Labor Day Message From UAW

A tipping point on health care and pensions? by Ron Gettelfinger

This Labor Day, you can find a solution to one of the most difficult problems facing American workers and American employers by reading a single magazine article: “The Risk Pool,” by Malcolm Gladwell, in the Aug. 28 issue of the New Yorker magazine.

Examining the roots of our current health care and pension dilemma, Gladwell reports that when GM and the UAW were negotiating in 1950, corporate CEO Charles Wilson favored a company-by-company approach to worker benefits. But Walter Reuther and the UAW wanted a universal system that would include all workers and all employers:

“The labor movement believed that the safest and most efficient way to provide insurance against ill health or old age was to spread the costs and risks of benefits over the biggest and most diverse group possible.

“…[I]n most countries, the government, or large groups of companies, provides pensions and health insurance. The United States, by contrast, has over the past fifty years followed the lead of Charlie Wilson… and made individual companies responsible for the care of their retirees. It is this fact, as much as any other, that explains the current crisis. In 1950, Charlie Wilson was wrong and Walter Reuther was right.”

The health care and pension problems Gladwell writes about in the auto and steel industries are present throughout our economy. Starbucks, for example, is a retail firm, operating in a competitive environment that is worlds away from manufacturing. But Starbucks now spends more money on health care than it does on coffee – not unlike GM, which has for some time paid more money for health care than it does for steel.

Starbucks, like GM before it, is finding out the hard way that America’s benefit crisis cannot be solved by any one company or any one industry. As Wilbur Ross, an investor in the steel and auto parts industries, explains to Gladwell:

“Every country against which we compete has universal health care. That means we probably face a fifteen-per-cent cost disadvantage versus foreigners for no other reason than historical accident… The randomness of our system is just not going to work.’

Unfortunately, the reaction of many corporate executives and public officials is to make our current system more random, not less. Employers who seek to avoid the cost structures that have caused difficulty for major industrial firms have transferred responsibility for health care and retirement to individual employees, through 401(k) plans, health savings accounts and other mechanisms.

But if pension and health benefits can’t be adequately maintained by individual companies – whether they are young retail giants like Starbucks or venerable manufacturing firms like GM – then it makes no sense to transfer these obligations to individual households. We need to go in the opposite direction, like all of our industrial trading partners, and develop well-funded public programs which cover every man, woman and child in America.

If we don’t, a writer who is not yet born will be writing 50 years from now about millions and millions of workers who once labored for firms with no pension or medical plans and now cannot afford to take care of themselves properly in their retirement years.

“The Risk Pool,” is important not because of what it says about the past, but because it sets the right framework for discussing America’s future. Malcolm Gladwell is author of the “The Tipping Point,” a book which argues that small events can have a large effect on complex systems. This Labor Day, let’s hope that his recent New Yorker article becomes a tipping point in the national conversation we desperately need to have about health care and pensions.

Ron Gettelfinger is president of the UAW.