Sunday, June 22, 2008

100 Years Later: Flint is Now a Service Economy

General Motors was founded in Flint, Michigan by auto pioneer William Durant, who combined Buick with an assortment of other auto manufacturers and parts suppliers on September 16, 1908. In the next few years, Durant and GM added automakers Oldsmobile, Cadillac, Elmore, and Oakland (later known as Pontiac), along with Reliance Motor Truck Company and the Rapid Motor Vehicle Company (predecessors of GMC Truck).

In forming GM in 1908, "Durant introduced two concepts that define manufacturing today: customer choice and industry consolidation." As GM and the auto industry thrived and expanded in and around Flint, Michigan during the 20th Century, employment opportunities were plentiful, and GM eventually employed close to 85,000 workers in "Vehicle City" by the 1970s.

GM and Flint are now ready to celebrate GM's 100th year anniversary (see picture above) this summer in July with parades, parties, baseball games, paddle boat rides, home tours, car cruises, concerts, new vehicle shows, etc.

What probably won't get celebrated this summer in Flint is this: Almost all of the GM jobs are gone forever. And it's not just the GM jobs that are gone (there are only about 8,500 left and the number is falling), and not just the non-GM automotive jobs, but most of the manufacturing jobs have left Flint forever!

The chart above (click to enlarge) shows the reality of manufacturing job decline in the Flint area (includes Genesee County). As recently as 1990, about 1 in 3 jobs locally were manufacturing (32%), which was about twice the percentage of manufacturing jobs nationally - 16.3% (about 1 in every 6 jobs). Although manufacturing jobs (as a percentage of total jobs) declined nationally and here locally, the decline in Flint was much more dramatic. So much so that by 2008, fewer than 1 in 13 Flint jobs are now in the manufacturing sector (7.8%), which is less than the national average of 9.9% for manufacturing jobs (1 in 10 jobs) by more than two full percentage points!

Flint celebrates GM's 100th year anniversary in the same year that Flint has a smaller manufacturing base than even the rest of the country. In other words, in the same year that Flint celebrates its industrial and manufacturing heritage as the birthplace of General Motors, it celebrates another, equally important historical milestone: Flint's manufacturing sector is dead, and it has now officially become a service-sector economy.

What killed off 75,000 manufacturing jobs in Flint? Although other factors may be relevant as well, economic theory clearly tells us that the more successful unions are at achieving above-market compensation, the greater the likelihood that those unionized industries or companies will eventually suffer losses in market share, employment and output. This is exactly the situation today, with GM's market share, UAW membership and Flint manufacturing employment at all-time lows.

The above-market compensation gains of the UAW led ultimately to long-run losses in union employment in places like Flint, Michigan, as the UAW gradually priced its overpaid members out of the globally competitive labor market.

Automobile production is expanding, but it's expanding elsewhere in the U.S., outside Flint and outside Michigan (see chart below), see Mackinac Center article here.


At 6/23/2008 6:34 AM, Anonymous Anonymous said...

Nice article. I've been on the front lines of the growth and decline at GM here in Flint since 1973. I would argue that productivity gains were the major reason for job loss, and as supporting evidence state that the 1300 employees at our location ship as many tons of finished steel today than 3300 employees did just 10 or so years ago. That’s kind of a useless fact though. Future investment is what is really important; both the union and GM have got to do a much better job if they hope to lure investors’ dollars to operate in the 21st century.

Until both GM and the UAW earn that trust by making smart decisions, more job loss will surely follow. The 2007 UAW/GM contract is a good start; however, organizations of this size do not readily adapt to change or admit that their strategies are outmoded in a globalized marketplace. History points toward failure and eventual bankruptcy for GM. I sincerely hope that I am wrong.

Personally, I’ve tried to position myself where GM or the UAW will not be my sole source of support in the future. I suggest other GM workers to do likewise: You really have nothing to lose and a lot to gain.

At 6/23/2008 7:19 AM, Anonymous Anonymous said...

You might want to eliminate the word “overpaid” from the next-to-last paragraph: “UAW gradually priced its overpaid members out of the globally competitive labor market.” Critical readers that are attempting find an author’s bias will quickly hone in on that, and it summarily weakens the rest of your article. Although technically correct when comparing labor market compensation, the term is rather inflammatory and adds nothing to the credibility of your well-written article. This comment comes from an overpaid autoworker.

At 6/23/2008 7:32 AM, Blogger live dangerously said...

Hi Doc. I'm trying to look at the bigger picture of the US as your graphs indicate slowly becoming a service nation. Is this doable, is this inevitable considering the country's and human natures desire to do less and make more? If that is the case. Then I would assume that we have to be at the top of the heap as far as education. The continual creation of new ideas in the service industry to service the growing nations of the world (China and India Malaysia) would seem to be of primary concern. Can we instill in our educational system and our youth the necessary desire and hunger to compete to keep ahead of that game? I really wonder. Not everyone can be an IT wizzard. I'm new to your site and if you have posted on the general idea of Service vs industrial in the past I'd like a link.
Thanks, Live Dangerously Be A Conservative

At 6/23/2008 7:44 AM, Blogger said...

Speaking of Flint's service economy...


At 6/23/2008 7:48 AM, Blogger Mark J. Perry said...

We could substitute "workers making above-market wages" for "overpaid workers," but the meaning would be the same. If a union does NOT get its workers above-market wages, it's not a very good union, and in that sense the UAW was one of the most successful unions in history.

But whether you describe workers/wages as "overpaid" or "above-market," the end result will be exactly the same: a long-run decrease in union employment opportunities at those wages, and a decrease in output and market share of the companies like GM that employ unions at those wages.

At 6/23/2008 8:18 AM, Blogger juandos said...

How much does it really cost to employ someone in today's America?

How much of that cost is imposed by government oversight and rules?

At 6/23/2008 8:26 AM, Anonymous Anonymous said...

I have to disagree that union effectiveness should be judged on its ability to get above market wages.

My current position at GM is a UAW rep for preventative maintenance and government compliance for the facility and mobile equipment (OSHA, EPA, DNR . . .). I am much more concerned with people having a safe workplace and living a long life after retirement than pay. Exit polling from union elections indicate that successful organization campaigns are centered on dignity, respect, and safety with pay a ways down the list. It’s a common misconception that unions are all about pay, and an argument that is often used by anti-unionists who invoke feelings of jealousy in those who are easily swayed.

As you pointed out, unions have in the past received above market wages. I'm not sure how that will play out in the future. I wish I could supply the UAW/GM 2007 agreement in electronic form, but I don't have it, yet. The new wage structure is very competitive with the current labor market.

“Above market wages” is a much more neutral term than “overpaid.” Maybe I am a little sensitive to words used in writing, but I spend a lot of time reading and writing. I look for stuff like that to determine the credibility of the source and use word choice to my advantage when I write—just as knowledge is power—writing technique is, too.

At 6/23/2008 8:40 AM, Blogger Mark J. Perry said...

Let's then say "above-market compensation." And increased safety and other non-wage benefits are actually a form of higher compensation.

At 6/23/2008 9:00 AM, Anonymous Anonymous said...

Hey, it's quite clear what the cause of the loss of jobs is in Flint!!

The State of Michigan needs to float a bill to bring back Michael Moore.

Fulfilling The Great Porcine One's needs alone will bring thousands of jobs back to the Flint area -- manufacturing the acres of clothing needed to cover his rotund body, growing and processing the food needed for him to maintain that portly physique, operating the vast array of fans required to waft away the localized warming produced by His Astounding Rotundity's regal pronouncements (which will also help save on energy during Michigan's harsh winters!!), and the legions of professional masseuses required to stroke His Imperial Sphericality's voluminous ego.

It's a win-win situation for all!

At 6/23/2008 9:08 AM, Anonymous Anonymous said...

> the US as your graphs indicate slowly becoming a service nation. Is this doable, is this inevitable considering the country's and human natures desire to do less and make more?

1) The "third economy" -- aka "the Post-Inustrial Economy" is clearly an IP& Services Economy, following in the footsteps of the pre-Renaissance Agricultural Economy and the post-Renaissance Industrial one.

2) The USA is uniquely endowed with the ability to lead this transition, as we are, as a melting pot, a microcosm of the world's cultures. "If it sells here, it'll sell anywhere".

3) "Civilization advances by increasing the number of things one can do without thinking about them" -- Cars are an advancement, because you don't have to feed and care as you do with a horse. Indoor Plumbing is an advancement by not requiring you to think overmuch about getting up in the cold, wintry nights
-- There is and will always be a benefit to humans possessing ability, imagination, and craftsmanship.

> Not everyone can be an IT wizard.

No, but many can learn to use their hands and become craftsmen, artisans, designers, and other useful things which machines cannot begin to do and will not be able to do without a major breakthrough in our understanding of intelligence and imagination. Things which are now done by machine can become once more works of art.

At 6/23/2008 9:28 AM, Anonymous Anonymous said...

"Let's then say "above-market compensation." And increased safety and other non-wage benefits are actually a form of higher compensation."

I can't argue against that.

More people need to be attuned to what drives some of the business decisions today. Too many people live in the past. Your blog is a valuable resource to that end.

At 7/08/2008 1:15 PM, Anonymous Anonymous said...

Productivity gains have led to a destruction of sorts: Michael Moore's documentary about Fisher Body was an example of this.

However, I contend that the majority of the work left after the 98 strike: Delphi (AC and Chevy in the Hole) was spun off, V8 and Buick were destroyed.

As a loyal union man, it breaks my heart to see the International do nothing to stop this obvious retaliation. The only reason it's stopped, was the election of Cal Rapson to the top.


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