Thursday, August 1, 2013

How the Unions and Politicians Killed Detroit ... UAW Led the Way ... Public Sector Unions Followed the UAW's Lead ... So Let's Tell It Like It Is

Unions are all about representing their members and company or government employees, and securing for those employees as much compensation and as few work rule restrictions as possible.

Unions generally don't seek to help an employer constantly improve the productivity of its efforts and therefore its global competitiveness.

The unions assume that plenty of wealth will somehow always be created or otherwise be available for payment in the form of compensation or taxes by employers or, and that the unions' job is to see to it that their dues paying members are granted a "fair share" of that wealth, which always means more than they are currently receiving. Of course, the dues paid by members to unions must first come from the earnings or taxes of employers as well.

Unions are takers, as is government. That's all there is to it. If there is nothing to take, there's nothing left to get. Game over.

Politicians act the exact same way as unions.Wealth creation isn't their concern. It's the redistribution of the wealth that is first created by those in the private sector that interests them.

But what happens when the goose is no longer able or willing to lay the golden eggs that the unions and politicians want to get and redistribute? When the wealth that has been "assumed" into the indefinite future is no longer possible due in large part to the cumulative actions of the unions and the politicians over time?

The current woes of Detroit and its citizens happens, that's what. The local auto industry moves on to other places, and it's game over in Motown.

The unions killed Detroit and the local auto industry. Not the public sector unions, at least not directly and not at first.

The private sector unions, and the UAW in particular, were the killers.

Throw in global competition, free markets, free to choose customers and it's easy to see how Detroit's auto industry took a fall. A hard one.

Then throw into the public sector's work force the UAW-like attitudes, work rules, compensation and benefits along with a monopoly on public services, and it's even easier to see why Detroit has no future as a viable city the way it's currently organized.

The city fathers acted as if they didn't even have to face global competition, as did the auto industry, or so it thought. Gold laying geese, aka private sector employers, are best viewed as a city treasure to be supported in every conceivable way and not a cow to be milked dry.

Citizens and government officials in other cities and states should heed this painful lesson of the auto industry goose in Detroit that stopped laying eggs and moved on down the road instead. So should we all.

Detroit Was a Cluster is subtitled 'The city had almost everything it needed to become an even greater capital of the global auto industry:'

"One factor has been little mentioned in the Detroit bankruptcy: the auto industry. Detroit is not the buggy whip capital. It's Motown. Forget the idea that autos are somehow a dying sector—autos are still a giant, wealth-producing industry.

Detroit, in fact, has been a star attraction in the study of what economists call economic geography and business school types call "business clusters." Think Hollywood in movies, Silicon Valley in semiconductors, or surgical instruments in Tuttlingen, Germany. Clusters offer powerful advantages, perhaps the most important of which—according to a much-cited 1997 paper by Guy Dumais, Glenn Ellison and Edward Glaeser—is "labor market pooling," or a plenitude of skilled workers.
Volkswagen Passats at the company's factory in Chattanooga, Tenn.

But these potent synergies can be lost when "special technological competence becomes outmoded." So argues a 1997 paper by Paul Krugman and Elise Brezis. The Dutch cities of Leiden and Haarlem lost their textile dominance to Manchester when cotton and mechanized spinning took over from handspun woolens. Pittsburgh lost its primacy in steel when minimills, running on scrap, displaced integrated mills running on coking coal and iron ore.

Did something like this happen to Detroit? Yes and no.

In fact, as Thomas Klier of the Chicago Fed has shown in studies over the years, with lean manufacturing, clustering has become more important in the auto industry, with suppliers required to be between one hour and one day's drive of factories. A new cluster has formed, known as the "auto corridor" between I-75 and I-65, which still includes the upper Midwest but has pulled the industry's center of gravity steadily south.

The reason is well known to newspaper readers, though rarely mentioned in the ample academic literature: The Japanese, Germans and Koreans located their plants in the South to avoid the United Auto Workers.

Every Toyota factory in the U.S. is nonunion and all but one is in the South. Ditto Nissan. Ditto Mercedes, Hyundai, BMW and Kia.

VW, after 23 years, returned to America with a nonunion plant in Chattanooga. Even GM built its UAW-run Saturn plant in Tennessee in hopes of escaping the sour legacy of Detroit labor relations.

Honda was the bellwether. Honda in 1980 picked Marysville, Ohio for its first plant, ironically after an arm-twisting visit to Japan by UAW chief Doug Fraser, who warned that protectionist blowback would otherwise shut Honda out of the U.S. market.

Honda expected to be required to employ the UAW, but picked a site in rural Ohio with little union presence. As reporting at the time attested, Honda soon concluded that its production system would be impossible with UAW workers and that a UAW workforce could be avoided without undue political consequence.

Even a decade ago, more than half of all auto production jobs were still in Ohio, Indiana and Michigan. Now it's below 44%, despite the Detroit Three becoming more concentrated in the upper Midwest since the GM and Chrysler bankruptcies. Kentucky alone now claims 440 auto manufacturing-related businesses.

Who knows how the transplants would have reorganized the industry if not motivated to locate in states not friendly to the UAW. But they made little secret of their motivation in passing up the substantial benefits of the then-cluster around Detroit.

The UAW, let's understand, wasn't just a union; it was a government-sanctioned labor monopoly that behaved as monopolies do, extracting maximum compensation for minimum productivity. A certain piety prevents it from being noted, but lack of access to a competitive labor market has undermined the Big Three and Detroit's appeal as an industry hub since the 1940s.

The story has been told how, with the coming of the highway and cheap suburban land, auto production relocated from Detroit to its suburbs, and how machines displaced human labor. This didn't have to stop Detroit from becoming the gleaming brain center of a multinational global auto industry still centered in the upper Midwest.

A lot went into Detroit's decline besides the UAW, but one more UAW contribution was Mayor Coleman Young. A UAW organizer who was expelled for being too radical, he switched his career to politics and later spent 20 years presiding over the city's unraveling from 1974 to 1994.

Detroit's bankruptcy is the bankruptcy of a political and fiscal legacy, not the bankruptcy of an organic community. In fact, Detroit in recent years has become a "hot" city, filling up with young people, urban pioneers and new small businesses.

The region may even be starting to reclaim some of its attractiveness as an auto production cluster. Ironically, a final casualty might be the UAW itself. If the union no longer has the political leverage to extract monopoly rents from the Big Three, UAW members will have little reason to keep paying dues."

Summing Up

Facts are stubborn things.

Living beyond one's means is neither a workable nor an effective long term strategy.

And government and union "protection" schemes for workers can't possibly work over the long haul as governments and unions create no wealth on their own.

They merely take from the wealth creators what they spend and thereby weaken the ability of those from whom they take to create additional wealth. Then the money on which they depend eventually runs out and their taking necessarily comes to an abrupt end.

Marketplace competition is competition.

Government and union monopolies don't foster healthy competition.

Government and union protected monopolies frequently harm We the People as participants in a globally competitive marketplace.

The UAW has killed Detroit's future and the city's public sector unions have mimicked the UAW.

As General Douglas MacArthur wisely put it long ago, "There is no security on this earth, there is only opportunity."

Detroit wasted its opportunity big time, and now its citizens have no security.

That's my take.

Thanks. Bob.

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