Free Markets, Free People

competition


So why are private unions in decline and government unions still strong?

If you haven’t figured it out yet, it has to do with competition in one area and none in the other.

How so?  James Taranto sums it up pretty nicely on the private union side of things:

The trouble for private-sector unions is that the global economy vastly increases the supply of labor, diminishing their bargaining power. If it’s too expensive to run a factory in the U.S., companies can simply move their facilities to other countries.

Or, labor isn’t worth what it once was thanks to globalization. We call that “economic reality”.  Back in the good old days for unions, they were getting wonderful pensions, outrageous benefits and $20 bucks an hour for a guy to open and close a blast furnace door.  Now they can make and ship steel across the Pacific Ocean and truck it to its destination in the US cheaper than we can make it.  Thus the shift of the industry from here.

The bonus for these companies?  No labor negotiation hassles, lower wages to pay (comparatively) and the option to move again if the costs again become onerous (and the steel industry has done that a couple of times).

However labor hasn’t yet allowed that lesson to sink in – well, at least unions haven’t.

Taranto points to a very recent example of the point as well as some union members who “get it”:

Last May, after contract negotiations stalled, nearly 800 IAM-represented employees walked off the job at Caterpillar’s hydraulic-parts factory. After a few weeks, more than 100 returned to work, fed up over the lack of progress in the talks and pinched by the union’s $150-a-week strike pay, some workers say.

When an agreement was reached in mid-August, the contract provided less than the one before it: The IAM gave in to an hourly pay freeze for veteran employees, an end to pensions, a doubling of health care premiums and a one-time ratification bonus of $3,100 instead of $5,000 under the previously proposed pact. The terms were almost identical to a Cat contract ratified by the UAW [United Auto Workers] a year earlier.

Doug Oberhelman, chairman and chief executive of the Peoria-based heavy-equipment maker, acknowledges that the givebacks hurt employees. But, in a recent speech in Chicago, he explained that management compared compensation to factory hands across Illinois and around the world and concluded that to be “market competitive,” Caterpillar had to insist on the concessions.

100 of the members of the International Association of Machinists apparently saw the handwriting on the wall, figured their family came first and returned to work.

So much for solidarity.

Hostess is another example of out of touch private sector unions.  When the Teamster’s union confronted Hostess over its claims it couldn’t afford their demands and giving into them would cause the company to have to liquidate, the Teamsters examined Hostess’s books and agreed.  They backed off.  Not the Baker’s union though.  Apparently their union chief never bothered to examine the books or negotiate.  He just advised his union to strike.  The result is well known and, by the way, the Teamsters were livid – not at Hostess, but at the Baker’s union.

Meanwhile a few facts have surfaced about the Baker’s union boss that should make members of unions everywhere recognize at least this guy for what he is:

BCTGM boss Frank Hurt encouraged the strike (knowing it could shut down the company).

As BCTGM membership has fallen 30% since 2000, Hurt’s salary has gone up nearly 45% to over $260,000

The bakery industry union pension fund is less than 50% funded ($10 billion in liabilities), yet bakery union bosses have their own fully-funded (100%) pension plan — funded by members.

Bakery union bosses Hurt and the Sec.-Treasurer both have their kids on union payroll.

We often hear complaints about CEOs who get pay raises while their companies go down the tubes.  I wonder if the left is willing to apply the same criticism to a guy who raises his own pay 45% while losing 30% of the membership and funds his own pension 100% while shorting the union member’s fund by over 50%?

Unions also tend to play at stupid games that simply frustrate people trying to run a business and make a profit.  In this case it is two different unions fighting about who gets to plug in and unplug refrigerated containers.

A federal judge has been forced to intervene in a dispute between two unions over who is in charge of plugging and unplugging refrigerated shipping containers at the Port of Portland.

Oregon district court judge Michael H. Simon ordered the International Longshore and Warehouse Union (ILWU) to abandon its efforts to snatch the responsibility of manning the outlets from the rival International Brotherhood of Electrical Workers (IBEW).

“[The ruling] simply means that the same people who have been doing the work since 1974 will continue to do it,” said IBEW spokesman Norman Malbin.

Absurd.

The ILWU’s reaction?  It said the contract with the electrical workers represented a “lost work opportunity” for members.  Of course it was a job they’d never had nor had when they tried to take it over.  But these are the sorts of things private unions are reduced too these days.  Stealing each other’s jobs.

As we’ve covered here, the great Wal-Mart walkout wasn’t a spontaneous event or even an event demanded by the workers of  Wal-Mart.  In fact, as mentioned, only 50 of 1.4 million Wal-Mart workers even walked out.

It was a union event using the front group “OUR Wal-Mart (Organization United for Respect at Wal-Mart)”, it was all set up by the United Food and Commercial Worker’s Union.   And if flopped, hideously.  In fact, the real reason the UFCWU tried to make this happen is because their stores are uncompetitive with Wal-Mart grocery stores.  If you can drive up salaries and benefits, you’ll eventually drive up prices.  You?  They couldn’t care less about you, Mr. and Ms. Consumer.

Those examples all deal with private unions.  Competition and the cost of labor are driving the reality of today’s wages.   Unions can’t deliver on the big promises anymore.  Many have not done a good job of managing their members benefits either.  Smart companies make it clear that they will willingly provide good wages and benefits without unions.  Tack on tough economic times and the need for a union becomes even less apparent.  At one point paying union dues was considered to be a positive thing.  Workers got something for the dues that they felt was greater than the cost of the dues.   Today?  More and more are seeing those same dues as a liability.

Finally, government unions.   They remain strong because there is no competition.  And, their bosses are in bed with them, negotiating with your money, not theirs.  Government’s don’t have to make a profit to stay in business, do they?

But perhaps even their act is wearing a little thin.  Take the LAX protests by the SEIU:

At LAX, although a large crowd of union members came out to protester, CBS LA notes that ”the majority of them [the protesters] were not airport workers.” They were other members of the SEIU.

So troubled were the airport workers by the Thanksgiving Day protest, the Associated Press reports that according to a press release from former union members, “a majority had signed petitions to leave the union and called upon the SEIU to cancel the demonstration.” One former union member Fred McNeill admitted to CBS LA that it had gotten “personal” for the leadership of the SEIU, “And that’s just not right.”

Another woman, who CBS LA interviewed through her car window at the airport, said she she was a union member (she did not specify which union she belonged to), but even she didn’t agree with the way the union was blocking traffic on one of the busiest travel days of the year.

Unions on both sides have become short-sighted and petulant because their golden age is demonstrably dead.  Economic reality and a changing world have dealt them severe blows and instead of looking at ways to shore up their base and maintain their presence, they’re reduced to throwing tantrums and thumbing their noses at the very people they need to suppor their cause.

Government unions can still get away with that.  Private unions can’t.   And the only reason that difference is made is because competition and economic reality rule one side and monopoly and government protection rule the other.

~McQ


Corporate taxes: We’re number 1

As of April 1st, when Japan officially lowered its corporate tax rate, we took over the top spot in the world, as James Pethokoukis points out:

With Japan officially cutting its corporate tax rate as of today, America now has the highest rate among advanced economies. Even its effective tax rate is way above average despite the likes of General Electric spending billions to game the labyrinthine code. A smarter approach would be to substitute a business consumption tax.

Now the United States might cling to second place if Japan cancels the rate reduction to help pay for the tsunami and earthquake devastation. After factoring in state taxes, America’s top rate of 40 percent would still exceed the average of 26 percent for the rest of the OECD.

No, it’s not an April fool’s joke.  We do become the nation which taxes corporate entities the most in the world.   As Pethokoukis also points out, tax rates are like sticker prices on cars – the real tax is significantly lower than that.  But in our case, even with the $40 billion in compliance costs, etc. spent by corporations to lower their tax bill, we still remain the highest corporate tax rate in the world:

Headline rates, of course, are like sticker prices on new cars. The real numbers are lower, thanks in part to the $40 billion companies spend annually to comply with, and often sidestep, the maximum levy. GE, for example, has taken heat for consistently paying less than what the U.S. tax code would imply it should.

But even taking into account the efforts of attorneys and lobbyists, the average effective U.S. rate in 2010 was 29 percent against 21 percent for international counterparts, according to the  American Enterprise Institute. And before the recession, corporate tax revenue as a share of U.S. GDP was at its highest since the 1970s.

“Competitive” is a word politicians like to throw around.  But their tax rate is non-competitive.  It is a factor that weighs heavily on where a business may choose to locate.  Or relocate.  So while we maintain the highest corporate rate in the world, we see politicians mouthing off about punishing corporations that “outsource” jobs.  It is a reaction to a problem government has created and now government talks about punishing those who react rationally to their tax rate?  Amazing.

Secondly, as we’ve said ad nauseum – corporations don’t pay taxes, their customers do.  The corporation, for the most part, simply acts as a means to pass those taxes (incorporated in the price of the good or service produced by the corporation) on to the Federal government.  Any tax rate increase in the corporate world is a tax increase on the customers of that corporation. 

What effect would lowering corporate taxes have?  Pethokoukis lays out the litany:

Politicians of all stripes have been talking about lowering corporate taxes and eliminating loopholes to pay for a sharp rate reduction.  A sharply lower rate —  Canada’s will be just 15 percent in January 2012 — would boost worker wages, investment, productivity, jobs and growth. Such reforms, though a big improvement, would still leave in place a flawed and unwieldy structure.

Like the rest of our tax structure, the corporate tax system is in bad need of reform.  And yes, it’s just another problem among a galaxy of problems that most likely won’t be adequately addressed.  That’s not to say some aren’t trying.  Pethokoukis points out an alternative that will, apparently, be introduced by Rep. Paul Ryan in the GOP’s budget plan for next year:

A better alternative might be a consumption tax where business would simply determine its liability by subtracting total purchases from total sales. The tax would then be imposed on what’s left, essentially a firm’s value added. Unlike the corporate income tax, a consumption tax would allow the cost of investments to be fully deducted immediately, providing incentives for more. Such a tax also could be imposed on imports and deducted from exports, as other nations currently do with their VATs.

The Tax Policy Center estimates an 8.5 percent consumption tax — by broadening the tax base and boosting output – would boost corporate tax collections as a percentage of GDP to 4.5 percent from the 2.4 percent the White House forecasts for the next few years. (This is the corporate tax plan, by the way, found in Rep. Paul Ryan’s “Roadmap for America’s Future.”)

If we have to have a tax, this seems eminently more workable and less onerous while not killing competitiveness or having corporations seeking other places to locate.  And the obvious bonus is  it boosts revenue for the Fed – used hopefully to pay down debt, not enact some pie-in-the-sky new entitlement we can’t afford.

~McQ


Quote of the day – health care version

Got a huge chuckle out of Steven Levitt’s opening sentence at the Freakanomics blog:

Many economists view the health-care bill passed in the U.S. earlier this year as falling somewhere between “a complete waste of time” and “actually making the situation worse.”

Indeed.  In fact, I’d have to go with the “actually making the situation worse” determination, given what we’ve seen this past couple of weeks as more and more companies react to the impact of the legislation.

The context of Levitt’s remark is a story by Delia Lloyd talking about the UK going in precisely the opposite way.  Yes, a country which has had socialized medicine for over 60 years is looking at taking steps for a more market-based health care system, with the belief it will improve the British system.

Markets?  Pricing signals?  Competition? 

Nah, our Congress just rejected all of that – couldn’t be a good thing.

[/sarc]

Why are we always 60 years late and a dollar short?

~McQ


The Public Option: When Competition Isn’t Really Competition

It is, instead, a prelude to monopoly.  That is the case with the “public option” in the health care reform desired by the left:

The problem is that government, by definition, isn’t just another economic player, and will always tend to want to control markets for its political purposes. That threatens economic as well as political liberty.

And that’s precisely what a government run entity in a private market will be directed by – politics and an outcome favorable to the goal of politics – the accumulation of power. So there’s a basic level of dishonesty going on here when those in support of a “public option” talk about “competition”. Rep. Paul Ryan calls Kathrina Vanden Heuval on just such a use:

What’s concerning about this debate with me is that you’re using capitalist rhetoric to try and move a plan that is inherently anti-market. The problem is that the facts tell us this: A public plan option quickly becomes a government-run monopoly.The actuaries are telling us is that in a few short years, the public plan option displaces the private sector, employers dump their employees on the public plan, and then they have no choices but the public plan. And so, lets not try to sell a government-run plan using free market rhetoric.

Redefining “competition” to mean nothing more than the introduction of another entity in the field is the ploy.  Relying on the economic ignorance of most Americans to carry it off is also part of the plan.

Instead competition is the battle of private entities with the same goal – market share and profit.  In a free market system that goal is attained through winning the preference and loyalty of customers for their product at an acceptable price for both consumer and producer. It is the existence of other producers and their products which keeps the other producers “honest”.   But the introduction of a government entity into such a market introduces a “competitor” which is only interested in one aspect of that competition – obtaining the preference and loyalty of customers. It has no interest or need to have that price acceptable to the producer since it doesn’t have to seek a profit to provide the product.  In fact, it can run a loss as long as it takes to clear the market of other “competitors”.  Such predatory pricing will be supported by whatever subsidies are necessary from the US Treasury.  It will end up distorting the market to the point that those who must have a profit to continue to serve their customers and produce their product (actually pay for it with money they earn) will leave the market.

That’s not “competition” by any stretch of anyone’s imagination. And, in fact, with the ability to absorb as much loss is necessary to drive private firms out means government will indeed, at some future point, enjoy a “single payer” monopoly. They’ll be the only game in town.  It seems that our government is unfriendly only to private monopolies, not public ones.

So, in summary, defenders of the public option are being blatantly disingenuous with their rhetoric and stated intent when they claim that the “public option” would introduce “competition” and keep insurance companies “honest”. In fact it won’t do that at all.  It will, instead,  evolve over time into a “market” in which the only insurance entity standing will be the government run one which will enjoy monopoly status and give the liberal left the “single payer” system it so badly wants to see enacted here.

~McQ

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