Last month Rick Wagoner, Chairman and CEO of General Motors (GM), wrote an opinion piece in the Wall Street Journal titled A Portrait of My Industry. I wondered if the title itself said something about the way GM runs it's business. What is good for GM isn't good enough for America these days. Wagoner said:
So what are the fundamental challenges facing American manufacturing? One is the spiraling cost of health care in the United States. Last year, GM spent $5.2 billion on health care for its U.S. employees, retirees and dependents--a staggering $1,525 for every car and truck we produced. And the figure is going up again this year. Foreign auto makers have just a fraction of these costs, because they have few, if any, U.S. retirees, and in their home countries their governments fund a much greater portion of employee and retiree health-care costs.
Some argue that we have no one but ourselves to blame for our disproportionately high health-care "legacy costs." That kind of observation reminds me of the saying that no good deed goes unpunished. That argument, while appealing to some, ignores the fact that American auto makers and other traditional manufacturing companies created a social contract with government and labor that raised America's standard of living and provided much of the economic growth of the 20th century. American manufacturers were once held up as good corporate citizens for providing these benefits. Today, we are maligned for our poor judgment in "giving away" such benefits 40 years ago.
We tend to blame globalization for all our problems. I think there is a deeper issue. What is at stake here is the basic social contract in our traditional industries: steel, airlines, and autos.
What these three industries had in common was a longstanding social contract, funded by employers, and worked out over the past half century. The unions in these industries were able to win major economic gains for their members, while their employers passed along the costs to customers. Elaborate defined benefit retirement programs were included in the mix. Back in the days when you worked for one employer till age 65 and then died at age 70, and when health care was unsophisticated and inexpensive, the social contract inherent in these programs seemed affordable.
Today, defined benefit retirement programs are undergoing major revision and replacement as industrial compensation policy. First off, the lack of portability of defined benefits forces people to stay with one employer, even though we have a much more mobile and flexible population these days. Second, the notion of having all your retirement eggs in one basket – your employer – is a concentration of risk that is proving to be inadvisable for many people in today’s fast moving economy. Finally, these programs have a way of toppling traditional large employers, and disrupting employees and retirees with limited flexibility to cope. You have to ask whether companies should be making open-ended promises to its workers for fifty years down the road.
I wonder if I am the only one who thinks that what Wagoner and Miller are arguing for is universal health care in the US.