Union Power in the Obama Administration

The major American trade unions, including the United Automobile Workers, the United Steelworkers, and the Service Employees International Union, went all out in their support of Barack Obama during the past presidential election. They supplied money-said to exceed $400 million- and hundreds of thousands of volunteers working for Obama. It is believed they were important in his winning industrial states like Michigan, Wisconsin, Ohio, and Pennsylvania. Naturally, unions expect some payback after the resounding victory of Obama, as all interest groups do when the candidates they support win. Unions are behind the Employee Free Choice Act introduced in Congress early after Obama's election. That Act would make it much easier for unions to be certified to represent the employees of a company. The Act, still bogged down in a divided Congress, would allow for open rather than secret voting on whether a union should represent the employees, and would mandate arbitration over union-management contracts. Because of opposition from some Democrats as well as almost all Congressional Republicans, it is not yet clear how much the legislation that eventually emerges will shift union-management relations in favor of unions. The bailouts of General Motors and Chrysler have been a second major effort to help unions. In this case, the Obama administration spent tens of billions of dollars of taxpayer revenue to help these companies. I expect total Federal spending on GM and Chrysler will eventually equal or exceed $100 billion. The best alternative to the bailout of these auto companies would have been to allow them to enter bankruptcy proceedings in the fall of 2008 when they were bleeding large losses. After a year or so in bankruptcy they would likely have emerged with considerably lower obligations for health and pension benefits, and reduced hourly earnings of their employees. They might then have competed without additional support against foreign auto companies with plants in the US or abroad. Instead of allowing such bankruptcy proceedings to occur, and in order to reduce the hit that unionized autoworkers would have to take, GM and Chrysler were bailed out generously, and the federal government in effect became the principal owners of these companies. Although GM and Chrysler were allowed to go into bankruptcy for a short period, in my judgment the main aim of the bailout was to reduce the effect of the financial troubles these companies were having on the earnings and fringe benefits of present and retired autoworkers. Taxpayers paid what the autoworkers should have paid. Perhaps the most disturbing tilt toward catering to union interests is the very recent 35 percent tariff the US government imposed on imports of Chinese tires without any finding of illegal trade practices by either the Chinese government or Chinese tire manufacturers. The White House under special trade rules can impose punitive measures without finding any "fault". However, this is the first time any president of the United States has used this provision to penalize manufacturers of imported goods or services. It is not only a terrible precedent, but also this may encourage other countries to follow similar procedures, and impose tariffs on US exports that unions and companies in these countries feel are hurting them. Unions and their allies have succeeded in placing Buy America provisions in the $787 billion stimulus package, against the objections of many foreign countries. Unions are also active in trying to get similar provisions in the cap and trade climate bill that will eventually be passed by Congress and supported by the president. Buy America provisions to stimulate employment of American workers is no different than imposing tariffs to cut imports and increase demand for domestic goods. Both are inconsistent with the goal of free trade, and invite retaliation by other nations. Politics in democracies allows powerful political interest groups to influence legislation in their favor. In that respect, the steelworkers and other unions are not doing anything differently than, for example, medical insurance companies or auto companies, try to do. But recognizing that this is the way the political process works does not mean that the effects tend to raise the general welfare of the population, as opposed to the welfare of small powerful interest groups. In this regard, note that non-governmental unions contain only about 8% of the civilian labor force. This means that the benefits they receive from flexing their political muscle under the present White House mainly hurts other workers and consumers. In particular, the tariff on tires will raise the cost of tires to American consumers and make them worse off. Similarly, the bailout of the auto companies will raise taxes and probably also auto prices, and Buy America provisions will make the cost of goods more expensive because they cannot be obtained from cheaper foreign producers. The overall impact of these steps is a less efficient American economy, and substantial harm imposed on American consumers and non-union workers.