Government & Policy

What can go wrong if the UAW unionizes foreign automakers? Let history speak

Thursday, May 2, 2013 by

GMC truck2If you want to imagine the potential hazards of the United Auto Workers unionizing foreign automakers’ factories in the American south, consider the following episode from the history of General Motors. It provides a glimpse of how bad things can get in a Wagner Act world where businesses are forced to deal with unions. (I am drawing my information from Paul Ingrassia’s Crash Course: The American Automobile Industry’s Road From Glory to Disaster.)

In early June 1998, then-current UAW-GM working arrangements allowed GM employees to go home once they met their daily production quotas. But employees at GM’s two Flint, Michigan, body plants were regularly meeting these quotas after four to five hours worth of work, and then heading home with a full eight hours’ worth of pay. If GM wanted employees to work in the afternoon, it needed to pay overtime. If GM wanted to stay competitive with its non-unionized Japanese rivals, then this kind of institutionalized inefficiency needed to go.

GM executives anticipated that directly fighting UAW representatives to end this long-standing practice would be too costly. So they instead relocated some of the Flint stamping equipment to other facilities where it could be used for eight hours worth of daily production. Equipment reallocation is commonly done at GM and at other large manufacturers. But, in this case, the UAW leadership perceived this move as a direct threat to their cushy working arrangement and more broadly feared what such a move could mean for job security down the line.

So they launched a strike.

Within one week, 9,200 GM employees walked out of two metal-processing plants in Flint. By abandoning their paid posts, these striking employees stopped production of vital car body parts. This sent shockwaves throughout GM’s entire supply chain, halting production at many assembly plants that depended on body parts produced at Flint. As a result, the strike idled 175,000 GM workers and tens of thousands more at plants owned by other companies that supplied parts for GM.

The strike was devastating. It lasted fifty-four days and cost GM roughly $2.2 billion. By one reckoning, because of the strike, the entire industrial production of the United States dropped by 1 percent for the month of June, the sharpest monthly decrease in five years. For GM, this was the costliest strike that they suffered in twenty-eight years. Once the strike ended, GM reluctantly returned the equipment to the Flint metal-stamping plant. While this happened in broad daylight, UAW members stood by cheering for what was basically a celebration of willful inefficiency.

Events like the 1998 GM strike remind us about the dangers of laws that force businesses to deal with unions.

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What would American health care look like if the government didn’t control it?

Tuesday, April 30, 2013 by

6869336880_31ae61b74a_bAlmost 50% of all health care dollars in the United States are spent by the government, and the other half is spent by private insurers and individuals on a market that is heavily regulated and controlled by government.

What might medicine look like if government weren’t so deeply entrenched in it? It can be a tough thing to imagine, since government and medicine have been “joined at the hip” (to borrow a recent phrase from Obama) for more than half a century.

There are some Americans, however, who have lived long enough to remember the state of medicine when it was freer. In a recent op-ed in the Wall Street Journal, a doctor describes how his experience in medicine dramatically changed over the course of his medical career—and not for the better. Dr. Marsh says:

When I graduated from medical school in 1962, the profession of medicine was for many graduates an opportunity to provide care—as distinguished from, though aligned with, treatment—and to provide it to individuals, not to populations or governmentally specified groups. Young doctors hoped to establish an independent business, enjoy lifelong intellectual excitement as knowledge and therapies expanded, and have an income sufficient to live decently and support a family….

After eight years of postgraduate study, I opened a solo pediatrics practice in a community of 10,000 souls an hour from Boston. A number of lean years passed before I could build a robust practice. Yet the experience was exactly what I—and I think many of my colleagues—sought: a personal, direct and unimpeded relationship between me and those who chose to become my patients….

I had to give my acute attention to the price of every medical intervention. The costs could have a direct and painful impact on a family’s budget. So I had to know the prices for most of the medications I prescribed and of most of the tests I might order. I learned to play for time by waiting, when it was safe to, before ordering an X-ray or a test—and to substitute less-expensive medications for more costly ones wherever possible….

Then, in the mid-1970s, things changed, and we became enlightened. Third parties, typically the insurance companies, were interpolated between the physician and the patient. Some of the consequences were unfortunate….

Physician compensation is tied to “efficiencies,” which means reducing the outlays and costs to the group (translation: skimp where possible) and thus generating for internal distribution a larger share of the prepaid premiums….

Insurance relationships drove practice relationships.

What Dr. Marsh is referring to is the rise of HMOs in the 1970s, propped up by government subsidy. He describes how these government-bred entities transformed his relationship with patients from one in which their interests were aligned (the better care he took of his patients, the greater rewards he received) to one in which doctors had incentives to sacrifice the quality of patient care to pad their pockets. The whole editorial is worth reading.

Dr. Marsh describes how the quality of medicine fell as government intruded further in health care. His observations suggest that medicine would look radically better if it were completely unchained from government control, especially considering the remarkable technological advancements made in the last fifty years.

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On unionization and the UAW’s campaign in the South

Monday, April 29, 2013 by

VolkswagenRecently, United Auto Workers leaders have been urging autoworkers in American Nissan, Volkswagen and Mercedes-Benz plants to organize with the UAW. If any of these unionization attempts is successful, then one of these facilities would become the first unionized foreign-owned automobile assembly plant in the right-to-work South.

There are many reasons why an automaker may not want its plants unionized, especially by the UAW. They may observe the history of GM’s struggles with the UAW, seeing how the UAW organized crippling strikes that shut down operations for over a month. They might see how the UAW managed to obtain costly benefits that GM could not afford to pay, such as a “jobs bank” that paid employees not to work, and rules that allowed workers to retire with full pensions in their 50s. They might also see how the UAW obtained 2,000-page “bargaining agreements,” which imposed numerous counterproductive work rules that made it cumbersome for simple and time-sensitive tasks to be completed in a timely manner. For example, work rules required employees to summon a senior electrician and a senior motor repairman to be present for a simple motor repair job that any junior employee could perform.

Nevertheless, even if Volkswagen, Nissan, or Mercedes-Benz wants to ward off UAW representation, they are legally forbidden from doing so. The Wagner Act deems it to be an “unfair labor practice” for businessmen to discourage employees from unionizing. The Wagner Act also mandates that if the union can collect enough employee signatures, an election must be held to decide whether that union will represent the workforce, regardless of the wishes of the employer. If the union wins a majority in the election, then the Act forces the employer to recognize the union as the exclusive bargaining agent of all employees in the bargaining unit. The Wagner Act also forces employers to negotiate with unions “in good faith” once employees are unionized. I have previously blogged about how this forced arrangement can gradually lead to more and more costly and unreasonable burdens.

Hence, no matter how much any of these automakers may prefer not to have their U.S. factories unionized, labor laws make them sitting ducks at the mercy of organized labor. They are legally forbidden from doing anything to prevent unionization and instead can be pulled into a forced courtship, followed by a forced marriage, followed by many rounds of forced marriage counseling where unions can repeat the tactics that weighed down GM. Meanwhile, as my colleague Tom Bowden has pointed out elsewhere, non-unionized competitors can nimbly adapt the latest technologies and processes without being bogged down by labor disputes over every innovation that could potentially eliminate jobs that are no longer economical.

Why can’t we move to a system in which business and labor relationships are completely voluntary? One in which businessmen are free to decide for themselves whether it is good for business to work with certain unions, including the freedom to work with union leaders who raise reasonable concerns while refusing to deal with those who make unreasonable demands?

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Topix.com: How Obamacare Fleeces the Young

Friday, April 26, 2013 by

I have an op-ed today on Topix.com’s Politix page about Obamacare’s age-related rate restrictions, which require younger people to pay higher insurance premiums in order to subsidize the coverage of those older. I say in the article:

No one, presumably, would be comfortable with the idea of fleecing our children and grandchildren in order to lighten our bills. But supporters of the Affordable Care Act have taken to arguing that forcing young people to subsidize older people isn’t some new consequence of the health law—all insurance, they claim, requires some people to subsidize the expenses of others. Take fire insurance. Ten thousand people might sign up to insure their homes, but only a couple of those homes may end up burning down. The premiums paid by those whose homes did not burn down go toward rebuilding the homes of those whose did.

“That’s how insurance works,” insists health policy analyst Aaron Carroll, who concludes that the health law’s age-related rate restriction is “really not much different than how insurance is supposed to function, by transferring money from the more-healthy to the more-ill.”

But by equating traditional insurance with the health law’s age-related rate restriction, commentators like Carroll ignore a key component of insurance in a market absent government intrusion: the freedom to buy a policy that is priced according to your own risk—a policy that subsidizes no one.

Check out the whole article here. I previously addressed another argument made by proponents of this restriction, here.

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The latest facts on drugs in development

Friday, April 26, 2013 by

magic pillsOver at Policy and Medicine, the bloggers have generated a really interesting summary of drugs currently under development by the nation’s pharmaceutical companies. P&M’s summary starts this way:

According to [a] report released by PhRMA [Pharmaceutical Research and Manufacturers of America], companies have more than 5,400 medicines in development globally, and more than 70% of therapies in the pipeline are potentially first-in-class and could offer patients new treatment options, and a notable number of potential therapies target diseases with limited treatment options such as ALS and rare diseases.

The P&M breakdown is much more readable than the reports on which it is based (although there are copious links to the underlying reports, for those who are interested in pursuing them). The breakdown is categorized by the targets of drug research: Alzheimer’s, arthritis, asthma, cancer, and so on. The amount of interesting factual detail on each is astounding.

These are facts to keep in mind when you hear policy debates surrounding drug development, debates that raise big questions like: What are the effects of FDA regulation? Should the FDA even have a role? How does government funding affect the choice to develop certain drugs? Etc., etc.

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What Americans can learn from the flawed battle against socialized medicine in Canada

Thursday, April 25, 2013 by

2076448655_6e428847e7_oIn my recent interview with Sally Pipes about Canadian health care, we discussed how Canada succumbed to socialized medicine. According to Ms. Pipes, calls for government-provided health care began in the province of Saskatchewan in the 1940s. The discussion brought to mind Ayn Rand’s own comments on the events in Saskatchewan, which she gave in a talk to doctors in 1963 (“How Not to Fight Against Socialized Medicine”). Her comments remain applicable to the fight for freedom in medicine in America today.

The day socialized medicine went into effect in Saskatchewan in 1962, the doctors in the province went on strike. But though “right [was] on their side,” and though they had the “overwhelming sympathy and support of the Canadian people,” the doctors quickly surrendered. “They were defeated,” according to Rand, “not by the power of the socialists, but by the gaping holes in their own ideological armor.”

Said Rand:

[The doctors] had been fighting, properly, in the name of individual rights, against the enslavement of medicine by totalitarian-statist controls. Then, under the pressure of the usual intellectual lynching, under the hysterical, collectivist charges of “anti-social selfishness and greed,” they made a shocking change in their stand. Declaring, in effect, that their rebellion was not directed against socialized medicine as such, but against the high-handed, arbitrary manner in which the government had put it over, their spokesmen began to argue that the government plan did not represent “the will of the people.” The ideological kiss of death was a statement by Dr. Dalgleish, the strikers’ leader, who declared that if a plebiscite were taken and the people voted for it, the doctors would accept socialized medicine.

Could they deserve to win, after that? They could not and did not.

Consider the full meaning of Dr. Dalgleish’s statement. It meant the total repudiation of individual rights and the acceptance of unlimited majority rule, of the collectivist doctrine that the people’s vote may dispose of an individual in any way it pleases. Instead of a battle for the integrity of a doctor’s professional judgment and practice, it became a battle over who should violate his integrity. Instead of a battle against the enslavement of medicine, it became a battle over who should enslave it. Instead of a battle for freedom, it became a battle over a choice of masters. Instead of a moral crusade, it became a petty quarrel over political technicalities…

[T]he doctors’ surrender took place five days after Dr. Dalgleish’s statement.

The text of the agreement reached between the doctors and the government, contained the following horrifying sentence: “The doctors fear that if the government becomes their only source of income they are in danger of becoming servants of the state and not servants of their patients.” [Italics are Rand’s]

According to Rand, such a defense actually works in the favor of the proponents of socialized medicine. “[I]f ‘service’ to the [patients] is our primary goal,” she pointed out, “why should these masters pay us or grant us any rights? Why shouldn’t they dictate the terms and conditions of our work?”

What the doctors in Saskatchewan were missing was the confident moral assertion of their own rights. Rand put it as such:

The pursuit of his own productive career is—and, morally, should be—the primary goal of a doctor’s work, as it is the primary goal of any self-respecting, productive man. But there is no clash of interests among rational men in a free society and there is no clash of interests between doctors and patients. In pursuing his own career, a doctor does have to do his best for the welfare of his patients. This relationship, however, cannot be reversed: one cannot sacrifice the doctor’s interests, desires and freedom to whatever the patients (or their politicians) might deem to be their own “welfare….”

Many doctors know this, but are afraid to assert their rights, because they dare not challenge the morality of altruism, neither in the public’s mind nor in their own.

Such moral confidence continues to be largely absent in the health care debate today. For example, consider this statement by Docs 4 Patient Care (a doctors’ organization committed to fighting Obamacare), found in their “prescription for reform”:

Docs 4 Patient Care is an organization of physicians dedicated to the preservation of the doctor-patient relationship….Our primary concern is the health and well-being of our patients. An additional concern is the health and well-being of our country—physically and financially.

Those are certainly legitimate concerns, but what about the concern that government intrusion in medicine violates a doctor’s right to practice medicine as he sees fit? There is no mention of this in D4PC’s document (despite the good work they otherwise do). The fight for freedom in medicine would certainly be strengthened with its inclusion.

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To cope with Affordable Care Act, Regal Entertainment cuts hours of thousands

Wednesday, April 24, 2013 by

RegalFor those who may have missed this recent story:

The nation’s largest movie theater chain has cut the hours of thousands of  employees, saying in a company memo that ObamaCare requirements are to  blame.

Regal Entertainment Group, which operates more than 500 theaters in 38 states,  last month rolled back shifts for non-salaried workers to 30 hours per week,  putting them under the threshold at which employers are required to provide  health insurance.

…

One Regal theater manager told FoxNews.com the move has sparked a wave of  resignations from full-time managers who have seen their hours cut by 25 percent  or more.

“In the last couple weeks, managers have been quitting on a daily basis from  various locations to try and find full-time work,” said the manager, who asked  not to be named. “Regal up until now has never restricted anyone to anything  below 40 hours.”

The manager told FoxNews.com ObamaCare has had the unintended consequence of  taking food off his table.

“Mandating businesses to offer health care under threat  of debilitating fines does not fix a problem, it creates one,” he  said. “It fosters a new business culture where 30 hours is now  considered the maximum in order to avoid paying the high costs associated  with this law.

“In a time where 40 hours is just getting us by, putting these kind of  financial pressures on employers is a big step in a direction far beyond the  reach of feasibility for not only the businesses, but for the employees who  rely on their success,” he said.

The Affordable Care Act makes it illegal for most employers to hire a full-time employee without also providing him with health insurance (or paying a hefty fine.) Commanding employers to provide health insurance does not change the fact that it does not make business sense to provide it in some cases. So it should not be surprising that some employers are instead choosing to scale back employee hours.

Image: Anthony22 at Wikimedia Commons

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Spotlight on antitrust #6

Tuesday, April 23, 2013 by

Photo Credit: DanBrady via Compfight ccMore stories to remind us how antitrust law casts a cloud over American business:

  • Baseball was exempted from federal antitrust law because the sport was not considered “interstate commerce” in the 1920s when the Supreme Court first decided the issue. Today, however, the Court regards practically every economic activity, no matter how trivial, as “interstate commerce,” so baseball’s special status is a relic that could be struck down at any time.
  • Meanwhile, another planned acquisition found itself stuck in the quicksand of federal review and approval (“Mother may I merge?”). Ecolab, a big sanitation and filtration company, wanted to buy Champion Technologies for $2.2 billion. But the two companies, which safeguard health through a wide range of sanitation products, had to sit and await permission to do business from bureaucrats whose only function is to impede economic activity. Finally permission came, but at the price of several concessions extorted from the merging companies (to divest patented technology, to license proprietary chemistry, to offer for sale a chemical blending facility, to manufacture certain products for another company, and to allow that company to recruit certain Champion employees needed to support the business).
  • As if the health care industry weren’t already buckling under the weight of government intervention, the Federal Trade Commission is sharpening its knives in anticipation of opportunities to prevent hospital mergers.
  • Global competition regulators met in Australia to share their views on future priorities: “Competition agencies cannot remain behind national or regional fences—we need to pull our forces together.”
  • The newest Federal Trade Commission member is a George Mason law school professor who has criticized the agency for settling too many cases through consent decrees, instead of approaching cases as if they will be tried in court.

 

 
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Bowden in IBD: What are the search results when you Google “antitrust”?

Friday, April 19, 2013 by

My colleague Tom Bowden has a new piece at Investor’s Business Daily on the antitrust campaign against Google.

Yielding to the European Union’s threat of massive fines, Google will reportedly change the way it displays search results and, in some cases, even include links to rival search engines. Earlier this year, the Internet giant capitulated to the U.S. Federal Trade Commission after a 19-month investigation, promising to change its advertising practices.

How do the world’s most powerful governments get away with treating Google like a villain? After all, this is a company that has built a reputation for improving people’s lives in a thousand ways.

Just ask the millions of visitors who type keywords into Google’s legendary search engine, or who use the many other services — email, maps, videos, travel arrangements, comparison shopping, books, and the like — that Google offers for free. Yes, for free.

The answer lies buried in the unavoidable vagaries of antitrust law — an irrational regime that grants competitive grumblings the exalted status of legal injuries, then empowers government enforcers to override market outcomes.

Read the whole thing.

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Hardee’s / Carl’s Jr. CEO on California’s anti-business climate

Thursday, April 18, 2013 by

In a recent brief media appearance, Andy Puzder—the CEO of the parent company of the Hardee’s and Carl’s Jr. fast food chains—discussed how difficult it is to do business in California’s regulatory environment. Here is my summary of a few of the things that he brought up:

  • Due to regulations, it takes on average 240 days to build a restaurant in California compared to the 60 days it takes in Texas, or even the 125-175 days it takes in Russia.
  • Because the state prevents managers from performing too many “non-managerial tasks,” he has to pay his managers in California restaurants as hourly employees so that they can also legally pitch in on things such as food preparation or working the register when an additional hand is needed.
  • And because the state of California has severe restrictions on the working arrangements of hourly employees—mandatory break times, mandatory overtime pay, etc.—he has had to regrettably fire managers who were working too hard. It did not make business sense to pay any one employee that much overtime.

You can watch the whole interview here or by clicking on the embedded video below.

Puzder also indicated that his company is focusing on building new restaurants in states with fewer regulations, such as Texas and Tennessee, rather than in California. I wonder how many other businesses are choosing to not locate in California due to its regulatory environment?

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