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Industrial America's suicide pact.

At the time the Monthly was founded one of the most conspicuous characteristics of American liberals was their unwillingness to say anything bad about the good guys. Preeminent among these good guys were the unions, the great heroes of the New Deal coalition who had fought for social justice against the hired thugs of the mine owners and the auto companies. But in the seventies, stupid policies by labor unions were just as much a factor in our declining competitiveness as the short-sighted selfishness of managers. And we said so.

Phil Keisling 's article was a prescient look at how management and labor were to blame for the decline of industrial America. This piece appeared in 1982.

Healthy, often profitable businesses are being debilitated and even killed off by corporate managers bent on maximizing short-term return to please Wall Street investors. Their concern is not with profit but with how much profit; not with the long-term health of an enterprise but with its ability to contribute to a dazzling quarterly earnings report. Belden Daniels, a professor of urban planning at MIT, observes: "Plants are closing that don't have to because we've trained our corporate managers to maximize their rate of return-not in ten years, not over one year, but over 90 days. Period. And it's killing us."

Unions show similarly self-destructive tendencies. Rather than moderate wages and benefits that have priced their employers' products out of the market, unions too often sacrifice their members' jobs to preserv"integrity" of contracts. The attitude is best summed up by Peter Kelley, a UAW member and founder of a group called Locals Opposed to Concessions, who told The Wall Street Journal "It is our firm belief that it wasn't our wages or benefits that caused the auto industry's problems in the first place. It was management." Think about that. Even if Kelley is correct, assigning the blame won't save jobs, and saving jobs is what we need to do.

There are several explanations for the unions' reluctance to make substantial concessions. The most obvious is the traditional animus between the two parties, fueled by memories of bad-faith bargaining. Unions deeply suspect that companies are using the recession to break them or to exact concessions they could not get otherwise. Union leaders also are understandably outraged at the extravagant salaries that corporate executives receive, most of which bear no relationship to actual performance.

But there's another, more personal reason union members often are willing to see jobs destroyed rather than make concessions. Older workers, under a new contract provision called the "rule of 65," can retire if they worked in a mill that was closed and their age plus years of service totals 65 or more. A 45 -year-old worker who started at age 25 would be eligible for a pension of about $400 a month, payable even if he finds a job elsewhere.

These provisions highlight the fact that within unions, members have widely divergent interests. Younger workers, many of whom will get nothing from their contributions to the pension and supplemental unemployment funds, have an obvious interest in preserving their jobs. Though older workers suffer special problems in finding new employment, those who choose an early retirement can expect a good pension, a lot of free time, and the satisfaction of having "stood up" to the bosses.

If anything, the malfeasance of the other partner-corporate executives-in this danse macabre is even less excusable. The most egregious cases involve the closure of profitable enterprises in a manner that jeopardizes existing jobs. Indeed, this is the most glaring deficiency of American capitalism: its hostility to the marginally profitable firm. Just as unions insist on preserving higher-thancompetitive wages even at the expense of jobs, so corporations insist that otherwise profitable enterprises be closed. If a plant can be expected to generate a 2-percent rate of return on investment over the long term, while lending the money out to the government would reap a 10-percent return, the shareholders' verdict is unequivocal: the plant deserves summary execution.

By the dictates of Wall Street, this makes perfect sense; but to workers and their communities, the logic is particularly perverse. Shutting such plants causes a litany of familiar repercussions: larger deficits resulting from swollen welfare rolls, strapped state and local relief efforts, increased health and emotional problems. These corporate decisions reverberate widely because the money that workers and their families once spent in the stricken area's retail shops, car dealerships, and other businesses dries up-generating additional unemployment.

The effort to resuscitate the nation's manufacturing base provides a perfect opportunity to promote the very essence of entrepreneurship: putting control of an enterprise in the hands of those with a real stake in its survival. However virtuous "public corporation" may sound, the notion is the bane of the low-return firm. Selling public stock subjects it to the dictates of outside investors, whose main purpose is not a factory's continued life but a sufficiently high return. Not so with privately held companies; to them, a 1-percent rate of return is perfectly tolerable if the owners know they're providing jobs and still making money.
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Title Annotation:Making America Work
Author:Keisling, Phil
Publication:Washington Monthly
Date:Feb 1, 1989
Words:851
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