Wage Reduction Made in the USA Ruthless Criticism

Wage reduction made in the USA:

Auto capital eliminates its social dead weight

[Translated from GegenStandpunkt 2–08]

GM, Ford and Chrysler, “The Big 3” of the American automobile industry, are no longer successful enough in the competition on the world's largest domestic automobile market. The competing American multinationals agree that this situation is unbearable, so costs must be reduced. And the first and most crucial costs in sight are the wages of the employees who once were regarded as living proof that in the heartland of modern capitalism the American worker – successfully represented in a union – earns good pay for good work. For the employers, this has looked quite differently for a long time: they are burdened with costs in the payment of their workforce that are not justified by the yielded profits, but hinder profitable production. Consequently, the three competing American multinationals have been out for a long time to systematically end this abuse. In the autumn of last year, they collectively conducted radical cuts that unburden them from billions in costs, with one blow robbing the automobile workers of their current standard of living in matters of pay relating to the company pension fund and the occupational wage structure.

Because the income that GM & Co. pay their workforce is set in collective bargaining contracts handled by their union, the automobile workers union (UAW) is asked to tear up rules that are declared to be “outdated” and sign over to the needs of capital in new agreements. It participates because – not unlike its fraternal organizations in Europe – it is clear in principle that American automobile capital can only restore its competitive position against Toyota & Co. by radical cost reductions in wages. For the union, more problems are raised by the question as to how it is really viewed by the workers when it abandons the positions on which it based its importance as a competent authority for working class interests in the automobile companies. However, the good reputation of the UAW as a powerful workers organization is based not least on the fact that its clientele is still regarded as a relatively privileged “middle class” of the workforce, given the massive reduction in the national wage level. This reputation now derives its persuasive power more in retrospect, given that in recent years the automobile workers in Detroit, with the active cooperation of the UAW, have given up all kinds of things that non-union workers never had. All the more reason that the agreed-to impoverishment of its members should be made out to be a result of a nevertheless ultimately successful use of union representation. The UAW to some extent succeeds in this to its own satisfaction; a new social role in the representation of workers even emerges with the radical reduction in wages, in which it can prove – wage losses or not – indispensable to the workforce.

It agrees with the big three companies, namely:

First: health insurance for retirees – no longer affordable for capital, so in good hands in the hands of the union

The employee health fund for retirees is scratched from the benefits catalog of the companies. This attacks an elementary union acquirement which until now established the responsibility of capital for social benefits that to some extent gave employees security when they became sick and elderly. This proletarian life condition, in which a person is no longer available with his labor power for shorter or longer or in the end at all, actually does not concern the users of labor power at all; this is the well-known point of view of the entrepreneurs. They consider such benefits, as far as they are forced upon them by the state, as “non-labor costs,” costs that are not part of the original wage payments that a worker receives for his work effort. The American state, out of consideration for its capitalist class, has to a great extent skimped on a general welfare state fund like in Europe, and in the question of a general health and old age pension plan for the proletariat has limited itself to a rudimentary state-regulated fund and thus extremely low social costs for its capitalists. Consequently, American labor unions, with the automobile union at the forefront, have for decades made it their task to wring from capital the establishment of internal social insurance plans which complement the lean, state-regulated social benefits and generally offer something like protection for illness and old age. The unions do not consider it to be an objection against the wage that it is chronically insufficient for security against a worker's life risks; instead, they take from this circumstance the task, where it applies, of obtaining from the companies such benefits as supplements to the individual wage. So in the USA it has come about that the mere existence of a company health insurance plan represents a privilege, a not at all self-evident additional benefit, which is good above all for employees in union-organized large-scale companies which in this way have secured frictionless order over their union-organized staffs and their profit-benefiting employment.

The big companies of the automobile industry now eye this expense as a no longer sustainable additional cost that undermines their competitive power. Therefore, they decide on a change in the system. They unite to sort out “affordable” and “unaffordable” benefits and to once and for all get off their backs the health costs of their retirees who have to be taken into account as increasing costs – not least because of their own progress in rationalization: the number of company retirees increases while capital at the same time cuts the number of employed workers and brings down the number of contributing payers in the company funds. This item has to go – and in the name of the whole nation whose wealth can simply no longer afford that much health care for the elderly:

We value our retirees and appreciate their significant contributions in making GM the great company it has been for 98 years. However, the U.S. health care crisis is eroding our nation’s manufacturing base and undermining our country’s ability to compete in a low-cost global economy. These benefits were conceived decades ago, and no one could have foreseen the explosive cost inflation that we have experienced in recent years. These costs are simply not sustainable and result in difficult but necessary decisions. Many other U.S. companies have already taken similar action in the face of these rising costs and increasing global competition. Many companies have eliminated health care for their retirees altogether … (Letter to employees by Kathleen P. Barclay, Vice President of Human Resources, GM Benefits & Services Center).

In contrast, GM, Ford & Chrysler do not simply abolish health insurance entirely; they present the union with an interesting alternative: either in the future you take responsibility for this foreseeably increasing and unproductive cost or soon we'll no longer be able to pay anything at all! After some back and forth and some strike actions, the UAW is willing. Health insurance for retirees is separated from health insurance for active employees, who are comparatively less ill and definitely contributing, so they may continue to deposit into a company health insurance fund. A new fund is created for the health costs of the retirees with the union officiating as its owner:

The UAW agreed to the establishment of a new health insurance fund to be managed by the union. It will take over future health insurance liabilities from GM for about 340,000 retirees and their relatives from 2010 onwards. GM will pay $29.9 billion into the fund, and take over the health insurance costs accrued from 2008 to 2010 of $5.4 billion. GM also promised other benefits and payments over 20 years totaling up to $1.6 billion if the fund’s endowment should be insufficient. (Financial Times Germany, September 29, 2007)

Similar rules apply at Ford and Chrysler, so that the UAW controls a health fund amounting to over $54 billion, a so-called Voluntary Employees Beneficiary Association (VEBA) which is responsible for the health costs of the company retirees until the entitlements to health insurance in old age expires when the last recipient passes away. The company will still pay contributions and the employees may still claim benefits until a 2010 deadline when health insurance for old age will no longer be offered to GM employees.

For the purpose of getting rid of these payment obligations once and for all, GM & Co. declare their willingness to hand over billions to the union and to make share capital available for the new funds. They do not see themselves as erasing the debts they have to the retirees or their health insurance plan; in their view, they are making a generous advance from their capital assets. That's why it must not be too high. They argue to the bitter end with the UAW so as to pay as little in hard cash as possible. Instead, they pay most of it with their own shares or share assignments, which are additionally subject to restrictions on their marketability. In this way, the funds, with billions in share properties, can make a reliable contribution to the protection of the credit-worthiness of the companies, and the working class agency becomes the beneficiary of their share holder value, thus also an advocate for their ruthless increase; all as a service to the retirees whose health fund now depends on the fate of the three companies on the stock market – and not only on them. Its managers now see themselves referred to the stock market with the remaining fund assets. Because after the deadline the actively employed no longer pay into the company fund that once provided compensation once and for all, the new welfare fund is only able to survive by successful speculation, on the one hand, and by giving as poor benefits as possible, on the other. The union takes over the new assignment of ensuring both.

Once again, nobody is lying about the “risks” for those who still need pills in their old age – least of all the union itself, which tells the employees what they have to adapt to:

Given the current state of our industry and the current state of the American political debate about health care there is no risk-free way to guarantee lifetime health care coverage. Not for active auto workers. Not for retired auto workers. Not for anyone. (UAW President Gettelfinger, January 17, 2008, www.uaw.org).

He gives a first hint as to what will probably no longer be “affordable”; and the entrepreneurs obviously count on this, so they deal all kinds of accounting tricks despite their financing problems, and promise limited second helpings, if necessary. In view of the fact that the companies could let their retirees go completely without health insurance, the employees anyway are still lucky if they are at least covered by a union administered fund, no matter what they are able to afford at the end of their lives in terms of health insurance. If the state and capital see themselves simply unable to carry the “risks” of a health insurance plan for poor people, it is probably clear where this risk is left hanging!

So the UAW’s responsibility grows too: it no longer wants to represent social interests that extort capital, but in the worsened conditions it will now be an accredited manager of a fund “pre-financed” by the companies; and at the same time it becomes a financial capitalist player on the highest level – a due reward for union concessions in reducing the cost of wages and benefits, as the automobile workers’ representatives obviously consider it. In any case, it discusses not only freeing the companies from these burdens, but also managing the approval of this fundamental upheaval in the rules of collective bargaining.

Second: a new wage structure – fair differentiation radically downward

The companies consider one such upheaval overdue. They are not satisfied with the usual concessions by the union regarding wage levels and the duration of collective bargaining contracts. They prescribe reductions in costs of a magnitude – 4 billion, for example, at GM – that can't be attained by everyday wage lowering methods. And they are by no means content with the cost savings from outsourcing, temporary and part-time work and extensive rounds of lay offs, but also adjust the earning capacity of their permanent staff from scratch. For this purpose, they introduce a new distinction into the workplace: from now on, they differentiate between “core operations,“ which are still paid according to collective agreement at the hitherto applicable rate, and “non-core operations” – the name says it all – which are newly classified at about half the level of the existing hourly wage. The employees do everything in the factory that they did yesterday or even more, but a good part of them are now “assistants” who only get low wages.

The wages of the workers at the assembly lines will increase from $28.12 to $28.85 per hour with the end of the new collective agreement (with GM). But in addition, the union agrees for the first time to a two-tier wage system:

Newly hired assistants, such as drivers who do not work on the assembly line, will in the future only receive $14.00 to $16.23 per hour. At the moment, replacement offers are to be made to 16,000 employees at full wages in these functions, and with layoffs they are to be replaced by cheaper new workers… GM has made production promises for 16 of 18 American auto factories and wants to make 3,000 part time workers full time employees. The labor union has reached its principal purpose of securing wages and other earnings, as well as the jobs of the current members. (Financial Times Germany, September 29, 2007)

Again, the UAW rises to a new task. It may and should be involved when it concerns the classification of jobs. The definition as to which jobs are placed in the low wage category and which are not is a collaborative effort between the union and production management, which on “site tours” supplies them with the material for its classification business. For example, the UAW and GM in collective bargaining agreed on the 16,000 number. However, it is clear that capital does not feel bound to such a number; it urges that reclassification turn out as many as possible. Also, the greater number of “core” jobs are by no means left unaffected. The union finds itself ready to cut the remaining employees too. All previously scheduled accessory production is cancelled; in addition, the wage components that the old workers acquired by their loyalty to the company are cancelled. New hires give the company not only the freedom to sort as many as possible into the new cheap wage level. They also offer an opportunity to rein in other “vested rights” of the old staff that it no longer considers bearable. Furthermore, the companies also envisage – they make no secret about this – decisively squeezing down the “core wages” with the new hires. For them it is certain that in the future – regardless of the major decrease in supplemental benefits – employees will no longer receive the “$28.85” basic wage rate still valid in the collective agreement.

Third: Wage cuts by staff replacement

Barely are the new collective agreements a done deal, and Ford and GM let it be known that they want to disassociate in a big way from the employees. Ultimately, they notice that the scheduled wage cuts can be achieved only to the extent that the workers who are still paid the old wages are willing to retire and allow a successor to step in their place. GM & Co. therefore make their best efforts to help along the “natural attrition.” They would prefer to replace the whole crew with one stroke. GM thus offers severance pay to its entire staff of 74,000 employees if they are willing to take early retirements or simply turn their backs on their factory and leave the place for the new cheap workers:

There are some jobs we want to economize on where we are overstaffed; but the bigger part concerns a replacement of staff. (Henderson, Chief Financial Officer of GM, Wall Street Journal, February 12, 2008).

Agreements with the union again serve as a lever for the comprehensive replacement program. It has also made provisions for this case and has arranged with the companies in detail what it has to cost per prole, after completed service life, to be free from workers they judge too expensive or completely redundant. Under no circumstances does the union want to seriously stand in the way of capital's need for layoffs and replacements – certainly not in times when capital makes the alternative clear: instead of making large-scale investments in the parent plants, thus under UAW supervision, the company could outsource more jobs. So it provides the appropriate cheap wage conditions within the company itself instead.

The company pension fund is tapped to finance this program:

The money for the compensation of the younger employees is situated by the company; the money for the special payments to the employees with long seniority comes from the company pension fund for workers. As the CFO of GM announced, the pension fund of GM currently has plenty of surplus funds with which bonus payments for early retirement can easily be paid. (Wall Street Journal, February 12, 2008)

Thus the employees' pension contributions are put to good use. They may be used to finance the settlement costs of their own price reduction.

Fourth: Successful outsourcing – cheaper wages to the Mexican level

Alongside the “Big 3” with their cost reduction program organized by collective bargaining, supplier operations which the Big 3 created themselves by outsourcing from their operating divisions act as forerunners in imposing a general wage level that once and for all gets rid of American auto workers' previous wage level with their modest social benefits. American Axle (AAM), a GM-outsourced manufacturer of axles and transmission components still bound to the old GM wage level during a transition period, ensures for more profitable labor in a different way: “The company is characterized by top quality in this industry and strong growth in productivity,” as the union proudly comments on the reduction of employees from 6,500 to nearly half (uaw.com, March 1, 2008). At the end of the transition period beginning in 2008, the company cuts the average hourly wage in half, cancels all benefits and eliminates special payments to the program and makes it clear at the same time that it is not interested in union proposals for how “labor costs can be significantly lowered and flexibility of work input secured.” It wants to square away not only the past wage level, but the influence of the union. Incidentally, it invokes the fact that the UAW already conceded cheaper wages to another supplier outsourced by GM. In the case of American Axle, however, the workers refuse to go along with this and so force the hand of their union leadership, and this results in “the longest strike in the automobile industry in 40 years … AAM recruits strike breakers among the massive number of automobile workers who have been made unemployed, threatens lockouts and outsourcing large parts of production to low-wage countries such as Mexico” (Financial Times Germany, April 4, 2008).

The parent company gives its full support to its war plan; affected by the strike in production, it cuts work in 32 factories – sales on the US market have come to a standstill anyway – and urges toughness: the auto giant fully supports the decision of AAM to deal its workers a decisive defeat. Thus GM supports the outsourced company as a comrade in arms that spearheads its own wage reduction program.

The “decisive defeat” looms in the meantime: the UAW leadership agrees with American Axle on a collective bargaining contract that lowers hourly wages from a previous $28 for the “core employees” – the division into two parts is there also – to $18.50 and $14.55 for all the rest, as well as the closure of two factories. This offer is submitted to the strikers for a vote – accompanied by the recommendation of their union leadership that it hopes the workers will show understanding and “make a decision not on anger, but on fact … It is not a good agreement, but at this juncture, it’s the best we can do” (Gettelfinger in Morningstar.com, May 19, 2008).

So the smashing of wage conditions by the united power of capital advances. The newly created subcontracting firms invoke the low wage level prevailing “in their industry,” which they decisively advance; and the low wages in the outsourced supplier firms are invoked as the standard for wage reductions in the parent companies.

Worker representation remains

a final service for union members

The union tells them how they should look at the attacks of capital that their leadership sanctions. It might seem extremely risky when the union claims that one of the largest wage reduction programs of all time and the accompanying mass layoffs are a method for saving jobs, thus a sacrifice that is worth it – but this is what it does. For example:

“For too many years, America has stood idly by while industries moved overseas,” said UAW President Ron Gettelfinger. “U.S. autoworkers made a decision: We were fighting for U.S. auto jobs. We made progress at GM, and we’re going to continue to advocate for a strong U.S. manufacturing sector.” The tentative agreement …delivers solid economic gains for active and retired members, despite repeated attempts by GM to impose harsh takeaways. (UAW Report on the GM contract, www.uaw.org).

In its dedication to American jobs, the UAW takes measures that are consistent with what American capitalists have announced by their references to foreign cheap wage locations as their need for cost reductions. All the terms regulating the demanded radical wage cuts are then said to be inevitable in principle and a successful protection from even harsher cuts, however brutal the measures may be. The union is just consistently taking the “jobs“ argument to its logical conclusion: if the right to be allowed to work at GM, Ford, Chrysler or their dependent subcontractors stands and falls with one’s “own” company winning in the competition against its hostile brothers – then each contribution that the workforce makes to the competitiveness of “their” national company is considered a sure means to protect their source of survival and in this respect always averts greater injury. So the union emboldens itself for the insight that submission under capital is the only perspective open to its members.