President-elect Obama faces serious economic challenges, including demands for a bailout of the Big Three automakers. America’s new president can find lessons in the way Ronald Reagan, the last president to assume office amidst such turmoil, handled a similar labor-dominated crisis.
Ronald Reagan, the first union leader to be president of the United States, had been sworn in less than a year when, on Aug. 3, 1981, some 12,000 air traffic controllers demanded huge pay increases and walked off the job.
President Reagan immediately ordered them back to work within two days, or he would terminate their employment. Professional Air Traffic Controllers Organization bosses likely thought the new president would back off, but he duly fired the striking controllers and replaced them. That took enormous fortitude and commitment since the president would have taken the blame for any accident during the transition.
The firing of the PATCO workers redefined labor relations for the next three decades. It also sent a message to politicians at home and abroad. Ronald Reagan was a force to be reckoned with, serious about his core economic principles, and willing to deal with causes rather than symptoms of problems.
The test facing President-elect Obama is whether his administration is willing, or even interested, in challenging unions and environmentalists, two powerful constituencies within the Democratic Party, in order to solve the problems – rather than the symptoms – at Ford, General Motors and Chrysler.
Many of the Big Three’s core problems will not be addressed by a bailout. Taxpayer money will simply delay the inevitable. For example, the Big Three have placated UAW demands for decades. These included higher-than-competitive wages, generous retirement and health benefits, and stringent workplace rules that stifled innovation. A specific example is the Job Bank, which pays displaced or laid-off workers near full wages and benefits for not working.
Foreign competitors like Toyota and Honda have been able to produce high-quality vehicles with a non-unionized workforce and have avoided these types of over-the-top demands, making them extraordinarily competitive.
This leaves the Big Three in a brutal position, but with reason to feel confident just as the PATCO bosses did back in 1981. The unions know that without their support, including money and on-the-ground volunteers, the Democrats are at a disadvantage against their GOP counterparts.
The Democrats will likely capitulate to the demands of the Big Three and UAW by providing loans and subsidies to carry them through this “crisis.” This will inevitably lead to further demands and resources in the future. Representatives of the administration are already talking about a new “car czar” and loan deals with equity stakes tied to new regulations for the companies. When large employers are run into the ground through union demands, government regulations and incompetent management, they should be allowed to fail.
Ronald Reagan understood that taxpayers pay the bills, and that federal bailouts won’t fix ailing companies unless the root causes of the problems are addressed. His handling of the PATCO crisis proved a defining moment for his presidency and set the tone for his years in office. Likewise, Barack Obama’s handling of the Big Three’s demands will foreshadow how he will govern and what economic principles will guide his administration.
Columnists are resident fellows of the Pacific Research Institute.