Union Membership is Like a Job Warrantee

I consider myself as neither pro or anti union.  I appreciate what unions did in helping to get employment laws establish which vastly improved the lives of the common worker.  Unfortunately, the establishment of the employment laws removed many of the reasons unions were once needed.  Although, I do still believe there are still places that unions are still needed.  With the primary reasons for unions removed, unions took on a more business like role.

One of the largest unions is the United Automobile, Aerospace and Agricultural Implement Workers of America (UAW).   The new UAW president Bob King said in his acceptance speech that the UAW will “pound on Toyota until they recognized the first-amendment right to come into the UAW”.  Mr. King goes on to say that “We’re going to do whatever is necessary to insure that Toyota abandons its anti-union efforts,” This includes picketing Toyota dealers.  Mr. King wants to show the value of having UAW members as the workers by doing everything in his power to prevent Toyota from selling cars.   It is not like Toyota is moving production back to Japan.  Toyota is moving production to Mississippi.  The problem is that the jobs are not union jobs. 

It is not that the UAW has not tried to unionize works at Toyota, and other Asian manufacturer’s plant. In an article from 2007, UAW And Why Honda And Toyota Workers Are Not Interested, covered why workers at the non-unionized plants rejected the union.  In the case of the Toyota plant in Georgetown, Kentucky, it turns out that the workers are paid more and get better benefits then the average UAW automobile plant worker.  If higher pay and better benefits is Toyota’s strategy for keeping unions out of their plants, more power to them. 

The UAW has a product called union membership and it has a cost called union dues.  The product is designed to get the buyer, union member, higher pay and better benefits. In effect, union membership is like a job warrantee, and unfortunately for unions, more and more people do not think that they need the product.

Guilt by association? Maybe, but I don’t care!!

I couple of weeks ago my family started the process of looking for a car for my daughter.    The problems with the braking systems on several Toyota models was already well know.   Because of the braking problems we decided not to look at Toyota, even though they were starting to make some nice deals.   Not including Toyota did not affect other  car company choices.  Two of the auto dealerships we went two where Honda and Ford.

The reason why I mention these two dealers specifically is because I asked them both the same question and got two different answers.  When I asked him if the problems at Toyota lead to increase in their foot traffic and sales I was told “no” by the Honda sales person, and “yes” by the Ford salesperson.  I admit my survey’s sampling size was small, but I thought their respective business would have definitely risen. 

 So why would Ford see an increase and Honda not?  I can think of a few explanations;  First, more Americans are reading my blog and are making a patriotic choice with their purchases.  Second, some consumer lump Honda, and other Japanese manufacturers, in with Toyota concerning safety.   Lastly, this is just a continuation of the sales momentum domestic manufacturers, lead by Ford, have been enjoying for the past several months. 

So is there any proof of an actual sales shift consistent with my two person survey?   Numbers from January show the U.S. trade deficit dropped.  A major reason, beside less oil imports, was a reduction in auto imports.   The trade deficit with both the European Union and Japan saw a significant drop, 56.3% and 27.3% respectively, in the monthly deficit.  Both drops were mostly attributed  to lower auto imports.

Overall, U.S. automobile sales have been mediocre at best, even for domestic brands.  What is good is that the domestic manufacturers are doing relatively better.  The surge in domestic sale comes at a good time for both the U.S. manufacturers and the economy.   The comparative quality of the domestic nameplates has improve a great deal over the past decade.  From initial quality to cost of ownership, domestic brands have, in many cases, overtaken their international competitors.  This has a twofold impact on sales.  First, there is great word of mouth for domestic nameplates.  When my daughter mentioned that she was looking for a car, one of her friends told her how much he loved his Ford Focus.  These factors will greatly increase the number of customers who return to Ford and GM for their next auto.   Another more important reason that this surge is important is that our economy needs it.  The increase domestic production needs has already started to add ten’s of thousand of manufacturing jobs back into our economy.  In addition, the reinstatement of over 600 “to be close” GM dealerships keeps thousands of more jobs which would have been lost.

There is a significant chance that we will have a double dip recession.   Just look at January’s trade numbers: As our imports dropped so did our exports.  It seems that only a few countries are producing more and/or consuming more in any significant way.  China continues undeterred with their global economic game playing, which will artificially improve their growth while subtracting growth from the rest of the world.   The financial crisis in Greece, even though their economy is relatively small, will drag overall growth in Europe down.   Although the worst might be over, there are still significant problems to solve.  As with the first recession, and even if there is no double dip, it is imperative that we re-double our efforts to buy American.  Our country’s standard of living depends on it.

Unclear Thoughts

According to a Washington Post article, “Aughts were a lost decade for U.S. economy, workers”, the decade just ended was the “worst for the U.S. economy in modern times.”  There are many reasons presented in the article to support the conclusion, but a few of the main reasons listed are; zero job growth, a reduction of  net worth, and decrease in median income for a majority of Americans.  The article does point out that the decade was bookended by an economic bubble and the worst recession since the great depression.   What I found more interesting then the article were the reader comments associated with the article.

Many of the comments put the blame for the problems squarely at the feet of the Bush administration and/or pronounced capitalism a failure.  Although some Bush policies might have exacerbated the problem, they certainly were not the cause of the problems.  As for the people that think capitalism is a failure, I am not sure what planet those people are from. 

Economic bubbles have the characteristic of inflating net worth.  The increase of net worth in the 1990’s, at 58%, is well above the average net worth increase of for the previous three decades, 35%.  Much of the 1990’s increase came at the end of the decade during the height of the bubble. If you ascribe the difference between the averages, the 1990’s vs. the previous thirty years, as artificial then the 1990’s really gave us an increase of about 22% in net worth.  That 22% increase is hidden in the loss of the net worth due to the collapse of the 1990’s bubble.  The 22% is lowest of the past four decades, but still not that bad.

I am not sure that capitalism could be considered a failure when our economy is still the world’s largest, our standard of living is exceptional, and most of the world’s population still wants to move here.  That is not to say our economy is trouble free.  We have a debt that is way out of hand, our country’s health care costs are out of line with the rest of the world, and as a country we spent the last decade plus putting more money into short term economic activity stimulators, such as housing, instead of long term economic stimulators, such as manufacturing.  To put it simply, we owe more than we should, we spend too much on our health care and our nation was more interested in building McMansions then manufacturing.  To be fair, this process started more than ten years ago. 

Our loss of economic focus on manufacturing was encouraged by economists telling us of the “innovation economy” and economic policy encouraging us to spend instead of save.  Unfortunately, as I documented in one of my first posts on this site, the “innovation economy” is a myth.  Since we were not saving our nation had to borrow from the rest of the world.  Combining this with the misdirection of resources caused our nation to see its manufacturing, and other, jobs to leave and never come back. 

In the end, I would not call this past decade “lost”.  I would call it more of an “obfuscated” decade.  By that I mean it is unclear how bad, or good, the decade was.  I use the old saying “nothing is as good as it looks or as bad as it seems” to describe this past decade.    What is clear, however, is that we must learn from the events of the decade and improve our economy in this next decade.

Made in America Christmas

As the holiday season rapidly approaches, it is time to start thinking about gifts.    I, like many of my friends and relatives, will be limiting my holiday spend to less than last years’ level.   This is in line with many surveys that indicate consumers in general will be spending less this year.  If true, this holiday season will probably not bring much joy to a majority of retailers and out of work manufacturers.  The lower level of spend is why it is even more important to try to buy “Made in the USA” products.  Therefore, I ask people to do a “Made in America Christmas”.

I know it is unrealistic to ask people to go 100% “Made in America”, but it does not hurt to try.  I realize some families will want that iTouch, PS3, or some item that can only be imported.  I have a suggestion for those families; put off that purchase and switch to one of the many items that have domestic alternatives.   Whether you are buying socks, handbags, ties, jeans, a coffee maker, or a vacuum cleaner there are “Made in America” choices.  Even in electronics you can often find a domestic alternative.  If you have to have a product that is foreign made, then see if it is assembled here and/or the company does its R&D here.    Using the iPod, as discussed in my post “The Innovation Myth”, it is better that some of the money, more than just to the retailer and importer, stay in the United States then leave our economy.

Putting off that foreign purchase and focusing on domestic items helps our economy now, when we need it most.  When the economy gets better, then make that foreign purchase.  That way you help our economy now and also give holiday joy, to people you will never know, by creating a job for another American.  Also, please talk to your friends, neighbors and co-workers to do the same.   It is especially critical now because America, and most of the world, is purchasing less.  Each domestic purchase matters.

Tale of Two Stimuli

When the major economies of the world went into a deep recession many countries responded with stimulus packages.  The stimulus packages all had a similar goal; improve the domestic economy and, by extension, improve the global economy.  Unfortunately, different countries have different domestic drivers that resulted in differing methods used to stimulate their economies.  In several cases, the result of the stimulus will actually hurt the long term economies of the world.

Two specific cases are the burdensome national debt in the U.S. and the steel bubble in China.  While the U.S. stimulus is probably why we are seeing some life in the economy, many components of the stimulus did not provide the best bang for the buck.  In China, while some of the stimulus was used to increase domestic consumption, a significant portion of the stimulus was used to keep manufacturing humming even though there was little demand.

In the U.S. stimulus, money went to many initiatives that had little impact on the rest of the economy.  For example, the $2 million earmarked for swine odor research in Iowa.  As a stimulus, this project was an ineffective use of money and should have either been used in a better way or just not spent.  On the other hand, money spent on improving the country’s infrastructure has great value.  Local jobs are produced that require a resource such as steel and cement which creates other jobs.  Add to this the economic value of a better infrastructure and you get the most out of every dollar.  Admitted, the percentage of money that went to projects similar to the swine odor research was small, but that is not the point.  The point is that the benefit of the marginal projects did not justify the potential future damage.

China is estimated to have loss over 20 million jobs due to the global recession. Since they could not afford additional job losses, stimulus money went into keeping steel, and other, plants operating and people working.  The end result is that China is now producing more steel then ever and they have nowhere to sell it.  Steel industry analysts do not expect world demand to reach 2007 levels until 2012.  What China is doing is maintaining excess capacity and compounding the problem by producing an excessive stockpile, which only exacerbates the excess capacity problem.

In the end, the U.S. and China will have to deal with their own problems due to their stimulus packages.  What it means to the global economy ten years from now is anyone guess.