After GM the UAW Should Manage Universal Healthcare

In the 1950s the United Auto Workers (UAW) successfully pushed America’s auto companies into granting the unionized workers free healthcare for life. Sixty years later, in the wake of the collapse of two of the big three automakers, the Obama administration is pushing for near-universal healthcare for all Americans. Hopefully, the lessons of the past will be learned before we find the United States in the same position that the auto companies are in today.

The fact of the matter is that the excessive costs heaped on the auto companies by the UAW’s demands, overburdened the companies and ultimately brought about their downfall. GM and Chrysler were unable to remain competitive due to the expensive cost structure. According to the Economist approximately $1400 of every GM car goes to healthcare costs– far more than its competitors.

The union demands were shortsighted at best. Universal autoworker healthcare seems appealing on the surface. Seemingly, this is why the unions pushed for it in the 1950s. However, by forcing a system that reaped short term benefits, the UAW ultimately hurt itself, the auto companies, and consumers in the end. By greedily taking more than their fair share of the pie, the union bosses put an onerous burden on the autoworkers and auto companies of the future.

The healthcare debate today is running a parallel course. It is easy to think that universal healthcare is a great idea. Helping people stay healthy is noble and caring- two characteristics that are generally applauded in America. However, like the unions of yesterday the Democrats of today do not comprehend the huge impacts such a program will have on the country.

As has been discussed elsewhere, (See a prior post: http://anewrepublican.blogspot.com/2009/06/give-me-healthcare-or-give-me-death.html) a government run, universal healthcare program is inefficient and detrimental to the aim of providing good healthcare. Like GM’s shareholders, America’s taxpayers will unduly bear the burden of an excessive and expensive healthcare program. Like GM, American healthcare will slowly begin a drastic decline in quality. Unlike GM, however there will be no one to bail out the colossal failure to come.

The bottom line is that nothing comes free. Providing ‘free’ universal healthcare is a complete misnomer. Ultimately, it is the taxpayer who will foot the bill (especially in a paygo system). Don’t be fooled by the claims of kindness and caring that Obama and his cronies try to instill in their healthcare plan. It is anything but. Universal, government run healthcare may help a couple of people in the short run, but it’ll hurt America– the taxpayers, the healthcare consumers, and the healthcare industry– in the long run.

The Union Between Failure and Inflexibility

As GM heads towards a government deadline, it is scrambling to restructure and avoid bankruptcy. In the process, bondholders are getting the short end of the stick, being cast as the bad guys. The big winners are, of course, the unions which may receive, according to the latest plan up to 20% of the new GM. (See MSNBC report http://www.msnbc.msn.com/id/30938307).

This is a most unfair solution for the failing auto giant. The United Auto Workers (UAW) and the bondholders share an equal claim to GM’s assets. However, our leftist, pro-union government is demonizing the bondholders and unfairly assisting the union. (See a great editorial by the average American bondholder in the Wall Street Journal http://online.wsj.com/article/SB124338330278956585.html#mod=djemEditorialPage).

If anything, the situation should be reversed. The UAW has way too much power and control in the auto industry. The worst possible solution is to give the unions even greater control over the failing industry. While not the sole cause of the auto industry’s failures, the unions have profoundly contributed to its current state. Unions, in general, contribute to rigidity in an industry. They prevent jobs from being phased out when no longer necessary. This ultimately undermines research and development and technological growth, causing unionized companies to lag behind those without unions. While it is impossible to know what GM would look like today without unions, it is clear that it would have had greater flexibility to change its business model, modes of production, and more. Instead, the stiffness of the system has forced GM and other auto companies to continue a model that should have been discarded long ago.

In non-unionized industries, companies are rewarded – or fail – based on their innovations and specialized superiority. Competition encourages them to reinvent and routinely redesign themselves. If they fall behind, everyone – management, workers, suppliers, retailers – lose out. However in the rigid system of the auto industry, as consumer demand shifts the auto companies are unable to appropriately shift the business. Workers cannot be let go and plants cannot be shut down. This prevents the company from developing new products and methods that could be more efficiently performed with workers or factories with different abilities. Instead, the company must continue an outdated business model and sell an inferior product.

And so for all their contribution to the downfall of the industry, the unions are being rewarded. Once again they are unjustly being a given a piece of the pie that they do not deserve. If our government wants to save the auto industry, it better think long and hard about the role of the union. The answer is not to reward those who made the system too inflexible to succeed, but to create a new, more competitive company that excludes the rigid structures and players that previously dominated. This approach may save the auto industry- giving the UAW undue ownership will not.