The American Prospect
Thursday 27 September 2007
This week's UAW strike is a reminder that if the company had heeded union demands during the 1970s, substantial portions of our public policy could look radically different.
In 1970, in the midst of the last national General Motors strike (which lasted for a significant 67 days), UAW president Leonard Woodcock urged American businesses to become actively involved in a fight for national health insurance and halt their rising, uncontrolled health care costs. "American management now has the opportunity to help make each American's right to better health a reality - and at less cost" he said.
Some things have changed. This year's strike lasted a mere two days. Roughly 400,000 UAW members worked for GM then; only 73,000 do now. But some things haven't: Health care was an issue then, and is an even bigger issue this year. And the stakes in the auto industry negotiations involve more than those at the bargaining table. They reflect public policy choices that put workers at a disadvantage. And they have repercussions for the country as a whole, especially other workers, both active and retired.
If business and labor had joined together in 1970 in the fight for health insurance, unionized and non-union auto companies would now be on a level playing field, and GM would not be at such a financial disadvantage against producers like Toyota because of retiree health care costs. GM knows that well: It has praised the cost savings from Canada's single-payer health insurance system, but it has not used its clout to push for such a system in the United States.
And the UAW would not be setting up a VEBA - Voluntary Employee Beneficiary Association, essentially a union-administered trust fund - to provide retiree health care. The VEBA will allow GM to pay roughly a third less than its currently projected costs for employee health insurance. And retirees will face the risk - quite high given current health cost inflation - that the VEBA will not have enough money to continue to pay their health insurance costs. A VEBA at the manufacturing company Caterpillar, for example, went bust in a decade, and some retirees have gone from paying minimal health costs to $1,000 a month.
Health care costs are not the only cause of GM's problems or the insecurity of their employees' jobs. After all, labor costs represent only about 10 percent of the cost of a car. There are vastly fewer GM jobs now than in 1970 because GM's share of the market has been cut in half, because productivity has increased dramatically, and because GM has increasingly outsourced and offshored jobs.
GM would be in a far stronger position if it had listened long ago to the union, in particular former president Walter Reuther. Back in 1956, before the import onslaught, Reuther gave a prescient speech in which he argued American auto companies should build a small, non-polluting, fuel-efficient car. Unfortunately, even though the UAW still promotes a single-payer national health insurance plan, in recent decades it has largely sided with the auto companies in fighting stricter fuel efficiency standards that ultimately would have put GM in a stronger position today.
The union, of course, has long blamed U.S. trade policy, which favors corporate interests and fails to set meaningful labor and environmental standards for undermining much of the domestic auto industry. With a different trade policy, imports probably would have taken a smaller share of the market and there would have been less incentive for GM to move auto and parts production to Mexico and other low-wage countries.
But GM, Ford and Chrysler now face more serious competition from the Japanese, German and other transplant factories in the United States that often produce cars with higher domestic content than many "Big Three" models. Most of them are non-union. They were deliberately located in historically anti-union parts of the country, and management adopted American-style anti-union strategies of threats and intimidation to keep the UAW out. The union may not have organized as hard and effectively as it should have, but American labor laws made it easier for management to fight unionization and harder for workers to join the union free of harassment and fear. If the transplant industry were now unionized, the UAW would have faced less difficult negotiating this year, and GM would be competing on a more level field.
In its heyday, the UAW set the standard for American workers, and other employers felt pressure to come close to matching what the UAW negotiated, thus raising living standards broadly and reducing economic inequality. Now non-union companies, like Toyota or Nissan, set the standard, contributing to stagnating or declining living standards for most American workers, including those at UAW plants.
So public policy - on energy, health care, globalization, and labor law - has contributed to GM's problems, even though GM has largely supported those existing policies that now hurt them in many ways.
Nevertheless, GM expects auto workers, including retirees, to pay for the costs of corporate mistakes and bad public policy. The retired workers will bear the risks of the new VEBA health trust, even though they have already paid for the benefits now being placed in jeopardy. Retiree health insurance, like pensions, represents deferred pay, money that went into benefits rather than paychecks. In addition, the union has repeatedly negotiated diversions from pay or cost-of-living increases into shoring up retiree health insurance and when GM and the UAW opened the contract in 2005 for renegotiations, the union agreed to benefit cuts for retirees. In any case, increases in auto industry productivity over the decades have more than paid for the attractive wages and benefits the UAW won for its members.
Current workers are likely to pay with lost jobs. UAW president Ron Gettelfinger said the strike was for job security. In order to sell the often skeptical union members on the VEBA, which the UAW has favored for two years even though it was never debated openly in the union, the UAW needs to provide some convincing promise of security. Apparently temporary workers will win full-time status, but there also will apparently be an increase in two-tier pay schemes, creating a lower-paid category of workers.
In the 1970s the UAW promoted reduced work time as a way of preserving jobs for current and future workers as jobs were lost, partly as a result of productivity increases that ultimately benefited workers as well. Then the UAW shifted to a strategy of requiring the company to produce one new job for every two that were eliminated. If the jobs weren't created, they would be included in a "job bank," and displaced workers could take those jobs until the company gave them a real job. In theory, that created a disincentive for outsourcing and offshoring. In many contracts, the UAW also negotiated to keep certain plants open for the duration of a contract.
But according to former UAW regional director Jerry Tucker, most of those job security strategies were no more than a "will o' the wisp." "Ever since the early 1980s every contract promises we've just entered a historic job security agreement," Tucker said. "And every time we end up with fewer jobs." At the same time, he says, the union bent over backward to cooperate with GM to help it become more "competitive," supposedly to save jobs. Ultimately the union accepted the corporation's notion of competitiveness and agreed to job losses and worsened working conditions as one plant's local union competed with another to see who would get new investment and jobs.
Without a new corporate strategy to produce vehicles people want and without new public policies on energy, transportation, health care, trade and labor law, both General Motors and its workers will continue to be locked into a common, if conflicted, strategy. That strategy leads to riskier and less rewarding lives for workers, not the historic upward march to higher living standards that the UAW once was able to win. The current contract appears to be a way-station on that declining path, not a grand reversal of direction for America's auto workers.
UAW Agreement Could Affect Michigan's Medicaid Program
By Ken Thomas
The Associated Press
Thursday 27 September 2007
Washington - Michigan, in an unintended consequence of a critical labor agreement between the United Auto Workers and General Motors, could lose hundreds of millions of dollars in Medicaid funding, state officials said Thursday.
The state could lose about $400 million over three years in federal assistance to its Medicaid program, which could affect health services to the state's poor, disabled and elderly.
State officials said it was unclear if the federal government would reduce its contribution as a result of the UAW deal, but noted there is precedence. In 2003, General Motors Corp. made a $16 billion contribution to retirees' underfunded pension fund, which led to the state losing $120 to $160 million in federal Medicaid funding over a three-year period.
As part of the labor deal announced Wednesday, GM is expected to contribute about $35 billion to help create a Voluntary Employees' Beneficiary Association, or VEBA, for retiree health care benefits.
Ford Motor Co. and Chrysler LLC, which are still in negotiations with the UAW on the agreement, also are expected to make large payments to the trust fund under the deal.
As a result of the massive payments, federal officials could take those funds into account in calculating Michigan's per-capita annual income, which is a key factor in a formula that determines the federal Medicaid match for each state.
The auto industry's contributions to the health care trust fund would make the state's personal income appear higher than it actually is and lead to the federal government reducing its contribution to the state's Medicaid program beginning in 2011, officials said.
Under that scenario, the reduced payments would last through 2013, depending on when the auto companies made their payments into the VEBA.
Mary Kahn, a spokeswoman for the Centers for Medicare & Medicaid Services, said it was unclear how the UAW labor deal would affect Michigan's Medicaid funding but noted that any changes to the funding formula would need to be made by Congress.
"We are looking into this issue, but we do not yet have a definitive answer," Kahn said.
Sen. Debbie Stabenow, D-Mich., said she was optimistic that the state could find a legislative fix through the children's health insurance bill being considered by Congress on Thursday or through other means.
"There is absolutely no reason why the state should have any financial impact from this agreement," Stabenow said.
Stabenow and others noted that the bill to expand the popular children's health insurance program, called SCHIP, included a provision that responded to the GM pension payment in 2003. It would change the way the matching fund formula is calculated in cases where large payments are made to employee pensions and insurance funds to comply with new accounting rules.
It was unclear if the adjustments also could apply to a health care trust fund similar to the one expected to be established by the UAW, Stabenow said. The bill faces a veto threat from President Bush, but the senator said clarifying language could be added to a future children's health bill or the issue could be addressed in a Medicare reform bill expected later this year.
While several years away, the cut in Medicaid funding could cause more problems at the state level, where Gov. Jennifer Granholm and legislators are trying to fix a projected $1.75 billion shortfall and contemplating a partial state government shutdown.
Michigan's Medicaid program pays about $9 billion a year to provide health care for about 1.55 million people who are low-income, elderly or disabled. It is run by Michigan's Department of Community Health.
Dan Beattie, director of Michigan's office in Washington, said they would work with federal agencies to "determine any impact this agreement will have on our per capita income calculations and our Medicaid financing."
"If there is a negative financial impact, we plan on exploring every available option to correct it," he said.
Centers for Medicare & Medicaid Services: http://www.cms.hhs.gov/
Michigan Department of Community Health: http://www.michigan.gov/mdch
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