The right way to save Detroit is going sound a little leftish
Posted by metaphorical on 16 November 2008
There’s a lot of debate about whether to throw money at the big-three Detroit automakers or just let them go down the drain. I think we can do neither, and still solve two problems at once.
Suppose instead of giving the automakers bailout money or loans, or buying bonds from them, we took on their health benefits obligations. This would dramatically lower their per-car cost of production, going a long way toward making them competitive in U.S. markets and plenty of overseas ones.
As it happens, Obama proposed legislation that would do that back in April 2007.
The Health Care for Hybrids Act would address the unique challenges of the U.S. auto industry and reduce our country’s dependence on foreign oil at the same time. This bill would set up a voluntary program in which domestic automakers could choose to receive federal financial assistance to cover 10% of their annual legacy health care costs through 2017. The companies that participate in the program would be required to invest at least 50% of their health care savings into manufacturing fuel efficient cars, such as hybrids and advanced diesel vehicles in the United States, or helping domestic parts suppliers retool their manufacturing plants to produce advanced parts.
To me, that seems like an enormous step in mostly the right direction, though awfully convoluted. If we want to decrease gas consumption and increase fuel efficiency, we already have laws to do that. We already have the CAFE standard, just increase the number. (Step #0: include SUVs.)
As for supporting hybrids, respectfully, I ask, why? I mean, they’re a great set of technologies right now, and maybe the way to go, but why have the government pick the winning technology in advance? This seems like a great area for letting the market decide. The only real example we have of the government picking an alternative energy has been ethanol, a politically-driven disaster of a choice. (And frankly, the U.S. automakers are years behind with their hybrids. We should pray they come up with something better.)
The car companies claim that each and every car “contains $1,500 in health costs that their Japanese competitors don’t face,” according to the libertarians at the Reason Foundation. Another way of looking at it – and the numbers here derive from some at the Labor Research Association, a labor advocacy organization – is that health-care amounts to about 8-9% of the wages+benefits that autoworkers get. So taking on health care would be the same as letting Detroit slash autoworker salaries by that amount, without having to make the slightest dent in autoworker paychecks.
As I say, Obama’s 2007 legislation seems overly complicated. Why don’t we simply put them into the Government Employees Health Association, the same health insurance that millions of federal workers, including Congress itself, has?
It would cost the government something like $6 billion a year, which is in the range of the lump-sum $25-50 billion being contemplated for a bailout (with a smaller up-front cost). Most importantly, it would offer Detroit real relief, helping them compete in the marketplace, while not impeding the forces of market destruction and renewal that ought to be operating here. In other words, if the car companies still fail, so be it. And one thing we won’t have to worry about is a million autoworkers suddenly losing their health benefits.
Finally, it would use the current crisis to jumpstart a process that needs to take place anyway – getting all Americans covered by some form of health care. The problem with Obama’s campaign proposals for health care is the same as the problem with his Health Care for Hybrids Act. Each makes too many concessions to the status quo – they’re not radical enough.
The Health Care for Hybrids Act locks us into hybrid technologies. Similarly, Obama’s health care proposals just lock us further into the absurd system of making employers responsible for health care. Doing so universalizes the very problem that the automakers have – adding the cost of health care to a business’s costs of production, when its foreign competitors don’t have comparable production costs.
Ironically, this problem started in Detroit, so it would be sweet irony to solve it there. As Malcolm Gladwell wrote a couple of years ago in The New Yorker (The Risk Pool), back in 1950, the president of General Motors, Charles E. Wilson,
“was in contract talks with Walter Reuther, the national president of the U.A.W. The two men had already agreed on a cost-of-living allowance. Now Wilson went one step further, and, for the first time, offered every G.M. employee health-care benefits and a pension.
Reuther had his doubts. He lived in a northwest Detroit bungalow, and drove a 1940 Chevrolet. His salary was ten thousand dollars a year. He was the son of a Debsian Socialist, worked for the Socialist Party during his college days, and went to the Soviet Union in the nineteen-thirties to teach peasants how to be auto machinists. His inclination was to fight for changes that benefited every worker, not just those lucky enough to be employed by General Motors. In the nineteen-thirties, unions had launched a number of health-care plans, many of which cut across individual company and industry lines. In the nineteen-forties, they argued for expanding Social Security. In 1945, when President Truman first proposed national health insurance, they cheered. In 1947, when Ford offered its workers a pension, the union voted it down. The labor movement believed that the safest and most efficient way to provide insurance against ill health or old age was to spread the costs and risks of benefits over the biggest and most diverse group possible. Walter Reuther, as Nelson Lichtenstein argues in his definitive biography, believed that risk ought to be broadly collectivized. Charlie Wilson, on the other hand, felt … that collectivization was a threat to the free market and to the autonomy of business owners. In his view, companies themselves ought to assume the risks of providing insurance.
Pension systems throughout the U.S. are in bad shape as well. Back in 2006, Gladwell noted
America’s private pension system is now in crisis. Over the past few years, American taxpayers have been put at risk of assuming tens of billions of dollars of pension liabilities from once profitable companies. Hundreds of thousands of retired steelworkers and airline employees have seen health-care benefits that were promised to them by their employers vanish. General Motors, the country’s largest automaker, is between forty and fifty billion dollars behind in the money it needs to fulfill its health-care and pension promises.
If GM’s health and pension obligations were at least mostly funded two years ago, we can only imagine how they’re doing in a stock market that’s lost nearly half its value since then.
This crisis is sometimes portrayed as the result of corporate America’s excessive generosity in making promises to its workers. But when it comes to retirement, health, disability, and unemployment benefits there is nothing exceptional about the United States: it is average among industrialized countries—more generous than Australia, Canada, Ireland, and Italy, just behind Finland and the United Kingdom, and on a par with the Netherlands and Denmark. The difference is that in most countries the government, or large groups of companies, provides pensions and health insurance. The United States, by contrast, has over the past fifty years followed the lead of Charlie Wilson … and made individual companies responsible for the care of their retirees. It is this fact, as much as any other, that explains the current crisis. In 1950, Charlie Wilson was wrong, and Walter Reuther was right.
We could kill another two birds with one stone by fixing and expanding Social Security and folding in all these failing – and soon to be failing – pension plans and 401Ks. But let’s take on only one pair of crises at a time.