Worthwhile Visiting

The National Museum of Industrial History is located on the site of the former Bethlehem Steel complex.  Most of the original buildings are derelict or partly torn-down, but the above array of blast furnaces and supporting equipment has been preserved.

Suggested musical accompaniment for a visit to the place that was Bethlehem Steel…features a different company and a slightly different geography, but basically the same sad story.

Today’s Israel-Bashers

UAW Local 2865 (that’s UAW as in “United Auto Workers”) has voted to join the movement to boycott Israel.

So, what kind of work do the members of UAW Local 2865 do, would you imagine? Do they work the line in an auto assembly plant? Are they involved in making components such as brake shoes or camshafts? Do they pack and ship spare parts in a distribution center?

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Today is a good day in Wisconsin. The Wisconsin Supreme Court has ruled that Act 10, the legislation passed three years ago that severely limited the ability of government workers unions to collectively bargain, is constitutional. The margin was 5-2. This is pretty much the end of the road for the court challenges, as the Seventh Circuit already ruled it constitutional on a federal level. The odds of this getting cert with the SCOTUS are extremely small, and I doubt that the unions would want to waste any more money with it in the first place. I shall raise a toast to our Governor and legislature this evening when I get home from work.

Scott Walker Wins Again

I do enjoy watching things blow up for the left. That I will admit.

Today, the Seventh Circuit Federal Appeals Court upheld Act 10, in yet another victory for the Walker administration.

After all the protests and nonsense in 2011 – after all the Wailing and Gnashing of Teeth – after the senators fleeing the state and all of the other drama, the left pulled out one of their “old reliable” tricks – try to win in the courts. Each and every time, they have lost. Lost, lost, lost.

So the score now reads Walker infinite, the left, zero. The left is out of money, and running out of court options. The only thing left that I know of is a pending Wisconsin Supreme Court decision that I predict will also go in favor of the Walker administration.

The election this fall for Gov. of Wisconsin, according to the latest poll, sits at Walker 56%, and the Democrat candidate Burke, 40%. Unless Walker seriously screws something up, he will coast. The DNC will not be sending Burke any money for what is essentially an election that is over before it starts.

Illinois Will End up Like Detroit if It Does Not Change Course

Detroit was once the greatest city of the modern world. Automobiles were the cutting edge of technology in the first half of the twentieth century. Talent and genius flocked to Detroit. Innovators in engineering, technology, design, finance, marketing, and management created a concentration of economic dynamism and creativity unlike anything the world had yet seen. Detroit was the Silicon Valley of its day, except its products were made of tangible metal, rubber, and glass. The auto industry transformed America into a land of mobility and personal freedom beyond the dreams of earlier generations. Henry Ford said, “History is bunk.” He meant the old limits could be blown away, and ordinary people could have a better life than they had ever dreamed of before.

(The rest is here.)

The elephant in the room.

The Chicago Teachers Union president is lashing out at the villains in the school mess.

“When are we going to address the elephant in the room?

Say What ???

“When will we address the fact that rich, white people, think they know what’s in the best interest of children of African Americans and Latinos—no matter what the parent’s income or education level,” she said, according to SubstanceNews.net.

Oh. That elephant !!!

How about this one ?

What is it with these union bosses ?

This Looks Familiar

I read today that many teachers in Michigan are calling in “sick” today to protest the right to work legislation pending. This has caused many schools to close, causing parents to miss work, and/or to have to find alternate care for their children.

I remember when the unions did their big stink here in Madison last year, and the teachers did the same thing. I suggested at that time that we call it what it really was – a Wildcat Strike. I don’t know what the laws are in Michigan, but I am willing to wager that this is also a Wildcat Strike.

I am sure it will be drum circle time, tell us what democracy looks like chants, hey hey, ho ho, and all that. Have fun Michigan and don’t worry. They will all go away soon.

Defined Benefit Pensions Reduce Customer Value and Threaten Companies

Hostess is being bought down by in part by unfunded defined benefit pensions forced on the company by its unions over the last 50 years. In a previous post, I explained how, as a company’s products age, its profit margins decline and pension costs consume an ever increasing percentage of revenue.

Defined benefit pensions are especially destructive:

In economics, a defined benefit pension plan is a major type of pension plan in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age, rather than depending on investment returns.


The most common type of formula used is based on the employee’s terminal earnings (final salary). Under this formula, benefits are based on a percentage of average earnings during a specified number of years at the end of a worker’s career.

Obviously, if the pension payout is based not on the success of investments or current company revenues but instead on the particular worker’s performance years or decades ago, a company has to make up any difference between investments and pension cost with current revenue. Revenue diverted to pensions contributes nothing to value for the current customers who provide the revenue. The current customer literally doesn’t get what they paid for. If they had instead bought the product from another company identical in all respects to the first except for the defined benefit pension cost, they would have paid less and/or gotten a higher value.

The value delivered to the customer is the single determiner of business success. High pension costs undermine delivered value and thereby harm both the customer and the company.

It was Taiichi Ohno most often credited with formalizing the business folk wisdom that all business profit arises from value delivered to the customer.

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Labor Regulations Take Aim at the Economy and Free Speech

Alongside evidence of weak job growth, there are also signs of recovery. What may be recovering, however, is the recession. New orders for manufactured goods declined 13.2% in August, the steepest decline since January 2009. Real average hourly earnings declined 0.6% in August and 0.3% more in September. And the number of persons working only part-time because full-time work was unavailable increased from 7.9 million in August to 8.5 million in September.

Overall, the state of the economy is somewhere between retrogressive and woeful. Detailing the policies and initiatives of the Obama administration that have kept the economy down as it struggled to recover is an immense task, but it needs to be done.

A good place to start is the regulatory burden that has given businesses reasons to think twice about hiring more people. In his last State of the Union Address, Obama claimed, “I’ve approved fewer regulations in the last three years of my presidency than my Republican predecessor did in his.” The Heritage Foundation pointed out that Obama was counting all regulations no matter their size or cost as the same. Many Bush-era regulations eased compliance costs. The Heritage Foundation calculated that in its first three years the Obama administration adopted 106 major regulations that increased costs on private-sector activity compared to 28 such regulations in the first three years of the Bush administration. The regulations of the first three years of the Obama administration imposed $46 billion in annual costs while those of the Bush administration imposed $8.1 billion in annual costs.

Proposed regulations of the Obama administration also have to be added to the toll. Businessmen—as well as farmers—have also had to be concerned about mischievous regulations that, so far, they have been able to fend off. For example, a pair of proposed labor regulations combine Obama’s antipathy for employers with his antipathy for the Constitution. One regulation coerces speech, and the other restrains speech.

The regulation that would coerce speech was adopted by the National Labor Relations Board in August 2011. Observing that union organizing efforts were badly in need of some publicity, the NLRB adopted a regulation requiring employers to post a notice with a rather slanted list of rights. The notice states that employees have a right to join a union, negotiate with an employer through the union, bargain collectively, strike, picket, and lastly choose to do none of those things. The notice does not inform employees of their right to decertify a union, refuse to pay union dues in a right-to-work state, and refuse to pay dues greater than what is required for representational purposes. The rule makes failure to hang up the notice an unfair labor practice.

The NLRB’s statutory authority for this command is dubious. Board member Brian Hayes wrote a withering dissent that opened with Justice Scalia’s observation that “agencies may play the sorcerer’s apprentice but not the sorcerer himself” and concluded that the regulation is “both unauthorized and arbitrary and capricious.”

Lawsuits were filed against the rule in federal courts in South Carolina and the District of Columbia. The lawsuits argued that the National Labor Relations Act did not authorize the National Labor Relations Board to require a poster and that the regulation compelled employers to present a pro-union message on their property and was therefore unconstitutional, like the New Hampshire law that had required “Live Free or Die” to be on every license plate. During the litigation, the NLRB repeatedly postponed implementing the rule.

The courts split on whether the NLRB exceeded its authority. The South Carolina district court said there are many federal statutes that call for the posting of notices, and the National Labor Relations Act is not one of them. Nonetheless, the D.C. district court held that the rule was somewhere within the NLRB’s rulemaking powers. Regarding the constitutional issue, the D.C. district court said the rule does not compel employers to say anything. The notice is the government’s speech, the government’s message.

Both cases are on appeal. The D.C. district court enjoined enforcement of the rule during the appeals.

The U.S. Department of Labor Unions proposed the regulation that would restrain free speech. That regulation would constrict an exemption from a reporting requirement under the Labor-Management Reporting and Disclosure Act of 1959. The Act requires employers to report in detail any agreements with or payments to a consultant who undertakes activities to persuade employees on whether or not to organize and bargain collectively. The Act has an exemption providing that reports are not required on account of advice to an employer. For years the Labor Department had interpreted the exemption to cover activities that involved both advice to the employer and persuasion of employees. In June 2011 the Department proposed a regulation, known as “the persuader rule,” changing its interpretation of the exemption so that it covers only services related exclusively to advice. If any part of the service is to persuade employees, directly or indirectly, then the exemption is lost.

The Department received hostile comments on the proposal not only from the Chamber of Commerce, as you might expect, but also from the American Bar Association. The Chamber and the Bar Association said the persuader rule’s new subjective test made the advice exemption meaningless. The Bar Association said that the persuader rule would thwart the will of Congress, conflict with the ABA Model Rule on confidentiality, and undermine both the confidential lawyer-client relationship and employers’ right to counsel.

Faced with that opposition, the Labor Department has taken no further action on the persuader rule. The Department may be waiting until after the election. The rule could be part of the unknown, unspoken agenda for a second term.

If the persuader rule ever is adopted, it too should be challenged on constitutional grounds. The Supreme Court has not yet directly addressed whether attorney advice is protected speech and, if so, what level of scrutiny should be given to regulation of it. Renee Knake argues in a recent law review article that attorney advice is protected speech and restraints on attorney advice should be given strict scrutiny. That is, they are unconstitutional unless they are necessary to further a compelling governmental interest and are narrowly tailored to do so using the least restrictive means.

These two latent regulations of the NLRB and the Department of Labor are not “regulations on Wall Street,” as Obama likes to refer to all of his regulations. Wall Street firms, not being labor intensive, would be among the enterprises least burdened by these rules.

The rules are far from the administration’s worst insult to the First Amendment (that prize goes to the suppression of the free exercise of religion by the Department of Health and Human Services), but they are part of a pattern of not allowing the First Amendment, the Recess Clause, the Presentment Clause, the Commerce Clause, or anything else get in the way of the task of suppressing the economy.

With mischief like these regulations in mind, Mitt Romney said at the second debate, “I talk to small business across the country. They say, ‘We feel like we’re under attack from our own government.’” Denying that Obama is hostile to business, Democrats insist that his infamous taunt “You didn’t build that” has to be taken in context. I agree. The context is his presidency.

Rethinking Unions VII: Is anything better for workers than 2% unemployment?

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In a time of prolonged 8%+ unemployment it may be a fond distant memory, or for younger workers a mere tale of better times past but it is possible to have 2% unemployment. And 2% unemployment is arguably the best possible thing out there for workers. 2% unemployment requires no dues payments. 2% unemployment means employers are willing to train new entrants and retrain old ones. 2% unemployment means any time a worker takes offense, he can walk off the job and get a new one within a short amount of time. 2% unemployment means that if you want to work more hours you can and if you want to work fewer, your employer has no leverage to make you work more. 2% unemployment means that you don’t have to accept poor treatment, unsafe working conditions, or incompetent bosses because you can walk and not suffer for it.

Objectively, a 2% unemployment rate is the gold standard for improvement in labor conditions. So why do todays unions not make that a focus of their activism? And what would a labor movement that did focus on it look like?

In the Post

I’ve been thinking for a while – based on my own use of the service – that the good old US Post Office is something well past its best-if-used-by date. Oh, no – not that it should be done away with as a government service entirely. But I can contemplate delivery of the mail only two or three times a week with perfect equanimity … which is at least a little tragic for there were times when the daily arrival of the mail was a much-looked-forward-to thing. When I was overseas, or in a remote location – like Greenland (and in military outposts today I am certain) the arrival of the mail (three times a week) was anticipated with keen interest, since it was our lifeline to the outside world. There were letters from family, loved ones, magazines, catalogues and packages with goodies in them – sometimes gifts, sometimes items ordered … the whole world, crammed into a tiny box with a locking door in the central post office; the magical envelopes, the catalogues and magazines in a tight-packed roll, the little pink slips that meant a package … and then, between one or two decades, it all changed.

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Unions and Illinois

Seeing a giant rat outside your business isn’t exactly a red carpet for enterprises considering locating in the state of Illinois, especially while states right next door like Indiana are “right to work” states.

Caterpillar is currently locked in a strike with their workers at a plant in Joliet.

Roughly 800 union members walked out of the Caterpillar Inc. plant in Joliet on May 1, rejecting a proposed six-year contract that would freeze their wages, double health care premiums and eliminate pensions and seniority rights.

Caterpillar has been battling unions in Illinois for decades. Caterpillar is very familiar with how to operate during a strike and they have retirees and trained engineers, replacement workers, and individuals who crossed the picket line to run the plant. Caterpillar claims that output hasn’t been impacted by the strike. Caterpillar recently closed a Canada plant after workers refused to accept reduced pay and benefits and… moved those jobs to Indiana.

Employers are incredibly leery about adding jobs that might be unionized; while they are often leery of leaving behind assets and customers that are on the ground, new and incremental investment is another matter, entirely.

When you go to Michigan today you can see the beautiful homes and the world-class universities that were funded by the industrial powerhouse that used to be the auto industry. Today the growth in that industry all happens in the south, in non-union states. Someday those states too will have the long term wealth, since industry spawns an entire ecosystem that you can see running in reverse in the heavily unionized “blue” states.

Unions used to say that their members provided higher quality products than non-union workers; in Illinois the construction unions still tout these supposed advantages (not that there is evidence that construction quality is higher in Illinois than in the non-union south). Today, however, union arguments move more towards “fairness” and this is not a convincing argument – it might work with public employers that often shy away from a fight, but for companies like Caterpillar with global operations and global competitors they need to strike a hard bargain else their competitiveness will slip away to foreign competition.

Cross posted at LITGM

Rethinking Unions VI: embrace unions and extend them to a true worker movement

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Embrace and extend is a proprietary software company strategy that was made famous by Microsoft’s use of the practice. The idea was to embrace an open standard, create the best implementation of that standard in part by adding proprietary extensions, and get everybody to use your version and become addicted to the proprietary goodness which was not released as an addition to the standard. Everybody buys your commercial software that includes the enhanced standard feature and you gain an extra dollop of lock-in profits for several product cycles.

The challenges of moving beyond current unionization efforts to a true workers movement is a bit like a photo negative of Microsoft’s strategy. What’s desired in this case isn’t to create something proprietary to extend a standard for advantage but to identify the jewels in the proprietary 1st generation unions, standardize and spread their benefits to all workers, and create efficient methods to achieve legitimate worker ends without the violence and without the contribution to crony capitalism that present day unions participate in.

Jewel #1 – Education
US vocational education is generally a mess. Union vocational education is generally considered a viable, quality system.

Jewel #2 – Benefits provider
According to the US tax code ( 501(c) 5 ) Unions have the ability to provide benefits consistent with their purpose. That makes them natural health insurance and pension providers that are financially distinct from the company. Union provided benefits are associational and allow increased worker mobility between firms covered by the same union which is both good for workers and good for capitalism.

Jewel #3 – Worker Protection
This one’s a very flawed jewel, but in a dysfunctional organization that has not yet gone broke, the union might be all that is between you and bearing the cost of changing jobs in a sticky economy when you’ve been done an injustice or have even been asked to do something dangerous or illegal.

Adaptation #1 – The open badging movement in education needs extension into the vocational education sphere. This isn’t really a technical challenge, that part is being handled by the technical crowd admirably. Instead the major unaddressed issues are social and organizational ones. People need to know about the badges both in HR departments and in the job seeking population. Badges need to be something that can give you an edge in finding a job. Badges need to be something that lets you find more good employees and filter out more duds. This is a major work in progress and nobody’s really cracked the code yet though there are a lot of entrepreneurial initiatives trying to work out the issues including big names like MIT and Harvard.

Adaptation #2 – Unions are a ready made association that can stay with workers throughout their working lives and provide benefits no matter what happens to a particular employer. This is a very valuable service, one that could use as many entrants into this market as possible in order to prevent membership gouging If you’re a Catholic, scout master, and bricklayer, picking your benefits among your three major associations gets you better possibilities if all of them are participating as benefits provider associations. This is going to require a sea change in legislation so that cross-state associations can provide benefits packages. President Bush proposed this early in his 2nd term and had his head handed to him. President Obama is obviously not interested. Would our next President do better? On the first day President Romney says he would work to replace Obamacare with a more common sense set of reforms. Would this qualify as part of the solution?

Adaptation #3 – Ultimately, this is the most difficult of adaptations because here is where threat and intimidation get applied in a form of street justice to handle situations that are ill suited to the formal justice system. If management behaves badly, unionized workers impose costs is generally how it works. But the ultimate expression of this tactic in current unions, the strike, is disruptive without being very effective. An entire industry has grown up around making it ineffective. Either formal justice needs to be radically reduced in costs to make these situations solvable by the courts or street justice needs to move into the 21st century so that it has lower dead weight loss, lower overhead, and higher effectiveness.

The Insanity of Federalized Teacher Evaluations

Last Sunday’s New York Times had an article highlighting the implementation of the new teacher evaluation system being put in place in Tennessee. The system is part of the Race-to-the-Top attempt to drive education reform in the states by dangling federal cash for reforms.

As you read the article, you should begin to realize why “reform” fails and why many people in both the Government Education Complex and Education Transformation* movement find these rules so absurd.

There simply is no way that a federal bureaucracy (or any bureaucracy, for that matter) can devise a unified system of teacher evaluation. There are too many variables, and teachers are correct to be skeptical of this top-down approach to their craft.

For example, the first few paragraphs of the article expose the unworkable nature of the evaluation process.

Steve Ball, executive principal at the East Literature Magnet School in Nashville, arrived at an English class unannounced one day this month and spent 60 minutes taking copious notes as he watched the teacher introduce and explain the concept of irony. “It was a good lesson,” Mr. Ball said.

But under Tennessee’s new teacher-evaluation system, which is similar to systems being adopted around the country, Mr. Ball said he had to give the teacher a one — the lowest rating on a five-point scale — in one of 12 categories: breaking students into groups.** Even though Mr. Ball had seen the same teacher, a successful veteran he declined to identify, group students effectively on other occasions, he felt that he had no choice but to follow the strict guidelines of the state’s complicated rubric.

“It’s not an accurate reflection of her as a teacher,” Mr. Ball said.

What a shock. A principal knows his teachers better than the federalized check list. Wonders never cease.

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Rethinking Unions V: AFL-CIOx

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First there was TEDx, the low cost/no cost to the original TED initiative to spread the TED message around the world in local affiliated events. Now there is MITx, an initiative to create free/low cost classes with an MIT affiliation but no degree. So why isn’t there AFL-CIOx? There is no great leap necessary to figure this out. Fire up a web site and provide tools for all workers to improve their position. AFL-CIOx could provide templates on how to lobby their local governments to diversify local economies and cater to entrepreneurs so the increase in businesses operating locally would improve the chance that different employers would compete for local workers. Employers bidding up salaries in order to compete is how non-union workers get salary increases and it’s a successful strategy. It used to be that union workers earned more than non-union. That is no longer true.

And they could provide “plus” services that would carry a fee that you could take or leave. Hat sales alone would probably cover most of the electricity bill. And yes, I’d buy one. I’d also use the site as I assume a lot of people who would viscerally reject joining a union, ever. Google will index it and people will use compelling content, giving unions a 2nd chance at a large part of the population that have long written them off as irrelevant and outdated.

So where is that site? Where is the effort to improve the position of all American workers by providing a 21st century education on how to be a smart, savvy worker?