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October 14, 2005

The Bankrupt Oracle of Delphi

Reprinted from Confined Space

The lament that if [Delphi Chairman Steve] Miller gets his way, auto-parts workers won't be able to buy the cars that they help build. Guess what? Boeing workers can't buy airplanes, either.
The blogosphere has been remarkably quiet about one of the most momentous events of the past weeks: the bankruptcy of Delphi Corp. For those of you who aren't perusing the business page regularly, Delphi Corp., a giant auto parts manufacturer that spun off from GM a number of years ago, has declared bankruptcy and announced its intention to cut its employees' salaries by one third: from $27 an hour to $10 an hour.

Why so momentous? What we're seeing before our very eyes are the final nails being driven into the coffin of the American blue-collar middle class. Delphi's actions will soon spread to GM and the entire American auto industry.

As Harold Meyerson wrote in the Washington Post earlier this week:

And in the United States, auto isn't just any old industry. For much of the 20th century, it was, by many measures, our premier industry, the pride of the nation. Its Big Three manufacturers employed the most workers, produced the most output, made the largest profits, and paid their workers enough to transform the economic profile of the entire nation. In 1914, one year after he opened his first assembly line, Henry Ford doubled the daily pay of his workers, saying he wanted them to make enough to buy the cars they produced. The Fordist compact was greatly enhanced by the rise in the 1930s of the United Auto Workers, whose contracts (along with those of the United Steelworkers) created the first employment-based health insurance benefits in the land and soon became the model for our mid-century economy. In the post World War II decades, America became home to the first decently paid working class in the history of the world. This was no mean distinction.

But that was oh, so then. If Delphi gets its way, its employees will clearly not be able to buy new GM cars. (At the rate things are going, they'll have to save up to buy gas.) In the face of the combined onslaught of globalization, de-unionization and deregulation, the bottom may not be falling out of the American economy, but the middle certainly is. The very notion of a decently paid working-class job has become a defining oxymoron of our time.

Corporate America, on the other hand, can barely contain its glee and approval of the toughness and realism of Delphi Chairman Steve Miller. Dow Jones Newswires President Paul Ingrassi, writing in today's Wall St. Journal (subscription required)said --presumably with a straight face:
Another piece of sophistry: the lament that if Miller gets his way, auto-parts workers won't be able to buy the cars that they help build. Guess what? Boeing workers can't buy airplanes, either. The real issue is what pay-and-benefits levels will let Delphi effectively compete for business. That's about $20-to-$25 an hour, says Mr. Miller, instead of the current $65 per hour.
And who are we "effectively competing with?" Workers in China. In that case, we can't compete paying $10 an hour either.

Other business columnists, like the Washington Post's Steven Pearlstein, resort to classical economics to justify these attacks on workers high wages and benefits. Referring to Henry Ford's commitment to pay his workers enough so that they could afford to buy one of the cars they produce, Pearlstein explains:

If every company was unionized and paid higher wages, all it would create in the end is inflation, and nobody would be better off. There are only two ways to get richer in a market economy. One, is to distort labor and product markets in a way that makes you richer at the expense of someone else. The other is to figure out how to work more productively. And in the golden years of the unionized industrial unions, alot of the gains were of the first sort rather than the second.
Now, I'm no economist, but I still find these explanations perplexing, to say the least. On one hand, workers need to take major cuts because it's the only way we can compete with foreign workers. On the other hand, the only legitimate criteria on which to base workers' salaries is productivity. But last I looked, American workers are among the most productive in the world, yet with the wages paid to Chinese workers, high productivity and a buck twenty five only gets you a ride on the Metro.

Miller's not winning any friends among the company's workers either. First, his tone resembles the kidnapper who threatens to cut a finger off your child every hour you're late with the ransom:

He said the number of factories to be closed will be determined partly by how quickly Delphi's unions get to the negotiating table. Miller suggested that some factories could be saved if negotiations pick up quickly and can be handled outside court. "In the end [the union] will do it and they will do it in the right way," he said.
And then there's little contradiction between thr incentives given managers to stay with the company, versus the "incentives" given to workers so they won't be laid off.
Miller said Delphi increased severance packages for some top executives just before the bankruptcy filing because he had to act to keep his management team. Miller, whose own pay includes a $3 million signing bonus and a $1.5 million annual salary, said executives had to sign agreements to stay with the company to be eligible for the packages. "They can't quit. We blocked the exit doors," Miller said.
Workers, on the other hand, can only stay if they take major pay cuts.

Finally, the aftershocks of Delphi's bankruptcy will not be limited to the auto industry, or even just to blue collar workers: As Meyerson points out, we already have a preview of what Delphi's oracle is predicting:

Those middle-income jobs that still come with benefits attached are increasingly clustered in the public sector, where they are becoming more vulnerable politically. In the 1960s, '70s and '80s, teachers, nurses and cops struggled to win contracts comparable to the auto and steelworkers' deals. Today, they are among the last workers in America -- along with chief executive officers, we should note -- to still have defined-benefit pensions. How long they can go on before their standards, too, are ratcheted down is anybody's guess. In California, whacking public employees has become the primary purpose of Gov. Arnold Schwarzenegger; it is the goal that underpins his initiatives in the special election he has called for next month.

And why stop there? While we're cutting wages and benefits back to 19th century levels to stay competitive, why not dismantle workplace and environmental protections as well? Eight hour days and all those damn holidays may also be luxuries we'll just have to learn to do without if we want to continue to eat and have a roof over our heads.

Miller says that Delphi's experience "has brought into sharp relief the different value the global market places on knowledge workers versus basic manufacturing workers… If you want your kids to enjoy the great American dream, get them a good education." How this is suppose to happen in an economy of McDonalds' wages, I'm not sure.

So what is to be done? Delphi's losing money? Globalization is a fact. And this is clearly a problem much bigger than Delphi. Again, I'm no economist. But there's an obvious place, as pointed out by labor blogger Jonathan Tasini:

Last point: can we scream any louder that part of the problem facing industry is the lack of a single-payer national health insurance program? Delphi, and the rest of the auto industry, are teetering because of hundreds of billions of dollars in health care costs (and a good dose of mismanagement, too)--health insurance that workers deserve and should not give up. But, it's over, done, finished: private employer health insurance is a complete failure. Forget morality: national health insurance is an issue of economic competitiveness.
Finally, let's not forget that these wages and benefits (as well as health & safety rights) were not bestowed upon workers by benevolent managers. The rights and benefits that American workers enjoy (and take for granted) were were won after hard-fought, often bloody battles against those who wanted to keep as much as possible for themselves. Among the lessons that American workers are supposed to be learning in these difficult times, that is one they dare not forget.

Posted by Jordan Barab at October 14, 2005 07:23 AM