Beware of Mandatory Arbitration in Card Check

In his statement explaining his decision to switch from the Republican to the Democratic Party, Sen. Arlen Specter assured his listeners that "my position on Employees Free Choice (card check) will not change." In later statements, Specter was explicit in opposing both major provisions of the bill--the effective abolition of the secret ballot in unionization elections and mandatory federal arbitration--and said he would not vote for cloture.

Whether or not Specter maintains his current stand, he has spotlighted an interesting issue. The labor unions' drive for the full card check bill seems to have foundered. Specter enters a Democratic caucus where a half-dozen or more senators have made it clear, publicly or privately, that they will not vote for card check.

His statement gives cover to a Democratic leadership that wants to propitiate its labor union funders but does not want to put so many of its members on the spot. A vote to effectively abolish the secret ballot is not easy to defend come election time.

But the unions may have a fallback position: Forget about the secret ballot, and try to pass a bill with mandatory federal arbitration. This might be easier to defend. Every American knows what the secret ballot is; few Americans know what mandatory arbitration means.

Mandatory arbitration would be a major, massive change in American labor law. Currently, unions are free to strike, but employers are free to resist their demands as long as they want. The card check bill would require, after only 120 days of bargaining, a federal arbitrator to step in and impose a settlement. A centralized bureaucrat, not responsible to shareholders (or to union leaders), would determine wages, fringe benefits and working conditions. There would evidently be no appeal.

Every American knows what the secret ballot is; few Americans know what mandatory arbitration means.

No one knows exactly what this would mean in practice. But the negative consequences are easy to imagine. Arbitrators might very well impose terms and conditions similar to those in existing union-negotiated contracts. Those might include not only wages that would reduce a business' profits, but also generous fringe benefits and thousands of pages of detailed work rules.

Private employers might be forced into funding union pension plans with their massive long-term liabilities. Detailed work rules would mean adversarial negotiations between company foremen and union shop stewards over even the most minor changes in work procedures.

How would this affect the economy? We have a test case before us, highlighted by recent headlines, which gives us some answers: the auto industry.

The U.S.-based auto manufacturers--once known as The Big Three--have been running their businesses this way since they entered into contracts with the United Auto Workers between 1937 and 1941. Foreign-based auto manufacturers, in contrast, have run factories in this country for the last 25 years without union contracts. Two of the Big Three, Chrysler and General Motors, are now facing bankruptcy, and the third, Ford, has just reported big losses. The foreign-based companies, though facing difficult times, are economically viable.

This is true even though wages at the U.S. and foreign companies are virtually the same. But lavish fringe benefits--especially retiree health-care benefits--have proved ruinous to the U.S.-based companies. And even more damaging, it can be argued, are the thousands of pages of work rules in their UAW contracts.

The Japanese and other companies, unburdened by such contracts, can use flexible management techniques, giving autonomy and responsibility to assembly line workers, eroding the distinction between management and labor, and encouraging employees to take the initiative to improve their products. The U.S.-based companies, tethered by their UAW contracts, can't do this. The result is that for decades the foreign companies produced better quality vehicles and their sales increased at the expense of companies based here.

Detroit executives realized this, and today their companies produce some cars competitive in quality with Japanese and German products. But it has taken years of hard and expensive bargaining and has come too late to save them.

The card check bill's mandatory arbitration provisions are a recipe for doing to very large parts of the private sector what the UAW did to GM, Ford and Chrysler. Imposing this burden on our economy would be folly of the first order. Here's hoping that Arlen Specter keeps his word this time, and that his new colleagues think hard before they inflict such long-term damage on our country.

Michael Barone is a resident fellow at AEI.

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