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Is globalization destroying consumer market?
By Harley Shaiken and David Bonior -- Special To The Bee
Published 2:15 am PDT Sunday, October 23, 2005
Lori Wenzel lives in a nice house in a nice subdivision in Grand Blanc, Mich. She's worked hard to get there. She hired into an auto parts plant, now Delphi East, in 1977 when she was 18 years old, some 28 years ago.
Now the Delphi bankruptcy, the largest industrial meltdown in U.S. history, threatens to shatter her world and the world of her coworkers.

Delphi's skid into an economic ditch raises a fundamental question: How do U.S. firms compete in an increasingly rough-and-tumble global economy? Historically, U.S. firms have succeeded through innovation and high productivity, not low wages. Indeed, not long after Henry Ford introduced the moving assembly line for the Model T in 1913, he doubled the wage of his workers to $5 a day. Despite predictions of ruin by editorial writers and Ford's competitors, and buoyed by unprecedented efficiency, sales soared and the profits of the Ford Motor Co. jumped almost 20 percent the following year.

By the late 1940s, unions spread economy-wide Ford's idea that highly productive workers should also earn higher wages. The result was strong consumer demand, an expanding middle class and a growing economy. In short, we all benefited.

Delphi, General Motors' former parts subsidiary, won't be expanding the middle class anytime soon. The company has proposed eliminating one-third or more of its 33,000 hourly workers in the United States and slicing wages for those who remain from $27 to $10 an hour. Benefits will become an endangered species. People like Lori would go overnight from among the highest paid industrial workers in the world to scraping by near the poverty line.

In Saginaw, Mich., Delphi's proposed new pay trails Burger King's $10.60 hourly wage, turning fast food into a promotional opportunity for autoworkers.

What forces are propelling this seismic shift? A new reality underlies the global economy: Companies have found they can achieve first-world productivity and pay third-world wages in emerging economies. Delphi plants in the United States are pitted against those in Mexico and China, where labor costs are 5 percent or so of U.S. levels.

The company's 60,000 Mexican workers - one-third of its global employment - are currently working heavy overtime for which they earn between $70 and $90 a week.

Some analysts are saying the Mexican workers may be pricing themselves out of the global market - auto parts workers in China earn that in a month.

As Delphi and the United Auto Workers resume negotiations, all sides agree that a painful restructuring is necessary. There is, however, a major difference between restructuring and a unilateral demolition of what Lori Wenzel and other workers have achieved over the last 70 years.

The lowest cost producer is not necessarily the lowest wage producer. Delphi needs innovation and efficiency to compete, qualities for which its seasoned workforce is vital. They won't exactly be singing the company song after these changes, nor will the best and brightest be flocking to Delphi's plants.

Beyond the bargaining table, manufacturing firms need policies that recognize the new realities out there. Instead, the Bush administration has been myopic. As a result, companies such as Delphi are caught in a tightening vise of soaring health care costs on the one hand and an outmoded trade policy on the other.

The United States remains the only major industrial country in the world without national health insurance, putting an unreasonable burden on firms and workers. At GM, $1,500 of each vehicle's cost goes to cover health care for the company's workers. As the world's largest private provider of health care benefits, GM and its workers are now in the midst of a painful adjustment.

"It does not take a union activist to be disturbed by the prospect of Delphi workers losing benefits that they dedicated their lives to gaining by working there," the Financial Times commented. In contrast, auto parts makers in Japan and Europe are successful, even paying high wages without the added burdens of health care costs.

Likewise, U.S. trade policy is askew. The issue isn't pulling back from the global economy but rather creating incentives to compete through innovation rather than through wage slashing. Trade agreements that incorporate core labor rights ensure that workers can bargain for a fair share of what they produce. If workers in Beijing can form an independent union - if they choose - they can earn more and workers in Saginaw or Sacramento can avoid earning less. The combination increases demand for new products in both countries and lays the basis for expanded trade.

Pulverizing the wages and benefits of Delphi workers may make the company more profitable in the near term. But Wall Street as well as Main Street will be hurt in the long run because Lori, her coworkers and their counterparts across the globe can't afford to buy new Buicks. As Henry Ford understood nearly a century ago, if competition destroys the very consumer market on which manufacturers depend, business as well as workers and communities will lose.


About the writers:
Harley Shaiken is a professor at the University of California, Berkeley specializing on labor and the global economy. David Bonior is university professor of labor studies at Wayne State University in Detroit.