Beaten down worked up, p.18
Beaten Down, Worked Up, page 18
In the 1970s, unions averaged 289 large strikes per year involving a thousand or more workers. In the decade after the PATCO strike, the number of work stoppages per year plunged to an average of 58. Unions had grown gun-shy about using their most powerful weapon—strikes—because they were losing too many of these high-stakes battles. The decline in strikes was good for companies and overall economic efficiency, but there was a cost for workers; those who participated in strikes generally had higher wages than comparable workers who hadn’t gone on strike. Walkouts had pried extra pay and benefits out of companies. Jake Rosenfeld, a labor relations expert at Washington University, said that for the overall union movement, “falling strike activity” represents “a real financial loss, and a clear sign of declining power.”
Over the past decade, there have been just thirteen major strikes a year on average. A weapon that was long labor’s powerful sword has largely disappeared from America’s industrial landscape (although there was a surprising surge of teachers’ strikes in 2018).
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In many ways, the 1970s were a precursor of labor’s calamitous 1980s. As the 1970s began, organized labor still had plenty of clout and was even able to get Republican presidents to sign significant pro-worker legislation. It is often forgotten that Richard Nixon was attentive to worker concerns. He signed the Coal Mine Health and Safety Act of 1969 and the Occupational Safety and Health Act in 1970, probably the most important pro-worker legislation since the New Deal. And Gerald Ford, Nixon’s successor, also heeded worker concerns, signing the Employee Retirement Income Security Act in 1974. That landmark law, sponsored by a Republican senator, Jacob Javits of New York, sought to safeguard employee pensions after Studebaker, an automaker, collapsed, leaving forty-one hundred of its workers with just 15 percent of their promised pensions.
Also in the 1970s, American industry first felt the bite of imports in a serious way. In the previous two decades, the United States was the world’s unchallenged industrial colossus as Europe and Japan recovered from the ravages of world war. But in the 1970s, American manufacturers confronted a rising tide of imports: Volkswagens from Germany; Hondas, Toyotas, and Sony televisions from Japan; and steel from Belgium and Romania. In 1971, the United States experienced its first trade deficit since the late nineteenth century. Indeed, starting in 1976, the nation has run a trade deficit every year.
In 1973 OPEC ordered an oil embargo against Western nations after the Arab-Israeli War of that year, and that was followed in 1979 by a second oil crisis caused by plummeting production in Iran after the mullahs swept to power. Those shocks caused oil prices to skyrocket from $3 a barrel to $31. That sent inflationary waves through the economy and set the stage for a deep recession that devastated workers and unions alike.
Other far-reaching trends also undercut labor in the 1970s. Productivity growth slowed to a 1 percent average annual increase, down from a nearly 3 percent annual clip during the 1950s and 1960s. The corporate rate of profit was falling, too, and many companies, alarmed by these trends, started resisting unionization and began driving a harder bargain in contract negotiations.
In the 1980s, everything seemed to go wrong for labor. A confluence of forces—recession, imports, deregulation, technological change—clobbered the nation’s unions. After the 1979 oil shock, consumer prices jumped by 12 percent in 1980, and the Federal Reserve set out to break the back of inflation. The Fed raised interest rates to a record high of 20 percent, slamming the brakes on consumer spending and throwing the economy into a severe slump. The nation’s jobless rate climbed to 10.8 percent, the highest level since the Great Depression. Paul Volcker, the Fed’s chairman, warned that to bring inflation down, “the standard of living of the average American has to decline.”
That brutal downturn and the surge in imports devastated the industrial Midwest, as well as organized labor’s core membership: factory workers. The unflattering term “Rust Belt” was invented as steel mills, auto assembly plants, and machine shops shuttered in community after community as a result of the huge overcapacity caused by recession and imports. Between 1979 and 1983, 2.7 million manufacturing jobs vanished, with Michigan’s jobless rate climbing to a chilling 16.5 percent at one point. One of the era’s most painful moments came in 1983, two days before Christmas, when United States Steel, an icon of American industry since the days of Andrew Carnegie, announced that it was shutting down nearly one-fifth of its steelmaking capacity and laying off 15,000 workers. The number of steelworkers nationwide plunged from 450,000 in 1980 to 170,000 at decade’s end, and the steelworkers’ average hourly wage shrank by 17 percent, after accounting for inflation. Auto industry employment also fell sharply, from 760,000 in 1978 to 490,000 three years later. By decade’s end, foreign cars had captured 30 percent of the U.S. auto market, up from 20 percent in 1980.
Corporations now repeatedly demanded concessions. In late 1979 and early 1980, with Chrysler on the verge of bankruptcy, the UAW agreed to over $650 million in wage and benefit concessions to keep the company afloat. GM and Ford weren’t in Chrysler’s parlous condition, but they nonetheless obtained similar givebacks. In return for GM’s promise not to close several assembly plants, the UAW agreed to defer its cost-of-living adjustment and to eliminate the cherished annual improvement increases that Walter Reuther and GM’s Charles E. Wilson had championed. That move seemed to unofficially sever an important link—that as productivity rose, worker pay would rise along with it.
As Nelson Lichtenstein points out in his insightful book State of the Union: A Century of American Labor, the competitive challenge from Europe and Japan called into question the raison d’être of America’s unions and of the New Deal legislation that promoted them—the notion that “unions are good for industrial society because they raise wages, not only for union members themselves, but for the entire working population.” In Reuther’s era, many Americans viewed union wage increases as an unalloyed good because they helped build the middle class, spur consumer demand, lift living standards, and spread prosperity.
In the 1950s and 1960s, the raises that unions won hardly endangered companies in core industries like autos, steel, and tires, where competition was anything but fierce because they were largely oligopolies. If wage hikes pushed up prices, it was easy enough for GM or Goodyear to pass that on to the consumer. That changed when American industry began facing fierce competition from Europe and Japan. Many manufacturers warned that wage hikes and generous benefits not only undercut their competitiveness but jeopardized the survival of their operations.
It was true, as labor’s many critics pointed out, that higher-paying unionized factories were often the first to close due to lower-priced imports (union members often hesitated to have their pay and benefits cut to make their companies more competitive). But many nonunion factories shuttered as well. That was true of many garment companies, which couldn’t compete with factories in China, Honduras, Vietnam, and Bangladesh, countries where workers often earn a fraction of what American workers earn. Manufacturing had long been the heart of organized labor, so the wave of factory closings caused a concomitant drop in union membership. In the two decades after 1973, the International Ladies’ Garment Workers’ Union lost nearly 400,000 members (two-thirds of its membership), while the UAW lost 500,000 members, and the International Association of Machinists lost 300,000.
Deregulation also walloped unions. President Reagan continued Jimmy Carter’s push to deregulate key industries in order to spur competition and cut costs for consumers. In doing so, Reagan shook up several highly regimented and highly unionized industries, most notably airlines, trucking, railroads, and telecommunications. Deregulation ended restrictions on where trucking companies could dispatch their eighteen-wheelers and which cities airlines could fly to. As intended, deregulation spurred an influx of lower-cost competitors, putting immense pressure on many long-insulated unionized companies. Some well-known corporations collapsed—Pan Am and Eastern Airlines among them—while many companies demanded far-reaching givebacks from workers to stay competitive. In the airline industry, annual wages and benefits averaged nearly $42,000 per worker in 1982; at the new, nonunion carriers, total compensation averaged just $22,000. That of course fueled demands for painful concessions from labor.
The International Brotherhood of Teamsters prided itself on having the clout to get hundreds of trucking companies to sign on to a nationwide standard in the form of a master freight agreement. In 1979, that agreement covered 285,000 long-haul drivers. A decade later, after deregulation, that agreement covered just 165,000 drivers because many unionized trucking companies went out of business. A big factor: the pay at nonunion carriers was 25 percent to 40 percent lower. In 1979, before deregulation, 50 percent of U.S. trucking tonnage was hauled by Teamster drivers; five years later, just 23 percent was.
Drew Lewis, who became president of Union Pacific Railroad after serving as Reagan’s transportation secretary, noted that rail and truck deregulation was pushing down railroads’ volume and the rates they charged. “The only way we can increase earnings is going to be cutting labor costs,” Lewis said.
A. H. Raskin, the dean of American labor journalists, saw how the 1980s was having a devastating effect on workers and worker power: “The Gompers gospel of ‘more’ as the main function of unionism has become a shaky proposition…when many unions find it necessary to settle for less under the hammer blows of mass unemployment, savage trade competition, and the threatened extinction of highly unionized industries that had been traditional frontrunners in wages and benefits.”
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Then, as now, corporate America was overflowing with upbeat talk about how automation and technological change would bring a brighter tomorrow. New production techniques swept through many industries in the 1970s and 1980s, and that, too, took a heavy toll on unions—and, of course, many workers.
There is a famous anecdote about a Ford Motor Company executive goading Walter Reuther about how automation would undermine labor unions. While giving Reuther a tour of a Ford plant in Cleveland in the 1950s, the Ford official pointed to some early robots that did various assembly-line tasks. He asked Reuther, “How are you going to collect union dues from these guys?”
Reuther responded, “How are you going to get them to buy Fords?”
A new production technique developed by Iowa Beef Processors (IBP) revolutionized the meatpacking industry and hobbled its unions. Eschewing the longtime practice of having skilled butchers take apart a whole animal, IBP created assembly lines (actually disassembly lines) where unskilled workers did the same simple tasks day after day to take apart a steer—a worker might do the same knife cut ten thousand times a day. This new method meant that IBP could use lower-paid workers. IBP usually built its slaughterhouses in lower-wage rural areas, forcing many high-paying, unionized slaughterhouses and packinghouses in Chicago, Omaha, and elsewhere to shut down, eliminating thousands of unionized butcher jobs. (This new system, and the box beef it shipped, also eliminated many unionized butcher jobs in supermarkets.) One of IBP’s many ripple effects was that where meatpackers were unionized, management demanded big wage cuts; Hormel Foods, for instance, demanded a 23 percent wage cut at its plant in Austin, Minnesota, in 1985, igniting an extraordinarily divisive six-month strike.
Containerization—shipping goods in large metal containers instead of as separate pieces—changed the landscape, too. According to one study, in 1969, it took 500 workers three months to unload a nine-hundred-foot cargo ship through traditional “break bulk” practices that relied on manual labor to remove individual items or boxes. Several decades later, after the containerization revolution, it took just 10 workers twenty-four hours to unload such a ship as large cranes lifted and moved one fifteen-ton, forty-foot-long container after another. As a result, the number of longshoremen in the Port of New York and New Jersey plunged from 35,000 in 1954 to 2,700 five decades later, while the tonnage unloaded more than tripled and production per worker increased more than thirty-fold. Similarly, the number of West Coast dockworkers plunged from 100,000 in the 1950s to 10,500 in the early twenty-first century.
The nation’s seaports boomed as more American companies—Walmart, Macy’s, Nike, General Electric (and later Apple)—looked overseas to source what they sold, whether blouses, blue jeans, running shoes, radios, or iPhones. Thanks to globalization and new technologies like containerization, faxing, and email, American companies could now often locate an operation abroad more profitably than in the United States. That, too, reduced the number of American factory jobs and, along with them, organized labor’s membership and strength. (Recently we’ve seen the same trend with call centers.)
There are thousands of examples of American companies moving operations abroad—to make televisions in China, refrigerators in Mexico, or shirts and slacks in Bangladesh. Many corporations told unions to swallow concessions or else they would move production overseas. Here’s one example: In 1988, General Electric said it would close an aging factory in Fort Wayne, Indiana, that made electrical motors and relocate abroad unless the union agreed to a 12 percent pay cut. “There’s a bunch of guys in Thailand, Korea, and Brazil who get up every morning and try to figure out how to eat your lunch and take your market share,” said David C. Genever-Watling, the head of GE’s motor division. The Fort Wayne workers voted by more than two to one to accept an 11 percent pay cut to save their jobs. “It used to be that companies had an allegiance to the worker and the country,” said Jim Daughtry, a leader of the factory’s union. “Today, companies have an allegiance to the shareholder. Period.” Those words were prescient.
Globalization reduces American workers’ bargaining power as well as their wages. A study by three Harvard economists—George J. Borjas, Richard B. Freeman, and Lawrence F. Katz—concluded that for every 1 percent drop in an industry’s employment because of imports or factories gone overseas, wages are pushed down by half of 1 percent for the workers who remain in that industry. Robert A. Johnson, a New York financier, described how globalization has tilted the playing field against labor. “Now capital has wings,” Johnson said. “Capital can deal with twenty labor markets at once and pick and choose among them. Labor is fixed in one place. So power has shifted.”
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A profound change in American capitalism—its swing from managerial capitalism to investor capitalism (also known as financial capitalism)—has undercut workers and unions alike. As a result of this shift, corporations have focused far more on maximizing their profits and share price, and in doing so, they have generally taken a tougher stance on labor costs and unions. In the postwar era of managerial capitalism, CEOs had firm control of their companies. With corporate headquarters often adjacent to a major factory, top executives were frequently supportive and generous toward their employees. In that era, it was easier for CEOs to be generous to their workers because executives went largely unchallenged by shareholders. From that era come tales of greater social solidarity, of future CEOs who had fought alongside blue-collar soldiers in World War II, and of those CEOs making sure two or three decades later that they treated their blue-collar workers fairly and well, even if it meant somewhat lower profits.
Corporate America’s behavior changed with the rise of institutional investors. Now corporate executives came under fierce pressure to focus on maximizing profits and share price. CEOs knew that if they didn’t get profits up and keep them up—and that often meant squeezing labor costs—they risked being ousted, either by corporate takeover or by a peeved board of directors. In 1965, 84 percent of stock in publicly traded corporations was owned by individuals and just 16 percent by institutional investors. By 2010, institutional investors owned 67 percent. All this gave fund managers a much larger say, and they often didn’t hesitate to unload on CEOs who fell short of quarterly earnings forecasts.
For many in corporate America, Jack Welch, General Electric’s CEO, was the model to follow. In his first six years at GE’s helm, Welch aggressively shut or shrank lagging businesses, eliminating 130,000 jobs, one-fourth of the company’s workforce. During his reign from 1981 to 2001, GE’s valuation went from $13 billion to $500 billion—the highest in the world. While many workers called Welch heartless, Fortune magazine hailed him as “far and away the most influential manager of his generation.”
The compensation system for CEOs further fueled the focus on maximizing profits and share price (and squeezing down costs). From 2006 to 2014, the five hundred highest-paid U.S. corporate executives received 76 percent of their income in stock options and other stock-based compensation, creating huge incentives for them to push share prices ever higher. Taken together, CEOs’ desire for more stock-based pay and corporate America’s preoccupation with maximizing share prices have fueled a surge in stock buybacks—more than $5 trillion worth over the past decade. Instead of further enriching shareholders, some of that money could have gone to workers’ raises and helped end years of wage stagnation.
In 1990, the Business Roundtable, an association of the CEOs of the nation’s leading companies, stated, “Corporations are chartered to serve both their shareholders and society as a whole.” In other words, top corporations were not to focus only on share price; they should also serve the “company’s employees, customers, suppliers, creditors and the community where the corporation does business.” The Roundtable added, “The central corporate governance point to be made about a corporation’s stakeholders beyond the shareholders is that they are vital to the long-term successful economic performance of the corporation.”
