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by Christopher Chantrill
October 18, 2005 at 4:11 am
FOR THOSE of you still transfixed by hurricanes and Supreme Court nominations, heres a more important issue: Who lost Delphi?
Dell Who? Of course. Delphi Corporation, the former parts division of General Motors, isnt exactly a household word. But Delphi filed for Chapter 11 bankruptcy on October 8, 2005. And that means that its workers could be facing wage cuts, and its retirees pension and health care benefit cuts.
The cuts could be substantial. We pay hourly workers three times the market rate; salaried staff are paid a market rate and execs are paid below market, said Delphi CEO Steve Miller. He proposes to cut hourly wages by 63 percent. United Auto Workers President Ron Gettelfinger (http://www.detnews.com/2005/autosinsider/0510/16/D01-349665.htm) responded by accusing Miller of using scare tactics.
How could Delphi have got into a position where it cant pay the pensions it promised? Who is to blame? Is it greedy management? Is it greedy unions? Is it the FASB? Is it Congress? Or is it all due to the inattention of President Bush? Its important to get out in front in the blame game because the Delphi bankruptcy could set a precedent for bigger bankruptcies coming down the road. Like General Motors.
When we get to the bankruptcy of General Motors even the sluggish minds of the mainstream media will sit up and take notice. It took an agonizing two days for them to decide that the mess of hurricane Katrina was all President Bushs fault. It is unlikely that they will take as long to come to a decision when GM goes broke. It is important to establish a narrative now so that when the great minds at the MSM grab for their ledes on Detroits Black Monday, the American people wont find themselves on the hook for the mother of all bailouts.
Who is to blame? Londons (http://www.economist.com/displaystory.cfm?story_id=5017138) Economist blames the managements of older manufacturing firms with (at least until recently) large workforces and unions strong enough to negotiate generous retirement benefits. The United Auto Workers demanded More and management gave it to them. Well, not quite. What management actually gave the workers was something rather less; they gave them a promise. They offered to pay them their benefits out of future earnings. Now it turns out that there arent going to be any earnings. Delphi lost $741 million on revenue of $13.9 billion in the first half of 2005.
What an outrage! How dare they renege on their promises! That is what the politician and the activist in each of us say. How could Detroit have made extravagant promises and then passed the bills off for the next generation to pay?
When a corporation creates a successful new product or innovates a business process and creates a new global best practice, it gets to enjoy extraordinary profits for a while until the rest of the world catches up. It gets to charge rent. Investors and speculators clamber aboard for the ride, and other rent seekersemployees organized into labor unionsalso demand their piece of the action.
The auto manufacturers of Detroit were the most productive in the world from the introduction of the Model T until the heyday of the magnificent land yachts of the 1960s. They spewed out cash in every direction: to investors, to managers, to government, and to organized labor. Then God created Toyota and the rent dried up.
In response, the automakers improved their products, eventually. But they did not reduce the promises and the rent payments first established when the Rocket V-8 and the Turbo-Hydromatic were the wonders of the world. For one thing, the United Auto Workers refused to let them.
Twenty-five years later, everyone is complaining about the mess. It seems that corporations everywhere are going into Chapter 11 bankruptcy, tanking their labor agreements, shuffling their pension obligations off onto the Pension Benefit Guaranty Corporation (PBGC), and, freed from their obligations, obtaining an unfair advantage over their competitors.
But theres another angle to the story. In the airline bankruptcies, the workers and shareholders have submitted to the Chapter 11 process rather meekly. The shareholders get wiped out; the pension beneficiaries get a haircut from the PBGC, the unions get their above-market wages thrown in the toilet, and we hardly hear a peep. Will the Delphi stakeholders agree to go under the knife so quietly? Well soon find out.
Imagine a nice smooth Delphi bankruptcy, with management blamed, shareholders wiped out, and the workers and retirees given a really close shave without bloody nicks and cuts. It could set the rules for the upcoming General Motors bankruptcy.
Meanwhile its time for Congress to get to work. It could stop corporations from making reckless promises to current employees about future benefits. Neither todays global best practice corporation nor its employees should assume that the rent will go on forever.
The incentive that impels a man to act is always some uneasiness...
But to make a man act [he must have]
the expectation that purposeful behavior has the power to remove
or at least to alleviate the felt uneasiness.
Ludwig von Mises, Human Action
But I saw a man yesterday who knows a fellow who had it from a chappie
that said that Urquhart had been dipping himself a bit recklessly off the deep end.
Dorothy L. Sayers, Strong Poison
At first, we thought [the power of the West] was because you had more powerful guns than we had. Then we thought it was because you had the best political system. Next we focused on your economic system. But in the past twenty years, we have realized that the heart of your culture is your religion: Christianity.
David Aikman, Jesus in Beijing
[In the] higher Christian churches... they saunter through the liturgy like Mohawks along a string of scaffolding who have long since forgotten their danger. If God were to blast such a service to bits, the congregation would be, I believe, genuinely shocked. But in the low churches you expect it every minute.
Annie Dillard, Holy the Firm
Civil Societya complex welter of intermediate institutions, including businesses, voluntary associations, educational institutions, clubs, unions, media, charities, and churchesbuilds, in turn, on the family, the primary instrument by which people are socialized into their culture and given the skills that allow them to live in broader society and through which the values and knowledge of that society are transmitted across the generations.
Francis Fukuyama, Trust
In England there were always two sharply opposed middle classes, the academic middle class and the commercial middle class. In the nineteenth century, the academic middle class won the battle for power and status... Then came the triumph of Margaret Thatcher... The academics lost their power and prestige and... have been gloomy ever since.
Freeman Dyson, The Scientist as Rebel
Conservatism is the philosophy of society. Its ethic is fraternity and its characteristic is authority the non-coercive social persuasion which operates in a family or a community. It says we should....
Danny Kruger, On Fraternity
What distinguishes true Conservatism from the rest, and from the Blair project, is the belief in more personal freedom and more market freedom, along with less state intervention... The true Third Way is the Holy Grail of Tory politics today - compassion and community without compulsion.
Minette Marrin, The Daily Telegraph
When we received Christ, Phil added, all of a sudden we now had a rule book to go by, and when we had problems the preacher was right there to give us the answers.
James M. Ault, Jr., Spirit and Flesh
I mean three systems in one: a predominantly market economy; a polity respectful of the rights of the individual to life, liberty, and the pursuit of happiness; and a system of cultural institutions moved by ideals of liberty and justice for all.
In short, three dynamic and converging systems functioning as one: a democratic polity, an economy based on markets and incentives, and a moral-cultural system which is plural and, in the largest sense, liberal.
Michael Novak, The Spirit of Democratic Capitalism
There was nothing new about the Frankish drive to the east... [let] us recall that the continuance of their rule depended upon regular, successful, predatory warfare.
Richard Fletcher, The Barbarian Conversion
We have met with families in which for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school.
E. G. West, Education and the State