Unions, Government Websites, Labor, GM, and O'Malleynomics

And you're probably thinking "What in the hell is he talking about?"

Let's start with a recent kerfluffle in Maryland's liberal blogosphere, which FSP's has been all over. Basically, the left was in a tiff because the state had an "anti-union website" that highlighted that Maryland has a "very favorable labor climate" and goes into detail about why Maryland is (allegedly) a good state for labor relations for businesses in Maryland. The left got in a lather, emails got sent, the Secretary of DBED responded and the O'Malley Administration folded like an accordion basically in less than one business day.

Now, I'm not going to really give the Administration or FSP a hard time about that. The Administration responded to its base, they had something which was contrary to administration policy, and they fixed it. And it also shows the influence that bloggers can have on government and policy. But that's not the story here.

The real question is this: who in the world thought Maryland had a climate that encourages businesses to create jobs here in Maryland? Income taxes are up. Property assessments are up. As we saw with Walmart, if you're too successful, they'll try to pass punitive legislation so unconstitutional it couldn't stand judicial muster. The General Assembly passes bills increasing the minimum wage and requiring high "living wages" in order to compete for government contracts. And with spending still out of control, more taxes and fees could be on the horizon. Clearly, the problem with Maryland is the fact that government here remains what it has always been: Anti-Business, Anti-Worker, and Anti-Consumer. The state website, while clearly over the top in being anti-union, just goes to show how much selling Maryland needs to do in order to attract business to this state. It was quite an exaggeration of Maryland's labor environment.

Now, let's tie this all together by talking about General Motors. GM is poised to announce a massive restructuring tomorrow:

General Motors Corp. is expected to cut several thousand salaried jobs and further slash truck production in response to falling U.S. sales and Wall Street's demands for more action to stem its losses, according to two people briefed on the plan.

GM Chairman and CEO Rick Wagoner was scheduled to discuss the changes at a news conference Tuesday morning. GM released no further details, but salaried job cuts and reductions in benefits and executive compensation are likely.

What does this have to do with Maryland, other than the obvious fact that Broening Highway closed three years ago and that a large Allison transmission plant is still in White Marsh? Everything.

One of the reasons General Motors is in such deep trouble financially is the amount of control the United Auto Workers has over their bottom line. The UAW continues has negotiated to the point where salaries are higher than the demand truly is for the positions that are being filled in GM plants. Furthermore, the UAW negotiated from GM an overly generous health insurance plan for its workers and retirees, a plan that really eats into the bottom line. Now I'm not saying that these workers should not have health care, but the fact is that the UAW continued to negotiate from such a strength of power than they were required to concede virtually nothing to GM at the time. But instead of negotiating in a manner that allowed union workers to be handsomely compensated and allowed GM to continue to be profitable, the UAW continued to take, take, and take.

The problem is that a lot of people saw the GM collapse coming from a mile away. An editorial by Allen Sloan in the Washington Post from April 2005 stated:

These problems began to surface about 15 years ago because regulators changed the accounting rules. In 1992, GM says, it took a $20 billion non-cash charge to recognize pension obligations. Evolving rules then put OPEB on the balance sheet. Now, these obligations -- call it a combined $170 billion for U.S. operations -- are fully visible. And out-of-pocket costs for health care are eating GM alive.

GM spokesman Jerry Dubrowski says the company expects to pay $5.6 billion in health care costs this year for 1.1 million people covered by its plans. That's up from the $3.9 billion it shelled out in 2001 to cover 1.2 million people.

"At the time GM began offering these benefits, no one had any idea that the costs for prescription drugs and medical services would explode the way they have," Dubrowski said. True. But the UAW was astute (or lucky) enough to push the risk of covering these costs onto GM....

...If GM were making lots of money selling vehicles, this would all be manageable, sort of. GM could buy enough time for demographics to bail it out, as more retirees begin getting Social Security and Medicare, reducing GM's costs, and other retirees die off. Its ratio of retirees to workers, currently 2.5 to 1, would shrink. Alas, GM's vehicle business is in the tank. Unless GM starts making money on vehicles or gets a break from the UAW or the federal government, things are going to get really ugly. I hope that doesn't happen, but it easily could.

The bottom line: Whenever you offer someone a free lunch, make sure that you'll be able to pay the bill when it comes in.

Yes, GM suits share a significant portion of the burden here. But why has the union refused to help GM in an effort to keep the doors open? A victory to maintain 100% coverage is pyrrhic if the doors to the plant are shuttered and people are out of a job. But unions often

And this right here is why Maryland was advertising what they referred to as a "very favorable labor climate." Companies cannot afford to go where union leadership is going to force the issue and make costs prohibitively high. There is a reason that foreign car companies that build plants in America build plants in right-to-work states. There is a reason that India's Tata motors (which I wrote about in January) purchased Jaguar and Land Rover from Ford and obtained their foreign and domestic dealership and distribution network. In both cases, these foreign automakers are not forced to deal with union issues in the way that General Motors has.

Maryland, of course, is not a right to work state. In fact, we live in a state where unions have a disproportionate amount of power when compared to the actual number of citizens who are union members. And usually of course, it is the union leadership that is in the back pocket of Maryland's Democratic Leadership. Hell, in Maryland teachers are not even allowed to skimp on union dues even if they do not join the union. Freedom of choice in paying union dues, that's not something teachers in Anne Arundel County have here. Despite the rhetoric on the now defunct state website, Maryland is a state where unions (particularly union leaders) thriver financially by doing what is best for the union, not what is best for the workers or the local economy.

Think I'm joking? Do you think it is the best interest of Verizon workers to vote to strike when their contract expires in 30 days, as they are expected to do? In this economy? Does anybody really think that it's in the best interest of Verizon workers to do that at this time?

The left's uprising about this "anti-union" website shows interesting problems with Maryland's economy. While it was against the policies of the current administration, it really highlights to problems that Maryland has in selling itself to companies looking to create job growth. Maryland has positioned itself to be a very expensive place to do business, and has forced itself into a corner, much like General Motors did with their union policies.

Instead of worrying in the grand scheme of things about websites, let's think about what we can do to stop the mismanagement of Maryland's economy and actually provide real incentives for businesses to come here and create jobs. And continued tax hikes, anti-business legislation, and unchecked spending is just the way to ensure no such job creation happens.