Who Benefits from Right to Work and As Importantly, Who Doesn’t? (Originally Posted 11 Dec 2012) and Response to Joe Bronco (Originally Posted 12 Dec 2012)

Oh boy, did I open up a can of worms with this post.  Got some HEATED commentary back from one of my boys back in Michigan – Joe B, you know I love you man!!  I’m am combining the original post and a subsequent follow up here:

Who Benefits from Right to Work and As Importantly, Who Doesn’t? –

his is a response to a posting (and assorted comments) that I saw today on Facebook. As such, I anticipate that I may refer to some people by their first names only in this post.  Apologies in advance if you don’t know these people or get any of the references.

So I saw a post earlier today from a high school classmate of mine, asking the first part of the question above. It was interesting to see the comment, in part because I had previously posted a link on FB to an oped from today’s WSJ, titled “Worker Liberation in Michigan.”

Although I haven’t lived in Michigan in (I’m afraid to even say it, makes me feel OLD) almost 30 years, this is an issue that is deeply important to me. Because, to quote Kid Rock, “It’s the place where I was raised and I was born.” I love Michigan and I have incredibly great memories of growing up there in the late 60’s through early 80’s.  It is a beautiful state with amazing resources and passionate people.  Through friends and family, I continue to have close (albeit long-distance) ties to the state.  And it makes me physically sick to see what has happened to the economy of Michigan over the last 40 years or so.

Back before I set up CTB to post the random rant on this or that, I would occasionally post long diatribes on Facebook.  And I remember one time, before the whole Scott Walker hubbub in Wisconsin, posting something there saying if the people of Michigan really wanted to get their economy moving again they would 1) send then Governor Jennifer Granholm packing and 2) make Michigan a Right to Work state.  And although that is more than 3 years ago, I seem to remember Wally C. telling me that in fact Michigan was a Right to Work state.  Either he was misinformed or he had a different understanding of Right to Work, because now they seem to be debating the issue and, hopefully, will soon make Michigan a true Right to Work state.

So, let’s start with Kenny Ken’s question.  Who benefits from Right to Work?  My answer?  Almost everyone, certainly just about everyone who works or wants to work, owns a small business, or otherwise benefits from a state with a healthy, vibrant economy.  As Glen B pointed out, we are in a globally competitive economy.  Companies have choices on where to locate new facilities for production, distribution, or whatever they do.  I’m not sure the theory the Department of Labor used to tell Boeing that they could not put a new plant in South Carolina (a RtW state) rather than in Washington (not a RtW state) but eventually they will lose that argument. It may take 3 years (court battle) or 50 years (Boeing locates it plants where it can be most competitive in US or outside of US or goes out of business), but eventually the outcome will be the same.  Companies will locate the facilities in places where they can get the most qualified labor at the lowest cost.

Listen, that’s just simple economics.  You can try to personalize and make it all about “Big Dogs” trying to line their own pockets, but the simple fact is, companies are in business for one, AND ONLY ONE, reason.  And that is to make money.  And if a company can make more money by locating its facilities in a location where they don’t have to worry about potential work stoppages or that they will be overburdened with rules or requirements, that is exactly what they will do.  That does not make them evil.  It makes them smart and rational.  Because a company that does not make money and does not maximize its return on investment will, sooner or later, be out of business.

Now, to paraphrase the loser in the recent presidential election, at the end of the day, companies are people. The days of job for life at a company are over. But companies always want to keep their good people.  Because if you are a good, capable performer, and the company does not treat you right, you should be able to take you skills and go elsewhere.  Goes for pro athletes, and goes for workers in a modern day work force.

Back to my earlier point about who Right to Work is good for.  Studies, cited in the WSJ editorial, show that states with Right to Work have a higher growth rate than companies that do not have Right to Work.  Companies locate there.  They hire people.  Those people make money, and they spend it in the local economy.  So there is a real multiplier effect, unlike the fictitious one the government claims happens when government spends money on “stimulus.”  That creates other jobs in all kinds of other support industries – restaurants, retail shops, and on and on an on.

A higher growth rate, compounded over several years/decades, results in a significantly higher average amount of income per person.  The analysis cited in the WSJ editorial I linked to above calculated that the average income for a family of four in Michigan would be more than $13,000 higher than it currently is if Right to Work had been enacted there 30 years ago.  That benefits almost everyone.  And sorry Phil, but most of that goes to the middle class (sorry because people seem to have a misconception about who benefits, not because the middle class benefits).

Personally, I think all the class warfare is pure bullshit.   In my experience, in companies across America, in various industries, senior executives realize that their companies would not exist and would not be able to meet the needs of their customers, without the rank and file members of their organizations.  They are not at war with the middle class, because they all understand that a thriving middle class is what makes an economy strong and allows their companies to thrive. And also, whether senior execs of larger companies or owner/operators of smaller companies, I’m willing to bet that almost all of these “Big Dogs” came from lesser means and worked their way to where they are.  They appreciate hard work and even if they have achieved economic success, they relate to and consider themselves middle class.

This isn’t to make any excuses for poor performing executives.  For some period of time they take more than they deserve out of the system.  But I think it is very rare that that situation can continue for very long.  Doesn’t make it fair during the time that they get greater than their contribution, but it’s not sustainable.

Joe Bronco, unions made sense 75 years ago, when corporations had far more power than individual workers.  Safe work conditions and reasonable wages were the result.  That was then.  But in today’s economy, the balance of power between the corporation and the individual is significantly different. It’s a more competitive global market and individuals have more alternative ways to pursue entrepreneurial ventures if the corporation doesn’t keep them happy.  Only 6.9% of workers in the private economy are members of unions.

That gets to the other side of Kenny’s question. Who doesn’t benefit from Right to Work?  The answer? Union management. Unionized government workers. And the politicians who enjoy the support of union campaign contributions.

Right to Work means employees get to decide whether they want to be members of the union.  Is there something wrong with letting people decide the value of union membership for themselves. Private sector unionization is declining in America because the benefits the union provides are disproportional to their costs.  And where workers have a choice, the have voted with their feet.

The one part of the economy where unionization is on the rise is the public sector.  The teachers unions, the SEIU, and the AFSCME are where the growth is, not the UAW or Teamsters. Do you really think these workers are at risk of being exploited by their employers?  Are they at risk of unsafe work conditions like factory workers of yesteryear?

No. What you have is a circle (I would call it vicious although they likely think it to be virtuous) that works like this: government workers pay dues to their unions, the unions support certain politicians for political office with the understood quid pro quo that when the union negotiates with the politicians for goodies for their membership (pension plans, work rules, health benefits, etc) the politician will “play ball.” And so it goes.

Only one problem.  All those party favors that the politicians hand out to the public employee union members have to be paid for somehow.  Where does that money come from? Oh right – taxes and fees.  And who pays the taxes and fees? Private sector workers and their employers (aka companies).  For a period of time this may be manageable – if the services provided by the public sector are in line with the taxes and fees paid by the private citizens.  If the politicians keep this in balance, it’s sustainable.  But in states where they haven’t kept things in check, you eventually reach a tipping point. To the extent they can, private citizens and corporations relocate to lower cost/lower tax jurisdictions.  This exacerbates the problem as a decreasing economic base are forced to carry a higher and higher proportion of the cost structure.  And the rising unemployment that comes from the decreased economic production puts an even great burden on the public coffers.

And so, as Glen B rightly concludes, everyone ends up worse in the end (and btw GB, I’m guessing those 2006 GM stock options ended up being worth a lot less than what they were thought to be when they were awarded).  The system eventually collapses on its own weight.  California is already past the point of no return.  And other states like Illinois are not far behind.

There were several other comments I wanted to address but it is getting late, and I know this is already too many words for Joe B.  I don’t know Tracy L, but I’m pretty sure she didn’t mean to ask if CEOs were cutting their hours as well as pay and/or health benefits to keep their companies fiscally healthy.  Most CEOs that I know are 24/7 on the job or close to it.  Yes, a lot of them make a lot of money (and sometimes not deservedly so, like when they get nice golden parachutes after running their companies into the ground).  Most are also extremely driven and make a lot of sacrifices along the path to the top and once they get there.  If they are successful and their companies perform well, they probably deserve just about every penny the make.  The value returned to shareholders (which by the way includes individuals through 401(k) plans and government employees through their state public employee pension systems) by far exceeds the amount they receive.  And if you’ve ever had the chance to work for both good and bad CEOs, you would have to agree that successful CEOs are not just lucky monkeys and that a company’s success/failure is in fact largely tied to the capabilities of the CEO and the team he builds around him (for all you PC folks out there, I am using “he” as gender neutral in this case, whether you like it or not).

Unfortunately I don’t have any great closing statements.  The definition of insanity is continuing to do the same thing and expecting a different outcome.  Michigan has been doing the same thing for the last 40 years (maybe more) and has been slowly on a downward spiral before accelerating into a death spiral in 2008.  Maybe it is finally time to stop the insanity.

A Response to Joe Bronco –

This post is in response to a comment I received on the post above.

JB  – Sorry I haven’t been able to respond sooner.  First of all, thank you for taking the time to read my post.  And for posting a thoughtful response.  When I kid about “too many words,” it’s just referencing back to you giving me a hard time about being too wordy – like when I posted the comment about snowboarding at Alta.  So I’ve been thinking it’s an inside joke between us, but not in any way meant to question your intellect.  Apologies if that wasn’t clearly understood.

And you can be as hard on me as you like.  I wouldn’t put myself out there and open myself up to the criticism if I couldn’t take it.  Like I said, I’m thankful that you would even take the time to read or respond to it.

I’m not sure which comments I made were taken as “lecturing” or implying that I thought anyone was “beneath” me.  I honestly would like to know what you took that way, so I can correct any misperceptions.

I have no doubt that you are a good engineer.  And a great husband and father. I’m sure the resolve and dedication you showed in dealing with and recovering from your knee injury (probably my most lasting memory of you) was a window into the character traits that you described and that guide you daily.  And I have enormous respect for that.

I’m not sure if some of your comments (such as “I didn’t leave town” “I didn’t take the easy way out” and “I am not always guided by dollar signs”) are meant to be personal digs at me or not.  We all make choices in life and we live with the consequences.  I make no apologies for the decisions that I have made and I’m happy to discuss that further.

I will say in all honesty that I am often envious of the strong bonds all you guys (the Camp Dearborn crew, etc.) have.  I can see in all your respective Facebook posts the tight connection like one big, extended family.   It makes me very happy to know that those bonds have endured over so many years, and I truly believe there is more value in those connections than could ever be measured in monetary terms.

And like I said in my original post, that is why I actually care enough to make any comments about what is going on in Michigan.  You are right – I don’t live there.  But the fact that people I know and care about DO live there, like you, your family (who I have never met, but they are important to you, so they are important to me) and everyone else we grew up with, is the reason I bother to share my opinion.  It’s not some random, obscure place that is suffering some hard times.  So I may not be there, but it’s VERY personal to me.

And the reason I share my opinions is because I clearly have a different perspective.  And it my hope that by sharing my perspective, I might, possibly, give people a reason to consider a different point of view.  Will that ultimately change their mind or influence their thinking?  Maybe not.  But that won’t stop me from trying.

So now, to a couple of your comments directed at the content of the original post.

One – to be clear, I did not say the only “goal” of a company is to make money.  Companies have all kinds of goals. But ultimately, I believe companies exist to maximize long-term value (measured in the generation of positive cash flow) for their owners.  One of the fiduciary responsibilities of company boards, compensation committees, and senior management is to ensure that there is a fair balance between the compensation paid to people at every level of the organization and the value those people provide to the company in return for that compensation.  If that is not the case, then they are not doing their job and the people who own those companies should fire them.  No doubt it is not a perfectly efficient market.  And maybe I’ll write something about that at another time (and when I do, I’ll challenge you to read it, and I promise that challenge will not be a slap at your intellect).

We obviously have different experiences with senior management of companies.  The senior management in the corporate world that I have worked with are driven by a lot of things, but I would say greed has not been high on the list of what drives them. Soulless Wall Street investment bankers yes, but not so much managers on the corporate side.

I absolutely agree with your comment that “without us” (which I take to mean the middle class) “there is no economy.”  And while the “ignorant” senior management that you have experienced may not understand that, I can honestly say that I don’t think I know a single person at any level of management who would disagree with statement.

One last comment, and maybe we’ll have to come back to this one at another time.  I’m not sure I’m clear on who you are thinking about when you say that “every day we are robbed by the ‘Fat Cats’” and by “we” I again understand that to mean the middle class.  But if you are putting most senior managers at private and public companies in America in that category, I strongly and emphatically disagree with that assertion.  There is a lot of misappropriation of productive capacity going on in this country, but I would suggest that senior company management are not the primary, or secondary, or even tertiary perpetrators of that crime.

Okay, time for me to climb back on my mountain top for the night.  Peace.

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