The 1950s and '60s marked a golden age for the union movement. More than a third of the American workforce was unionized, and wages and benefits of most workers rose steadily. In order to achieve huge economies of scale, major industries became dominated by a few giant producers -- three major automakers, five chemical manufacturers, six steel makers and a handful of airlines -- that roughly coordinated prices and investments. And most blue-collar jobs in them were boiled down to certain predictable steps, done over and over. However, mass production depends on predictability so a strike or work stoppage would wreak havoc.
Today union membership in the private sector has fallen to under 9% and we've seen three industries that have been stranlged and on the decline for decades. There are some rays of hope though.
So why did this happen?
Jobs moving to Asia and Latin America?
President Reagan firing the air traffic controllers?
There may be some truth to that view but it’s way too simple.
It fails to account for the shift in the structure of the American economy, beginning in the late 1970s and '80s, that shattered the mass-production system of the mid-20th century. The shattering pushed every major company into intense competition for consumers and capital, and forced many of them to slash their payrolls.
First came global competition: Cargo ships, containers and satellite-communications technologies made it cheaper to make a lot of things abroad, Japanese and German manufacturers set up non-union factories in America.
Then came technology: Software made it possible to produce lots of things at low cost without mass production, and fiber-optic cables made it easy to outsource production anywhere.
Meanwhile, privatization and deregulation allowed lots of new entrants into airlines, trucking and government services.
The airline industry
Background: Airplanes require a huge amount of fixed capital to acquire airplanes. They also depend on skilled workers. Since airlines can’t afford to let planes sit idle, they can ill afford strikes.
However, the industry is still highly unionized.
Let's put in some perspective. Since 1978, when commercial aviation was deregulated in the U.S. 137 have filed bankruptcy. From the end of World War II through 2006, the sum of industry profits was less than zero.
Warren Buffett once remarked and I paraphrase...
"It would have been a blessing for shareholders if someone had thought to shoot down Orville Wright at Kitty Hawk".
The United Airline debacle. Exerpted from New York Times article "Into Thin Air" by Roger Lowenstein
On February 1, 2006, United emerged from Chapter 11 bankruptcy protection under which it had operated since December 9, 2002, the largest and longest airline bankruptcy case in history.
Unions?
Steel industry
A comparision of two business models:
Unionized US Steel Corp.
Non Union Nucor Steel Corp.
Unions?
The U.S. auto industry.
First a story from the Chicago Tribune.
.
The two leading domestic producers, General Motors and Ford, generate a seemingly endless litany of bad news. GM, which lost $10 billion last year, was forced to sell a big stake in its profitable GMAC financing arm to raise cash. Today, Ford announced it may sell its premier auto division to a private investment firm.
Non-union U.S.-based auto assembly plants made 1.1 million more vehicles in 2005 than they did in 2001, while production at unionized plants fell by 1.1 million. So even as union employees perform far, far below non-union employees automakers like Ford and GM must continue to pay the union employees their exorbitant wages and benefits packages because, by union contract, they can't be fired. Wall Street Journal
Kia Motors recently announced plans for a $1.2 billion assembly plant in Georgia that will employ some 2,500 workers and be capable of producing 300,000 vehicles a year when it opens in 2009. At the same time, Toyota said it would invest $230 million to expand an existing Subaru plant in Indiana in order to boost output of Camry sedans for the American market. These are just the latest in a long series of investments by carmakers from Japan, Germany and Korea in U.S. auto operations known as transplants.
In other words, the American auto industry is heading in two different directions. The big U.S.-based producers are reducing their domestic manufacturing presence, while foreign carmakers appear to see the United States as a land of endless opportunity. The latter now employ more than 50,000 U.S. workers (most of them non-union) at several dozen plants that account for about one-quarter of the country’s output of cars and trucks. “The domestic auto industry is as healthy as it has ever been,” a consultant recently told Business Week. “The names on the plants are just changing.”
No wonder Ford and GM are failing. Their struggles might not be entirely the fault of unions, but I wonder how many of the problems companies like Ford and GM have faced are secondary symptoms of labor problems with unions. After all, when you've got a labor force you can't get rid of that is eating up tremendous amounts of capital in wages and benefits while performing below par what can you do?
Cut costs in other areas, sell businesses. Cuts that more than likely result in a less-than-good-quality product which in turn causes a loss in market share to your competitors and the sale of quality businesses.
The the first obligation of an employer is to make a profit or else there are no jobs. Some people in the union movement seem to have lost sight of that.
Where does a union make sense?
It seems to me at Nucor their four clear-cut principles work quite well and should be adopted by these other industries.
Today union membership in the private sector has fallen to under 9% and we've seen three industries that have been stranlged and on the decline for decades. There are some rays of hope though.
So why did this happen?
Jobs moving to Asia and Latin America?
President Reagan firing the air traffic controllers?
There may be some truth to that view but it’s way too simple.
It fails to account for the shift in the structure of the American economy, beginning in the late 1970s and '80s, that shattered the mass-production system of the mid-20th century. The shattering pushed every major company into intense competition for consumers and capital, and forced many of them to slash their payrolls.
First came global competition: Cargo ships, containers and satellite-communications technologies made it cheaper to make a lot of things abroad, Japanese and German manufacturers set up non-union factories in America.
Then came technology: Software made it possible to produce lots of things at low cost without mass production, and fiber-optic cables made it easy to outsource production anywhere.
Meanwhile, privatization and deregulation allowed lots of new entrants into airlines, trucking and government services.
The airline industry
Background: Airplanes require a huge amount of fixed capital to acquire airplanes. They also depend on skilled workers. Since airlines can’t afford to let planes sit idle, they can ill afford strikes.
However, the industry is still highly unionized.
Let's put in some perspective. Since 1978, when commercial aviation was deregulated in the U.S. 137 have filed bankruptcy. From the end of World War II through 2006, the sum of industry profits was less than zero.
Warren Buffett once remarked and I paraphrase...
"It would have been a blessing for shareholders if someone had thought to shoot down Orville Wright at Kitty Hawk".
The United Airline debacle. Exerpted from New York Times article "Into Thin Air" by Roger Lowenstein
Spoiler :
On February 1, 2006, United emerged from Chapter 11 bankruptcy protection under which it had operated since December 9, 2002, the largest and longest airline bankruptcy case in history.
Unions?
Steel industry
A comparision of two business models:
Unionized US Steel Corp.
Spoiler :
Spoiler :
Unions?
The U.S. auto industry.
First a story from the Chicago Tribune.
Spoiler :
The two leading domestic producers, General Motors and Ford, generate a seemingly endless litany of bad news. GM, which lost $10 billion last year, was forced to sell a big stake in its profitable GMAC financing arm to raise cash. Today, Ford announced it may sell its premier auto division to a private investment firm.
Non-union U.S.-based auto assembly plants made 1.1 million more vehicles in 2005 than they did in 2001, while production at unionized plants fell by 1.1 million. So even as union employees perform far, far below non-union employees automakers like Ford and GM must continue to pay the union employees their exorbitant wages and benefits packages because, by union contract, they can't be fired. Wall Street Journal
Kia Motors recently announced plans for a $1.2 billion assembly plant in Georgia that will employ some 2,500 workers and be capable of producing 300,000 vehicles a year when it opens in 2009. At the same time, Toyota said it would invest $230 million to expand an existing Subaru plant in Indiana in order to boost output of Camry sedans for the American market. These are just the latest in a long series of investments by carmakers from Japan, Germany and Korea in U.S. auto operations known as transplants.
In other words, the American auto industry is heading in two different directions. The big U.S.-based producers are reducing their domestic manufacturing presence, while foreign carmakers appear to see the United States as a land of endless opportunity. The latter now employ more than 50,000 U.S. workers (most of them non-union) at several dozen plants that account for about one-quarter of the country’s output of cars and trucks. “The domestic auto industry is as healthy as it has ever been,” a consultant recently told Business Week. “The names on the plants are just changing.”
No wonder Ford and GM are failing. Their struggles might not be entirely the fault of unions, but I wonder how many of the problems companies like Ford and GM have faced are secondary symptoms of labor problems with unions. After all, when you've got a labor force you can't get rid of that is eating up tremendous amounts of capital in wages and benefits while performing below par what can you do?
Cut costs in other areas, sell businesses. Cuts that more than likely result in a less-than-good-quality product which in turn causes a loss in market share to your competitors and the sale of quality businesses.
The the first obligation of an employer is to make a profit or else there are no jobs. Some people in the union movement seem to have lost sight of that.
Where does a union make sense?
It seems to me at Nucor their four clear-cut principles work quite well and should be adopted by these other industries.
- Management is obligated to manage Nucor in such a way that employees will have the opportunity to earn according to their productivity.
- Employees should be able to feel confident that if they do their jobs properly, they will have a job tomorrow.
- Employees have the right to be treated fairly and must believe that they will be.
- Employees must have an avenue of appeal when they believe they are being treated unfairly.
