The Michigan economic example

October 7, 2009

Both California and Michigan are turning into powerful economic examples of what not to do. Here is a bit on Michigan Gov. Jennifer Granholm’s green job push:

Since taking office in 2003, Granholm has created 163,300 positions, her office says. She expects that a recent infusion of more than $1 billion from the Obama administration aimed at nurturing car battery and electric-vehicle projects will generate 40,000 more positions by 2020.

In the past decade, however, as the auto industry has grown smaller, Michigan has lost 870,000 jobs — about 632,000 of them during Granholm’s tenure. The number is expected to reach 1 million by late next year, the end of her term.

Me: And what is the cost per job, I wonder, in various tax subsidies. The Tax Foundation plots a better way:

The typical pattern after such “job creation” purchases is:

  • far fewer jobs appear than were promised;
  • the tax incentives turn out to be far more generous than advertised (see recent scandal about Iowa’s film tax credits, a type of tax giveaway that Michigan has indulged in to a remarkable degree); and
  • the state’s politicians distract the public’s attention from the failure of previous job creation deals with new ones.

The bottom line is that politicians should focus on the nuts and bolts of government, which does not include gallivanting around the globe searching for companies to bribe.

The story also mention the fate of the Electrolux refrigerator plant in Greenville. It shut down three years ago, taking 3,000 jobs with it, despite tax breaks from the state. I am familiar with this story. I interviewed the union workers up there four years ago. Even though it had been clear for years that Electrolux was likely going to shift production to Mexico, the workers I met had done little to prepare for the eventuality. No reeducation or retraining such as upgrading of computer skills, for instance. And few seemed willing to move to cities or states with better economies.

16 comments

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Dear Flint

A Flint area resident for over 50 years, born in a house just down the street from the Buick plant, I, like many of you, have seen the rise and fall of General Motors in Flint. As a 12-year old, I remember so well touring the plants and seeing the parade with Dinah Shore. What a thrilling time! GM and Flint: bonded forever, it seemed.

In my early college days I knew many guys that worked at GM. One was proud of putting his cigarette out on the hood of freshly painted Buick from time to time; another carried out a set of valve lifters every day in the false bottom of his lunch box, and still another routinely took sets of engine bearings by taping them to his legs. Some played an assembly line game where they tossed nuts and bolts into the tops of carburetors as cars moved down the assembly line. They routinely bragged about how little work they did. A frequently heard comment was, “I wouldn’t buy a GM car; I see how they are made.” I wonder what a Toyota worker says about their cars?

During the glory years each labor contract meant big pay increases, thanks to the Union. Over time, however, prices rose, diminishing the gains. My mother learned quickly that the price of milk went up overnight at contract time. Unions continued to get the power they wished for from Democratic law makers that passed rules making it almost impossible for GM not to give into Union demands. Today $300 a month is good money in China; it’s hardly enough to buy cigarettes and beer in Flint. Perhaps if in those negotiations with the auto makers the Unions were not given the upper hand, US workers could buy more with less money, and US labor costs would not be so high compared to the rest of the world now.

In the 1980’s a GM training director told me that about 45% of hourly workers did not have high school diplomas. At this same time the Japanese were importing very high quality cars that were manufactured using Statistical Process Control. This is a quality-assuring manufacturing method requiring some fairly sophisticated math skills, techniques most GM hourly workers weren’t educated well enough to use. The Japanese also employed teamwork methods with their workers. When GM tried to apply teamwork methods, the Union successfully blocked their use, claiming that teamwork would weaken the Union.

The Union over the years has lobbied against employment tests, educational requirements, teamwork, and other worker standards. The Union has lobbied for workers rights, civil rights, chemical Right-to-know laws, and labor laws. These ideas have added burdensome restrictions and huge costs to GM for recordkeeping, employee training, legal fees, and allocations of people and time that have nothing directly to do with the manufacturing of cars. Imagine trying to manage the building of a high quality automobile and at the same time having to spend time and money handling the thousands of grievances and production slow-downs created by the Union each year.

One of my friends, a GM line supervisor, complained regularly about struggling to find enough workers to start the assembly line, especially on hangover Mondays. Everyone knew not to buy a car built on a Monday. A good friend and a skilled trade worker at GM said the first thing they did each day was to get a cup coffee and do the crossword puzzle in the Detroit News. In contrast to this, a GM executive told me that at a plant in Poland, the workers, on their own time, arrived early to clean, service, and paint their machines, a practice that would not be allowed in the USA. Needless to say, those workers are ready to work when the starting alarm rings.

In Detroit, I once had a chance to observe an assembly line in operation. Two people sat across from each other listening to the radio, drinking coffee, and reading the newspaper. As the cars neared, each one got up and installed a windshield wiper and then returned to the paper, radio, and coffee. I wondered how a company can pay someone so much money for such little work. The answer, that plant has been leveled to the ground with many jobs lost.

It is well known that Wal-Mart discourages unionization in the US. Recently, however, Wal-Mart agreed to unionize all of their stores in China. Why did this happen? Unions in China support the company. Workers who fail to work effectively, come in late, steal, or commit other violations can be fired. In China the Union lobbies against crippling rules and regulations—the opposite approach of unions in the US. Current thinking is that US labor unions will lobby the government for rules to make it easier to unionize retailers like Wal-mart. Will that be the end of discount stores? Labor unions have a great amount of power in the US. How this power is used is an important question for the new administration.

The late and renowned economic thinker Peter Drucker pointed out that there is always a need for big companies that make huge profits. He admitted that some of this profit may be wasted, but it requires huge sums of money to make the advances that benefit mankind. The advances foreign manufacturers have brought to market–like hybrid cars for example–have cost billions in research and development. It has been common practice that the Union speaks out against GM when they have made billions of dollars. Those billions keep GM competitive and in business. This should be remembered if GM returns to profitability.

Also, I find it interesting that the Union attacks executive pay. Supply and demand drives executive pay. Executives that manage large companies have special skills and experiences that make them valuable. Few people are willing to make the sacrifices that are required of top corporate executives. If you were to cut top executive pay by 50%, you might give each employee an additional 100 bucks, or so. It doesn’t seem as though an extra $100 is worth the risk of not having the best people run the company. Imagine how many extra billions GM would have if it didn’t have to deal with the Union. Recently, I read that a baseball player was making 18 million a year. It seems ridiculously high, but it’s the same reasoning: more teams and fewer top players– supply and demand. Al Kaline, eat your heart out.

In Flint you got the feeling GM’s purpose was to build the Union not automobiles. I knew many GM workers whose loyalties were stronger towards the Union than to GM. They would wear jackets with great-big Union logos instead of great-big GM logos. That was baffling to me since, it was GM that was signing their pay checks. One can only wonder how things in Flint would be today if the Union had not played such a major role in GM’s history. I wonder what affect it would have if everybody in Flint wore Jackets with great-big GM logos–a little late maybe — but worth a try?

Many have complained that GM has not changed to keep up with the new technologies. Competitive companies must move quickly and make rapid changes like a speed boat. The Union makes it hard for GM to move quickly and make changes. It’s like turning an aircraft carrier. I am always amazed at the claims that the Union knows best about how to run the business.

I realize that most remaining GM workers don’t steal from or hate the Company and are willing to put in a hard day’s work. The facts are that over 300,000 workers, many of whom exhibited a disregard for General Motors, lost their high-paying, middle-class jobs during the Union’s on going war with GM. Little wonder that a wounded GM is struggling to stay alive during this economic crisis.

Born there-seen that

Posted by newstogod | Report as abusive

The Tax Foundation is a libertarian/conservative think tank funded by a few angry rich people who want both their own taxes decreased and their own oligarchic status quo hold over the rest of us maintained; it’s about as honest a source of tax information as the tobacco lobby is for the health effects of smoking. But it’s not surprising that James Pethokoukis quotes them as if they are an authority.

Also, maybe James Pethokoukis has ready access to thousands of dollars of cash to move around the nation at a moment’s notice, but the vast majority of Americans don’t — unemployed, underwater-mortgaged Michigan factory workers, especially.

Posted by Henry Blankett | Report as abusive

You are right to blame the unions for sapping the life out of the car companies, but don’t let management off the hook. Their hubris is only matched by their ignorance, stupidity and lack of foresight. Roger Smith’s “planned obsolescence” destroyed GM’s quality reputation and Jack Nassar’s trashing of the Ford organization left them bleeding and desperate. Michigan government and the car companies have suffered a massive failure of leadership that continues unabated. Governor Granholm insists that tax breaks for business is the wrong way to go – even while she hands out 40 percent tax breaks to Hollywood film studios so they’ll shoot in Michigan, hiring a few grips and assistants locally. Great.

Posted by C. Sevakis | Report as abusive

Blaming the union tells only half the story. First, the unions were born out of the horrible way manufacturing workers were treated. Had the companies actually treated these people with a little dignity, perhaps the unions would never have formed. Second, poor design and poor decision making were the primary reasons GM failed. Did the union design the Cadillac Cimarron? Third, the line foremen usually cared the least about quality. Their job was about hitting the production numbers, quality be damned. They always had a QC supervisor in their pocket, which is why they were often referred to as the “quantity department.”

Posted by Dreamer | Report as abusive

Just did an web search, and discovered that “newtogod” has been posting the exact same rant against unions several times at least over the past 6 months: http://connect.mlive.com/user/newstogod/ index.html

Posted by Henry Blankett | Report as abusive

From 1932 to 1938 I helped in my Dad’s shoe repair shop at Crane and Gratiot on Detroit’s east side where I heard many sad stories of the abuse of the auto worker by GM, FORD, Chrysler, Briggs, Hudson, Packard etc.
There was not any Workman’s Comp. Get hurt and can’t work meant get fired. No unemployment benefits, No health care benefits. No retirement benefits. No women’s rights. No Family benefits. The Union movement deserves credit for those social changes. DO NOT MIS-READ THIS, I HATE Unions, especially the TEAMSTERS.

Posted by Wilburrn H.F. Saia | Report as abusive

Newstogod:

What a nice essay!

Yes, if the country were run like Michigan, it would look like Michigan. Populist economics may superficially appear look good, but they destroy incentives to do things right, and they ultimately overwhelm the capacity of the economy to support all of the generous payouts.

Posted by Chauncey Gardiner | Report as abusive

The question is whether it is more ‘costly’ than the broad cuts in the total business taxes that have been proposed by the state’s Republicans.

Also, being from Greenville, I take issue with your comment. It comes off as a cold-hearted, economic remark and misses the human face of the matter. Sure workers were short-sighted, but virtually no assistance or guidance was ever offered to help retain. IF you had worked in a factory for 40 years, would you know how to start all over again?? And of course few moved away. If your family had spent generations living in an area, I’m sure you’d hold on as long as possible too.

So please don’t claim to know people from Greenville because you spent a few days there four years ago.

Posted by AW | Report as abusive

newstogod,

Your anecdotal tale of the American work ethic in modern times is sobering. However, I think you are misplacing some of your blame: instead of squarely, and flatly, laying the complete blame on the Unions why not hold some of those lazy, and complacent worker’s feet to the fire?

I’m not advocating for or against unions, but I do know that the goal and intent of a organized worker’s union is to protect the worker, employer and the families of both. This doesn’t excuse Unions from allowing abuse; in fact, this is a topic that certainly needs scrutiny (Who watches the watchers?). But, how, or rather why, have American’s become so passive about their livelihoods, complacent about their ethics, and indignant whenever challenged on their behavior?

Why has the “American Dream” become an amalgamation of catalog furniture, materialist-consumption at-no-cost, passive consumerism, buy everything on credit, us VS. them, ‘I’m gonna get MINE’, nationalist-patriotism?

I think it’s time we stop figuring out who to blame, and deal with the issues–which start right in our neighborhoods, communities, school districts, cities, counties, et al..

Posted by Scott | Report as abusive

In response to that comment someone posted that Unions were the demise of Detroit…I hate Unions but they are not what destroyed Detroit.

News stories saying Detroit was making $15,000 profit on each and every SUV and pickup they made then investing that profit in China spending BILLIONS helping those Communists out….yeah that killed Detroit.

Chevy ditched making a truck for a man with a stick shift and instead started making trucks for girls (automatics)…yeah that killed Detroit.

Lack of innovation with the Model T getting better gas mileage than most of their line up…I think that had something to do with it.

Congress mandating new cars have to have tire inflation sensors in each wheel on new cars and I have to pay for it? I check my own tire pressure and didn’t need that..so that killed Detroit as those people rebel against Congress and buy foreign instead out of spite.

All manufacturing going overseas leaving nothing but low paying jobs across America…I can’t afford a Detroit vehicle then and will buy a nice little rice box to drive.

Dealers…they killed Detroit. Don’t you hate it when you want to buy a base model vehicle and go to the dealership and all they have are the fully loaded models with junk you don’t want on them and you can’t afford? Americans like to customize their own cars and didn’t want Detroit doing it for them.

Congress killed Detroit. Free Trade FAILED.

There no longer is a viable economy that can afford automobiles and homes. Blame Unions all you want, they actually failed to prevent Free Trade and the loss of our National Wealth.

The end of the American Empire was because Free Trade eliminated manufacturing jobs and Corporations/Banks robbed the American people blind.

Not even Jesus Christ himself could save the United States now. You’ve lost control of the internet. You’re military is cut down so far it was only the ships full of money that made the Iraq War of no purpose successful. Well the fat lady is singing and the song she is singing is Americans are too dumb to notice they got robbed.

GM was never bound to keep manufacturing in a Union State. At any time they could have shut down and moved to a Non-Union State manufacturing vehicles. Why didn’t they? They were making a sick profit and didn’t need to. GM’s parts manufacturers in the US used to be the best in the world, they were even made in the US. Now that they all were sent abroad to places like China the quality has destroyed their brand name. Now it’s a laughing stock of the industry. There is no way they will be able to resurrect the brand name into something that Americans will respect once again. GM should disappear into the history books as how to not run a company and get your own country to hate you.

But the root cause was Free Trade, Wallstreet, and Corporate America. They sure had fun with the booty they stole while they were bankrupting a nation didn’t they?

Did you know just to show cars moving off of lots they were allowing illegal immigrants to get brand new vehicles with only 2 utility bills showing an address and a down payment? how many of those were driven across the border never to be paid for? It showed vehicles moving off of lots and stock prices soared tho eh? But no commodity was actually ever paid for….well the American people now will pay for all those assets that were given away to illegals. It won’t be the illegals paying for them.

Congress itself destroyed America….and Detroit.

Did the Unions have anything to do with the banks starting in 2005 to give mortgages to illegal immigrants? It was a Federal blessing that allowed the banks to do that. Then the illegals bought and sold homes between themselves and ran away with the booty….leaving 5 million+ homes that ended up in foreclosure of which brought down the entire global economy creating a sink hole dragging everything down into it…

Even those Rich Corporate Executives and Congress critters that destroyed America. They all failed to realize who they worked for and who is the customer….Congress still refuses to recognize exactly what an American citizen is and gives freely from the Treasury to the illegals along with more Civil Rights than citizens even have.

We realize who destroyed this country/Detroit, and it wasn’t Unions.

And if our own Department of Defense keeps giving it’s money to Chinese workers for goods instead of our own, it’s time they get put under the lime light for bankrupting us as well. Maybe by pulling them out every single country on Earth except for our own, just to remind them who they work for as well.

Posted by Bob | Report as abusive

While I agree that Unions can decrease productivity in the workplace by specialization (for example the union workers installing wiper blades), executive pay is not merely a result of “supply and demand”. I don’t know what the exact statistics are but it is well known that executive pay in the United States has risen many times that of a normal every worker over the past 20 years. This has continued thru times when companies have produced profits or have performed poorly. Executive pay in Europe has not risen anywhere close to the scale of American executives. So are we to believe GM’s demize is purely the fault of the Unions? While the executive pay at GM was rising and the company producing losses what were these guys (and girls) doing to remedy the problem. When the big 3 executives first testified in front of Congress they all flew their private jets down to Washington, while their companies were in trouble and deep in debt. Basically they are saying “hey, I’m a priviledged rich exec and I deserve the white glove treatment even if my company needs billions of dollars and is not profitable. After all its not my fault.” Just as the Union workers in your comment were arrogant and thought they deserved their salaries, so did the big corporate execs. Seems like there is no accountabilty if the company is losing money. Look at those Enron Executives, reaping in millions of dollars each year in salary. Nobody knew nothing. I always thought capitalism should reward those that take risk and produce profits but its turned into hey I get paid my enornmous salary thru good times and bad. And Walmart…..do we really want an economy based on the majority of workers making 7 to 12 dollars per hour ? That can barely pay for a family of four’s monthly health insurance. Let’s not put the blame of our failing auto industry entirely on the backs of the Unions and the workers on the assembly line. There’s plenty to go around.

Posted by pagiii | Report as abusive

I think it’s great that for the most part everyone here is in more agreement than I’ve seen from us Americans in a long time. Most of what everyone here is saying is true, even the author of this article. Is this America pissed of, waking up, and saying we’re not going to take it anymore? If so I want to point something out to all of you.

The next wave will be in energy. I’m afraid (NOT PREDICTING) if this is allowed to happen it’ll be the knock-out blow. The Chevy volt still needs foreign war oil to get from a to b. That is the best alt-energy American companies are offering. If you look around the web you’ll see other countries with far superior electric cars (that are illegal in the US) surpassing us with infrastructure and all. We are falling desperately behind in this area and it will come up. Oil is finite and dirty. FACT.

America we must wake up and the to-do list is as follows. Sever the greedy heads of the rich, money hording pigs who keep money out of circulation and are making 98% of us fight for the scraps while robbing us blind. 2) Take care of your brother, neighbor, everyone. 50 million without health care makes us look very selfish and uncaring. 3) Start thinking about the future problems ie. energy shortage. As our dollar gets weaker this problem will get out of control. Although placing blame is essential it is not the only thing we have to do. We need to think forward and start leading this race again. Hope everyone here is OK. Evem Mcain and Obama :)

Posted by Trevor | Report as abusive

Growin up in a UAW town, the unions were treated like Robinhood. One thing I always seem to notice was how the union was always protecting the worker the was a screw up in the first place. When technology and communications become the norm in the Modern workplace there was no need for the unions of the past. It was so obvious growing up in that environment.

Posted by powertrain | Report as abusive

Dear newstogod,

Besides the fact that you have some understanding of the economics laws, there’s a question I have about your ideas further on the topic (cit.) “Also, I find it interesting that the Union attacks executive pay. Supply and demand drives executive pay. Executives that manage large companies have special skills and experiences that make them valuable.” What does the over supply of BONUSES mean in the situation – fueling of greed? How about a more sensible distribution of the 50% taken from Execs and invested in R&D? Would that solve 2 problems(fairness and progress for humanity)? How much greater is a person without the masses to build, work and do the actual job? Is an Exec really worth and abide by the Econ laws, or is it just a twisted perception? An Exec sacrificed what? There are people that put a lot more overtime in lower positions and make sacrifices?

Editor:
I live in California and I am fluent in Spanish.
About 4 years ago, I tuned into a Spanish language radio station and I heard a car dealer’s ad saying that all that was needed to get a loan to buy a car was either a birth certificate or two utility bills.
This has been going on for quite a while, it seems. For all the cars that are now in Mexico to be sold by the absconders, we the law abiding citizens have to pay with higher interest rates to make up for the loan companies’ and banks’ loses.

Sorry folks, it’s unions pure and simple. Ask yourself would GM/steel companies/shoe manufacturers/fabric mills have financial problems/exist if the unions would never have existed? The cost of living would be much lower than it is today? The move to overseas production would never have occurred. Unions make things cost more than they are worth—see Walmart for evidence.

Posted by newstogod | Report as abusive