GM Strike Marks End of an Era

The United Auto Workers' strike against General Motors last week turned out to be brief. The company and union negotiators reached agreement not much more than 48 hours after union members started picketing. It barely made the front pages of most newspapers and seems to have made few ripples in the stock market. It didn't last long enough for any Democratic presidential candidate to walk the picket line.

What a contrast with the last UAW national strike against GM. In September 1970, 400,000 workers, 0.5 percent of the nation's nonfarm employees—1 of every 200 workers—walked off the job. Last week, only 73,000 workers struck, 0.05 percent of the national total. The 1970 strike lasted two months, during which the national unemployment rate rose from 5.1 percent to 5.5 percent. It was estimated that the strike cut the growth in gross domestic product for the quarter from 2.5 percent to 1.4 percent. The 2007 strike lasted two days, and its effect on GDP seems negligible. At the time of the 1970 strike, GM accounted for 50 percent of all U.S. auto sales and foreign manufacturers for only 15 percent. Now GM accounts for 24 percent of U.S. auto sales and foreign manufacturers 49 percent.

And, of course, there is this: In 1970, GM was the nation's largest corporation, hugely profitable, so dominant in the industry that its executives were fearful the government would bring an antitrust suit against it. In the past two years, GM lost $12 billion.

30-and-out. No one seems to have expected this back in 1970. "We are the architects of the future," Walter Reuther, UAW president from 1946 until his death in a plane crash in spring 1970, proclaimed. The 1970 contract restored the cost-of-living adjustments Reuther had set aside three years before, instituted "30-and-out" (retirement after 30 years), and increased the already lavish healthcare benefits. The definitive book on the 1970 strike, The Company and the Union, by William Serrin and published in 1973, criticized the union for not asking for more. John Kenneth Galbraith's The New Industrial State, published in 1967, predicted that big corporations would only get bigger, that they could create demand for their products through advertising, and that U.S. auto companies could increase sales by jazzy styling and planned obsolescence (i.e., cars that would wear out in two or three years).

This has not proved to be a sustainable business model, as GM executives figured out some time ago and as the UAW in effect conceded last week. Thanks largely to the healthcare and retiree benefits, GM's hourly labor costs in the United States are about $75, compared with about $50 for Toyota and other non-U.S. companies. Last week, even before the strike, the union agreed to let GM offload its $51 billion of retiree healthcare benefits to a trust fund for a $35 billion payment. The settlement after the strike allows GM to offer more buyouts to older workers and hire new workers at lower wages; pay increases are limited to a couple of lump-sum payments. The jobs bank—in which GM pays laid-off employees not to work—will be pared way back. Why did the UAW agree? Because GM made it plain that if it didn't, it would shift more production to plants abroad, from Mexico to China.

Reuther hoped that UAW contracts would set a pattern for the economy and lead America toward a social democratic state. The 1970 contract seemed to be doing that: The number of workers covered by COLAs increased from 30 million to 57 million by the end of 1971. But that only fueled inflation, which led to massive job losses in the auto industry in the recessions of 1979-83. In the 1980s, foreign companies began building auto plants in the United States, almost none of them organized by the UAW. As the Wall Street Journal concluded, "Toyota, not GM or the UAW, now sets the pattern for auto industry labor costs in the U.S. economy."

It turns out that market competition punishes those firms whose costs are out of line with others. It also produces better value for consumers, as today's cars are far superior in quality to the clunkers of 1970. And it can make things better for workers as well. The reason the UAW demanded 30-and-out in 1970 was that workers hated their assembly-line jobs. Newer manufacturing techniques, pioneered by Japanese firms, give workers more autonomy and responsibility—and more job satisfaction. The business model of 1970 is history. But most of us are better off today.