The State of the Union

by on April 23, 2011 at 10:24 am in Current Affairs, Economics | Permalink

I can understand, although not agree with, wanting to penalize firms for “sending jobs overseas.” I am stunned, however, that the Obama administration’s National Labor Relations Board is trying to penalize Boeing for sending jobs from the state of Washington to the state of South Carolina.

AP: The NLRB complaint filed on Wednesday quotes public statements by Boeing executives saying they put the plant in South Carolina in part to avoid future labor disruptions. The government complaint says this amounts to discriminating based on union activity.

Politicians in South Carolina (mostly Republicans, natch) are not surprisingly outraged but, to its credit, even the Seattle Times editorializes against this move so its hard to see how this will stand. Nevertheless, it’s a bad signal.

Addendum, hoisted from the comments:  Jeff Smith: “Perhaps a special tax on Colorado is in order?”

Dan Carvajal April 23, 2011 at 10:39 am

Call me young and uninformed but what is “unlawful motive”? I am missing that concept. It’s in the NLRB’s original complaint.

nazgulnarsil April 23, 2011 at 12:34 pm

thoughtcrime

Noah Yetter April 23, 2011 at 5:12 pm

Quite literally, in fact.

Steve Sailer April 23, 2011 at 10:42 am

Another question is how much Boeing wound up costing itself by globalizing its manufacture of the 787. If they had just met the union mechanics demands and built the thing in Edmonton, would it be in commercial service by now?

truths April 23, 2011 at 2:47 pm

If Boeing gave into the union’s demands, they would be out of business by now. Unions are a cancer.

The business owner created that business and gave these guys jobs in the first place. Now they want more money…and to get it, they don’t want to work harder, but they want to work less! And they want the government to protect their right to not work at all (“to strike”), to stop the business from hiring those who do want to work (“no scabs”), and to feel *entitled* all the way.

Is it any wonder that the owner then goes to the Chinese or the (first generation) Mexicans, who do want to work? In the second generation the Chinese will of course steal the technology and kick out the owner, while the children of the Latinos will be defacing the walls of buildings with spraycans. But the ones who catalyzed this chain of events were those who incentivized labor to agitate in the first place, to kill the golden goose.

There has to be noblesse oblige, yes — those who are capable of managing companies, creating wealth, and inventing new technologies do have some responsibility to their fellow man. But the flipside of that is that those who are *not capable* of doing these things need to *recognize* that they are not capable, and that their job only exists because of the incredibly smart and hard working people who built the company capable of hiring them. *Labor is replaceable* and needs to comport themselves as such, in the same way an ugly girl does not put on the airs of a supermodel.

Steve Sailer April 23, 2011 at 7:10 pm

I dunno. It seems like Boeing managed to deal with its unions for generations, somehow managing to become one of the world’s two premiere airliner companies and America’s top exporter.

On the 787, however, it decided to go to the mat with its local unions, the guys who had actually built the airplanes that made Boeing what it is today. Boeing decided to globalize manufacturing, sticking it to the local unions in the process.

So, how many years late is the 787?

don't know April 23, 2011 at 9:01 pm

“The union has shut down Boeing’s commercial aircraft production line four times since 1989, and a 58-day strike in 2008 cost the company $1.8 billion.” ( http://online.wsj.com/article/SB10001424052748704570704576275351993875640.html?mod=googlenews_wsj )

Andrey April 24, 2011 at 1:46 pm

“Boeing managed to deal with its unions for generations, somehow managing to become one of the world’s two premiere airliner companies”
My guess is that government support and being one of the largest defense contractors might have something to do with that.

AlanW April 24, 2011 at 9:21 pm

Boeing’s high reliance on defense work is a relatively recent phenomenon – after the McDonnell-Douglas merger. A lot of people think Boeing lost its soul in that deal.

On the immediate question of internationalizing the 787, I think both sides are right. Almost certainly, the plane would have been closer to completion and budget if it had been built with its existing workforce, but my understanding is that outsourcing the work was effectively bribes to get various national airlines to buy the plane. So there might not be a 787, or a Boeing, today without those lousy outsourcing deals.

Richard Ebeling April 23, 2011 at 11:56 am

This shows one of the dangerous implications of the very “stakeholder” conception, that a business or enterprise somehow has legal and economic obligations to others in a geographical area (a surrounding “community”) outside of and above its contractual obligations to those with whom it enters into exchange.

Once you enter into an contractual obligation with individuals and that relationship prevails for a period of time (what period of time is “long enough” to count?), then any decision to change one’s location of business, modify the number or types of workers employed, or impact on the taxes collected by the local government requires that that business make its decisions only with the veto-power approval of these “stake-holding” groups and political entities.

The logic, of course, if taken far enough, would have to imply that once I have been eating, say, Cheerio’s for breakfast for a long enough period that the employers and employees manufacturing and earning a living off the sale of Cheerio’s become “dependent” on my expenditures for their livelihood and income, they should have a veto power over any decision that I want to make that would result in a adverse affect on their profit-margins or relative income positions due to my wanting to shift to ham and eggs for breakfast.

Thus, once having entered into any exchange or contractual arrangement with others, those others then are implied to have an “entitlement” to a continuation of their employment, or tax revenues, or consumer business from me. Entering into a contractual or exchange relationship, therefore, carries with it the presumption of permanent obligation to assure the economic and material status of those with whom I’m trading.

Hence, we head back to a form of medieval serfdom of hereditary “rights” and “duties” based purely on their having been established sometime in the past.

We return to the society of “status” and away from the society of “contract.”

Richard Ebeling

Jeff Smith April 23, 2011 at 12:09 pm

Perhaps a special tax on Colorado is in order? Life imitates (bad) art.

E. Barandiaran April 23, 2011 at 12:51 pm

Alex, given the many instances in which the Obama Administration has protected the unions that partly financed his campaign, I’m surprised that you’re stunned by this attempt to protect the unions’ privileges. I hope you can discuss with your Public Choice colleagues this type of rent seeking by unions and why Obama is so inclined to protect them. Also, I hope you can find some economist familiar with the history of Argentina’s labor unions and the Peronists to explain their relationships since 1945 and that he/she can translate and comment to you this short column published today in La Nación, a Buenos Aires newspaper:
http://www.lanacion.com.ar/1367801-lo-que-de-veras-pide-moyano
It’s a gem. In a few lines the author explains what else –in addition to power and money– the main union leader (Hugo Moyano) wants today and why. Indeed, as long as he supports Obama (sorry President Cristina Kirchner, most likely the main candidate in October’s Presidential election), Moyano will get what he wants.
If you really want to understand how democracy is corrupted by labor unions and other interest groups (to an extent that Mancur Olson never thought) and by dishonest politicians willing to abuse the constitutional bounds of executive power (well beyond of what you can read in The Executive Unbound, the new book by E. Posner and Vermeule), you should study the post WWII experience of Argentina and pay special attention to what will happen this year. You will be able to understand better what is going on in your country.

rjs April 23, 2011 at 12:54 pm

red state, blue state…it was a popular tactic during the bush years too…

Michael April 23, 2011 at 5:02 pm

How so?

spencer April 23, 2011 at 1:16 pm

For the last 30 years we have seen the success of the Republican-Libertarian philosophy-strategy that cheap labor is the solution for everything. Indirectly, cheap labor is the reason behind the stagnation of the middle class you acknowledge in your great stagnation. With cheap labor economics implies that you substitute labor for capital and develop a more labor intensive economy. But that also means that the capital/labor ratio stagnates or declines and this lack of investment is why the fruits of science or technology have failed to grow over the last 30 years. Yet, you can not help yourself. Anytime you see the left pushing back against your cheap labor strategy you get on your high-horse and call it a bad thing. But in reality, expensive labor is what drove the great American
growth machine from early colonial times to recent years.

The real driving force behind your stagnation thesis is the success of your cheap labor strategy that is so evident in your complaints about unions.

Tom April 23, 2011 at 6:38 pm

Except, in this situation as well as most others, it’s not the wages that are a problem. Union rules and strikes tend to cost the most. They are looking for a stable workforce and most of the time the fights are over things other than money.

Thomas April 23, 2011 at 1:32 pm

What’s most remarkable about this incident is what it reveals about the difficulty of Republican governance. The general counsel for the NRLB is a career staffer. That’s right: this radical innovation, completely unsupported in law, is the product of someone who has spent his career as a bureaucrat. The Democrats don’t have to bring in a left-wing professor, or a union lawyer, to get this kind of result. They just have to empower the bureaucracy.

Bill April 23, 2011 at 2:26 pm

Or perhaps membership on the armed services committees help as well.

Advocatus Diablo April 23, 2011 at 2:32 pm

Stake-Holder (n)

1) An individual or group who, by virtue of living nearby or being somehow effected by an “evil, blood-sucking (vampire) corporation”, threatens to put a stake through the heart of said corporation if the same does anything to annoy the individual or group.

2) A useless busybody who claims an entitlement simply because they feel entitled.

Jason April 23, 2011 at 3:33 pm

The Seattle Times is a bit like the Washington Post of the West. Situated in a liberal city, it nonetheless has a distinctly right-leaning editorial page and runs articles *on the front page* asking why it is hard to find good help these days.

Scrutineer April 23, 2011 at 3:59 pm

The Post has a “distinctly right-leaning editorial page”?

dace April 23, 2011 at 4:04 pm

The Post is centrist when compared with the NYT.

Yancey Ward April 23, 2011 at 4:42 pm

So was Pravda.

strongerthandirt April 23, 2011 at 5:54 pm

As to the Washington Post, its editorial page is right wing on defense spending and war. It leans left on political issues, and generally endorses Democratic political candidates.

As to the Machinists, they have given $26 million to Democrats and none to Republicans since 1989. http://www.opensecrets.org/orgs/list.php?order=A I think that is the answer to most of the questions one might ask about this deal.

Obama has appointed two members to the NLRB via the recess appointment route. One was a former counsel for the Service International union, http://www.nlrb.gov/who-we-are/board/craig-becker, and the second was a long time labor union lawyer. So this board right now is pretty much a stacked deck in favor of unions. And having worked in regulatory agencies, career employees generally tend to slavishly follow what the top political appointees want, or else they get replaced. Oh, the SEIU (from which board member Becker came) has given 36 million dollars since 1989, all but 2% to the Democrats.

TGGP April 24, 2011 at 11:58 pm
jorod April 23, 2011 at 7:29 pm

Unions rule.

figleaf April 23, 2011 at 8:05 pm

Hmmm. Whatever.

According to the front page of the leftist/rightist/centerist Seattle Times the suit claims the move to South Carolina was in *retaliation* against the union. Which, according to the Seattle Times a few years ago, was exactly what Boeing threatened it would do if the unions failed to grant certain concessions, and then did when the unions failed to grant those concessions. That makes it sort of a bit of the public record. Which gives the NLRB exactly two choices: ignore flagrant violations of established labor law in order to please (ironically) members of the allged “law and order” party, or else enforce the law in order to please, you know, actual law and order types.

I have to disagree with Steve Sailer about the 787. The motivation for outsourcing parts rose primarily from intense pressure by, particularly, Asian countries (primarily Japan and China) but also European ones, to “pay it back” for the huge volume of planes they’ve been buying. Which has been a bit of a double-edged sword. Both Japan and China have been straightforward about developing airframe manufacturing capacity, and only slightly less straightforward about how lack of… call it loosely the infrastructure of expertise is the biggest obstacle to building planes. (Even if there was zero risk of them falling out of the sky, which there wouldn’t be, planes cost on the order of hundreds of millions of dollars so “beta” versions during the crank-up phase would be virtually unsellable.) So anyway, they and Boeing has been in a long dance where if they concede to build planes in, say, China they’re effectively financing future competition. But on the other hand if they don’t then other countries will seek to take their business elsewhere.

The “good news” for Boeing is that the economic and engineering catastrophe that is the 787 program demonstrates that it’s almost impossible for even an extremely experienced company to build planes without existing, very-well-established infrastructure. So outsourcing to China or Japan wouldn’t really be that much of a competitive threat. The bad news for Boeing is that they can’t competitively pull it off either. (They’re effectively chucking the outsourced components and rebuilding them from scratch. With 2nd- and 3rd-generation full-apprenticeship-program union employees up at the Everett plant, incidentally. Good luck finding any of those in South Carolina.)

One can only imagine they’ll be more successful outsourcing their labor to South Carolina. But mainly because one can’t imagine they could possibly do worse than they’ve done outsourcing the 787.

figleaf

Hassan April 23, 2011 at 9:31 pm

One only knows the bounds of partisan blood-lust in America.

Rahul April 24, 2011 at 2:46 am

Upton Sinclair’s “The Jungle” and “King Coal” are nice reading. They do make one imagine why Union’s might legitimately have arisen and the good they might have done in the past.

Of course, I’m pretty anti-union in 2010, but can conceive I might have been strongly pro-union had I been born a hundred (or maybe even 50) years ago.

strongerthandirt April 24, 2011 at 8:22 am

I concur with Rahul on his sentiments about the good unions once did, and their problematic existence now.

Dan H. April 24, 2011 at 8:34 pm

Be prepared to see an increasing number of conflicts like this – the inevitable result of states following different governmental/fiscal philosophies and their resulting difference in outcome. The ‘problem’ the U.S. faces is that states have a lot of autonomy in how to run their affairs, but the population has ultimate freedom of movement to leave states that are failing or which are going overboard on taxes and regulations.

Detroit is a good example of the result – a bleeding of industry and wealthy people out of a city run to ruin by incompetent legislators. If Detroit was a country, those citizens would be captive to the lunacy, but since it’s not, they can pick up and leave. This is happening at the state level across America – population migration away from the high-tax, highly regulated states into the lower tax, more free states.

This constrains states’ ability to raise taxes on the rich to correct for their enormous budget shortfalls. It constrains their ability to pander to unions and other special interests that are financially destructive to enterprise. As the states start to come to grips with their non-competitive regulatory environments and their deficits, expect to see more of these conflict come into play. A state will attempt to solve the budget by raising taxes, and companies and wealthy individuals will pack up and leave. This will be seen as traitorous behavior and there will be calls for all kinds of sanctions and laws to attempt to prevent it.

You’re also already seeing trial balloons being floated for taxing the internet, as more and more people avoid high state sales taxes by buying out of state. And now Boeing is being pressured to stay in their state despite being driven into non-competitive operations by their unions.

AlanW April 24, 2011 at 9:42 pm

Nice fantasy. In the real world, many high-tax places – California, New York, even New Jersey – have entrenched advantages that right-to-work states will require generations to overcome, if they ever can. Silicon Valley produces more patent applications than nearly the entire South lumped together. And that’s self perpetuating – why would you start a business somewhere else when the employees, the connections and the money you need are all in California?

Anyway, I have trouble understanding how your race-to-the-bottom vision of competitive states is supposed to be compelling. More likely: As the southern states succeed in attracting business, they’ll become more liberal, residents will demand more government services, taxes will go up and the process will repeat itself.

Finally, yes, the Internet should be subject to state and local sales taxes. We obviously have the technology and people seem to prefer sales taxes to most of the alternatives. The other option, ultimately, would be doing away with local governments’ taxing authority and having the feds hand out dough. I don’t see why that would be the preferred solution.

Dan H. April 25, 2011 at 1:56 am

Yes, in many cases the entrenched advantages will overcome the additional cost, as will the stickiness of the labor force for businesses and all sort of other factors. But we’re talking about changes on the margin here. Not everyone will leave, but those individuals and companies that are close to that decision now may take it in the future.

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