Cross-posted at European Tribune

There is a very important diary over at Daily Kos that may be of interest to BooTribbers (also see the diaries of KlatooBaradaNikto here and here):

The goal IS to reduce the standard of living by Pellice.

The Washington Post ran a very revealing online chat yesterday with one of their business columnists, Steven Pearlstein. He was quite open that what the “economy” [business leaders, I guess] needed now is a working class with a reduced standard of living that will compete with third world labor.

He was using the Delphi, and the automotive industries’ debacles, as his example.  The answer to all the problems is to knock back the workers’ wages below “middle class” standards, and reduce their benefits, particularly health care.

To all comers who brought up the facts that Delphi managers had deliberately underfunded pensions, had stolen funds from the company, had managed it poorly, and, finally, had awarded themselves bonuses even as they demanded that workers take wage cuts, Pearlstein responded:  But that doesn’t matter.  The basic truth is that the workers, all workers, must work for less pay so that their companies will still be competitive with overseas labor.

Sound familiar? More on the flip.
The column that goes with the chat is here:

Listening to the Oracle of Delphi

What is Pearlstein’s prescription for the U.S. auto industry?

Average pay and benefits of $65 an hour would need to be reduced and made less egalitarian — $40 for skilled technicians, but maybe only $25 for forklift operators or low-skilled parts assemblers. (Today, the difference between the two is small.) Autoworkers who now get the company to pay for nearly all their health coverage will have to pay 30 percent, like the rest of us. And current workers need to forget about those traditional, defined-benefit pensions — most other U.S. workers settle for a generous contribution to a bankruptcy-safe 401(k) account.

Retiree benefits will be trickier. Although most retirees have Medicare, which now includes drug coverage, supplemental health benefits will have to be scaled back and capped. And while the funded portion of pension plans is protected, unions will need to exchange the unfunded portion for a first-call on the company’s profits — in effect, swapping pension IOUs of questionable value for preferred stock in a more viable company.

Of course, what Pearlstein doesn’t tell you is that of the supposedly exorbitant $65 per hour, $39 of that is nonwage benefits, driven mostly by truly exorbitant inflation in US health care costs which do not fully contribute to worker well-being and are fundamentally a function of an inefficient health care and insurance system.

But according to Pellice, Pearlstein says the US is “not ready” for national health insurance yet.

What the Pearlstein scenario means is that forklift operators and other workers who are treated like them will move from having a middle class wage of around $50,000 per year to a barely-scraping-by wage of about $25,000 per year (assuming that auto companies can successfully reduce nonwage compensation to about 50% of total labor costs).

Compare that wage to the federal poverty standard for a family of four: $18,850. Now figure in the fact that by some estimates, a real “living wage” is 30% above the poverty standard and we are getting pretty close to placing the lowest-paid ranks of autoworkers in the class of the working poor. Some American dream that is.

Pearlstein is also pretty ignorant of basic economic history, for example:

[L]et’s start by dispelling two popular myths. . . .

The second myth, this one favored by the left, is that generous wages and benefits negotiated by the unions created the great middle class and lifted the standard of living for all Americans.

The real story is that those pay packages were negotiated in industries that were either government-regulated and could automatically pass on labor-cost increases to consumers, or were dominated by a handful of large companies that tacitly agreed not to compete on the basis of price. These companies earned excess profits and passed on most of them to employees in the form of generous wages and benefits. It took deregulation and foreign competition to reveal how much airlines, phone companies, automakers and steel manufacturers — and their employees — were overcharging the rest of us for their goods and services. Now competition is forcing those pay scales back into line with market realities.

Oooohhh, “deregulation,” “competition,” “market realities.” He almost had me convinced.

The real reason that American autoworkers have historically been paid such high wages is that, when the labor standards for the industry were established in the immediate post-WWII period, American automobile manufacturers and autoworkers, with their mastery of mass production technology, were the most productive in the world (as they still largely are). Union power was important to making sure that these productivity benefits were shared equitably between labor and management.

The reason that American automakers are in trouble today long predates low-wage competition from developing countries. The problems go back to the 1970s, and some of it does have to do with the temporarily cozy postwar environment of muted competition that the Big 3 automakers found themselves in. But where did the firms come from that broke the domination of the Big 3? Japanese firms (apparently undaunted by lifetime employment and extensive worker-management cooperation systems) had developed a more flexible technology for producing a wider range of fuel-efficient, smaller cars with less waste in the production process. And Germany (similarly unhindered by its codetermination and generous welfare state policies) leveraged its engineering know-how into making high-quality cars for the upper end of the market.

The U.S. automobile industry was never government-regulated. And it is also not true that wage gains in the American economy during the postwar period were limited to a few favored industries. They were broadly distributed throughout the economy until the 1970s.

Pearlstein is (mostly) full of it. The problem in the American auto industry is primarily one of management failure to innovate – failure to design high-quality cars that people want to buy, and to develop the efficient production technologies to make them. Economy-wide, the problem is that the policies and institutions that allowed workers to carve out a high and rising standard of living – strong unions, labor-management cooperation, government-established minimum labor standards, and a generous welfare state – have all been eviscerated in the US. Low wages and falling living standards are not simply “market realities.” They are also the outcomes of political processes that are heavily biased against ordinary people.

The truly new phenomenon here – competition from low-wage developing countries – can also be dealt with without demolishing rich-world living standards. The key is to innovate, to move into the high-skill, more technologically sophisticated product lines that (hopefully) will not immediately be subject to low-wage foreign competition. The other thing is to establish global counterparts to domestic regulation of labor and financial markets – for example, a global right to organize unions; and alternative to “Washington Consensus” type development policies – to ensure that all workers get to share in the productivity gains that they help generate.

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