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Labor Unions Are Industrial Policy
Last week, the United Auto Workers reached a deal with Stellantis to re-open an idled Belvidere Assembly Plant. "We made them invest," said transformational UAW President Shawn Fain.
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Hi, I’m Lee Hepner, an antitrust lawyer filling in for Matt Stoller. At the end of last week, I was inspired to do some digging into labor and industrial policy, spurred by the news that United Auto Workers (UAW) had reached tentative deals with Ford, then Stellantis, and finally General Motors. If the deals are ratified by members, they will cap over three months of strikes and seal some momentous wins.
Those strikes weren’t just about better wages and working conditions for auto workers, which are important on their own. What caught my eye is that the labor unions were able to affect corporate decision-making on a more structural level, as I’ll discuss below. Indeed, Shawn Fain, the head of the UAW, is now the single most important business leader in America, a generational figure who is, ironically, like the reverse image of transformational anti-union General Electric icon Jack Welch.
So today’s issue is about the significance of that shift, and how labor unions and antitrust are being used to wrest control over critical corporate investment decisions from financiers, to empower workers, and to teach Americans how to build again.
Who’s in Charge Here?
In early December 2022, Stellantis – the company that owns and manufactures Dodge, Chrysler, and Jeep vehicles, among others – announced its “difficult but necessary” decision to close the Belvidere Assembly Plant. The plant, which had most recently produced the Jeep Cherokee, had been an economic engine for the 25,000 person town of Belvidere, Illinois since the 1960s, what a local union president called the town’s “heartbeat.” At 5,400,000 square feet, the Belvidere plant was also one of the five largest auto assembly plants in the world. “We’ve been here since 1965,” said Belvidere Mayor Clint Morris. “We know how to manufacture automobiles.”
When the plant officially idled at the end of March 2023, 1,350 skilled trade workers in the town of 25,000 found themselves without jobs. The factory had its ups and downs over its six-decade history. In 1985, the facility had 4,000 employees. By 2007, that number had declined to 2,650. Production of vehicles dropped from over 260,000 in 2008 to just shy of 85,000 in 2009. In 2019, Chrysler laid off 1,400 skilled trades workers, before Stellantis bought out Chrysler in 2021. For several decades, uncertainty was the only certainty at the Belvidere plant, and the trend toward disinvestment appeared inevitable.
But in reality, none of this was necessary or inevitable. For one, the move to close the Belvidere plant was at odds with a growing consensus among policymakers that the United States needed to actually make things again. Both Biden and Trump have economic platforms grounded in boosting employment in manufacturing, with Trump focused on tariffs and Biden oriented around subsidies to domestic plants. Stellantis’ decision didn’t make sense in the context of policy imperatives telling them to do the exact opposite.
Furthermore, at the time of the closure, Stellantis had plenty of capital to invest. It had just reported record full-year profits of $17.9 billion for 2022, 26% more than the year before, and it paired its revenue announcement with the announcement of a $4.47 billion shareholder payout. The corporation was closing the Belvidere plant during good times, with high demand and profits. In 2018, General Motors had done the same thing, eliminating 14,000 jobs across three assembly plants in Michigan, Maryland, and Ohio. United Auto Workers (UAW) Vice President Rich Boyer characterized the Belvidere plant closure and accompanying “economic dislocation” as “a choice made by Stellantis to reap even higher profit.”
For UAW members, it wasn’t a coincidence that the Belvidere closure and 2018 GM closures were announced on the precipice of contract negotiations. Rather, it was a “clear attempt to use the plant as a cudgel,” as one worker put it. The Big 3 automakers were signaling to the unions – and to Americans who want to make things here - that they were in charge, and their choice was to slash domestic employment in favor of offshore production.
The notion that Stellantis’ decision to idle the Belvidere facility was largely political – and neither necessary nor inevitable – was confirmed last weekend when a tentative deal was reached to re-open it. Following three months of strikes against the Big Three automakers – Ford, Stellantis, and General Motors – the UAW union reached a tentative deal with Stellantis that included a plan to reopen the “indefinitely idled” Belvidere Assembly Plant and an adjacent battery manufacturing plant. It wasn’t the only deal of its kind. In a tentative deal with Ford Motor Co. reached just one day prior to the Stellantis deal, UAW secured Ford’s commitment to $8.1 billion in investments at both internal combustion and electric vehicle plants.
A lot of ink has already been spilled regarding the UAW strike strategy and the generational leadership qualities of its President Shawn Fain. But what’s even more interesting is how the UAW set targets beyond wages and working conditions. By causing Stellantis to revive the Belvidere facility and sealing Ford’s various investment commitments, Fain and the UAW have asserted control over a realm of corporate decision-making that has, for decades, been dictated by financiers. Organized labor is dictating corporate investment decisions and setting industrial policy. Announcing the Stellantis deal, UAW President Shawn Fain made the point: “We made them invest.” If the Big 3 automakers were choosing to subcontract and offshore, organized labor countered with an imperative to make things in America again.
This seizure of control is a significant change in the role of organized labor, and, in a sense, a much healthier appropriation of both power and responsibility. One labor scholar compares UAW President Shawn Fain’s efforts to steer corporate investment decisions to those of former UAW President Walter Reuther, who, during negotiations with GM in 1945, fought for a vision of labor power that included shared control over company investment and pricing decisions. In those negotiations, UAW fought for a 30 percent raise for autoworkers without any increase to car prices, which Eidlin calls “an explicit attempt to divert company profits from capital to labor.” The workers never achieved their goal of sharing decision-making, and the auto industry eventually paid the price, when Japanese and German firms shook up the slothful and poorly structured American giants that had relied on market power.
Yet, Fain was able to succeed where Reuther wasn’t. At first blush, that’s counter-intuitive, because it seems like labor was far more powerful in the 1940s and 1950s than it was today. Union density was at its peak in 1956, at about 33.4%, and the share of income going to the top 10 percent was only 32.6%. Today, union density is about 10% and a greater share goes to the top 10 percent than at any time since 1917.
Two things have changed: Unions are popular again, and people despise Wall Street. In 1946, a record strike wave turned the public against unions, so voters elected a conservative Congress, which passed the Taft-Hartley Act making it difficult to organize. And after twelve years of New Deal rules, Wall Street was essentially neutered. Today, we’re in the shadow of decades of offshoring and a giant financial crisis. The extensive rent-seeking by financiers and the reckless off-shoring of production has harmed both capital investment and labor, causing the public to turn against Wall Street. While union density is low, unions are more popular than at any other time over the last 60 years.
So yes, Fain is a generational leader. And the political wind is also at his back. To understand what Fain is accomplishing, it helps to look at the mirror image of Fain. And that brings us to the most important business leader of the last forty five years, the one who structured the world that Fain is trying to undo.
Easier Than Bending Metal
There’s a famous story about Jack Welch, who became CEO of industrial titan General Electric in 1981. GE was the pinnacle of American manufacturing. For much of the 20th century, its research lab was known as the “House of Magic” for the endless stream of inventions its scientists created and its workers built. When outgoing CEO Reg Jones passed the baton to Welch, he advised Welch that he was inheriting the Queen Mary; in other words, a ship designed not to sink. According to lore, Welch replied, “I don’t want the Queen Mary. I plan to blow up the Queen Mary. I want speedboats.” In many ways, he was talking about more than GE. Indeed, he sought to remake the whole arrangement that the corporate world had with New Deal-era America.
Welch was a trained chemist, but his legacy at the helm of General Electric – and across corporate America - was as a zealot advocate for financial engineering, the operational captain of the shareholder value philosophy engineered by Chicago School thinkers like Milton Friedman, George Stigler, and Robert Bork. Indeed, GE had always been a highly political institution. The firm was a big funder of Bork’s research on the origin of the Sherman Act, which led to his iconic book The Antitrust Paradox. And GE’s chief strike-breaker, Lemuel Boulware, hired and mentored a fading yet still iconic actor in the 1950s and 1960s, a former Screen Actor’s Guild President named Ronald Reagan.
Welch immediately made two important changes at GE. The first is that he reoriented the firm entirely around market power, recognizing in now-President Ronald Reagan’s revolution of the antitrust laws that monopolization was suddenly a legal business strategy. Welch decided that GE would no longer be in any line of business in which it wasn’t a market leader, tasking his internal managers who ran lagging divisions to consolidate, sell their divisions, or shut them down. He also focused on entering regulated industries like medical devices or TV where GE had market power, and to leave other industries – like consumer electronics – that required capital-intensive manufacturing.
The second, and more noticeable change, was that he fired a lot of people. Almost immediately upon taking the GE helm, Welch slashed 35,000 of its employees, about a tenth of its workforce. He would fire hundreds of thousands more over the course of his twenty-year tenure, becoming known as “Neutron Jack,” named after a kind of bomb that killed human beings but left buildings standing. Welch railed against bureaucracy and “waste,” and claimed to be doing a favor for GE’s axed workers by letting them know early on in their careers that they didn’t belong, instead of waiting until they were too old to find other gainful employment. But really, Welch was playing a financial game. He was restructuring GE to produce financial value and de-prioritizing the production of tangible goods.
Welch’s most widely credited “innovation,” transforming GE from an industrial powerhouse to a financial powerhouse, was, like his insight on antitrust, about taking advantage of regulatory changes made by Reagan. In 1982, the Securities and Exchange Commission passed a rule allowing companies to buy back their own stock, which had previously been grounds for charges of stock manipulation. When companies bought back their own shares, the number of shares in the market went down, and their earnings per share went up. More importantly, because firms could time their purchases, this change allowed corporations to manipulate their stock price, and let executives compensated with stock cash out.
Throughout the rest of the decade, the shareholder-value advocates won the intellectual and political battle inside both parties. Few if any pursued shareholder value as effectively and relentlessly as Neutron Jack. By the end of the decade, he’d announced a record $10 billion in stock buybacks, stating that buying back the company’s own shares was “a far better way of generating returns than going out and taking a wild swing” on a new business line or acquisition. GE was becoming a financial firm. In the 1990s, it became the largest issuer of private label credit cards in the world. “I thought it was easier than bending metal,” Welch would say. By the 2000s, the company founded by Thomas Edison, inventor of the lightbulb, had begun sourcing its lightbulbs from Chinese contractors and branding them as GE products.
Welch is often seen as an important business leader, and he was. Indeed, he was an advisor to one of the original private equity firms, Clayton Dubilier & Rice, and large private equity firms are the most concentrated form of the heavily finance-friendly management pervasive in America today. Many of Welch’s proteges went on to lead other important firms, and his strategies soon pervaded corporate America. But Welch was also riding a policy trend in which American leaders explicitly sought to reorient our economy away from making things and toward pure financial returns, what is known as a “capital light” model.
Scholars have recently begun excavating the policy background behind men like Welch. A colleague of mine, Erik Peinert, noted in an important article that there were a host of policy changes that accompanied the changing American firm. Congress and the courts expanded the scope of intellectual property rights, like allowing software patents, the patenting of genetics, and the copyrighting of semiconductor designs. Corporations could now make money without factories. In addition, firms piggybacked on the relaxation of antitrust rules which had traditionally blocked firms from controlling their customers or suppliers through what are known as “vertical restraints,” or coercive contracts throughout the supply chain.
These changes, Peinert notes, had a profound effect on the American corporation. Previously, in order to make money and protect your knowledge, you had to actually have a large, vertically integrated manufacturing firm to produce your product and sell it at a profit. Ford, for instance, built and ran the largest industrial complex in the world, the River Rouge plant, where iron ore went in one end and Model Ts came out the other. This was a business strategy oriented around the incentives the law had put in place, and made Henry Ford among the richest men in America. But in the 1970s, there was both an ideological and strategic shift toward moving production offshore. The sentiment among policymakers was that the U.S. should focus on high value-added design, media and finance work, and let low-paid workers in other countries do the grubby work of making stuff.
As a result, in the 1980s, when corporations could maintain much stronger patents, control suppliers or customers via contract, and buy rivals, firms could simply focus on extracting cash from a controlled bottleneck. Changes in trade law facilitated pushing factories and the work of actually building things to Asia, and then China, specifically. Even the big corporate lab disappeared – after all, why put capital into discovering things when antitrust enforcers allowed you to just buy smaller rivals and innovators? Welch was an excellent implementor, but the blueprints for what he did were drawn up by Chicago School thinkers.
What Welch was doing at GE was a trend in American business, and the auto firms jumped happily on board. The River Rouge Ford plant of yore gave way to a disintegration of the automotive industry, as the Big Three automakers chose to get rid of their union workforce and buy parts from low-wage parts suppliers (who then consolidated, too.) In 2006, a key supplier, Delphi Automotive, let go of 12,600 workers to replace them with 2,000 temps. This change was a dramatic centralization of an industry that had traditionally been an oligopoly. In 2008, Ford CEO Alan Mulally testified to Congress that bailing out Ford’s competitors GM and Chrysler was critical for Ford’s own survival, because Ford’s suppliers would go bankrupt without GM’s and Chrysler’s contracts.
Like GE, the Big Three automakers also prioritized financing, making significant amounts off loans, rather than sticking to bending metal. GM recently sold its $2.5 billion credit card business to Goldman Sachs, along with the promise to turn cars into “payment portals.” (As an aside, the airline industry has also done this, and credit card loyalty programs are now responsible for 50% of the revenue of the major airlines.) Neutron Jack would be proud.
These remarkable policy and corporate changes in the old-line industrial economy happened at the same time as the digital revolution. As Welch was restructuring GE around branding and finance, and as the Big Three got rid of factories, Bill Gates was building Microsoft and Steve Jobs was building Apple Computer. Gates and Jobs built their companies around bottlenecks in software and market power, rather than through fair competition and making things in the United States. Silicon Valley from the 1980s onward built its structure around monopolization and offshoring production. That’s what our legal system incentivized them to do through the strengthening of intellectual property and weakening of antitrust. And the result has been obvious to everyone except elites - a weaker and more unequal society. That said, elites have now figured it out and quantified it. Economists recently “discovered” what Welch told investors on calls, that these changes not only caused labor to have a lower share of income, but that less capital was being invested as well.
One overriding outcome of the 1980s policy revolution is a present-day economy dominated by corporations that are not just employee light but capital light. Apple is the perfect example, one of the most profitable companies on earth with a market cap of $2 trillion, with most of its valuation tied to its intellectual property and goodwill, which is to say, market power. It’s the world’s most “intangible” company, according to one tracker of intangible asset valuation, which also reported this week that the intangible assets of American companies now outweigh the GDP of the United States by a factor of three. Apple generates its profits by exploiting its intellectual property – its patents, copyrights, and trademarks – to indirectly control labor-intensive segments of industry, where working conditions and pay are poor.
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As a result, Apple is one of the biggest indirect employers domestically and worldwide, responsible for two million jobs domestically, even though it only directly employs less than a tenth of that number, about 150,000 employees. Those two million domestic jobs don’t include Apple’s use of millions of foreign contractors to actually build Apple’s devices, or the huge ecosystem of firms behind its technologies. In other words, the largest firms in the world by revenue and profit appear much smaller in terms of employees and capital investment than they actually are, because the workers and factories they control are technically owned by someone else.
The ‘fissuring’ of corporations, as Peinert put it, has a number of consequences, not the least of which is national security vulnerabilities. Today, it’s becoming increasingly obvious that Apple shouldn’t be wholly dependent on China for its manufacturing base, and CEO Tim Cook is frequently asked about how Apple is trying to address that problem. Cook avoids the main subject, which is that the law creates an incentive for this kind of investment choice. Instead, in an interview with “60 Minutes” in 2015, Cook claimed that the reason for Apple’s reliance on Chinese manufacturers was the lack of skilled and trained workers in the United States. “It’s skill,” Cook told Charlie Rose.
Yet, Apple is notorious for sitting on large cash reserves, choosing not to reinvest its enormous profits in capital or to expand its stable of direct employees. In a different era, with a different legal regime, Cook would make a very different set of choices. And it is this unwillingness to admit what every normal person understands – that big business is now reckless – which is driving the politics of the auto strike.
A Wave of Strikes
The automotive strikers are far from alone. Despite historically low union density, a wave of strikes in the U.S. has dominated news cycles in recent months. The United Auto Worker strike was fundamentally about empowering workers with better wages, working conditions, and decision-making over critical investment decisions. So was the Writers Guild strike that culminated in a deal last month, the 340,000 UPS workers who negotiated an historic contract by threatening to walk off the job, and thousands of workers from nurses to sanitation workers to Starbucks baristas and beyond. The Screen Actors Guild is still on strike.
These strikes are not just about higher pay, but about domestic stakeholders having a greater say in what our corporations do. Where antitrust and labor meet on this topic is in their ability to force companies to compete by reinvesting in capital and labor, instead of competing by controlling chokepoints and disinvesting. Historically, antitrust – which seeks to prevent the unionization of capital – and labor law – which seeks to allow the unionization of people – have worked hand-in-glove to foster a high-wage, capital-intensive, and highly productive economy. One of the first major merger decisions in the 1950s was when Bethlehem Steel was blocked from buying Youngstown Steel by the government. After the decision, Bethlehem decided to build a new domestic steel plant, one of the first big new investments in decades. It was indicative of the power of anti-merger laws to drive internal expansion instead of expansion by acquisition. Incidentally, that’s exactly the kind of industrial policy that both Trump and Biden purport to support.
Of course, industrial policy isn’t just about bending metal, but about ensuring that the ownership of our social resources is distributed both wisely and efficiently. It would be hard, for instance, to find a more corrupt area of American economic activity than health care. Last week, medical providers at Unity Health Care, Washington D.C.’s largest community health center, announced their intent to unionize. Doctors claimed that, despite Unity’s mission to provide “compassionate, comprehensive, high-quality health,” they were forced to prioritize “quantity over quality,” leading to provider burnout and turnover. That’s a common theme across the healthcare industry, from Minnesota to Pennsylvania to California. Providers at Unity Health Care were clear that their unionization attempt wasn’t primarily motivated by higher wages, but by the need for more time and greater support for their work with patients. Workers fundamentally want to be able to do their jobs well, and empowered workers are a sign of a healthy economic order.
The tentative deals reached by UAW with the Big Three automakers marks a significant shift and potential return to form. And it’s happening at a moment of renewed vigor in the enforcement of antitrust, too. In other words, the rise in antitrust activity, the change in labor militancy, and the increasing focus on subsidies to foster domestic manufacturing in the name of ‘industrial policy’ are all connected. They are all ways to block the way that the financiers and middlemen have organized our society to prioritize pricing games, financialization, and monopolization.
And for the first time in sixty years, the public is on our side. It’s been a bumpy ride, and people are rightly mad at the grim state of our politics. But the flip side is that if you can see through the cultural bitterness, you can see that Americans are once again rising up — a bit confused, and massively frustrated, but generally recognizing that the distant financiers who control our lives and communities have overstayed their welcome.
Thanks for reading!
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If you want to reach me, my email is Lee.a.hepner (at) gmail.com.