Will Union Ownership Destroy Chrysler?

Some Chrysler critics are worried about the fact that the UAW is getting a 55% share in the company, but I'm not sure the fear makes a huge amount of sense. The critics all share the premise that some portion of the automaker's woes are the result of exorbitant demands from an unaccountable union. But if that's the premise, handing a majority stake to the union can only have one of two consequences: It will change the incentives of the union -- such that they realize their demands were bad for the company -- or it will run the company (further) into the ground and leave the union to pick up the pieces. More accountable union no matter how you slice it.

Most don't expect the first opinion -- improving the incentives -- to happen, but I don't understand the complaint. Paul Ingrassia, for instance, writes in the Wall Street Journal:

It's hard to imagine the mind-set that produced this sort of thing will change just because the workers will become the owners, albeit indirectly. [...] There's an inherent conflict between the cost discipline required of owners and the understandable desire of employees to make more money for less work (hey, why not?). Keeping those two powerful forces in balance is critical to the success of any profit-making -- or profit-aspiring -- private enterprise. Even a clean and well-run union such as the UAW will have trouble squaring this circle in the long run.

That seems like a fine description of problems with the current management structure, but Ingrassia is actually using it as a reason why we should be reluctant to hand the company to the union. I think that more or less completely misunderstands principal-agent problems.

Agency dilemmas only occur when self-interested owners hire self-interested employees. The owner wants what's best for the company, and the managers and employees want what best for themselves. These problems can be bad when the shareholders and their representatives are negotiating with the unionized employees. But the notion that making the UAW the owner will somehow exacerbate the "inherent conflict" is pretty bizarre. It can only reduce it.

As a side note, union ownership stakes aren't that uncommon. Germany -- I know, I know, Europe -- has had them for a while and they haven't ushered in the apocalypse quite yet. (The structures are called, ineffably, Mitbestimmungsgesetz.) There is sometimes a tendency to think that corporate governance structures are Platonic Ideals, but my sense is that they vary tremendously.

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Conor Clarke is the editor, with Michael Kinsley, of Creative Capitalism. He was previously a fellow at The Atlantic and an editor at The Guardian. More

Conor Clarke is the editor, with Michael Kinsley, of Creative Capitalism, an economics blog that was recently published in book form by Simon and Schuster. He was previously a fellow at The Atlantic and an editor at The Guardian. He is also on Twitter.

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