Tuesday, August 21, 2012

One More Caterpillar Lesson ... Teamwork, Free Choice, Taking Sides and Competitive Markets

Caterpillar's Joliet, Illinois workers voted to return last week after engaging in a strike lasting several months.

Many now want to blame Cat for not "sharing the wealth" and paying its workers more, since the company is profitable and doing well on the whole.

Of course, we have no idea how well the Joliet location by itself is performing, as it's a very small part of the whole Caterpillar worldwide operation. And of course, the company doesn't pay its other suppliers, such as steel, electricity and trucking any more than market rates. It supports state government programs and initiatives by paying what it owes in income, property and other taxes, too. And we all know that prospective customers are not forced to buy from Caterpillar. They have other choices about what to do with their money.

That's the result of free market based competition and not socialism. Individual choice and the value of the product or service being offered determine who gets the work and money.

For example, if some competitor offered an IAM member working at Cat $50 or more per hour to change companies and work for it, would the Cat employee be disloyal for taking that job? Or would it be his choice? And if a Cat competitor offered an existing Cat customer a better product at a much lower price, would the customer be disloyal for choosing to buy from Cat's competition? Of course not. So why blame Cat for the marketplace working? Unless you're a socialist, of course.

In any event, economic growth and jobs in Illinois are at risk, and it's in large part due to the investment climate, state government and labor relations atmosphere. Global competition is real, and state competition is as well.

Look at Indiana's right to work law, for example. So what does the Illinois governor do? He gives the strikers $10,000 out of his political pot of gold. Where did he get the money? From his own pocket? Fat chance. Well, at least we know what he thinks of the state's huge employer Caterpillar now. So do Cat officials. So do state leaders from Indiana, Texas and other states.

The Truth About Cat and Jobs is subtitled 'Caterpillar and its Illinois union try to stay competitive:'

"If your employer manages to get along without you for more than three months, should you continue to make contract demands? On Friday, union workers at Caterpillar's Joliet, Illinois factory concluded that the answer is no. They voted to accept a new six-year contract that limits wage increases and transitions workers from a defined-benefit pension system to a 401(k) retirement plan. Workers received $3,100 bonuses for signing the new agreement.

Tradition in the U.S. seems to hold that organized labor pursues an adversarial relationship with management. And it's true that unionized employees at the Joliet plant had been on strike since May 1. But of the 780 Caterpillar workers in the local branch of the International Association of Machinists and Aerospace Workers, more than 100 had already decided they'd rather cooperate.

These workers were crossing the picket line to work. Combined with managers taking on additional tasks plus some temporary workers, they allowed the plant to continue shipping its hydraulic systems on time. We're told that by some measures the factory's performance improved during the strike.

Salaried engineers introduced efficiencies while they were filling in on the factory floor. But this is not simply a story about workers recognizing which side had the leverage. Friday's vote is also a sign of an increasing recognition within organized labor that American companies must remain competitive in a global economy. For Caterpillar, that means paying market rates for labor, not the above-market rates that used to be routine in union contracts at American manufacturers. Those contracts helped to wreck the U.S. steel industry and drive General Motors and Chrysler into bankruptcy. The results included fewer jobs in the U.S.

In part to avoid the same fate, Caterpillar has expanded its non-union work force in places like Arkansas and Texas. But whether members of a union or not, Cat workers are now given opportunities, not guarantees. As with union workers across the country, the inevitable fact is that wages will rise if the economy grows faster and the employer's profits increase. This is the only path to higher standards of living for all workers, blue- or white-collar.

Labor costs are only one part of the equation when deciding where to locate a plant. But companies had better keep the lid on that part if they're trying to manufacture goods in a jurisdiction like Illinois, where government imposes some of the highest costs in the galaxy. High tax rates, high workers' compensation costs and heavy regulation are not the ingredients for job growth in the Land of Lincoln.

Labor strife gets headlines, while labor settlements are typically brushed to the back pages. In this case, the good news is that management and labor at an important American company and major exporter have worked out a plan to stay competitive."

Summing Up

To be successful in the marketplace, Caterpillar, as a private company and not a government monopoly, has to convince customers to buy their equipment from Cat.

It's a free market, and price, quality and the ability to deliver all impact the customer purchasing decision. Not where the product is made, if union labor was involved, or how much the company paid it suppliers for the parts or its workers for their labor. Just the total value, as perceived by the customer, that is being offered in comparison with other competitive offerings in the marketplace.

The many good people now back to work in Joliet, and their IAM union representatives as well, should take all this free market stuff into comsideration as they go forward. In my view, competition is a like a pick-up basketball game at the local gym. If you win, you keep playing. If you lose, somebody else "holds" the court. You sit down. Game over.

So if we like the benefits of a free society, and we do, we need to embrace the competitive, free choice and other elements that are included as part of the overall free market package.

And free markets for labor, customer choice, where to make products or even provide our labor are the inevitable result.

Not socialistic norms like everybody gets the same, no matter how much value he provides. Or who the governor wants to "win." The customer wins. The rest of us work to make sure he decides to buy from us.

In the end, the market decides, and as teammates we need to work together to make sure our team stays on the court for a long, long time.

Thanks. Bob.

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