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Thursday, September 6, 2012


When I grew up, Detroit meant one thing—Automobiles.  People didn't talk about the automobile industry—they just said Detroit and everyone knew they were talking about the car business.  Incorporated in 1806, Detroit quickly grew into a large, important American city, but it was automobiles that put Detroit on the world map.  And really, it was one man who made that happen, Henry Ford.  Ford didn't invent the automobile or the internal combustion engine, in fact he didn't start building automobiles until 1899.  But the most important thing Henry Ford did was to put America on wheels.  At one point in time there were more than 400 different automobiles companies in the United States.  Each one essentially building custom built automobiles.  Every one of these automobiles was outside the financial reach of the average American, but every American wanted to own an automobile.  It was Henry Ford that brought the price of an automobile within the reach of the average American by inventing mass production.  By making each part identical, limiting choices and establishing the world's first assembly line, Henry Ford eventually brought the price of a Model T down to just $134!  Fifteen million Model T Fords were built between 1908 and 1927, making it by far the best-selling car in the world.  Sturdy, reliable and priced so that everyone could afford one, the Model T literally put the world on wheels.  And as one Associate Justice of the US Supreme Court said, "Henry Ford gave Americans more freedom than any of our founders."  Indeed, Americans now began driving everywhere, moving everywhere and spreading out all across the land. 

Others, including a company called General Motors, emulated the mass production techniques of Ford and began building automobiles in Detroit.   They were joined by the Chrysler Corporation, American Motors and others.  Detroit as motor city to the world became a reality.  But it wasn't just cheap, reliable cars that Henry Ford built; he also created the first 10 hour work day (all work days were 12 hours prior to that).  He also created the first six day work week and he was the first to pay $5 dollars a day to his workers.  Ford, a man of humble beginnings, considered himself to be a man of the people and he wanted to make cars people could afford and pay wages that allowed the working man to live a economically secure life.  He succeeded beyond his wildest expectations.

Before and immediately after World War II Detroit bustled with drive and energy.  It was the capital of the automobile industry and in many ways the world capital of manufacturing.  When I first attended Missouri School of Mines and Metallurgy in 1963 I had the pleasure of attending a weekly lecture by Professor Emeritus Vernon Kilpatrick.  Professor Kilpatrick was already well past the age of retirement, but was still a brilliant engineer and an incredible machinist.  In one of his lectures he told us that he had been with Henry Ford the day the first Model T slid down the greased iron rail.  I was astounded.  I have always looked up to the builders and creators and inventors of society, the people that made things that in turn made the lives of Americans easier and better.  Edison, Ford, Firestone and the Wright Brothers were the Steve Jobs and Bill Gates of the first part of the 20th Century.  They invented and created and dreamed and designed things that no one else had done before. Together they made the life of the average American better.  It was these and other men who improved the lot of the average American, not some politician in Washington, DC.  The folks in Washington did not build anything or create anything or design anything or invent anything, they just got in the way of those who did.  They still do it today.

The Edisons and Fords and Jobs and Gates of the world succeeded because they had great, innovative minds, but most importantly they succeed because they served others better than they have ever been served before.  They became rich, but becoming rich was never their goal in life or the driving force in their life.  Each one of them was simply enamored of the idea of creating something better and different than anyone in the entire world had ever built before.  They wanted to build something that everyone would want to have.  They all liked the idea of helping others by creating and building products that would benefit the buyer.  These were and are great Americans.  They are the embodiment of the American dream and they provide empirical evidence that the American system of free markets and free enterprise works to the benefit of all Americans.

But in Detroit something happened that imperiled its prosperity.  Perhaps, in the very beginning, it was a good thing.  It was the development of unions that were created to defend the rights of workers and to bargain for fair and honest wages.  The wonderful relationship that existed between Henry Ford and those who worked for him vanished.  By adapting laws that forced all workers to join a union as a condition of employment with Ford and the other automobile manufacturers, government created a labor monopoly that artificially drove up the cost of labor.  Monopolies are always bad for the consumer and all monopolies originate with government.  The beginning of a labor monopoly by the United Auto Workers union, led by far left radicals Walter and Victor Ruther, was the beginning of the end of Detroit as the automobile capitol of the world.  After World War II the marketplace expanded beyond the United States to the entire world.  That change doomed manufacturers subjected to labor monopolies.  The world marketplace cannot be ruled by or controlled by one country and certainly not by one union.  Detroit now had to compete with Germany and Japan and it could not.

It wasn't just a problem with mediocrity, which Detroit certainly had.  The problem was much, much greater than that.  In fact mediocrity was simply a symptom of the labor monopoly that jeopardized the entire American automobile industry.  Without competition quality suffers.  Monopolies, labor or business, can never compete in a fair and open marketplace.  They will always collapse unless bailed out by government, thus perpetuating mediocrity and non-competitiveness.  Monopolies diminish drive and innovation, encourage complacency, and hinder growth and profitability.  Government bail outs only delay the inevitable—financial insolvency.  On August 15, 2012 Forbes ran a headline with this warning, General Motors is Headed for Bankruptcy—Again.  The story that followed summed up the situation with this line, "The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market."  If you are surprised, you shouldn't be.  Not only is GM going bankrupt, but you as a tax payer are going to take another financial bath.  Only monopolies try to force non-market products like the Chevy Volt and the East German Trabant on the public.

Ford, that declined to take a government handout and resisted a government takeover, has increased market share, but Ford is not out of the woods.  The union labor monopoly is still forcing Ford to spend nearly twice as much for labor as companies like Toyota that have manufacturing plants in Japan and in Southern states that ban labor monopolies.  The fact is, Detroit is paying far above the sustainable market rate for labor.  Business monopolies hate it when they have to compete in an open marketplace.  It forces them to be lean and efficient business machines, instead of fat and sloppy operations.  Similarly, Detroit can't compete paying monopolistic wages when other manufacturers are paying true marketplace wages.  And by the way, the artificially high wages paid to workers who are part of a labor monopoly simply lower the standard of living of all Americans.  Those who are a part of the labor monopoly profit while those buying the products they produce pay more than the item should cost.

Detroit is headed downhill.  It will not recover unless the union monopoly on labor rates is ended.  That is not going to happen.  In fact the Detroit labor unions have decided to accelerate their demise.  This fall, Michigan voters will have an opportunity to vote for or against a union backed bill that makes labor monopolies a permanent part of the Michigan State Constitution.  Michigan, a once incredibly prosperous state, was on the verge of bankruptcy prior to the election of the current governor, Rick Snyder.  But instead of raising taxes like California and Illinois, making the situation worse, Snyder cut state spending, cut waste, and made a sensible change from defined benefit retirement plans for state workers to a defined contribution plan.  He even required those state workers to make some contribution to their own retirement.  Of course, this is what those in private business have gone to years ago and it has worked wonderfully for both companies and for the workers.  What does this have to do with automobile workers?

Just this—the new constitutional amendment put on the ballot by the unions, outlaws any law, past or future that would "abridge, impair or limit" collective bargaining.  This law would not only throw out the sensible and fair change made by the Michigan legislature to a defined contribution plan, it would institutionalize every labor monopoly in the state of Michigan.  It is the absolute death knell for the once great industrial giant of Detroit.

Population hasn't just been declining in Detroit, it has been plummeting.  As USA Today put it in March of 2011, "Detroit's population plunged 25% in the past decade to 713,777, the lowest count since 1910, four years before Henry Ford offered $5 a day to autoworkers, sparking a boom that quadrupled the Motor City's size in the first half of the 20th century."  The article goes on, "Fueled by the implosion of the domestic auto industry, the Motor City's 237,493-resident decline helped make Michigan the only state to experience a net population loss since 2000.  Overall, the state's population fell by about 54,000, a 0.6% decline at a time when the nation's population grew about 9.7%.  Michigan's population in the decade peaked in 2006 and has been declining since, according to Census figures."

Detroit is not just declining, it is dying.  It is an unnecessary death brought on by the union labor monopoly itself.  And now that monopoly seeks to hasten the demise of this once great city by institutionalizing the union labor monopoly.  Much unnecessary hardship has been brought on by the labor union bosses.  Working hand in hand with the government, labor unions have destroyed jobs by driving manufacturing overseas and down South.  Instead of dealing with reality and allowing workers the right to decide if they want to join a union or not, the union bosses are doubling down.  Their first answer was to get the federal government to force manufactures in every state to accept compulsory unionism.  Thankfully that effort failed.  Of course, all that would have done is to drive up the price of all products, and it would have accelerated the exodus of all manufacturing overseas.  Unions would then have insisted on high tariffs to maintain their union monopoly.  And high tariffs, like Smoot Hawley, would turn the current recession into another great depression.

Detroit is finished.  It's over.  Even Ford cannot survive forever.  It will either move South or it will become a memory like many other automobile companies of the past.  If the new constitutional amendment in Michigan passes, the process will only speed up Detroit's demise.  Free markets always prevail, even when they are called black markets.  Government controlled markets always fail.  There are no exceptions.  Monopolies bred and spread by government, whether of labor or of business, lose their competitive edge.  Only those companies who are forced to compete in a fair and open marketplace deliver the best products at the best prices to the benefit of the consumer, the seller, and those that are employed by the seller.  Until Americans and politicians in particular, understand this truism, the United States will not regain its stature as the economic leader of the world.

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