On Monday, Eric Massa had transformed himself into a Republican hero by railing against the Democratic leadership and hinting that he was being set up in order to facilitate the passage of health care reform. Conservative outlets swarmed with conspiratorial thinking.
The bailout of the auto industry was “throwing bad money after a bad cause,” television talk show host Larry Kudlow warned in National Review. Kudlow’s opinion was shared by conservative economists and politicians. And Tea Party types continue to cite the auto bailout as an example of the Obama administration’s unwarranted largesse toward big business and big labor. But if you compare how the Obama administration handled General Motors
For much of the United States, Detroit has become shorthand for failure--not just because of the dilapidation of the town’s iconic industry, but because the entire metropolis seems like a dystopian disaster. It is the second-most-segregated metropolitan area in the country; the city’s population is 82 percent African American. No other American city has shed more people since 1950--Detroit is only half its former size. Its city government fails at the most basic tasks. A call to 911 will bring a response, on average, in about 20 minutes.
A few weeks after the 2008 presidential election, United Steelworkers President Leo Gerard got a call from an Obama transition aide frantic for advice on the collapsing auto industry. Gerard put his numbers guy on the call, a former investment banker named Ron Bloom, who proceeded to offer a detailed disquisition on the financial situations of GM and Chrysler. Unlike other experts the transition team had consulted, Bloom was refreshingly blunt about the companies’ prospects, which he deemed grim. “We were like, ‘Wow, who is this guy?’” recalls the aide.
I just wanted to highlight my latest print piece for readers who come straight to this blog rather than clicking through from the homepage. It's about White House manufacturing czar Ron Bloom, a longtime steelworkers union official and an investment banker before that. Just prior to his current gig, Bloom led the administration's restructuring of Chrysler as a deputy to Steve Rattner, then head of the auto task force.
There are details in the piece more relevant to Bloom's current job and the future of U.S. manufacturing, but I just wanted to highlight two nuggets that stuck with me from the Chrysler episode. First this:
It fell to Rattner and Bloom to broker the deal. Culturally, the two men were near opposites. Rattner had been a trustee of the Metropolitan Museum of Art; Bloom brought his cherished Mr. Potato Head collection to decorate his Treasury office. Bloom also had a reputation in management circles as a gadfly. “There have been a number of cases where company representatives simply refuse to engage him in debate,” says Jim Robinson, a former colleague at the United Steelworkers. During one negotiation early this decade, management kept insisting that its accountants wouldn’t sign off on a proposal to fund retiree health care. As it happened, the company’s accountant-a partner at a major firm--was on-site but not in the room. “Ron kept telling them to bring the partner in so they could debate the issue,” recalls Robinson. “But he wouldn’t come.”
And then:
[Bloom's] particular genius is to let an adversary win on an issue, then gradually, subtly reclaim it for his side. So, for example, Fiat might insist that a government loan be forgiven. Bloom would concede it, then offset the loss using the terms of a second loan later on. “Ron has what I refer to as ass power,” says Feldman. “He’ll continue to talk about things, explore them, work on them, not letting the other side see what’s really important to him. Even if it’s important, he’ll bargain it away early and work on getting it back.”
Also, there are two other things I need to mention here. First, toward the end of a piece I include an anecdote about a U.S. company called FormFactor that's been having trouble in Korea of late. The anecdote ends with the following paragraph:
Pity the pay czar. When Ken Feinberg announced last month that he would slash pay at seven firms that received federal bailout funds and convert large chunks of compensation to stock units that can’t be sold for years, he was met with almost universal opprobrium. Critics of Wall Street protested that simply paying out salaries in stock rather than cash would have little effect on executives at the bailed-out firms, to say nothing of the banking culture at large.
Just after Ford Motor Company announced third-quarter profits of nearly $1 billion, its UAW-represented workers rejected a package of concessions including a wage freeze for newly hired workers and a no-strike pledge when the current contract expires in 2011. The concessions would have put Ford’s labor costs on par with those that GM and Chrysler obtained earlier this year. Those concessions, in turn, brought the companies’ wages and benefits down to the levels of the (non-union) Japanese manufacturers with plants here. They came on the heels of bigger wage concessions for newly hired workers, which UAW workers accepted several years ago.
Of the 62 most auto-dependent metropolitan areas, more than 40--mostly located in Michigan, Ohio, Indiana, New York, and parts of Kentucky and Alabama--depend heavily on the Detroit Three and their suppliers. People who live or work in those places have a big stake in wage concessions. Would the people of metropolitan Louisville, home to two Ford plants, have been better off if Ford workers had approved the concessions? Would the people of other metro areas that depend on the Detroit Three have been better off if GM and Chrysler wages hadn’t been lowered?
Lower wages in auto plants in a place like Louisville mean less demand for locally produced services such as restaurant meals and haircuts. That means fewer people are employed in producing those services, or their work hours get cut, or their wages go down, or some combination of the three. If nothing else happens in the metropolitan area’s economy to offset these effects, the result is a smaller, lower-wage region. These problems are amplified if the reduction in auto plant wages enables other local employers (auto suppliers, service businesses--any company that sets its wages in relation to autoworker wages) to lower the wages they pay to their own workers, further educing local demand.
One of the more promising signs for health care reform over the past two years has been the apparent support of the business community. Corporate executives and trade groups have repeatedly spoken out about the problems of our health care system. Even more remarkably, they have joined coalitions pledged to finding comprehensive solutions--the sorts of plans that would bring affordable insurance to all Americans while easing the financial burden many companies now face.
General Motors has come to Washington, begging for a $25 billion bailout to keep it and its ailing Detroit counterparts going next year. But nobody seems too thrilled about the prospect. Liberals dwell on the companies’ gas-guzzling sport-utility vehicles. Conservatives obsess over all the well-paid union members with gold-plated benefits. And people of all ideological backgrounds remember how they used to buy domestic cars, years ago, but stopped because the cars were so damn lousy.
If you've been following the auto industry's crisis, then you've probably read or heard a lot about overpaid American autoworkers--in particular, the fact that the average hourly employee of the Big Three makes $70 per hour.
