Wednesday, May 17, 2006


2a. The Failures of American Industry - postscript

We often read that American companies got into trouble because of high labor costs and the push of unions for more and benefits. The fact is that American industry was in good shape 40 years ago when union membership stood at about 60% of the labor force but it is in bad shape now when union membership has declined to about 10% of the labor force. (The percentages may not be entirely accurate, but the figure I give are at least close to the true ones.)

Like many other people I drive a Japanese car made in Ohio. The last American car I drove was quite a lemon. Clearly, American workers can build high quality cars under the right management. The auto industry not failed to come up with high quality cars, they also were quite late in producing small cars. Why is that Japanese companies were first with the fuel efficient hybrid cars?

There is one American company that I am quite familiar with (Symbol Technologies) and this company's stock trades now at less than a third of its high, has undergone several management changes in the last five years, there have been significant layoffs, and several of its executives are under indictment. The company had already moved its production facilities to Mexico before its troubles started. Its remaining labor force is not unionized. What actually happen is that the company refused to make serious investments in new products because they wanted to cut down costs, so the stock price would rise and the upper management would make more money from their options. (The actual situation was a bit more complex, see In short, by maximizing the current profits the management undermined the long term health of the company.

Managers of companies do not always try to create wealth. They often prefer to take it from others (both employees and stockholders). The excuse that the ills of the American Industry are due to its high labor costs seems lame to me.
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