Last week the United Auto Workers (UAW) went out on strike against General Motors (GM), ostensibly over pay and benefits. Perhaps the real issue is capital mobility and the threat it poses to the American middle class. While there may not be a lot of sympathy for auto workers earning around $25 an hour in wages, this strike is nonetheless something the middle class, or at least what remains of it, should be watching closely.
We have heard from industry how generous GM has been to its workers. It offers paid benefits in addition to good wages. We have also heard how important it is for GM to be competitive, and that requires more outsourcing. It is precisely this kind of outsourcing that has destroyed the middle class over the last few decades. A major issue for the union was a demand that GM would commit to keeping plants open in the U.S.
Capital mobility has long been a source of tension for American workers. During the 1970s and 1980s, many plants closed because management concluded greater profit could be obtained if investment was made in South and Central America where wage rates were a fraction of those in the U.S. and there were fewer regulations to contend with. That is, plants weren’t closing because they weren’t profitable, but because they weren’t profitable enough.
Plant closure, of course is nothing new. It has long been part and parcel of what Joseph Schumpter referred to as “creative destruction.” This was the process by which the old and obsolete would be replaced with the old and technologically more advanced. This process was considered to be a mark of progress in a capitalist economy. Unquestionably, buggy whip manufacturers being replaced by auto manufacturers might be viewed as progress.
What was happening during the 1970s and 1980s wasn’t quite this model. Rather old line manufacturing, which was often unionized, was being replaced with low-skilled and low paying service jobs or very skilled and high paying high tech jobs. Again, this was progress which defined the global economy, but many workers were left out, and effectively displaced from the American middle class.
Again, plants weren’t closing because they weren’t profitable. On the contrary, they were very profitable, but they could be even more profitable elsewhere, and this, managers claimed, was part and parcel of their fiduciary responsibility to their shareholders. Which brings us back to GM. In 2018, it posted a profit of near $11 billion. That GM supposedly needs greater flexibility to be competitive in global markets is nothing more than the theme before: the near $11 billion in profit wasn’t enough.
Capital mobility affects us all; not just those who will be displaced from the plants that will close. Those who work for suppliers will lose their jobs too. As communities lose big employers, there will be tertiary effects. The aggregate demand for goods and services from these workers decreases, thereby affecting the larger economy. Moreover, in towns where plants close, housing values decrease, and the savings that workers have in their homes decreases. This also affects the local tax base as tax receipts drop at a time more needs to be spent on the provision of assistance and other social services to those in need.
GM, of course, claims that healthcare costs are too high and continue to rise. They ask that workers make a bigger contribution to their healthcare costs. They claim there are limits to raising wages if they are to remain competitive. Perhaps the workers would be more sympathetic if the managers themselves weren’t earning in the millions of dollars in salary and stock options. Like all companies, GM will claim that it is the managers that make strategic decisions that result in their profitability. And yet, were it not for the labor of the workers, there would be no product to sell, in which case there would be no revenue at all, let alone profit.
Ironically, the contenders for the Democratic presidential nomination who promise Medicare for All and free college haven’t really had much to say about this strike. A wealth tax, as one has proposed, isn’t going to keep workers employed. This strike at its core should be understood as the survival of the working middle class. This is no trivial issue, as it was because of the disappearance of good jobs and the displacement of workers that Hillary Clinton lost key states like Michigan, Pennsylvania, and Wisconsin, to Donald Trump.
It would appear that they still have not learned from this episode. Episodes about the middle class require that politicians address the middle class and what factors are responsible for the disappearance of the middle class. Of course, capital mobility adds to the increase in income inequality. But the classic retort from our progressive candidates that millionaires and billionaires be taxed more to pay their fair share, does nothing for the workers that lose their jobs.
Therefore, here are some new talking points. Instead of talking about Medicare for All as a replacement for private insurance companies and providing this benefit to illegal immigrants, there should be more discussion about how a single payer system would benefit both the middle class and industry. Workers would no longer be locked into current employers, and firms no longer having to pay for insurance would be more competitive in global markets.
Instead of speaking in the language of class warfare, the Democratic party, supposedly the party of the working class, should be talking about strengthening labor market institutions. Good paying jobs is what drives the economy because it leads to increased aggregate demand for goods and services. They should talk about strengthening unions and increasing the minimum wage. Instead of talking about the importance of future appointments to the Supreme Court for the range issues of concern to identity politics, they should be talking about its importance to the maintenance of the middle class.
It is because of conservative appointments to the National Labor Relations Board, and its decisions which were upheld by a more conservative Court in recent decades that labor law has tilted in favor of employers away from workers. Of course, there will always be capital mobility, but more attention needs to be focused on how it can be better managed. Having said that, higher taxes, investment in green energy, and trade wars are not going to sustain the middle class; strengthening labor market institutions might.