride out the recession is that its executives were clever enough to hock the entire company when credit was available and build up a huge cash reserve. Much of that money has now been used to cover operating losses. What remains, however, is a heavy debt load that could easily force Ford into the ditch.

'Them-vs.-us'

While the UAW leadership has finally acknowledged these competitive realities, much of the rank-and-file remains stuck in a "them-vs.-us" mind-set where the reference point isn't the customer or the competition but the status quo. For them, what matters most isn't whether something still makes business sense, but whether it is a "give-back."

It's this attitude that helps explain why places such as Detroit and Flint are economic disaster zones. In theory, you'd think that industrial companies planning to expand their U.S. production would flock to a place with good transportation infrastructure, lots of cheap land, plus an unlimited supply of experienced workers desperate for a job. The reality, however is that most companies won't even consider Detroit out of a fear that a union-worker mentality will doom them as surely as it did the automakers.

That fear was certainly a factor when Rolls-Royce went looking for its first North American location to build and test jet engines for Airbus and Boeing. After considering Georgia and South Carolina, Rolls broke ground last month on a site in southern Virginia, another right-to-work state with great engineering schools, a pleasant quality of life and a low-wage workforce, but one that will need lots of training to meet Roll's requirements.

A move to break union hold

And last week, Boeing announced that it would open a second manufacturing facility for its new 787 Dreamliner in North Charleston, S.C., the first time it has ever located production of its commercial jets outside of its manufacturing base in Seattle. Boeing made no bones about its desire to break the hold of the powerful machinists' union. Their eight-week walkout last year cost Boeing more than $3 billion and further delayed deliveries of the first 787s, which were already more than two years behind schedule.

Ironically, most of the 787 delay was caused not by the union but by Boeing's efforts to work around its labor difficulties by outsourcing much of the production to subcontractors. After several subcontractors proved unable to meet delivery schedules and quality standards, however, Boeing acknowledged its mistake, recorded several billion dollars in cost overruns and began to bring more of that work back in-house.

Boeing's South Carolina plant will be located at a complex developed by one of those subcontractors, Vought Aircraft, whose problems led Boeing to buy the operation from the Carlyle Group for $1 billion. On the day after announcing the purchase, Boeing launched a successful effort to decertify the machinist's union at the facility only a year after it had been voted in by workers.

Although Boeing has long wanted to diversify its geographic base, the company went through the motions of giving the machinists' union and Washington state officials an opportunity to compete to keep the other 787 plant in Seattle. While the union's final offer included the 10-year no-strike provision that the company had demanded, the union also demanded 3 percent annual wage increases over the next decade, along with a promise not to oppose union organizing efforts and a guarantee of future production work in the Seattle area. With labor costs in Seattle now 30 percent above what they are in places like Charleston, Boeing rejected the offer out of hand.

There is nothing inevitable about Boeing becoming the next General Motors, or Seattle the next Detroit, but those remain real possibilities. It may be comforting for business and labor to cling to their familiar story lines, but we know how these narratives end. The business executives dream of crushing or escaping the unions is no less a fantasy than the workers' determination to preserve pay and work rules that ignore competitive realities. It's time for both sides to get real and figure out how to collaborate on a new social contract.

Steven Pearlstein will host a Web discussion today at 11 a.m. at washingtonpost.com.


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