How Unions Are Unfairly Scapegoated For Detroit's Woes

By MARC McDONALD

There are many reasons for the catastrophic decline of the once-mighty U.S. auto industry over the decades. But it's unfair and inaccurate to point the main finger of blame at unions, the usual scapegoat.

The world's two dominant auto-exporting nations are Germany and Japan. The auto industries in those two nations are heavily unionized. And what's more, unions in Germany and Japan are backed up by strong pro-labor laws that U.S. workers could only dream of.

Although the auto industries of Germany and Japan are heavily unionized, those two nations have absolutely crushed the U.S. auto industry in markets around the world in recent decades. And they've consistently beaten Detroit on its own turf, as well.

In fact, the only reason the U.S. even still has a domestic auto industry at all these days is that Japan Inc. deliberately pulled its punches with "voluntary export restraints" in the 1980s. The latter was a shrewd move by Tokyo to head off moves by the U.S. to raise trade barriers.

Many Conservatives and "free-market" advocates love to scapegoat unions as the cause for Detroit's decline. But as usual, the GOP's simplistic analysis has little to do with the real world.

The fact is, if unions are so bad, then why do the auto industries of Germany and Japan continue to go from strength to strength in conquering world markets? I've done quite a bit of world travel myself and I've seen a number of nations where American cars are a very rare sight on the roads these days. But I have yet to see a country where the roads aren't filled with Volkswagens, BMWs and Toyotas. (It's true that Japan has struggled in China---but that is for political reasons, not competitive reasons).

Although no "free market" U.S. economist would ever admit this, it's clear that unions have actually helped increase the competitiveness of the Japanese and German auto industries.

How? For a start, unions and strong pro-worker labor laws, have essentially forced the auto industries of Germany and Japan to take a very long-term view. By contrast, Detroit (in common with U.S. corporations in general) has always taken a very short-term view.

The likes of General Motors and Ford have simply focused on the next quarter's profits. Meanwhile, the likes of BMW and Toyota have traditionally planned decades ahead.

Unions in Germany offer labor protections that U.S. workers would have a difficult time grasping. The average German worker enjoys an astonishing 6 to 8 weeks of paid vacation. In fact, figures from 2012 show that Germans enjoy among the shortest work hours of any industrialized nation. On average, Germans work around 1,397 hours per year (versus the 1,790 hours that U.S. workers put in). Despite this, Germany vies with China for the title of the world's biggest exporting nation.

Even the supposedly "workaholic" Japanese put in fewer average hours yearly (1,745 hours) than U.S. workers do these days. The fact most Americans feel otherwise is due to stereotypes about the Japanese that are as outdated as the idea that "Made in Japan" is a sign of subpar quality. (In reality, Japanese manufacturers lead the world in the sophistication of their high-tech manufacturing, virtually all of which is done by union labor).

In addition to short working hours, all German auto workers enjoy the protections of two unions: the industry union (the powerful IG Metall), as well as a "works council" union. And unlike U.S. workers, German labor law requires that German workers get representation on companies' board of directors.

And if Germany's labor laws look pretty good for workers, it could be argued that Japanese workers get an even better deal in many ways. After all, in accordance with Japanese law, employees are the top priority for corporations, followed by customers and (in last place) shareholders.

Strong Japanese labor laws make it virtually impossible for large corporations to do mass layoffs. Although the U.S. mainstream media has been declaring the death of so-called "lifetime employment" in Japan, the fact is, the system remains largely intact.

The U.S. mainstream media (particularly the business press) has long criticized the "high wages" of U.S. auto workers as contributing to Detroit's woes.

But this ignores the fact that German and Japanese auto workers get even better pay than U.S. auto workers. However, this reality is often obscured by the U.S. mainstream media, which tends to report the wages of overseas auto workers using the misleading so-called "purchasing power parity" yardstick. According to the latter, Japanese auto workers' wages are often reported as being lower than U.S. auto workers wages, when in fact Japanese workers make among the highest wages in the world when measured by market rates.

Speaking of high wages, the Germans are hardly slouches in that regard, either. In 2011, Forbes magazine reported that the average auto worker in Germany made $67.14 per hour. By contrast, the average U.S. auto worker made $33.77 per hour. Despite this, excluding "transplant" assembly plants, Germany produces more automobiles than the U.S. (5.5 million in 2010, vs. 2.7 million in the U.S.)

How can this be? I believe a good case could be made that unions, as well as smart labor laws, have actually been a big plus for the auto industries of Japan and Germany. As previously mentioned, unions encourage the auto industries of those nations to take a very long-term view.

Take the Toyota Prius hybrid vehicle. Since its introduction in 1997, the Prius, a very high-tech advanced car, has been an enormous home run for Toyota. But it took a very long-range vision and many years of hard work before the first Prius rolled off the assembly line.

In the meantime, Detroit's auto executives scoffed at the idea of hybrids. At first, they claimed that the technology wasn't feasible. Then, they claimed that hybrid cars would never sell. They insisted that consumers were only interested in buying big, gas-guzzling SUVs.

In doing so, Detroit's CEOs were continuing in a long tradition of making the sort of catastrophic decisions that have doomed the U.S. auto industry over the decades.

Detroit's executives have been wrong on just about every major important trend in the global auto industry for decades. They were wrong when they initially rejected air bags, claiming they were impractical and would never sell. They were wrong in the 1960s when they refused to place much emphasis on building the sort of practical, fuel efficient cars that would explode in popularity worldwide during the 1973 oil crisis. (When that crisis hit, Germany and Japan were already well-placed to cash in, thanks to their prowess in building small, fuel-efficient cars).

It's important to note that these disastrous decisions were made by Detroit's CEOs, not by the unions. And what's even more outrageous is that Detroit's CEOs have pulled down pay packages that are vastly larger than German and Japanese auto CEOs.

The latter fact was memorably illustrated during trade talks between Japanese and U.S. automakers back in 1992. The Tokyo negotiators pointed out that U.S. auto executives made vastly larger pay packages than their Japanese counterparts. The U.S. negotiators angrily dismissed this point as a "red herring."

Perhaps it was, but the Japanese had a point that was apparently missed by the U.S. media. That is: why on earth are Detroit's CEOs paid so well in the first place when they've presided over the disastrous decline of the U.S. auto industry over the decades?

Readers with a long memory might recall that the 1992 talks included the infamous incident in which George H. W. Bush collapsed and vomited on the Japanese prime minister, Kiichi Miyazawa. In a way, it was symbolic of the way U.S. workers have been treated since unions were crushed, starting with the Reagan administration.

Today, unions continue to get loads of blame, particularly by the Republicans, for all that is wrong with the U.S. economy.

This "blame the unions" approach dates back to the Reagan years, when "free market" Chicago school economists assured U.S. leaders that if they crushed organized labor and embraced dog-eat-dog capitalism, the U.S. economy would soar. In reality, the only thing that soared was the pay packages of short-sighted CEOs.

Three decades later, unions are vastly weaker. Unions now only represent around 7 percent of the private sector workforce (versus 35 percent back in the 1950s). And yet, America's manufacturing base is at an all-time low. Detroit is in ruins. It's impossible to imagine that the U.S. auto industry will ever again pose a challenge to the mighty auto industries of Germany and Japan.

Side note: much has been written about the successes of the non-unionized auto plants that have sprung up in southern states in recent decades. But the latter hardly represent any sort of real renaissance for the U.S. auto industry.

In fact, these auto plants are doing nothing more than final assembly (which is by far the least sophisticated part of the overall auto manufacturing process). The real heavy lifting, as far as technological know-how, continues to be done in Japan and Germany.

The existence of these assembly plants hardly demonstrates any real strength in U.S. auto industry competitiveness. Rather, they exist because the Germans and Japanese (and increasingly, the Koreans) are happy to farm out low-tech "grunt work" to low wage plants in the U.S. (as well as various other similar facilities in Third World nations across the globe).

Increasingly, it is becoming apparent that the U.S. itself is becoming a Third World nation. And indeed, it is hard to conclude otherwise.

The U.S. auto industry was once the awe and envy of the world. Thanks in large part to the auto industry, the U.S. became the greatest economic national success story in world history (at least, until the recent spectacular rise of China).

There are many reasons for the decline of the U.S. auto industry. Incompetent, short-sighted CEOs. Stupid trade policies. The Reagan administration's embrace of the service economy and the subsequent neglect of America's manufacturing base. A naive embrace by U.S. leaders of the pipe dream called "free trade." A disastrous neglect of America's infrastructure and public schools (even as our nation's bloated military budgets soared into the stratosphere).

But frankly, it's misguided, and wrong, to point the main finger of blame at unions. To be sure, unions aren't entirely blameless. But it's clear that there were many other factors in Detroit's decline. The continued existence of powerful unions and strong pro-worker labor laws in Germany and Japan only confirms this point.

Book Review: Alex Kerr's "Dogs and Demons: Tales from the Dark Side of Japan"

By MARC McDONALD

This is the first in a series of book reviews that we'll be doing in coming months. We'll take a look at books on a variety of topics, including economics, progressive issues and world affairs.

It's difficult to know where to start criticizing Alex Kerr's spectacularly misinformed Dogs and Demons: Tales from the Dark Side of Japan. This is a book that is wrong on so many levels that Kerr can write one paragraph and it takes at least 20 pages to sort out the record.

In this book, Kerr has one main, overriding theme: that modern-day Japan is a horribly mismanaged basket case that is run by evil, corrupt bureaucrats who have driven the nation into ruin. The only hope for the nation, Kerr believes, is that Japan must completely abandon its current economic system and embrace a good, hefty dose of sweeping changes. Although Kerr doesn't specifically say it, it's clear that he believes Japan must become more like America.

As an "Exhibit A" of how terrible things supposedly are in Japan, Kerr opens his book with a relentlessly bleak assessment of Japan's supposedly out-of-control "construction state." In Kerr's view, trillions of yen are being wasted in unnecessary infrastructure projects across the nation. Not only are these projects not needed, Kerr writes, but they solely exist to benefit corrupt bureaucrats.

There's only one problem with Kerr's observations. He simply doesn't make a convincing case that these various infrastructure projects are indeed unnecessary. Indeed, about the only real "evidence" he serves up is simply the steep costs involved. Kerr notes that Japan spends far more on infrastructure than does the United States, a nation with vastly more land area.

However, it never seems have occurred to Kerr that Japan is simply a prosperous nation that has the money and inclination to spend heavily on infrastructure. More than one observer has pointed out in recent years that America is seriously neglecting and underinvesting in its own crumbling infrastructure. Could it be that Japan isn't really overspending at all and that the real problem is that America is spending too little?

Is there indeed waste going on in Japan's mighty infrastructure projects? Perhaps. Any major project, be it public or private usually has a degree of waste involved.

But while America may not be spending on its infrastructure at the levels Japan does, we certainly have plenty of questionable costs in our society. Take, for example, the hundreds of billions America spends yearly to house 2.2 million inmates in our prison system (the biggest in the world). Japan has no similar costs, as its own prison population is tiny, with less than 80,000 people behind bars. What's interesting is that, despite the fact America locks up millions and Japan doesn't, Japan still has a low crime rate that is only a tiny fraction of America's.

Speaking of wasteful spending: take for example, America's $3 trillion in costs for the Iraq War---a venture that most Americans now believe was a big mistake. Or take the $1 trillion of Americans' tax dollars that were used to bail out a corrupt Wall Street in 2008. Of all the examples of corruption and waste of tax dollars that Kerr cites in this book, there is nothing remotely as wasteful as the two preceding examples.

Incidentally, Kerr repeatedly mentions that Japan is supposedly in worse financial shape than America because its government debt levels are higher. What he fails to point out, though, is that Japan's government debt is almost entirely domestically owned---and thus not at the mercy of fickle foreigners, unlike America's titanic deficits. I wonder how serious Japan's debts are when the nation enjoys high savings rates, and can not only pay its own debts, but those of America's as well (to the tune of hundreds of billions of dollars).

Speaking of Japan's finances, it's highly ironic that Kerr constantly favorably contrasts America's financial sector with the supposedly inferior Japanese financial sector throughout this book. Kerr maintains that Japan's financial services are lagging in innovation and are way behind on the creation of exotic new financial instruments, of the sort pioneered by Wall Street. (As we now know, it's the latter that turned out to be nothing more than giant Ponzi schemes that led to the 2008 Wall Street crash).

Between the Wall Street crash, the Iraq fiasco, and the colossal waste of the whole military industrial complex, it's clear that America has far more staggering problems than Japan in the 21st century.

But reading "Dogs and Demons" you'd never grasp this. While Kerr is busy bashing Japan, he is constantly holding up America as a superior nation that supposedly leads Japan in every measurable aspect.

Take the two nations' education systems for example. Kerr sings the praises of America's education system, while blasting Japan as having a flawed system that supposedly does nothing but turn out uncreative worker drones.

A casual look at the facts, though, dispels this myth. For a start, Japan has worked hard in recent years to increase the encouragement of creativity among its students. This effort appears to be working. After all, many of the world's most cutting-edge and innovative products are made in Japan these days. Japan is also an world leader in many creative fields, from fashion to art to music to literature.

While it's true that the very best and most elite U.S. universities lead the world, only a tiny percentage of U.S. students will ever have the money or resources to attend the likes of a Harvard or Yale. By contrast, America's public schools these days are a Third World-like disgrace, with their guns, their drugs, and their metal detectors.

For all their supposed problems, Japan's public schools have the highest standards of any major nation. Japanese students' math, science, and literacy scores crush their American counterparts. And for a nation that supposedly lacks "creativity," I find it interesting that Japan leads the world in the number of patents issued these days.

And for a nation that is supposedly in "decline," the fact is, Japan has the highest average life expectancy rate of any major nation. Of course, you won't encounter that fact in Kerr's book. But I can't think of one single important statistic that could sum up how prosperous a nation is than average life expectancy. (America's average life expectancy is the lowest of any developed nation). It's difficult to reconcile this with Kerr's insistence that America somehow leads Japan.

Like virtually all Western commentators, Kerr consistently underestimates Japan throughout this book. He spends so much time talking about how the nation has supposedly collapsed from the late 1980s "Bubble" era that a reader might assume that the nation is in the midst of a "Great Depression" type crisis.

There's a few facts that Kerr leaves out of his screed (and for good reason, as they would completely undermine his thesis). For example, for all of its supposed woes, Japan still has a $5 trillion economy, the second largest of any nation on earth.

While Japan's stock market has indeed stagnated in recent decades, the fact is Japan's stock market has never been a good indicator of the nation's real economic health. The whole logic of Japan's economy is fundamentally different from America's. Comparing the two nations' stock markets is like comparing apples and oranges. For a start, few ordinary Japanese even own stocks.

In his desperate attempts to portray Japan as a failing basket case, Kerr makes some truly strange observations. For example, Japan (along with China) currently helps prop up the U.S. economy by loaning America hundreds of billions of dollars. Bizarrely, though, as far as Kerr is concerned, this is a problem for Japan, not America. Kerr claims that if the U.S. dollar takes a dive, this will supposedly devastate Japan's economy.

This is truly some odd reasoning. The fact is, if the dollar tumbles this will be a disaster for America. After all, the dollar is a key lever of American power in the world. If the yen soars against the dollar, Japan could displace America as the world's leading economy. It's difficult to fathom how such a development could be a "disaster" for Japan.

And in predicting that a soaring yen will stifle Japan's exports, Kerr is simply regurgitating a claim that has been made over and over by Western commentators since the end of World War II. The yen has been steadily gaining on the dollar now for half a century. And yet Japan's exports have continued to climb steeply decade after decade. A strong yen has never hurt Japan's export strength---and it's doubtful it ever will.

The reason for the latter is that, since 1945, Japan has relentlessly pursued industries with very high entry barriers. And for all of Japan's problems since the Bubble collapse, the fact is Japan today is stronger than ever in high-tech manufacturing.

But Kerr downplays or ignores any evidence of Japan's strengths. He's convinced that the nation has been badly mismanaged, by corrupt bureaucrats, who've somehow betrayed the nation. At one point, he even says Japan could be ripe for a French Revolution-style social upheaval.

As ever with "Dogs and Demons," it's important to step back from time to time and review the facts when Kerr makes such hysterical claims. The fact is, if any nation is primed for a French Revolution style upheaval, it would be Kerr's beloved America.

Note that America in the past three decades has become by far the developed world's most economically polarized nation. In the past two decades alone, America's top 1 percent have increased their share of the nation's wealth from 20 percent to an astonishing 40 percent. The number of poor has soared, the number of people in prison has soared, and the middle class has steadily shrunk.

Nothing like this has occurred in Japan. In fact, Japan is not only one of the most prosperous nations on earth, but it has done a better job of sharing that prosperity amongst its population than any other developed nation. Today's Japan is even more egalitarian than the Nordic nations. Just to give one example, Japanese CEOs only earn around 15 times what rank-and-file workers earn in Japan. (In the U.S. that multiple has soared to an astonishing 500 times in recent years).

Kerr spreads a huge amount of badly researched misinformation in "Dogs and Demons." Hardly any aspect of Japanese life that he touches on is free of serious errors.

Take for example, Kerr's statement that automaker Honda has transferred its "base of operations" from Japan to the United States. This is just flat-out wrong. Like other Japanese automakers, Honda has set up assembly plants in the U.S. (as well as other nations worldwide). But it remains a Japanese corporation (and all its most important and cutting-edge research and manufacturing still takes place in Japan).

Kerr is also off-base on his observations on Japanese cinema. Like the nation as a whole, Kerr writes that the Japanese cinema industry has "collapsed." But this is patent nonsense. A casual glance at a weekly box office stats from sources like BoxofficeMojo.com reveal a different story. The fact is, at any given week, a strong majority of the most popular movies at Japan's box office are domestic films. (Japan is one of the few nations in the world, along with South Korea and India, where the locals prefer domestic films over Hollywood).

And Japan's recent cinematic success goes beyond mere box office numbers. The nation is home to one of the world's most dynamic and acclaimed film industries. A Japanese movie, "Departures," for example, won the Best Foreign Film Oscar in 2009. And a creatively bankrupt Hollywood has increasingly turned to re-making Japanese films in recent years (the horror film, "The Ring" being just one example). Meanwhile Japanese filmmakers like Takashi Miike and Kiyoshi Kurosawa have enjoyed increasing acclaim abroad in recent years.

Some of Kerr's observations about Japanese cinema are downright laughable and incredibly misinformed. For example, Kerr blasts Japan's movie critics who highly rate "Godzilla" as a classic. He believes this "campy" film isn't worthy of such praise. But the joke is on Kerr. The 1954 film "Gojira" (the original Japanese film) is widely regarded as a classic by serious film historians in both Japan and the West. The later "Godzilla" version, released in America, is indeed a travesty---it takes the original film and butchers it with poor editing and lousy dubbing. But this is NOT the film that is beloved of movie critics worldwide. Once again, Kerr reveals his ignorance of Japanese culture.

In his contempt for virtually everything that modern Japan has become, Kerr would have us believe that nation is in the toilet. And, as he repeatedly points out, he believes that he alone among Western commentators, is telling "the truth" about today's Japan. It's here where (once again) he completely loses me. For Kerr is simply merely the latest of a series of Western authors who have portrayed Japan as being a nation in decline, in increasingly hysterical terms.

Like the vast majority of current Western "Japan experts," Kerr clearly believes the Japanese system has no future and is driving the nation into ruin. What I find interesting, though (and what Kerr fails to acknowledge) is that other East Asian nations have embraced the Japanese way and rejected the free-wheeling Anglo-American style of capitalism. As a result, East Asia is booming and rapidly becoming the world's economic center of gravity.

While it's true that a lot of bitterness still exists between Japan and the rest of East Asia as a result of Japan's past military aggression, it's also true that East Asian nations have embraced key elements of today's Japan Inc.

Take China, for example. China in the past two decades has become one of the world's all-time spectacular economic success stories. Did China achieve this by embracing American-style capitalism? No, they did it by rejecting America's ideas about the supposed "superiority" of the service economy. China, like Japan, is a bureaucrat-led economy that is heavily focused on manufacturing, with an emphasis on mercantilism and exports. Like Japan, China follows a long-term industrial policy and the government takes a heavy hand in regulating many aspects of the private sector.

Kerr may believe that such an economic approach is a recipe for national decline. But regardless of what he believes, East Asian nations like China, Taiwan and South Korea, have clearly embraced the Japanese model in many ways---and have spectacularly boomed as a result.

East Asian leaders these days clearly reject the Anglo-America economic model that Kerr touts as the example to follow. Quite rightfully, they see it as a recipe for decline. Today's America, after all, suffers from titanic and soaring trade and fiscal deficits, a crumbling infrastructure, a Third World-like public school system, a dysfunctional, corrupt and broken political system, an out-of-control military industrial complex that is bankrupting the nation, and many other titanic woes.

As someone who seen Japan first-hand and is fluent in the language, I strongly disagree with Kerr's bleak assessment of that nation. Japan may be no utopia. No nation is. But in the long term, I believe its prospects are brighter than those of America. If you doubt me, I urge you to visit Tokyo for a couple of weeks and see for yourself just how high-tech and modern and prosperous today's Japan is.