Why Obama’s “Car Czar” Thinks Biden Should Stay Out of the U.A.W. Strike

Last Tuesday, President Biden joined members of the United Auto Workers on a picket line in Belleville, Michigan, as part of the union’s strike against Detroit’s big three automakers: General Motors, Ford, and Stellantis, which owns Chrysler. Biden was the first American President to ever appear on a picket line, a signal that the Democratic

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Last Tuesday, President Biden joined members of the United Auto Workers on a picket line in Belleville, Michigan, as part of the union’s strike against Detroit’s big three automakers: General Motors, Ford, and Stellantis, which owns Chrysler. Biden was the first American President to ever appear on a picket line, a signal that the Democratic Party, under his Administration, is increasingly willing to embrace labor unions, which in the past several years have reached their highest levels of popularity in more than half a century. (The next day, former President Donald Trump also travelled to Michigan, and gave a speech castigating the Biden Administration at a non-union manufacturing shop.)

Biden’s support for unions, especially compared with other recent Presidents, has not been met with universal approval within the Democratic Party. Steve Rattner, a former economics journalist and investor who became the “car czar” in the Obama Administration, criticized the move, telling NBC News, “For [Biden] to be going to a picket line is outrageous.” I recently spoke by phone with Rattner, who is currently the chairman and C.E.O. of Willett Advisors, LLC, which manages the personal and philanthropic assets of Michael Bloomberg. During our conversation, which has been edited for length and clarity, we discussed his worries about the strike, why C.E.O. pay has grown so rapidly, and his critique of the Biden Administration.

In a recent Times op-ed, you wrote, “I’m all for the auto workers getting paid more–they have legitimate concerns.” What do you see as their legitimate concerns?

The legitimate concerns are that the auto workers in general and the workers at the Detroit Three in particular have seen declines in their after-inflation wages in recent years as a combination of relatively modest nominal wage increases combined with high inflation.

Yes, you wrote, “When I headed President Barack Obama’s auto task force in 2srcsrc9, we restructured General Motors and Chrysler (now Stellantis) and asked the U.A.W. to make significant sacrifices, including to their generous benefits packages. The U.A.W. agreed. Since then, the automakers have seen their fortunes rebound, yet average real wages for workers have been flat more than three decades.”

Right. Correct.

I was curious about this because a decade ago you made comments that indicated that workers should have actually been asked to take more of a pay cut during the auto-industry bailout.

Look, these are difficult balancing acts, and the yin and the yang of this is that there’s some degree of trade-off between wages and jobs. We can certainly pay the workers more, but you’re going to then see more jobs going to non-unionized manufacturers in the South or to Mexico or to other parts of the world. It’s a tough situation. There is a fundamental difference between the service-sector industries, which today comprise the vast, vast majority of our jobs, and manufacturing jobs or other jobs where there can be global competition. You have to think about the market for workers in what we call a tradable industry as being a global market. If wages in one place are too high, then workers in other places with more modest wages will end up getting more work and vice versa. That’s very fundamentally different from something like UPS drivers or L.A. hotel workers or whatever. Those jobs really can’t move, and so there’s more leeway to pay those people more. It comes out in a bit more inflation, a bit lower profits, but that’s all fine. There is not nearly the same trade-off as with manufacturing.

A good portion, in my opinion, of the reason wages in the auto sector in general and in manufacturing in particular have been flat to declining on a real basis for a while now is because of this phenomenon of global competition. The only way U.S. companies in many cases have been competitive is by holding down wages. It’s a very different picture if you look at what’s happened to wages in the manufacturing sectors versus wages in the service sector.

Right, in 2src11, you told the Detroit Economic Club, essentially, “We should have asked the U.A.W. to do more. We did not ask any U.A.W. members to take a cut in their pay.” Now you’re saying, given that their wages have been declining in real terms for three decades, that in fact they do have some grievance about how much they’ve been making?

They have very legitimate grievances about what’s happened to their after-inflation wages. Unfortunately, it is not completely within the power of the companies to solve those problems, for the competitive reasons that I discussed. We did not ask the workers to take a cut in their actual cash pay, but by holding their wage increases down, in effect, they took a pay cut because of inflation.

You say in the Times op-ed that wages are not a huge part of the budgets of these companies. I think that wages are actually under five per cent of total expenses, right?

It depends how you count because there are wages that are incurred by their suppliers and other parts of their supply chain and so forth. It is absolutely a relatively small number, but I think it’s hard to pin it down precisely. Their profit margins are also quite thin. And again, sure, could they afford to pay these workers more and not go bankrupt? Yeah, they could afford to pay them more and not go bankrupt. But there are two issues, one that I’ve already discussed, which is the fact that these jobs will move, and the other is that at some point, if you cut into the profits of these companies enough, they won’t have the capital or see the rate of return they need to invest in E.V.s and other products of the future, and then they’re going to be right back where they were, potentially, in 2srcsrc8.

At the end of your piece, you write, “The U.A.W. and its allies also argue with considerable justification that the gap between workers’ pay and that of senior executives has widened to appalling levels. That, however, has much to do with exploding top level compensation (a phenomenon that has occurred, of course, across virtually all corporate America). From $975,srcsrcsrc in 1978, roughly 6src times the auto industry’s average pay at the time, the compensation package of the chief executive officer of General Motors rose to $29 million last year, more than 4srcsrc times the average autoworker’s annual pay.” Just because it’s happened in all kinds of industries across corporate America is not really an answer to a striking worker who’s making less than they think they should, right? Or do you see it differently?

Well, one of the very justifiable grievances that workers in many companies and many industries have is how big the differential has gotten between pay in the so-called C-suites and pay at the factory-shop level. And I get that. That problem can arise for two reasons. One potential reason is because workers are paid too little, and the other is because C.E.O.s are paid too much. All I’m trying to point out is that C.E.O. pay, generally speaking across corporate America, has gone up at an astronomical rate for several decades now, and that is why you see these enormous disparities.

Do you think it’s a sign that workers aren’t paid enough or that C.E.O.s are paid too much, or both?

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