Which Way for the Unions?

When it comes to their future direction, unions are sending contradictory signals. Their economic actions indicate a new appreciation for the realities confronting them as they face the challenges of a global economy. Their political direction, however, indicates “business as usual” as they align themselves with groups and politicians that favor an enormous expansion of federal spending and government power.

First, the good news. The United Auto Workers (UAW) have struck an historic agreement with General Motors (GM) that for the first time requires the UAW to consider market forces and the overall health of the U.S. economy, rather than just its narrow special interest, as the basis for its members’ continuing economic welfare. Even the UAW acknowledges that unless changes are made in GM’s current cost structure, the jobs of all of its members are in jeopardy.

Consider first that the union will manage its own healthcare plan for its members. To be sure, GM will make substantial contributions to the Voluntary Employers Beneficial Association (VEBA), but the UAW will run the program and design cost and reimbursement measures designed to maximize available healthcare for its workers and retirees. You can bet that the union will include incentives designed to encourage users of healthcare to make rational choices based in part on cost factors before utilizing medical services. Many experts believe this is also the key to rationalizing and ultimately moderating cost increases in the American healthcare system generally.

Second, the contract requires GM to invest in new plants and equipment in existing plants manned by UAW members. It does NOT prohibit GM from investing abroad if the economics so dictate, a bow to globalization and economic realities.

Third, GM contributions to VEBA will be funded in part by a “convertible note” tied to the price of GM stock. If the stock price increases, VEBA will receive the increased revenue. If the stock tanks, the note “converts” back to a regular bond with fixed payments. Thus, the UAW healthcare plan is tied directly to the economic health of GM and, by implication, the performance of the American economy.

After all of these years, market forces have finally come to the attention of the UAW. This development, even if overdue, is certainly welcome.

Now for the bad news. The political program of the UAW and AFL-CIO is aimed at undermining the general economy, which as we have just noted is important for the continued health of the UAW. Union officials in Washington have mapped an aggressive political program that envisions spending a record amount of $55 million on the 2008 elections, virtually all of it to elect liberal Democrats. Here’s the irony: If elected, liberals have promised to enact policies at the federal level that can only have the effect of undermining GM and business generally, and therefore the new contract that the UAW just signed. Let’s mention for the record just a few of these policies:

- Every liberal presidential candidate has promised a form of Hillarycare, which would create more federal bureaucracy and more federal subsidies but do nothing to rationalize individual healthcare choices, something the union will have to do itself under its new contract.

- Every liberal candidate has promised to slow down if not reverse the integration of the global economy, something the UAW has conceded in its new agreement. New free trade agreements will be few and far between under a Democratic administration.

- Every liberal presidential candidate has promised to raise taxes on “the rich,” on capital gains and, yes, on corporations. This witches' brew of “soak the rich” taxes will surely slow the economy and undermine the stock market generally and GM’s stock in particular, thus reducing GM’s contributions to VEBA and the funds available for healthcare for UAW members.

It’s not unusual for the left hand not to know what the right hand is doing. In this case, for the UAW’s economic objectives to succeed, the “invisible hand” of economic growth must trump the “dead hand” of federal bureaucracy.