The Lessons for Australia from Detroit

Dr Julie Novak from the Institute of Public Affairs has a great piece in The Drum on the lessons Australia can learn from the bankruptcy of Detroit.

You should read the whole thing, but here’s an extract:

One culprit underlying Detroit’s problems, that should have been avoided, have been the anti-competitive activities of the union movement, as represented in both the private and public sectors, in efforts to secure wages and conditions at odds with the objectives of providing efficient commodities and public services.


Under pattern bargaining arrangements enforced upon General Motors, Ford and Chrysler over many years, the United Auto Workers union had succeeded to secure lavish benefits for their members.


Prior to the unconscionable auto bailouts of 2008, automotive workers in Detroit enjoyed $70 per hour in wages and benefits, seven weeks of paid vacation, and generous pensions after 30 years of employment.

These elevated costs of employment contributed to the production of expensive local American vehicles, which were increasingly superseded in the market by cheaper, and resultantly more popular, imports.


The union strategy of treating companies as cash cows for their members could not be economically sustained in such an environment, which has been compounded in recent years by sluggish economic conditions within the United States……


Whilst many Australians will probably view Detroit’s woes with a sense of passing curiosity at best, the troubles besetting the city should, rather, serve as an object lesson regarding the need to ensure economic competitiveness as comprehensively as possible.


Demands for better wages and employment conditions by unions should be grounded on solid evidence of improved workplace productivity, and have due consideration to the overall economic environment faced by firms.


For their part, governments should lay out a ‘welcome mat’ of low taxation, streamlined regulations, and efficient spending to enterprising all-comers from around the world, and without the need to resort to ‘corporate welfare’ subsidies or other specific assistance.


To safeguard our prosperity, Australia should be economically mindful of doing everything that Detroit hasn’t managed to do.


Click here to read the full piece.


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