Monday, September 04, 2006

Labor Day: A Time To Reflect On How Unions Help The Economy


If you listen to George W. Bush, you might be under the impression that labor unions are bad for business and that they hurt America's competitiveness. As usual, though, Bush doesn't have a clue.

Indeed, when it comes to business and economic issues, I'm amazed that anyone takes Bush seriously these days. After all, this is someone who was a miserable failure in the private sector (despite his powerful Bush family name and connections). Bush ran every private sector company he was in charge of into the ground. And now he's well on the way to doing this to America itself.

Republicans, of course, have always been hostile to unions. But it's time to dispel a few myths about unions.

The most outrageous lie I consistently hear about unions is that they're "bad for business" and that they hurt America's competitiveness. America's pampered, grossly overpaid CEOs have long gotten their corporations' propaganda divisions (read: the corporate media) to peddle this lie to the American people.

But it doesn't hold up to scrutiny. Germany, for example, has powerful labor unions and strong labor laws---and yet that nation ranks as one of the most competitive economies in the world. For one thing, Germany (with less than one-third America's population) is the biggest exporter in the world.

Take a look at the benefits German workers enjoy: a minimum of six weeks paid vacation (two months is the average). Numerous paid holidays. Free health care. Free university tuition. Powerful unions that make it virtually impossible for workers to get fired. Etc.

Despite such strong pro-worker benefits, Germany is the world's biggest exporter. The nation leads in a wide range of ultra-high-tech industries that have enormous entry barriers for low-wage nations. (Translation: Germany doesn't need to worry about low-wage labor from China any time soon). In fact, China has represented an opportunity, not a threat to the Germany economy as China hungers for the sort of high-tech capital and factory equipment that Germany specializes in these days.

Traditional, free-market Anglo-American economists tend to downplay Germany's competitiveness, though. Indeed, the American business press regularly runs stories that purport to show that America's economy is the "most competitive" in the world. No matter how they try to spin it, though, the fact remains that America's so-called "competitive" economy doesn't produce much that the rest of the world wants to buy these days (hence America's soaring, out-of-control trade deficits).

I find it interesting that the countries that have the biggest exports these days (Germany, Japan, etc.) also have strong labor laws and unions---not to mention average wages that exceed those of American workers.

How is this possible?

Is it possible that America's economic "experts" are clueless about what makes a nation competitive and prosperous? Is it possible that, despite what economists say, unions are not bad for business, after all?

A look at the real world indicates that, far from being bad for business, unions are actually a crucial force in building a nation's prosperity and making it competitive.

How can this be? Well, it's widely accepted that unions were responsible for the rise of the Great American Middle Class. What's not as well understood or known, though, is that unions (along with strong labor laws) essentially force companies to become more competitive.

A big flaw of present-day American capitalism is that U.S. corporations don't take a long-term view. Indeed, they don't look any further than the next fiscal quarter.

Meanwhile, in nations like Germany and Japan, corporations do take the long-term view. And as a result, they increasingly demolish their short-sighted American competition.

Take, for example, the increasingly popular hybrid vehicles that Japan is producing these days. Japan began researching these high-tech vehicles as far back as the 1980s. Meanwhile, Detroit automakers (which have never looked further into the future than the next fiscal quarter) are still highly dependent on gas-guzzling SUVs, which are increasingly losing favor with the American consumer.

In taking a look at this scenario, it's important to not overlook the role of unions and strong labor laws. The latter in effect force companies to take a long-term view. When it's virtually impossible to fire your workers (as is the case in Japan and much of Europe), companies have little choice than to plan well ahead into the future.

As a general rule, companies that have a long-term game plan for survival tend to outperform companies that take a short-term view.

All of this, of course, demolishes the economists' "conventional" wisdom that unions and strong labor laws are "bad" for business. It's clear that the opposite is true. Really, the only beneficiaries of the current U.S. economy are the ultra-rich. The Great American Middle Class is on the verge of extinction. And the U.S. economy (which is heavily dependent on gigantic amounts of foreign capital just to stay afloat) is increasingly resembling a Ponzi scheme that is in danger of collapsing like a house of cards.


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Anonymous said...

Speaking of Germany and competitiveness, a few years ago Motorola was scouting Europe, looking for the best place to build a new factory. This factory was to be state-of-the-art and was scheduled to build the company's new sophisticated "Razr" phone. After scouting sites all over Europe, including low-wage "business-friendly" sites like Ireland, the company wound up selecting Germany, (home of the world's highest wages and powerful unions). As it turns out, Germany was the only place that had the state-of-the-art high-tech infrastructure that could support the new factory. Despite what American economists would have us believe, low wages and weak unions aren't the only factor in determining whether a location is desirable for business.

Anonymous said...

One key sign that the American middle class is disappearing: marketers these days are moving away from focusing their efforts on the once-mighty American middle class. Instead they're focusing on what is called "2-tiered marketing" which targets (1) the rich and (2) everyone else.

Anonymous said...

True, American corporations are corrupt but that does not make labor unions just. We should do something about both ends of the companies.