Barack and Me? (or why GOP Governors wont sign suicide pacts)

In today's Washington Post prominent economist Robert Samuelson penned this provocative columm

Is organized labor obsolete?

What we are witnessing in Wisconsin and elsewhere is the death knell of Big Labor

The President, of course, sees this differently.  He sees a future for the labor movement essentially maintaining the current status quo on into the 21st century economy.  Notwithstanding the increasing burden of pay, benefits and pensions, and the irrestistible pressure of global competition, we will "win the future" by making large infrastructure investments which will yield a high enough return to pay for our obligations.

Barack Obama, meet Roger Smith.

Smith and Obama seem an odd pair at first. But think this through. Both took over as CEO when their organizations were facing financial duress and existential threats to the enterprise. Both were, however,  "company men" (Is there a "company" more insular than the Chicago Democratic machine?). Both spent prodigious sums on big ticket infrastructure projects.  But neither was willing to do two absolutely essential things: a) restructure the enterprise to be smaller and more responsive and b)  address the long term labor cost obligations of the firm.

 

Smith instituted several initiatives that included forming strategic joint ventures with Japanese and Korean automakers, launching the Saturn division, investing heavily in technological automation and robotics, and attempting to rid the company of its risk-averse bureaucracy. However, Smith's far-reaching goals proved too overambitious and overwhelming to actually be implemented effectively, in the face of the company's resilient corporate culture and bureaucracy. Despite Smith's vision, he was unable to successfully integrate GM's major acquisitions, several of which also failed to tackle the root causes of GM's fundamental problems.

Smith's tenure is commonly viewed as a failure, as GM's share of the US market fell from 46% to 35%, and as it took on considerable debt causing it to lapse close to bankruptcy in the early 1990s. As a result, CNBC has called Smith one of the "Worst American CEOs of All Time"

Smith's efforts were basically an effort to throw cash at GM's problems and hope the sheer weight of remedies would right the ship. But the technology fixes that buying EDS and Hughes were supposed to augur in fizzled. Saturn never achieved self-sufficiency and drained resources from the core brands. And new models arrived late and over budget.

The anti-Smith was Ross Perot, who came from a non-union background in Texas.  Perot was a major GM shareholder after the EDS deal and chafed at the waste and delay that exemplified GM, but was bought out and sent on his way before he could annoy the establishment further and cause the firm to mend its ways.

Perhaps Smith's greatest failure was his unwillingness to address GM's unsustainable labor and retirees costs.  Of course, Robert Stempel and John Smith, Roger Smith's successors, had no stomach for going toe- to toe with UAW. Instead, the same old UAW contracts were signed and the same jobs banks and retirement packages left in place as the firm slowly lost market share (propped up by low financing and fleet sales )

GM was left 15 years later hoping their retirees would expire fast enough to enable it to compete. It lost that race and filed bankruptcy under the auspices of the Obama administration.

Samuelson is right. The public sector is going to go down the same road as unionized manufacturers like GM.  The states are about where GM was in the 1980's---the bump in the road has been hit and the time was come to think long and hard about where to go next. And maintaining a cost structure that accelerates faster than the economy that pays for it is a ticket to doom.

Republican Governors like Scott Walker and Chris Christie aren't going to be playing the Roger Smith game.

They are going to restructure their long term labor and benefit cost structure in a fashion that over the next couple of decades their states can afford.  Remember, both NJ and WI are old industrial states with slow growth.  They need policies that will recharge the private sector, but have to come to grips that even the best-case scenario now won't pay for what prior adminstrations have promised.  

If there is to be pain, better it be dealt with now while the public instrumentalities across the nation are still going concerns, rather than later when actual insolvency turns our state governments into little Irelands and Greece.

The Democratic Governors claim their approach is "more pragmatic"   In the short term it will be more popular to keep labor peace and give bond money away. The GM management would have been excoriated in the short term by Wall Street had they pressed hard enough to cause a strike by the UAW. But in the long run, one or two bad quarters would not have caused the firm to fail.  Kicking the can down the road did.

And even in the not so long run it can look pretty bad.

After all, when GM couldn't sell its cars and was stuck with lots of big plants and high priced employees, what was Roger Smith left to do? Oh, yeah....he shuttered the plants in Flint and laid off the workers.

Will some annoying filmmaker in 2015 or 2018 be chasing President Obama or a Governor like Dan Malloy around asking why the public sector was forced into massive layoffs? Or  is that just not done to Democrats?

    

 

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Interesting parallel

"Unsustainable" and "Unions" are beginning to show up on word association tests.   And one can also know whose name is interchangeable with Smith's,  from this excerpt from above.....

"Smith's efforts were basically an effort to throw cash at GM's problems and hope the sheer weight of remedies would right the ship"