Normative Narratives

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Economic Outlook: In Chattanooga VW Union Vote, It’s One Version of “Business As Usual” vs. Another

German automaker Volkswagen AG, in a brief but bluntly worded statement on Thursday, said a vote this week on union representation at its Chattanooga, Tennessee, plant would have no bearing on whether it will build a new crossover vehicle there.

The statement was contrary to U.S. Senator Bob Corker’s announcement on Wednesday that he had been “assured” that if workers at the factory reject United Auto Worker representation, the company would reward the plant with a new product to build.

Bob Corker:  “I’ve had conversations today and based on those am assured that should the workers vote against the UAW, Volkswagen will announce in the coming weeks that it will manufacture its new mid-size SUV here in Chattanooga,” Corker said on Wednesday

A spokeswoman for Corker did not respond when asked whether the senator also meant that a vote for the UAW would mean that the plant would not get the new product, which could create an estimated 1,500 new jobs.

National Labor Relations Board expert Kenneth G. Dau-Schmidt, who is professor of labor at the University of Indiana-Bloomington, said Corker was trying to intimidate workers into voting against the union.

“I’m really kind of shocked at Corker’s statement,” said Dau-Schmidt. “It’s so inconsistent with what VW has been saying and VW’s labor relations policy in general.”

Another labor expert, Harley Shaiken of the University of California-Berkeley, said, “The senator’s comments amount to economic intimidation that undermines the whole nature of union representation elections.”

Shaiken often advises UAW officials.

“If the senator’s statement doesn’t violate the letter of the law, it certainly violates the spirit of the law,” Shaiken said.

“There is no connection between our Chattanooga employees’ decision about whether to be represented by a union and the decision about where to build a new product for the U.S. market,” said Frank Fischer, chairman and chief executive officer of Volkswagen Chattanooga.

Earlier this week, Tennessee Republican lawmakers said if the UAW is voted into the Chattanooga plant, Volkswagen could lose millions of dollars in state incentives. In order to entice Volkswagen to build its new U.S. plant in Corker’s hometown of Chattanooga, the state gave it about $580 million in incentives.

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“Tennessee’s battle over VW union vote has national implications”

If the workers at the VW plant do vote to unionize, they would adopt a German-style works council, the first of its kind in the U.S. Every VW factory worldwide, aside from the Chattanooga plant, has both union representation and a works council—making it an essential part of the VW culture.

Works councils, which are common in VW’s home country of Germany, are groups elected by the entire workforce that work with management on problem-solving and contribute to company-wide decision-making. Many German companies consider them to be a key component of high-quality manufacturing businesses. If Chattanooga workers vote not to unionize, they’ll be the only group of VW workers without direct say on matters such as the input on factory locations, work hours, vacation days and plant rules. 

Tennessee is a right-to-work state, which means that if Volkswagen workers do vote in the UAW, employees will still have the right to decide individually whether to join and financially support the elected union. Still, union membership has been sharply declining in most of the country–even Michigan–so a pro-union vote in Tennessee would signal a bit of a comeback for unions.

Last week, Chattanooga mayor Andy Burke told The New York Times, “Chattanooga has unique assets that allow us to grow economically. The same things that brought VW here — quality of life, a productive work force, wages that compare favorably to the rest of the country — those will still exist regardless of what happens with unionization.”

Frank Fischer, chairman and chief executive of Volkswagen Chattanooga released a statement last week asking that workers be allowed to make up their own minds. “Volkswagen Group of America and the U.A.W. have agreed to this common path for the election,” he said. “Volkswagen is committed to neutrality and calls upon all third parties to honor the principle of neutrality.” Perhaps the politicians should do the same thing, and trust these U.S. workers enough to make up their own mind.

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This situation is largely similar to the Boeing case which recently resulted in Washington’s workers voting against their self-interests (privatization of pensions) in fear of losing their jobs. In both cases, we have a situation involving large public subsidies and union-busting, benefiting large corporate interests at the expense of average workers:

The story of Boeing is an example of how ruthlessly U.S. businesses use the needs of some workers to justify lowering the standards of others, to the ultimate detriment of both.

The deals aren’t only on the price of labor, but on the size of subsidies, which states and municipalities must fit into their budgets by either raising taxes or cutting services.

Unless American workers miraculously rediscover collective bargaining or begin to lay claims on the government to promise what organized labor once provided, then their lives will continue to be shaped by companies like Boeing. Their wages will be taken out of their pockets, their tax money out of their schools and roads, and once they retire, they will be left with nothing but a 401(k), waiting for the next stock market crash.

There is one disturbing difference between the Boeing and VW example. In the case of the UAW, it is not even the company itself advocating against union membership. In fact, as discussed above, unions and workers-councils are part of VW corporate culture:

Unionization efforts typically face strong opposition from employers, but in this case VW has remained neutral, with criticism coming mainly from conservative politicians and anti-union third-party groups like National Right to Work, a Koch Brothers-funded group.

Large subsidies, aside from their explicit cost to taxpayers, implicitly give private corporations leverage over unions. Since subsidies are generally not tied to any long-term obligation from the company receiving them, that company can pit tax-payers against unions. This is exactly what happened in the Boeing situation:

In November, Boeing announced another new expansion project that concerned the construction of their newest planes, and the Washington State legislature granted the company the largest tax subsidy in the nation’s history to get them to stick around. Then, Boeing approached workers halfway through their contract extension and offered them a deal: Cut your retirement or we won’t make our newest plane in your town; refuse to back down and the taxpayers of Puget Sound can blame you for wasting their $8.7 billion.

In the rare case of a company that believes in workers rights and employee ownership of the production process (as VW does), subsidies give lawmakers leverage over workers. Vote down union membership, or we will withhold the subsidy. This would drive up the companies cost significantly more than just union membership itself, potentially forcing the company to relocate. Such actions serves the lawmakers ideological stance–they can say “look, unionization chased the jobs away”.

Either way, the subsidies are a corrupting and market distorting mechanism. Chattanooga Mayor Andy Burke has it right–let a municipality stand on its merits when attempting to woo a potential employer. It should be made illegal for municipalities to offer subsidies to employers; if a company wished to do business in America, it should be because of our skilled workforce and large consumption base, not because of some “race-to-the-bottom” or a short-sighted subsidy. A global carbon-tax would complement such a policy nicely; by making it more expensive to ship goods from abroad into America, America itself would become a more attractive manufacturing site.

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Update: The Chattanooga VW workers voted down UAW membership last Friday, 712-626. While the future site of production for VW’s new crossover remains uncertain, VW does not seem pleased with political meddling in workers affairs, stating such actions may compromise future VW partnerships in America’s south:

“I can imagine fairly well that another VW factory in the United States, provided that one more should still be set up there, does not necessarily have to be assigned to the south again,” said Bernd Osterloh, head of VW’s works council. 

“The conservatives stirred up massive, anti-union sentiments,” Osterloh said. “It’s possible that the conclusion will be drawn that this interference amounted to unfair labor praxis.”

Well done Sen. Corker!

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Economic Outlook: The G20, Austerity v. Stimulus, Growth and the Right to Development

Original article:

“The Group of 20 nations pledged on Saturday to put growth before austerity, seeking to revive a global economy that “remains too weak” and adjusting stimulus policies with care so that recovery is not derailed by volatile financial markets.”

“Finance ministers and central bankers signed off on a communiqué that acknowledged the benefits of expansive policies in the United States and Japan but highlighted the recession in the euro zone and a slowdown in emerging markets.”

“Officials backed an action plan to boost jobs and growth, while rebalancing global demand and debt, that will be readied for a G20 leaders summit hosted by President Vladimir Putin in September.

 “Sources at the meeting said Germany was less assertive than previously over commitments to reduce borrowing to follow on from a deal struck in Toronto in 2010, with the improving U.S. economy adding weight to Washington’s call to focus on growth.

With youth unemployment rates approaching 60 percent in euro zone strugglers Greece and Spain, the growth versus austerity debate has shifted – reflected in the fact that G20 finance and labor ministers held a joint session on Friday.”

“The G20 accounts for 90 percent of the world economy and two-thirds of its population – many living in the large emerging economies at greatest risk of a reversal of capital inflows that have been one of the side effects of the Fed stimulus.

‘One thing we would like to emphasize is the importance of coordination,’ said Indonesian Finance Minister Chatib Basri, cautioning that scaling back policies of quantitative easing elsewhere “immediately affects” emerging markets.”

“The International Monetary Fund warned that turbulence on global markets could deepen, while growth could be lower than expected due to stagnation in the euro zone and slowdown risks in the developing world.

‘Global economic conditions remain challenging, growth is too weak, unemployment is too high and the recovery is too fragile,’ Managing Director Christine Lagarde told reporters. ‘So more work is needed to improve this situation.'”

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Yesterday I discussed the coordinating role groups such as the G20 play in today’s globalized economy. That post focused specifically on coordinating efforts to curb corporate tax-evasion. Today’s article emphasizes that fiscal and monetary policies must also be coordinated in order to achieve sustainable human development on a global scale.

Fiscal stimulus efforts must be coordinated; if they are not, the benefits of an individual countries stimulus programs will not be fully realized. Consider a hypothetical jobs program in the U.S. If this program is enacted unilaterally, then depressed demand in export markets (ex E.U.) will cause increased production capacity in the U.S. to lead not to greater trade but surplus goods and lower prices–employment gains will not be sustained by the private sector and will likely be reversed once stimulus money runs out. However, if fiscal stimulus programs were coordinated, and both the U.S. and the E.U. increased productive capacity and income, then a basis for trade and self-sustaining growth could emerge, making fiscal stimulus a short-term “shot in the arm” (as it is intended to be) instead of a permanent program (which is not sustainable for governments and often leads to uncompetitive industries).

Monetary policy must also be coordinated. Quantitative Easing by the U.S. Federal Reserve and the Bank of Japan have injected cheap money into the global economy. Seeking higher returns, this cheap money is often channeled towards emerging markets (such as the “BRICS”). One fear is that once QE policies wind down, emerging markets will experience “capital flight” as higher returns become available in more stable markets. In order to temper this inevitable effect of monetary tightening, both monetary policy coordination and “forward guidance” are needed from major central banks. Bernanke recently reasserted that the Fed will continue bond-buying until U.S. unemployment drops to 6.5% or inflation rises to 2.5%. However, this forward guidance is slightly muddled by ideological differences within the Fed, and amplified by Bernanke’s presumed exit as chairman of the Fed early in 2014. Coordinated monetary policy can provide the clarity needed to assuage markets. In a surprise move a few weeks ago, ECB head Mario Draghi “promised rates will remain ‘at present or lower levels for an extended period of time.’” Indications that the ECB and BoJ are committed to providing liquidity to global markets will make the Feds (eventual and inevitable) retreat from QE less damaging to global markets.   

This G20 meeting has ushered in much welcome news, “in contrast to an ill-tempered G20 meeting in February colored by talk of currency wars.”

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About a month ago, I discussed the impacts of austerity programs on states human rights obligations. This post focused a study Spanish austerity and healthcare. The G20 is more concerned with global issues (although Spain and Greece are still a poster children for youth unemployment and the social deterioration that austerity can cause during a recession, and are therefore common examples for pro-stimulus / anti-austerity proponents).

People often consider human rights as positive or negative rights; either the government has to directly provide a good / service or prevent another party from violating human rights. Another aspect of human rights is creating an enabling environment for sustainable human development. “The right to development, which embodies the human rights principles of equality, non-discrimination, participation, transparency and accountability as well as international cooperation, can guide our responses to a series of contemporary issues and challenges. The right to development is not about charity, but enablement and empowerment. High Commissioner for Human Rights Navi Pillay has called on governments and all concerned…to move beyond political debate and focus on practical steps to implement the Declaration. ‘States have the duty to cooperate with each other in ensuring development and eliminating obstacles to development,’ according to the Declaration (full text here).”

One essential element of the right to development is the international recognized “right to work”. Article 23 of the Universal Declaration of Human Rights states, “Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.” This right is a particularly important aspect of the right to development, as work income provides a means of self-determination and the ability reduce dependence on welfare programs as people attempt to realize their personal goals and aspirations.

Sometimes people do not work because they are lazy, or suffer from physical or mental conditions which impede their ability to find or maintain work. However, when unemployment rates are above 20%, and youth unemployment is above 50%, this can hardly be attributed to laziness (unless you think the world’s lazy people are all collaborating and putting themselves through years of misery in order to remain lazy, but that argument is absurd hard to sell). Such high unemployment levels are due in large part to government inaction / inability to pass stimulus programs, and the negative effects of austerity programs in the face of inadequate private sector demand / personal consumption (this is not stipulation or a normative stance, but rather what textbook economics tells us).

Such high levels of unemployment represent a failure of states to uphold the universal human “right to work”, which undermines the internationally recognized “right to development”.  For years now, economic policy has been dominated by politics and vested interests. It is heartening to see national labor and finance ministers finally coming together to “eliminate obstacles to development”. More concrete programs will probably hopefully be hammered out when heads of state come together in Moscow in September for the G20 leaders summit.

I hope this is not “too little too late”, and that the years since the Great Recession took hold have not lead to “lost generations” of young people who are doomed to a lifetime of anti-social, unproductive, and sometimes criminal behavior (as some people have argued). While there will inevitably be some lifetime dependents resulting from the Great Recession (as there always are from traumatic experiences, be they economic downturns, natural disasters or violent conflicts), I am optimistic that as a whole young adults and the unemployed in general are eager to get back to work once the global policy coherence needed to create those jobs is established. G20 meetings this past week represent a meaningful step in that direction.