As has often been noted, while AIG's bonuses were apparently bound by the sanctity of contract (and the ruthless Connecticut Wage Law), the autoworkers' contracts were renegotiated as a condition of the industry recovery plan. Mostly this is treated as a matter of class justice -- the workers made sacrifices, the Wall Streeters (or, more accurately in the case of AIG-FP, the Wiltonians) were untouched. But there's more to it than that. How were the auto workers' benefits cut? Not involuntarily. They agreed to it. They agreed to it because they were able to act collectively. The United Auto Workers came to the table and agreed that the survival of GM and Chrysler was a more important common goal than everyone getting exactly what they were promised. The presence of the union created a collective sense of loyalty to the industry as well as to their own self-interest. That's why I thought Ruth Marcus badly missed the point in her recent column, dismissing the auto worker/AIG comparison by saying, "If an autoworker doesn't want to show up on the assembly line under the terms of a new deal, he or she doesn't have to." No, it's not an individual choice not to show up -- it's a collective one, and they had already made it. Now, what if you were able to get all the bonus-eligible employees at AIG together, and ask them to jointly make a choice -- give up much of their bonus, and the company might survive and remain eligible for federal cash, or demand exactly what they were promised a year ago and watch the company die, in part because of political backlash? Who knows what the collective choice might be. But since these are all individuals, with individual contracts, the logical move for any one person, acting alone and not knowing what others might do, is to demand every penny. If you agree to reduce your bonus, and the others don't, you are the classic loser in a Prisoners' Dilemma -- you don't get the money and the firm goes under. In this case, the incentive is for the individuals to take the money, and then leave the firm. The classic argument for unionization is that acting together, workers have a stronger negotiating hand than workers acting alone, negotiating individual contracts. That's demonstrably true. But it also works in the other direction. When the time calls not for soaking as much profit out of the company as possible, but for making some sacrifices, out of loyalty and a sense of shared economic destiny, unions can do that too. Individuals cannot. Solidarity is good for the economy. -- Mark Schmitt.
