You've probably heard by now that General Motors'
Here's an interesting thought experiment: What if the UAW ran your household finances? When it comes to government aid and intervention into companies, this question of efficiency and profitability might be a good thought experiment for the Obama administration to ponder, too.
If the UAW ran your household finances …
… things might look a great deal different, not to mention inefficient. Your kids would probably make a guaranteed $20 per day in allowance. (Hey, your kids already have "nap rooms." Perfect!) Basically, they're going to get their allowance, regardless of whether they do their chores like perfect angels, practice finger-painting skills on their bedroom walls, set the sofa on fire, or do absolutely nothing. Who needs incentives? It would just be mean not to give them $20 a day. They're entitled to it! If you want something done, you're just going to have to talk to the lawyers.
Every member of your household has to drive an American-branded car -- end of story. (You'd disown your kids if they ever considered a Toyota
When you tell your kids that the household budget doesn't allow for an Apple
Your household's a lumbering, bureaucratic organization, you're always arguing about concessions, the chores aren't getting done, the sofa's still kind of smoldering, people are yelling slogans outside (oh no, Howard brought strippers, too!), and although the UAW set up your finances, you're this close to bankruptcy or destruction if nobody helps you out. Now that's some home sweet home, right?
Good intentions, bad results
Unions have always struck me as good intentions run amok. While I truly believe that companies should treat their workers well, it can't come at the price of running a truly efficient organization; an inefficient money drain simply isn't sustainable, and then what happens to the jobs? Government and unions often don't address or acknowledge economic realities in how to run truly competitive businesses, so the good intentions can have terrible results.
Don't get me wrong, the automakers' managements can't be let off the hook, either. As much as union demands have helped undermine the businesses, the automakers' top managements have been making handsome salaries completely disconnected from the companies' woes. According to the Wall Street Journal, GM's Rick Wagoner got a salary boost last year even though the company has been losing money since 2005. (He made $1.6 million in base salary during fiscal 2007.) Ford's Alan Mulally made $2 million in base salary for fiscal 2007 and a whopping $4 million bonus. Mulally has said that top executives will take pay cuts given the current environment, but it kind of seems like too little, too late, doesn't it?
Still, the industry's problems are myriad, and powerful unions like the UAW have been seen by many as a huge political influence on Democrats and the Obama administration. There was plenty of controversy surrounding the bailout of the banks, but for many, the bailout of the auto industry (with the exception of Ford
Meanwhile, now that GM is hanging on the precipice again, we might want to be concerned about how beholden President Barack Obama may feel toward the unions that arguably helped get him elected. Massive government intervention into the marketplace is already taking place, and there's good reason to worry about the tendency of such policies to ignore economic realities and incentives for innovation, competitiveness, and profitability. GM's abysmal condition -- even after recent government financial support -- should be a clear warning to us about the dangers ahead.
Racing to the bottom?
Personally, I'm never much of a fan of government intervention into our economy. However, many smart people argue that it's not always a disaster; Motley Fool co-founder Tom Gardner points out that the Internet itself didn't actually emerge from the free market. And it's hard to hate the idea of funding for alternative energy, even if some would rather see it come from private sources interested in capitalizing off of innovation and more efficient ways of doing things.
Still, these are precarious times, and care is in order; let's hope the Obama administration thinks long and hard about the steps it takes. The automakers' unhealthy relationship with the UAW should remind us that sometimes good intentions result in a race to the bottom. And a glance at the stock charts of General Motors and Ford -- not to mention the possible continued price tag to taxpayers given the political pressures at hand -- illustrates a race to the bottom, indeed. I wouldn't want the UAW running my household finances -- now the question is, would you?
Chime in with your thoughts in the comments box below.