Blame US Productivity, Not Overseas Labor

By , Ronald Busch is professor of political science at Cleveland State University. David Kramer is president of an investment firm in Cleveland.

ECONOMIST Tas Papathanasis has advanced the idea on this paper's opinion page that it is the ``shameless working conditions and wages in developing countries'' that are responsible for the reduced competitiveness of United States labor (``Smyrna: The Crucible of American Labor,'' Aug. 11.) The explanation for these differences in wages are not only ``oppressive governments,'' which inhibit the emergence of democratic unions - but totalitarianism, subsidies, and a willingness to exploit native labor. Further, it is claimed that when union wages are extended to workers in third-world countries, American labor will again be competitive. This is nonsense. Wage differences between countries contribute as much to understanding the loss of US labor competitiveness as did the nostrum that wages were responsible for the inflation that bedeviled President Carter.

Unions have been important in the history of American labor, and especially so in the basic industries and the trades. But to refer to unions, as Mr. Papathanasis does, as a ``nearly sacrosanct piece of American life'' ignores their history and declining popularity. Unions, for many reasons, have never spoken for a majority of American labor. Unions were (and still are in some cases) often as closed as the ``closed'' shops against which they battled. Their membership now accounts for about one in five workers, and probably never exceeded 25 percent of the total work force.

Nor have most American workers enjoyed the high wage rates of the AFL-CIO, the proposed extension of which to third-world countries will presumably result in the resurrection of US labor. Moreover, the assumption that unions in third-world nations would be democratic must be considered in terms of our mixed experience with them. Recall the tragic outcome of Jock Yablonski's effort to make the United Mine Workers, under Tony Boyle, more democratic, and the similarly inspired democratizing efforts by the Teamsters. Decertification elections, held to expel a union from the workplace were rare before 1970. They are now increasingly frequent. And one opinion poll after another has shown that big unions, like big corporations and big government, have become objects of public suspicion. Unions sacrosanct? Yes, perhaps - but not everywhere in America.

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Most third-world countries are agrarian societies in which unskilled labor is not only abundant and cheap but, according to Papathanasis, useful to high-tech societies since high-tech automation has made many of the production tasks simple and repetitive. If this were indeed the case, then the unskilled worker in the US would be employable rather than unemployable.

The American economy has changed. From an agricultural society emerged a national industrial giant. It was a closed economy, one that, with time, was fixed by the institutions of the corporation and union. But recent developments in science and technology have made us part of a global economy. Resistance to that idea has resulted in a belated recognition of a new economic order. The outcome was predictable. The US position has slipped, and the problem is not limited to a decline in US labor competitiveness, but overall American competitiveness.

Once producer of 29 percent of the world's goods and services, the US now accounts for 26 percent of that GNP. Once undisputed leader as a dispenser of foreign aid, the US is now the largest debtor nation. In this century, the US has been the unrivaled leader in the production of steel and automobiles. No longer. Moreover, after 1992 a unified European community will pose new challenges to the US.

This decline is not to be attributed solely to payroll practices in the third world. It was the product of our unwillingness to respond to worldwide changes. To suggest that the reason for US noncompetitiveness and economic decline is cheap foreign labor illustrates how conventional wisdom can lay siege to America's determination and need to be more productive. The root cause is not wages abroad, but the practices of unions, decisions by management, and activities of entrepreneurs at home.

The problem is productivity.

Papathanasis deems productivity irrelevant to wages, since high tech equalizes productivity among nations. To the contrary, productivity is related to wages, and this in turn reflects human resources, management, investment capital, and improvements in technology. To maintain that high tech equalizes productivity, making it irrelevant to wages, ignores the conditions of productivity. Why is it that some people show up for work and others do not? Why do some workers do better work than others? Per capita income and productivity are higher in West Germany than in the US, despite the fact that the more productive West German auto workers receive 30 days of paid vacation a year. The Japanese are renowned for their productivity because it is emphasized in government policies, management decisions, and labor-management relations. Moreover, a larger proportion of the Japanese work force (29 percent) is unionized.

By and large, unions have focused their efforts on wages and rules, and too often disregard quality of work. Work rules that narrowly define jobs can be time-consuming and counterproductive. Since union treasuries, and union leaders' compensation, are determined by membership size, union leaders have been understandably reluctant to accept change that may reduce a union's size. The commitment, interests, and dedication of earlier, often founding, union leadership are today absent, having been subverted by leaders whose primary interest seems to be a life style befitting corporate management.

Nor is management blameless. Fifty years ago, studies showed a transformation in the control of the corporation from owners to managers, and the tendency for management to become self-serving at the expense of shareholders. Management's devotion to its own well-being and its obsession with ``perks'' have fulfilled, in exaggerated form, this overall direction. The numbers game, and the belief that bigger is better, is as important to management as to union leaders. Acquisitions and mergers of recent decades are often accomplished at shareholder expense. Corporate profits have been allocated to ensure management's position, and not reinvested for greater productivity. Acquisitions, the adding of value, have led to the frequently noted disparity between the assets of the corporation and the value of the company's stock. This disparity has had alarming implications for management, since venture capitalists came to see firms as potential for quick profits.

Management efforts are not directed to defending its position from profit-seeking raiders through ESOPs, ``green-mail,'' stock repurchase plans, ``golden parachutes,'' and government legislation. Its preoccupation with survival is not the only drain on their productive energies. Interest in long-term productivity has too often been sacrificed for short-term profits. Consider the auto industry's response to recent import quotas on Japanese cars. Rather than capitalizing on these restrictions with efforts to recapture lost market shares, or reinvesting to increase productivity, management raised prices on American automobiles - earning unprecedented profits. There is, finally, a managerial mind-set, and adversarial mentality - the ``we-they'' division - that dampens interest in productivity. Such thinking serves no real productive purpose.

Nor are American entrepreneurs blameless. The creative energy of American financiers, venture capitalism on the march, is no longer devoted to profit-directed investments based on productivity, but rather keenly turned to the prospects of leveraged buyouts of undervalued corporations and the profits derived from the subsequent sale of the firm's assets.

What we have today is not a problem of labors' competitiveness; it is an American problem, and many have contributed to it.

What role has government in making the US competitive? First and foremost, a serious evaluation of labor needs in the 21st century must be done, and aggressive educational and training programs pursued - based on high tech. This is clearly the most important problem we face, its urgency underscored by population projections that suggest that today's minorities, populations that are already most deprived in educational achievements and preparedness, will constitute the majority of our future labor force. We can no longer ignore or waste human resources - millions of able-bodied people who are unemployed or underemployed.

Second, the US should commit itself to new levels of support for research and development. Priority must be given to those areas in which the US has, or can have, a comparative economic advantage. If we as a nation can muster our collective will to explore space, and place astronauts on the moon, we can build, if we want, an automobile that can compete with those produced elsewhere. A rejuvenation of values is needed, and a willingness to conduct our affairs in accordance with them. From government - the recognition that laissez faire is inappropriate to a world in which many of the most productive states depend on government assistance.

Third, the US needs to address, resolutely, the problem of retraining. In our changing economy, many workers are structurally unemployed. There has been, and will probably continue to be, a ``shakeout'' of surplus labor and a ``shakeout'' of surplus management. We will need to retrain and redirect labor into those industries where we can be competitive. This will require a massive effort, and it will be essential to learn from past mistakes. We shouldn't repeat, for example, the politics and results of the Comprehensive Educational and Training Act.

Fourth, needed too is a reevaluation of present subsidy programs, based on two criteria: That they not be permanent; and that recipients demonstrate that they are capable of competing in a way that promotes US productive output.

Prof. Papathanasis warns us that, at the dawn of the 21st century, the US cannot afford to perpetuate calcified policies because they satisfy 19th century free trade economics. This warning should be modified, made useful. The message should be that the US can't afford to perpetuate policies based on obsolete 20th-century beliefs.

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