Unions Ignore Industry Changes At Their Own Peril
They say that those who do not learn from the past are destined to repeat it. Right now, the U.S. telecommunications industry is undergoing dramatic technological and regulatory upheaval. As the streets of Columbus fill with angry union protestors and retirees for SBC's annual meeting this week, it is difficult not to draw comparisons with other domestic industries that have faced similar difficulties. Some have done well while others have floundered.
Two decades ago, the U.S. automobile industry was undergoing tremendous change and struggling to survive against fierce competition from overseas imports. In spite of this, union leaders were initially unwilling to discuss wage concessions. In the end though, as the industry began losing market share to increasingly better and cheaper foreign imports, the unions ultimately had to moderate their demands in order to help the companies stay in business. They also were instrumental in working with the companies to install new technologies. Today, the American automobile industry gets high marks for meeting these challenges and their cars remain competitive in the marketplace.
The path wasn't so bright for the steel industry. Facing stiff competition, also from abroad, the steel unions have steadfastly refused to deal with the industry to reduce costs and install new technologies. The result? Steel production and jobs continue to decline.
In the present day, the huge competitive challenges faced by old-line telecom firms such as SBC in many ways mirror these situations. Indeed, the company has a corporate cost structure more suited to the 1950s than the 21st century. Just as the auto and steel industries faced competition from overseas firms that had neither artificially high wages nor a huge legacy of retirees to support through pensions, SBC's biggest competitors today are domestic cable and wireless companies, mostly nonunion and younger.
Despite these challenges, the Communications Workers of America is trying to hold onto their old contract — higher wages, no outsourcing, and no cut in benefits. SBC has offered a 3 percent wage increase this year and 2 percent in the following years. Most importantly to control mounting health expenses, SBC is requesting an increase in co-pays that will amount to about 12 percent of health care costs. [1] Nationally, the average co-pay in the private sector is 17 percent. [2] Nonetheless, the union is balking at the offer, and is calling the co-pay proposal "draconian!" [3]
The parallels from the auto and steel industries are clear. If the auto companies did not restructure their costs and manufacturing processes to meet the challenge of foreign companies, there were going to die just as the steel companies appear to be dying. Old-line telecom firms are in the same boat. They will not survive competitively unless they realign their cost structure to match current market conditions.
As with any product, consumers gravitate toward the best product for the lowest cost. Whether SBC can continue to satisfy customers in an era of rapid technological innovation and strong competitive pressure will determine the company's fate. For the union, though, this may mean that short-sighted efforts to hold on to generous benefits may end up jeopardizing their very livelihood.
Notes
[1] Gloria Irwin, "SBC, union continue talks," The Akron Beacon Journal, 16 April 2004. Available at: http://www.ohio.com/.
[2] Governor Donald L. Carcieri, "Tough Economy Requires Adjusting Fringe Benefit Plans," Office of the Governor of Rhode Island, 5 March 2003. Available at: http://www.governor.state.ri.us/.
[3] Sanford Nowlin, "Union rejects SBC's proposal," The San Antonio Express-News, 20 April 2004. Available at: http://www.mysanantonio.com/.
Robert Lawson is a senior fellow and Matthew Hisrich is a policy analyst with The Buckeye Institute.
