Out of Steps?

Does the United Parcel Service strike signal the end of America’s so-called “Goldilocks” economy, the “just right” combination of steady growth, low unemployment, no inflation and rising corporate profits?

By reigniting organized labor, many contend, workers will recapture a more equitable share of the corporate and Wall Street profits driving the current boom.

But the strike hardly proves their point.

Although package delivery is a relatively low-skill business--anyone with a driver’s license can compete--UPS paid exceptional wages, benefits and offered rock-solid pensions even before the strike. The stock market didn’t collapse after labor’s “victory” as Wall Street shrugged off the notion that unions, heavily clustered in less dynamic sectors and representing fewer than 15% of the nation’s work force, could affect its fortunes.

But America’s largest strike in years should not be so readily dismissed. Beyond the rhetoric, it foreshadows at least three issues with potentially devastating consequences for U.S. prosperity.

The first is whether organized labor has a game plan for today instead of 1950.

Forty years ago, when a handful of giant, lethargic companies ruled most U.S. industries, the Teamsters’ strategy--use collective-bargaining laws to impose rigid wage, work, benefit and retirement rules--made sense. No matter how expensive or inflexible, once concessions were wrung from reluctant managers, a company could pass the additional costs along to its customers.

In today’s economy, however, any disadvantage will be instantly exploited by a company’s rivals. If a collective-bargaining agreement, especially in easily copied sectors, pushes even a dominant company’s costs out of whack, others will steal away its business.

In such a world, traditional union strategies force labor to choose between “winning” better working conditions in principle, like the full-time employment or hourly wage demands made by the Teamsters, or preserving the highest number of jobs for their members by helping to keep their employers’ costs in check. This difficult balancing act limits what old-style collective action can possibly achieve.

There are more promising strategies.

As have workers and smaller vendors in computer and entertainment industries who also experience extraordinary price and wage pressures, unions could reorganize as specialty-service companies in their own right, offering big firms like UPS the flexibility they seek in exchange for greater profit participation. Just as virtually every supplier in today’s economy has learned, such enterprises could reduce workers’ employment risks by doing business with more than one customer.

Unfortunately, labor leaders still cling to remarkably static ideologies, in part because of the growing power of public employee unions, now nearly 40% of all unionized jobs. Since government employment protects workers from competitive pressures, the public sector is the one area of the economy that still resembles the 1950s. Unlike their private-sector counterparts, increasingly influential public unions have no reason to rethink the old collective-bargaining models.

If labor cannot adjust to the new realities, the UPS strike may be the first in a new wave of conflicts in which unions squander energy and political capital securing “victories” that ultimately prove ephemeral. This is a recipe for frustration and extremism. Given its still enormous political and media influence, a radicalized, increasingly desperate labor movement, even with a stable of shrinking membership, could fracture U.S. society.

In the earliest skirmishes over the pension fund, the UPS strike also raised the explosive issue of how to provide collective benefits when work and worker expectations change over time.

To justify leaving the Teamsters’ multiemployer pension fund, for example, UPS contended that its younger, more productive workers should not subsidize elderly, less capable employees from other companies. As American careers shift from long-term work in larger corporations to much more varied experiences, the same themes are echoing nationwide.

Should younger workers pay for pensions or Social Security promised earlier generations when there is little chance they themselves will ever receive comparable benefits? If self-reliance is the moral touchstone of today’s economy, to what extent should the more successful pay for group pension, insurance, health or welfare programs for the less productive?

The unprecedented fragmentation of American work makes consensus on such issues much more difficult to achieve than in the past. A UPS employee’s view of work is as foreign to a Los Angeles film production engineer, or a Silicon Valley computer geek, as a fish cutter’s career in a Tokyo sushi bar.

This could be very bad news for the nation’s “Goldilocks” economy. If successive generations--like the older transportation employees in the Teamsters’ fund versus UPS’ much younger work force--or workers in different industries deeply disagree about basic fairness and equity, government legitimacy and fiscal integrity can be undermined.

One group, such as the politically powerful elderly, for example, might successfully lobby the state to tax another--younger workers--on its behalf, but the price would likely be more political alienation and cynicism. The government could always print money to pay for benefits no one else will fund, but that would supercharge inflation, rekindling the badly distorted economy and devastating boom and bust cycles of the past.

Even though the UPS settlement resolved these issues by restructuring parts of the Teamsters’ pension fund, the country is unlikely to find such a neat solution. If intergenerational, intersectoral and class rivalries proliferate, the growth-inflation balance so crucial to the present economy will almost certainly go wildly askew.

Finally, the UPS dispute touched on the novel, as yet unappreciated confusion of economic roles and responsibilities that the astonishing rise of institutional capital--funds fed by pension, retirement, insurance, bank, 401K and similar investments--is now generating.

Much of American society depends on fairly clear ideas about who does what in the economy. Workers labor for fair wages and benefits; companies earn profits; investors put up capital and win big when successful, or lose everything when not. Within broad legal constraints, each is generally free to pursue its interests as vigorously, and selfishly, as it wants.

When corporate managers spar with giant unions over who should control billion-dollar retirement funds for thousands of workers, as did UPS and the Teamsters, these once unambiguous roles become increasingly muddled, if not terminally confused.

As a corporation, for example, UPS’ primary loyalty is to its shareholders; it strives to keep labor costs low for the benefit of its investors. But as a billion-dollar retirement fund trustee, its overriding obligation is to its workers.

What happens when the two duties conflict? If FedEx earns higher returns, does UPS have a duty to invest in its rival--and hurt its own investors and workers--to safeguard the employee pensions it manages? Should the company boost its stock, and the value of its pension fund, by laying off the very employees to whom it owes fiduciary obligations?

The Teamsters face similar problems. In the last three years, most U.S. funds have invested staggering sums in only the very largest companies because they believe such firms can sustain returns by easily laying off workers, subcontracting and otherwise controlling costs.

Should union pension managers do business with funds that invest in companies with the least regard for worker security? If they don’t, are they liable if the employees’ retirement accounts don’t make enough money? Should they invest in nonunion, but highly successful firms that compete with unionized employers?

As institutional capital continues to grow, its role in labor and other economic disputes, and its effect on once clear business objectives and duties, will increase. Today, there are no guidelines governing these latent conflicts, and a new generation of lawyers and judges will likely fashion them. Until that happens, the lines between investors, fiduciaries, labor and management will become increasingly blurred, risking legal and practical gridlock.

Although the UPS strike might not herald labor’s imminent resurgence, it could mark the beginning of serious debate about how America is changing, and what we ought to do about it. This may disappoint old-school labor activists as much as those who euphorically tout the “Goldilocks” economy. It is clear we must move beyond such views to address events like the UPS dispute and the remarkable transformation of work occurring around us.