Simply defined, a collective action problem is a dilemma in which the rational actions of individual actors make everyone worse off. What's smart for the one proves to be dumb for the many. Imagine, for instance, that you are a new business entering a field where the major players are decades old. Over time, they've bargained with their workers, raised their pay, offered good health benefits and retirement packages. The rational thing for you to do is undercut their labor costs. Then you can sell the good more cheaply and take away their market share. That's all fine. But if everyone does it, then you can't have a decent society, because employers cannot offer decent wages. It's a smart tactic for an individual business, but multiplied across a thousand firms, it's the killing blow for a society that wants a healthy middle class. And, as Jon Cohn argues in this fine essay, it's part of what happened to the American auto industry.
For all of Detroit's mistakes, it is also a victim of something it did right: ensuring a middle-class lifestyle for bluecollar workers. When the carmakers, pushed by unions, agreed to provide workers with a steady level of purchasing power, comprehensive health benefits lasting into retirement, and various forms of workplace rights, they were promising something that all Americans covet. And, while the financial costs and managerial constraints associated with that effort have helped bring domestic carmakers to the edge of collapse, ultimate responsibility for this situation lies beyond Detroit.In a more enlightened society, after all, government would have made those promises and extended them to all workers, thereby spreading the burden of financing them to all taxpayers. That's how it's done in Europe and in Japan--which, not coincidentally, is the home of Detroit's most successful competitors. But the U.S. government never took that step. So, instead of a public welfare state, we got a private one, administered for only some workers and paid for by their employers. Sooner or later, this arrangement was bound to fail.
The corporate welfare state was an elegant idea, but as Cohn argues, it was riven by a fundamental weakness: It was unsustainable. It set up strange sorts of competition: Who could offer cheaper health care benefits? Who could best cut their pension costs? Who could, in other words, adjust their compensation so it was just above the level needed to attract appropriate workers? Anything higher than that was a simple inefficiency. Decency proved a competitive disadvantage.But you can solve collective action problems with, well, collective action. Which is what other countries have done. If you don't want firms competing to offer the worst health care benefits, you don't leave it up to the firms. This is, of course, how Japan and Germany work, and their car companies are just fine. In the essay, Cohn argues in favor of the Nordic model, where "the government guarantees everybody, even blue-collar workers, most of the things Detroit once guaranteed its workforce--like middle-class wages, full health benefits, and subsidized day care. The government also guarantees nearly full incomes for the unemployed." It's a good model. We are not well-served by an economy where treating workers well is a terrible error, where it represents a competitive innovation to discover that you can attract low wage labor without offering them health benefits, as your competitors do. We don't want an economy where what's smart for the firm is bad for our society.
