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Outsourcing Top Management: The Lesson of Fiat-Chrysler
The media coverage of the auto bailouts has focused on the need for union autoworkers to take big pay cuts, causing them to once again miss the real story. The Fiat-Chrysler deal shows that the pay problem is at the top, not the bottom. At the end of the day, the new Chrysler is still likely to be producing most of its cars in the United States. What the new company will be getting from abroad is technology and top management.
This big story was so easily missed because it runs against one of the main myths that our elites have cultivated about the US economy: that the country has a "comparative advantage" in highly skilled labor. In this story, the United States will continue to lose manufacturing and other "less-skilled" jobs as its economy becomes more concentrated in highly skilled sectors.
This story was convenient for our elites because it meant that the decline of manufacturing was a necessary, if sometimes painful, part of a natural economic progression. It also justified the growing inequality in US society that benefited not just Wall Street bankers and CEOs, but also millions of doctors, lawyers, economists, and other highly educated workers. These people took their six-figure salaries as a birthright, even as the pay of less educated workers stagnated or declined.
While this story of the US becoming a high skills center in the world economy may have been comforting to the elites, and was widely promoted by economists and the news media, there was never much truth to it. Highly skilled professionals did well in recent decades not because they succeeded in international competition, but rather because they were largely sheltered from it.
Trade agreements like NAFTA were explicitly designed to remove any barrier that made it difficult to export manufacturing goods to the United States, thereby placing US manufacturing workers directly in competition with their much lower paid counterparts in the developing world. Most of these restrictions had nothing to do with tariffs. Instead the key issues were rules protecting investment in the developing world along with limits on the ability of the US to exclude imports through safety or environmental regulations.
There has never been any similar effort to eliminate the barriers that prevent professionals from the developing world from coming to the United States and competing directly with their US counterparts as doctors or lawyers or in other highly paid professions.
The economists and the media somehow failed to notice that professionals were intentionally sheltered from international competition and instead just trumpeted them as the winners in the global economy. We were just treated to a beautiful example of this double standard when the media and the economists got all huffy about the "buy America" provision in the stimulus bill that might have protected a few manufacturing jobs in steel and other industries.
While this provision was roundly condemned and eventually watered down, the buy America provision in the Treasury's latest bank bailout bill went completely unnoticed. This provision requires that any investment manager taking part in the program be headquartered in the United States. Even though the argument against protectionism in financial services is identical to the argument against protectionism in steel, no one bothered to make the argument when Wall Street was the beneficiary of protectionism.
The end result of this protectionism for those at the top is a bloated overpaid sector of top managers, which is what we saw at Chrysler. If we compare wages for assembly-line workers in Europe and the United States, there would not be much difference between the pay of UAW members and their counterparts in Europe. However, there would be a very large difference between the multi-million dollar pay packages of the top executives at the US companies and their European counterparts. The pay gaps persist among the more highly paid engineers and management personnel.
Therefore, it was only logical that a bailout of Chrysler would seek to take advantage of the lower cost management and design skills available at a European car company like Fiat. In Chrysler, as in other companies, the high pay packages for these people are like an anchor dragging them down in international competition. If the US is to be competitive in the 21st century, we must either bring the pay of those at the top back down to earth or we should look to follow the lead of Chrysler and contract out for these services.
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21 Comments so far
Show All"doctors, lawyers, economists, and other highly educated workers"
The coordinator class.
"Highly skilled professionals"
The coordinator class.
"doctors or lawyers or in other highly paid professions"
The coordinator class.
"bloated overpaid sector of top managers"
The coordinator class.
There are three classes, not two: owners, workers, and coordinators.
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Eric Patton
Cincinnati, OH
ebpatton@yahoo.com
EB, just call them "Overseers", same 3 classes, same Slave Plantation Model: Masters; Overseers; and Slaves. Overseers have two jobs: Xfer all wealth to Master and degrade and debase the slave population into compliance, conformity, and obedience while they produce the wealth. The head Overseer of course occupies the WH. That's his job.
I've actually used your analogy (master / overseer / slave) before. It's a very good one.
And you are quite correct that the President of the U.S. is a high-level member of the coordinator class. I think that's actually something useful and important for the left to keep in mind. The Presidency is a coordinatorist office, not a capitalist one.
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Eric Patton
Cincinnati, OH
ebpatton@yahoo.com
Maybe we ought to be glad their are strict lisencing requirements for Presidential candidates. Arnold Swartznegger might otherwise have opposed Obama instead of that meathead McCain.
CEOs and others in top management in the USA need the high pay to soothe their bruised egos and ease their consciences after they face the ugly truth of all their failures for obvious incompetence and lack of moral fiber.
What a great way for Baker to bitch-slap American CEOs and their near ilk: "contract out for these services."
Chrysler executives are not the only ones at an American company that need to be replaced by those whom are not cossetted against the outside world. The same occurred when InterBev took over Budweiser, and used the opportunity to clear out the corporate dead wood.
The American upper managerial class has failed en mass and it is well past time to eliminate them so as to contain the damage they have already done.
This just means that the sceaming and scaming for excessive executive plunder of Biblical proportions will be done in Italian.
There has never been any similar effort to eliminate the barriers that prevent professionals from the developing world from coming to the United States and competing directly with their US counterparts as doctors or lawyers or in other highly paid professions.
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Can someone help me understand what these barriers are that protect lawyers and doctors, other than language? He doesn't explain what they are.
I can't follow his reasoning. Saw a news piece last night that one third of Silicon Valley high-paying tech jobs went to foreign guest workers. The story was about how bad it would be if these guests weren't allowed to stay and open new businesses here instead of going home. It didn't mention any barriers to their having become employed here as highly paid professionals in the first place.
I believe they were brought in on H1-B Visas.
http://www.h1b.info/
Of course they didn't mention any barriers to them becoming guest workers- quotas- that would be against the interests of the major party's top campaign contributers who funds represent "the cream" of media's revenue stream. Besides which it might expose the restrictions on hiring foreign editors, reporters, columinists who are not in the pocket of major corporations and trade groups like the Washington Posts long-time idiot David Broder.
Quotas for doctors who want to immigrate to america. Onerous or idosyncratic licensing requirements for said doctors and lawyers, no matter how well trained and licensed they have been in their own countries- failure of the U.S. to engage in international standards agreements for such requirements. Universities have to show that there are no U.S. professors of like ability to fill a vacant position before they hire a foreign one etc.
On the matter of Doctors alone, Dean estimates that free trade would save Americans about $80 billion a year, $700 per family, in medical expenses.
See "The Conservative Nanny State".
Dean Baker is describing the difference in principles among the far left and the rest of USans. The far left supports balanced occupations, enabling all people to thrive as owners, managers, developers, and laborers in their small local enterprises.
In stark contrast, all the rest of USans, Demok/Repuk supporters, et al, support whatever the elites dispense. Those 100 million who voted elite candidates in Nov 2008 have absolutely no vision of their own. They voted as junior cronies, in the elites' crony network, and look to the senior members of the network to guide the society in the public interest - quite an insane hope.
But that is what they voted for, so that is what they get. The lesson of Chrysler illustrates that. Meanwhile, we far lefters have to hold down the far left fort so that when these USans finally see the light, there will be a strong foundation for them to help build the social-democratic economy upon. It's important for us far-lefters to maintain working prototypes of the future economy, and establish the new K-12 curricula via home-schooling networks. Get to work, people!
Home-schooling is not exactly on the "far-left" agenda. The above comment is a good example of how completely futile the "right-left" division can become in this country. Home-schooling is not a practical option for low-income, historically disadvantaged people. Neither is the "curricula" of alot of the more quixotic "social programs" of so-called progressives- like attacking "industrial meat production" as the source of pandemics- going to do them much good.
In the far-left home-school curriculum, a typical lesson: Class, tell me what you think of the following excerpt from the article "Echinacea may do nothing for that runny nose":
"More than 90 percent of volunteers in both the echinacea and the placebo groups became infected with the cold virus, according to laboratory tests. But if echinacea can not stop a cold virus from infecting a person, might the herb suppress the symptoms of a cold after a person is infected?"
"On this question, the results of the CID study were less clear cut. Not everyone in the CID study who was infected came down with a cold. In fact, actual cold symptoms developed in only 58 percent of those who received echinacea, compared with 82 percent of the placebo group. While this difference is suggestive, it can not be counted as statistically significant because of the small number of people in the study"
Class response:
Gee whiz! We consider a 24% reduction of cold symptoms by a natural remedy as significant, especially given you can harvest it from the wilds. We note that the author reports the facts, but in the most twisted way imaginable, to downplay the obvious benefits of the natural remedy. This is just like the elites. This article was probably funded by big pharma. We the children of the far left are happy to be exposed to such lessons in our home schooling, so we can slough off elite oppression more easily in our futures. Now let's build the alter-media to bring truth and clarity to the people!
Commonreader
Doctors present an interesting case. They may be the most diverse group of professionals, including a large number of immigrants.
For decades the medical elite capped medical school graduates each year at around 17,000. but U.S. hospital had 22,000+ residency slots open each year. This meant 5,000 more docs were needed each year. Residents, as doctors in training, cost about $40,000/ year and work double time, so they are a cheap way to get medical care to poorer areas where U.S. medical school graduates don't evenly distribute themselves.
International medical school gradates (IMGs) take these less appealing residencies, and in doing so provide a lot of care to our underclass. Some of them get visas to stay in the U.S., usually on the condition that they do go to rural or less attractive places to practice. Frequently they are also the primary care docs,as the U.S. residencies they were able to get were the less lucrative specialties.
This is international competition, but pretty well controlled to serve a medical elite more than the true health care needs of our country or the the countries, most poorer than us, that we get our extra doctors from.
What's amazing to me is that Fiat is getting 20% ownership for "a song and a whistle"- actually, it's technological expertise in building fuel efficient vehicles. This is something Chryster lacks and apparently can't acquire on its own. You see, all its expertise is in the financial side of the business, those "smart" money market and derivative trades on Wall Street which make its stock look valuable, credit arrangements with its buyers, and no doubt "marketing" ( which by the way is more than advertising and comprises almost 30% of the cost of their cars what with all the totally useless and often dangerous "luxuries" added into their designs).
Maybe fiat should get 51% of the company.
It goes to show how much we've overblown the importance of capital accumulation and forgotten that our financial markets are supposed to put capital to productive use.
Maybe you can contract out the Senators , Congress and President as well and get people far more qualified for the Job from outside the country.?
Sounds good to me!