Will Union Ownership Destroy Chrysler?

More

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.

Jump to comments
Presented by

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.
Get Today's Top Stories in Your Inbox (preview)

What's the Number One Thing We Could Do to Improve City Life?

A group of journalists, professors, and non-profit leaders predict the future of livable, walkable cities


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Video

What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.

Video

Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.

Video

Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.

Video

Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.

Video

The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air

Writers

Up
Down

More in Politics

Just In