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Pearlstein: Business v. labor story is getting old

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Steven Pearlstein
Washington Post Columnist
Wednesday, November 4, 2009; 11:00 AM

Washington Post business columnist Steven Pearlstein was online Wednesday, November 4 at 11:00 a.m. ET to discuss the relationship between unions and big business.

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Read today's column: Business v. labor story is getting old

Pearlstein won a Pulitzer Prize in 2008 and is co-moderator of the On Leadership discussion site.

A transcript follows.

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Laurel, Md.: If I understand the article correctly, South Carolina has won a race-to-the-bottom against Washington on issues like strength of labor laws, environmental protections and business taxes. Do the eco-states like Washington and Oregon have an economic future for blue collar workers, or are we going to stratify into states where well-educated people live in states with good quality-of-life protections, and most blue collar people are forced to live in states with poor social services and ecological disasters?

Steven Pearlstein: That is certainly the liberal view of things. I'm not sure you haven't exaggerated the reality -- most people who live in South Carolina don't view themselves as living in an environmental hell hole, and their cost of living is much lower than Seattle, meaning that they don't need as high a wage to live the same lifestyle. They also start out poorer, so a job at Boeing may be a big step up for them, which I'm sure as a good liberal you wouldn't want to deny them.

That said, there is no question that if you nationalize (or internationalize) labor markets, there is a tendency for an efficient market to find an equilibrium somewhere in the middle, which is good for the people in the lower end and not so good for those in the higher end. Since product markets are nationalized and globalized, and capital markets are nationalized and globalized, it is somewhat natural that labor markets would be as well.

As for education, it is true that average levels of education may be higher in the north than the south, but it doesn't mean that nobody down south has any education. Boeing will need only 4,000 workers when it gets up to speed in South Carolina, and many of those will require a high school education with some additional certifications from a community college. There are plenty of people there who qualify, or could qualify, for that. So I'm not sure I'd go along with your view of the South.

That said, I think it's bad for the economy, bad for workers, bad for the labor movement that Boeing and the IAM couldn't come up with a mutually beneficial strategy to keep the aerospace cluster focused in Puget Sound. There is obviously some inefficiency involved in having two clusters, but the cost of those inefficiencies is apparently not greater than the higher cost of doing business in Puget Sound. That's Boeing's cold calculation. The IAM now has to think hard about whether it's in its best long term interests to protect, at all cost, above-market wages in Puget Sound and see all the work gradually bleed off to other places (over two decades), or to take action now to minimize that. It is a long-term, short-term thing, because right now there are tens of thousands of current workers receiving those above-market wages and benefits, and to sacrifice that for 4,000 new jobs looks like a lousy tradeoff. There are ways, however, to make those adjustments gradual so existing employees don't feel they are giving up something that is that big, and they will get more job security for themselves and their children.

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Clifton, Va.: It's a shame Dems control Congress and the White House since what this country really needs is a National Right to Work Law.

Look at what the UAW is trying to do to Ford! They want to drive Ford into bankruptcy so they can get a stake in Ford like they have in GM. It is interesting that although Michigan has high unemployment and a work force that could build cars, the state leaders and the Union kept Honda, Toyota, BMW, Mercedes, Hyundai, etc. of the state. Stupidity at its finest. Paying a janitor in a GM factory $50 a hour is suicide. It takes no skill to work on an auto assembly line that is the point!

Steven Pearlstein: A National Right to Work Law is the same as a National Outlaw All Unions Law. Let's be honest about that. You don't think unions serve any useful social or economic purpose. I do. In fact, I think good unions are needed now more than any time in the last few years.

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Freising, Germany: "...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...

...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..."

Well then, that about sums things up, but what to do about it???

Has any Nobel Prize winning economist ever solved the us-against-them-dilemma? Why is it so impossible to solve business-versus-labor conflicts in any one country?

When I think of national conflicts such as these, I indeed wonder how any solution can be resolved regarding truly international concerns such as climate change.

Steven Pearlstein: Not sure "we" are supposed to do anything about it, really. Life is messy, issues are gray rather than black and white. What "we" should do is let both sides know that we don't accept their oversimplified, one-sided version of reality and that if they want any help from "us," they'll get real.

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New York: Steve: I've got a semi-related question that deals with the American economy and workers. I recently read some commentary by Bill Gross, the PIMCO bond guru. He said that America used to create wealth by creating and innovating (I guess Microsoft and Apple are good examples). Now we just try to create wealth through bidding up asset prices (I guess its the get rich quick mentality). Gross continues that this is fundamentally unsound for the long-term. Do you have any thoughts? If Gross' thoughts are true, what impact does this have on workers and investors?

Steven Pearlstein: Mr. Gross is absolutely right. That was the message of a recent "fable" I wrote. If all that capital and talent and compensation that had gone into trading financial assets had gone into coming up with and manufacturing products that we could export, our country would be a lot richer today. And I'm talking a lot richer.

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Ann Arbor, Mich.: Dear Mr. Pearlstein: I read your column with some interest but it seems to have no suggestions for an appropriate course of action for the IAM and its members at Boeing. What should the Boeing workers and union have done vis-a-vis the Dreamliner second line? What type of relationship should Boeing and the IAM develop. Would it have made a difference to Boeing's plans? I am not immediately familiar with the Boeing/IAM relationship but, it seems to m that if Boeing is regularly trying to find a way to move work out of Seattle and away from the union, they are going to have a difficult time finding a way to work with the IAM and their engineering union to craft solutions at their main facility.

Yours, Dale Belman

Steven Pearlstein: Basically, to oversimplify it, they should find a way to lower fixed labor costs in Puget Sound by 20 percent over the next several years but increase significantly the union participation in profit sharing when things are going good. They might even ask for a seat or two on the Boeing board. They should also embrace the idea of geographic diversification, particularly for subcontract work, but within the Boeing family and only at subcontractors that are unionized, understanding that the pay and benefit levels at those subs, particularly in other areas, may be lower than in Puget Sound. In other words, they should start thinking like owners of the business and demand to be treated like partial owners of the business.

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Washington, D.C.: "Good unions are needed now." That would be great if it were possible, but it's not. Globalization/unemployment makes that impossible. There has to be other means to protect workers.

Steven Pearlstein: Well, there need to be other protections, yes, but unions aren't just protecting workers. They are a vehicle for also involving workers in operating a company and creating a mechanism for sharing of gains and pain.

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Arlington, Va.: I agree with you on both counts - unions and firms are unrealistic. My brother remembers moving into a fairly upscale apartment complex. He was making a good salary, after having worked seven years at one of the big 4 accounting firms and wanted a nicer place to live. After he moved in, he noticed a lot of UAW workers were his neighbors. He talked with a lot of them and couldn' believe how much they made with just a high school education. The worst part was that they were upset that their raises were only a percentage or two above inflation. Talk about not living in the real world.

Steven Pearlstein: One problem is that they read stories about a relatively few number of top executives who get paid way way too much and decide that all the executives are getting that and that's where all the money is going, so they develop a lot of class resentment that inflames their natural desire to be paid more. That's one thing executives have forgotten in their selfish campaign to become rich as rajahs: that it poisons the discussions with workers, to the detriment of the shareholders.

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Virginia: Steve, Have you ever written how good capitalism is? Why are so many liberal Democrats rich and wealthy when they are anti-business and anti- capitalism?

Steven Pearlstein: Yes, I have. Lots of times.

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Dupont Circle, D.C.: It's interesting that your column didn't mention labor law reform, which could be a game-changer (to use a horribe cliche) in the anti-union South. Certainly Boeing workers don't have to compete with non-union Airbus workers (they're all union), but with lower wage workers in the anti-union parts of the good ole U.S. of A.

With this legislative change, perhaps American workers could restore the old social compact which seemed to work well for the American middle class in the 20th century, and not forge a new one which inevitably would have all workers learn to live with less.

Steven Pearlstein: Some labor law reform would be good, since the law lately has tilted way to much against union organizing and getting the first contract.

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Alger, Mich.: Are you familiar with management's rights contract language such as this, which is current language in the GM agreement and is also in the Ford and Chrysler agreement? It has existed unchanged for over 50 years.

PARAGRAPH 8 "The right to hire; promote; discharge or discipline for cause; and to maintain discipline and efficiency of employees, is the sole responsibility of the Corporation except that Union members shall not be discriminated against as such. In addition, the products to be manufactured, the location of the plants, the schedules of production, the methods, processes and means of manufacturing are solely and exclusively the responsibility of the Corporation."

When organizations decide their primary purpose for being is financial engineering, and lobbying in D.C. to change laws to accommodate their financial engineering machinations, as opposed to focusing on the products and or services they provide, workers in labor unions have only their legal right to withhold their labors to protect themselves. Your article of today "Business vs. labor" assumes some equal status between workers and management. There is no equality (read Paragraph 8), nor is their any benevolence by management towards their workers. Workers are forced to rely on management's ability to manage or to desperately protect themselves from management's self-destructive behavior.

Steven Pearlstein: You write like someone who is so steeped in the current contract-negotiation mindset that you can't step outside of it and talk about how the world could be. You're trapped in the status quo! So fine, get rid of Paragraph 8. It wasn't handed down by God on Mt. Sinai! A new social contract involves a new contract -- how much simpler can I put it.

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Anonymous: It is a shame that one state has the ability to use federal dollars to steal jobs form another state - worse yet, that Boeing can demand state or federal compensation to set up shop elsewhere. Where is Obama on this issue?

Steven Pearlstein: Don't overdo the state subsidy angle here. That's just the icing on the cake, as far as Boeing is concerned. They were looking to escape what they feel is the financial strangulation of the IAM and the other unions. Its just that simple. What the state did was simply offset some of the extra cost that will be involved in creating and maintaining a second cluster.

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demand to be treated like partial owners of the business. : By Jove, who would have guessed it. Steve is a socialist. Mazeltov!

Len

Steven Pearlstein: Thanks, Len. Power to the People!

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Princeton, N.J.: The trouble with your equilibrium or market wage theory is that the equilibrium point may be a lot lower than is good for the people of your country. Where is the equilibrium between the workers in Washington and those in Bangladesh? I can assure you it is a lot lower than South Carolina.

Look at the meatpacking industry, where your theory has worked out in spades. Once there were hard, nasty well-paying unionized jobs in Chicago that required some skill. These jobs provide a way upwards to many poor immigrant families. Then when machinery that needed less skill came into to use, the owners moved it to western Kansas where they hired people (again immigrants) for peanuts and put them up in dormitories far from civilization and forbid unions. It seems to me this devolution was a great loss for the country as a whole.

Also, if I may assert my lefty position, the owners made out like the bandits they are.

Steven Pearlstein: I don't think the situation you describe is a satisfactory equilibrium. It's abusive labor practice that should be outlawed.

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Sterling, Va.: I have heard the criticism that the Union leaders are now no more than CEO's themselves, with little regard for their members' interests. Do you think this is a fair criticism, or do Union leaders respect/listen to/fear the desires of union members?

Steven Pearlstein: Mostly unfair, yes.

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New York: I have always been of the general opinion that there is too much power for Big Business and Big Labor, except that at least Big Labor is necessary to try and keep Big Business from abusing their economic power. This is probably the question with no answer, but how do Small People gain economic influence in a game where they are merely pawns?

Steven Pearlstein: People aren't mere pawns. They have the economic power that comes with having something of value to offer an employer. They have the economic power of being able to go out and start their own company and take revenue and profits from big businesses that are underperforming. They have economic power to join with other workers to bargain collectively with their employer. They have political power to join with other like-minded people and elect representatives who will pass laws to protect their economic interests. I just don't buy the little people have no power point of view. This is America.

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HSV, Ala.: I guess those well-educated people in Northern States better stop driving their Mercedes SUVs. Last time I checked they were made in Alabama.

There is also a whole host of Federal laws about environmental protection and so on that apply to all states, so I don't think ecological preservation is any less in South Carolina at the basic level.

Steven Pearlstein: You tell 'em.

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Unions: I agree Steve, unions can be a great balance to the power and sometimes greed of corporations. However, unions have become their own worst enemies. Rather than protect good workers from poor conditions, bad pay, etc., they have taken on the role of defending the worst of their ranks, the ones who have no other defense than their union membership. We do need unions today almost as much as we needed them back in the 1920's. How do we keep the union's message and efforts on being the most productive and not for defending those not worthy of defense?

Steven Pearlstein: We write columns like the one I wrote today. I agree with you completely. The old line industrial and craft unions are too much involved in preserving the unpreservable, work rules and compensation packages that are so out of line with the market, rather than on helping workers who are at the bottom of the ladder and really need help to get a decent wage and a basic health insurance package and some protection against arbitrary and capricious action on the part of abusive employers. Unions would be better off if they focused more on getting more employees organized so that can have a least some health insurance than making a huge national deal out of the fact that their members might actually have to pay income taxes on health insurance benefits they receive over the $20,000 a year mark. That's not about protecting the middle class. It's about preventing other people from joining the middle class.

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Tustin, Calif.: The conflict between labor and capital can be ameliorated into sanity only when working people become capitalists - that is, they see their future tied to the productivity of investment. If for each newborn citizen we contribute from tax revenues $12,500 into a fund investing in shares on the stock exchanges expected to earn in real terms 7% annually in the long term, at age 65 that person would have slightly in excess of one million dollars. If this amount were paid out over a 20 year life expectancy using the same 7% earnings rate, it would provide about $96,000 yearly. No more payroll taxes, no more Social Security. We finance the birth tax from general revenues. We have around 4.315 million births annually in the U. S., which would require about $54 billion to be funded. This is less than 0.5% of our GDP. Check out my arithmetic. We do not solve problems such as this one because we are ignorant or afraid.

Steven Pearlstein: Favorite Republican fantasy.

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Falls Church, Va.: How can you that a National Right to Work Act is a "National Outlaw All Unions Law"? There are many unions and union members in Right to Work States, why would a National Right to Work Law change that?

Personally, I'd be furious if was forced to pay money to a private organization just to continue to make a living, but that's what workers in non-Right to Work states have to deal with. What if the Chamber of Commerce lobbied for a law that forced all businesses to pay them fees? How would that be different from forced unionism laws that require workers to pay dues to keep their job?

Doesn't Right to Work simply give workers a way to keep their union accountable (by being able to withhold financial support)? Isn't that the way to get "good unions"?

Steven Pearlstein: There is a problem, I agree, with union leadership being unresponsive to members sometime. That is often the case when policies are really dictated from above, from national and international organizations. That's why I'm a big fan of unaffiliated locals in certain instances. But the problem with right to work, as you well know, is the one of free riders. It is in the interest of every individual to have a union at his workplace to bargain on his behalf, but not contribute anything toward the dues. Everyone wants to be a free rider.

By the way, right to work states are just those that say you can have an open shop. They are also places that have lots of other rules that tilt in favor of management and against labor unions. When it comes to thuggish behavior, unions don't hold a candle these days compared to the approach taken by many managements and their Mafia-like consultants and law firms.

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Falls Church, Va.: As far as treating unions like owners, would it make sense for a company in collective bargaining to require that the union acquire a partial ownership stake?

Steven Pearlstein: There are ways to share gain and pain that don't involve actual stock ownership. Sometimes that is useful, sometimes not.

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Alger, Mich.: Under the current NLRA and other labor laws, unions cannot be involved in managerial decisions to operate a company or they lose their status as unions. Once again, Paragraph 8. Dick Danjin

Steven Pearlstein: We need to change the relationship. If that means changing the law, so be it. Germany has a better approach in some respects (not all), and one of those is greater involvement of the unions in certain aspects of running the business. Germany is also, by the way, the world's most successful high wage export country.

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Unions protect more than workers: My sister is in a nurses union. Things that they have fought for is not to be forced to work a double shift when too tired and the number of patients one nurse can handle. I don't think I would want an exhausted nurse working a double shift to care for me.

Steven Pearlstein: A good example.

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Falls Church, Va.: The unspoken truth is that the states like N.C. and Alabama that offer big tax incentives and no unions to companies like Boeing are big money sink holes for the federal government, meaning they take in much more federal money that goes out. So what in effect is happening is the states which have more balanced policies are essentially bankrolling states like Alabama to take their high paying jobs. The southern states tend to be a bit light on the social safety net also, so those costs get pushed back up north via taxes. Why do you not include this in your analysis and why do we think this is good policy?

Steven Pearlstein: That's true to an extent, but it is not as big a factor as a lot of people think. Getting into interstate bidding wars for industrial locations is not economically productive. It is an arms race.

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Washington, D.C: I realize you are using manufacturing jobs in this discussion, but retail and service sector jobs are the fastest growing jobs in our economy and the GAO projects they will grow faster than all other sectors over the next 10 years. A majority of Americans will be drawing a paycheck from a private retail employer.

Steven, can you give your insight on how we make those jobs higher quality so that workers can raise a family, pay for quality health care, send their kids to college?

Walmart is the nation's largest employer - their published average wage is $11.34/hour. Median wages are closer to $9/hour - mainly due to the company paying it's managers as hourly employees to jack up the numbers.

Without a union at Walmart, how can we expect to create an economic base of workers who can honestly reach the middle class - and therefore spend their extra income buying goods and services in our economy?

Steven Pearlstein: Maybe a Walmart job is a low productivity job that ought to have a low productivity wage. Obviously, the only way it got to be the country's largest employer is that there are lots of people who are willing to do those jobs -- they don't employ forced labor, last time I checked. I don't like the company's thuggish anti-union activities. But rather than focus on how Wal-Mart is ruining America, how about focusing on creating other, higher paying jobs at other companies and in other industries so that Wal_Mart has to compete a little harder to get the best employees.

BTW, if you want higher wages for retail employees, which might be a good thing since so much retail service is so bad, I'm presuming you're willing to pay a little more in retail prices to get it. I am. Are you?

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Silver Spring, Md.: All I can say is that if EFCA gets taken up, I will have my popcorn ready. They should put the floor debates on pay-per-view, as it will probably be more uncivil and full of trash talking and fake anger than a wrestling match.

Steven Pearlstein: That would be the Employee Free Choice Act, with its card check provision. I think card check has been officially declared dead, however, which allows us to focus on other ways of leveling the playing field.

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Steven Pearlstein: That's it for today, folks. "See" you next week.

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