Making US Manufacturing Work
Published on Saturday, March 25, 2006 by the Boston Globe
Making US Manufacturing Work
by Robert Kuttner

General Motors and the United Auto Workers stunned Wall Street and the labor movement this week by proposing the ultimate buyout package. GM proposes to pension off every one of its 131,000 GM and Delphi workers in the United States, with cash bonuses of up to $140,000 for taking early retirement.

Who would make the cars? A new generation of lower-paid workers. It is a mark of GM's fragility that the UAW considers this about the best deal the union can get.

GM lost $10.6 billion last year. Its bonds are now classified junk. The stock market values the entire company at just $12.4 billion, a fraction of Toyota's $177 billion. Wall Street reacted to the prospect of this daring desperation plan by bidding up GM stock -- by exactly one cent.

GM once made nearly half the autos sold in America; it now sells about one in four, many of them imports. What went so wrong? And what does this say about the future of US manufacturing and trade unionism?

For starters, as a frequent renter, I conclude that GM makes cars consumers don't want. Compared with Japanese, Korean, and European competitors, the steering is slushy, the instrument panel needlessly confusing, and the feel cheesy. The reliability ratings are less than impressive. With a few nice exceptions, the designs are weird. Even the latest Caddy looks like it wants to be a Hummer.

Ever since the abortive Corvair, GM executives have been promising to learn from the competition, but they never do. Meanwhile, GM is stuck with a once-proud social contract that was defensible in the era of scant imports and a Big Three monopoly: GM would pay good health and pension benefits, as well as decent wages. But GM's foreign competitors live in nations with universal health insurance, giving domestic automakers a cost disadvantage from the get-go.

Even so, total labor costs for automakers are actually about $10 an hour higher in Germany, which manages to compete by making terrific cars. If GM management were not such a mess, its workers would not be paying the price.

There is a larger story here. The United States is also needlessly losing manufacturing jobs because it hasn't figured out how to compete globally. This is partly a story of lazy management, but partly of misguided public policy.

Mostly, it is not a story of overpaid production workers. Since 1973, total productivity of the US economy is up about 70 percent while the median wage of nonsupervisory workers is up about 10 percent, according to the nonprofit Economic Policy Institute (on whose board I serve). Economist Robert Gordon recently calculated that nearly all the fruits of that productivity went to the very top income brackets.

In autos, however, workers in Mexico and China with comparable production equipment and skills are paid less than one-10th the US wage. To stay in the game, the United States will have to compete smarter.

Yet the United States lacks sensible trade, industrial, technology, and labor-market policies to revive domestic manufacturing. Its policies are crafted mainly for the benefit of corporations that want the lowest-paid workers, regardless of where they are located and whether their home governments play fair. Consequently, America welcomes imports, whether or not the government of the exporting company subsidizes industry to capture market share, steals intellectual property, and honors basic labor rights.

Some have proposed smart strategies to reclaim competitive industry and good jobs in the United States. A plan by Senator Barack Obama of Illinois would relieve automakers of the ''legacy costs" of retiree expenses in exchange for Detroit's commitment to put serious money into state-of-the art hybrid cars. This idea is disparaged in some circles as ''industrial policy," as if Japan, Korea, and China did not have industrial policies.

The next generation of workers, which will include much lower paid GM employees (assuming there is a GM) faces the most unequal distribution of wages and opportunities since the Gilded Age a century ago. Unionization of the expanding service sector, most of which can't pick up and move to China, would help defend wages. But the United States shouldn't abandon manufacturing altogether.

Automation means manufacturing will never have the share of jobs that it once did. Still, it's not too late to save US manufacturing and at least some good industrial jobs. But that will take radical revision of both management thinking and of the official free-market ideology.

Robert Kuttner is co-editor of The American Prospect. His column appears regularly in the Globe.

Copyright 2006 Boston Globe