GM Job Cuts Demonstrate The Business Case for Health Care Reform
Excessive health care costs and the historically accidental link between health insurance and employment threaten not only American pocketbooks, but also American jobs. Paul Krugman argues in The New York Times that inefficiencies in the U.S. health care system are at least partially responsible for General Motors' recent decision to cut 30,000 jobs.
Krugman argues that the high costs of the U.S. health care system distort our national economy and weaken U.S. manufacturing. In a particularly telling statistic, he cites an A.T. Kearney study finding that General Motors faces health care costs of $1,500 per vehicle, in contrast to Toyota's costs of only $201 per vehicle in North America and $97 in Japan.
The critical problem Krugman identifies is that health insurance in the U.S. is linked to employment. As Krugman notes, this connection has the perverse incentive of discouraging the creation and maintenance of high-quality jobs that carry health benefits. If health insurance were decoupled from jobs then U.S. employees would not be so expensive for employers. That means, at the margins, more companies could continue U.S. operations.
In a previous post, I noted the business case for health care reform. Krugram's op-ed suggests that the GM jobs cuts provide further evidence that businesses should continue taking notice. We must beat the drum until businesses to start listening and taking action.
Krugman's error is falling into the anti-union framing that GM and Ford use to explain their problems.
By emphasizing the issues related to worker benefits (health and retirement) they get to shift the conversation away from all the other issues affecting the auto business.
Some examples:
Over capacity. This affected companies in France, Italy and Japan recently and health expenses were never mentioned.
Poor market planning. Car makers over expand when the market is booming and then suffer contractions when the market cools off. The oil crisis only made things worse. Even so they sold somewhere around 15 million vehicles this year in the US. The auto industry is always cyclical, they just use the downturn for union-bashing.
Poor engineering. The automakers have had 30 years to come up with something to replace the internal combustion engine. They have remained stuck in 20th century technology. Hybrids are a small tweak to the basic design, not a breakthrough.
Over dependence on private vehicles and the growth of fringe communities. The US society has done no planning to reduce the dependence on single occupant vehicles, going excessively large distances to work each day. This would require some sort of industrial/social planning. A no-no in these days of "every man for himself" social policy.
Krugman's heart may be in the right place, but he has gotten too carried away with himself lately. His analyses have suffered as a result.
December 5, 2005 5:00 PM | Reply | Permalink
Having read lots of pundit columns discussing the woes of and suggesting the cures for the American health and/or health payment system along with reading comments here and foolishly adding my own, I've come to the conclusion the pundits and we are all a bunch of know-nothings and bullshitters. Enough, already!
If your comments don't cite to, at the least, Uwe E. Reinhardt, how about foregoing the pleasure of imposing them on us.
“Better to keep your mouth shut and be thought a fool, than to open it and remove all doubt.”
December 5, 2005 6:06 PM | Reply | Permalink
I've come to the conclusion the pundits and we are all a bunch of know-nothings and bullshitters.
And a good day to you too! :-)
December 5, 2005 7:22 PM | Reply | Permalink
Sounds like you have fallen for the anti-national health care framing. Krugman is spot on. With the support of large corporations, we could get national health care passed. Its a good route to go for Democrats and for people without health insurance.
It sounds like you are worried that without employee-based health care that Unions will become more obsolete than they already are. I am a big fan of Unions and think that they would still be important even if we had national health care. Its interesting that Unions might fight national health care. Shouldn't the welfare of workers come before the welfare of unions?
December 6, 2005 7:09 AM | Reply | Permalink
I don't think Krugman ignores these other issues at all. He is simply trying to focus on health care. Companies like GM are in business to make money not to provide health benefits. To them providing benefits is simply a way of aquiring a workforce. So whenever benefit provision gets in the way of profit guess which gets the heave-ho?
Our problem is that we have managed to avoid a national health care system because it became conventional for companies to give workers benefits – it was the only place our workers could get such benefits. Conversely companies abroad didn't need to worry about health care benefits because their countries had socialized systems. Inevitably when the competition between companies heats up companies who have extra costs will look the shed them in order to survive.
So Krugman has it right: the private provison of health care via employer plans is doomed whenever the two systems come into conflict. Now is the time to learn that and work harder for a national system of our own. It will help GM and it would help GM's workers. I'm sure that there are a lot of CEO's who'd love to support that effort.
December 6, 2005 9:46 AM | Reply | Permalink
Not to go too easy on the auto companies, but this is a bit of tall order.First of all, the auto companies have had absolutely no incentive to invest in something as risky as replacing the core of their product. To do so in the absence of market/regulatory changes necessitating this change would definitely be against the interests of their shareholders.
Second, technology to power a real alternative to the internal combustion engine should come out of our national scientific infrastructure. That this has not happened is in part due to the erosion of public investment in non-defense science. Real science can take place in a business context, but it almost always requires some public money to absorb the risks. I work at a biotech, and this is the nature of nearly our entire industry when it comes to R&D.
Third, as a scientist, I always find it a bit petulant when people simply demand that science or engineering breakthroughs be made. It's certainly valid to insist that the effort to make them be put in, but discoveries happen when they do. In the case of cars, research of batteries and portable energy source in general is advancing, but nobody's really got a battery suitable for an electric car yet (though I'm a big, big proponent of creating real incentives for people to buy electric cars as commuter vehicles), and nobody's figured out how to make hydrogen efficiently.
Our auto companies have undoubtled not kept pace with the rest of the world engineering-wise, hence their foolish addiction to SUVs. But responsibility for the fact that we don't yet have an alternative to internal combustion engines goes way beyond them.
December 6, 2005 11:31 AM | Reply | Permalink
Rick Wagoner, the CEO of GM, asks in the Wall Street Journal today:
This seems like an implicit call for socialized healthcare to me.
The article recounts several perceived external woes such as "unfair trading practices" and "lawsuit abuse." However, Wagoner ignores his own culpability for the continuing failure of GM. He writes:
While Honda and Toyota focused on fuel-efficient cars GM developed gas-guzzling trucks and SUVs. While Honda and Toyota focused on core technology, like hybrid power trains, GM developed OnStar. The core problem at GM is incompetent management - runaway healthcare costs are merely a symptom.
December 6, 2005 11:42 AM | Reply | Permalink
AS long as management continues to provide that $2 - per - share yearly divided, I don't think they will be judged too incompetent by the people who renew their contracts and sign their checks.
December 7, 2005 12:50 PM | Reply | Permalink
There are probably only two types of investors willing to accept the 9% yield at GM. The first is the dumb money that can't gauge the level of management incompetence. The second is the smart money that can't flee the stock because it is a DJIA component. Actually, the second group probably is putting a lot of pressure on GM for management changes.
Were GM to declare bankruptcy it would be another black day on Wall Street.
December 7, 2005 2:31 PM | Reply | Permalink