GM Strike End of an Era

Last week, even before the strike, the union agreed to let GM offload its $51 billion in retiree healthcare benefits to a trust fund for a $35 billion payment. The settlement after the strike allows GM to offer more buyouts to older workers and hire new workers at lower wages; pay increases are limited to a couple of lump-sum payments. The jobs bank -- in which GM pays laid-off employees not to work -- will be pared way back.

Why did the UAW agree? Because GM made it plain that if it didn't, it would shift more production to plants abroad, from Mexico to China.

Reuther hoped that UAW contracts would set a pattern for the economy and lead America toward a social democratic state. The 1970 contract seemed to be doing that: The number of workers covered by cost of living adjustments increased from 30 million to 57 million by the end of 1971. But that only fueled inflation, which led to massive job losses in the auto industry in the recessions of 1979-83. In the 1980s, foreign companies began building auto plants in the United States, almost none of them organized by the UAW. As The Wall Street Journal concluded, "Toyota, not GM or the UAW, now sets the pattern for auto industry labor costs in the U.S. economy."

It turns out that market competition punishes those firms whose costs are out of line with others. It also produces better value for consumers, as today's cars are far superior in quality to the clunkers of 1970. And it can make things better for workers, as well. The reason the UAW demanded 30-and-out in 1970 was that workers hated their assembly-line jobs. Newer manufacturing techniques, pioneered by Japanese firms, give workers more autonomy and responsibility -- and more job satisfaction. The business model of 1970 is history. But most of us are better off today.