Using the Replacement-Worker Weapon CATERPILLAR

THE BALTIMORE SUN

The United Auto Workers' decision to send strikers back to their jobs at Caterpillar Inc. last week was the labor equivalent of a Dunkirk operation -- a retreat that saved the union to fight another day.

Like Dunkirk, the move was a humiliating education for the retreaters. And like Dunkirk, it will have vast repercussions on people not directly involved in the dispute.

Just ask someone like Rodney Dize. Mr. Dize, who drove car-hauling trucks out of Baltimore before he was elected to a local Teamsters office, said he has now realized that strikes, while occasionally necessary, "don't have a chance." Caterpillar has proven that managers willing and able to use replacement workers can take the sting out of strikes.

Now that workers' most formidable weapon, the strike, has been blunted, many labor strategists say companies have gained an important edge in labor negotiations.

Executives say this reduction in union power is long overdue, good for the global competitiveness of their companies, and will save American manufacturing jobs in the long run.

But at what cost?

Many economists have noted that the rise of much of the American middle class roughly coincided with the ascendancy of unions. And as unions weaken, there is growing evidence that the middle class, too, is shrinking.

The only hope for unions is legislation to ban replacement workers, or new tactics -- tactics such as those Mr. Dize may be among the first to use successfully.

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Although Secretary of Labor Lynn Martin said on Thursday that hiring replacements for strikers wasn't effective, most labor strategists said the Caterpillar outcome has proved just the opposite.

Negotiations are supposed to continue, but UAW members are returning to work under the contract they had struck against since November 1991.

And labor strategists and historians say the UAW simply recognized the obvious: As long as U.S. law allows managers to replace strikers, "the union can never win," says Harley Shaiken, a specialist in labor relations at the University of California at San Diego.

Although replacement workers have been used in only about 4 percent of the strikes over the past 11 years, they have often -- though not always -- proved effective at breaking a strike or a union.

President Reagan started the trend in 1981 when he replaced 11,400 striking air traffic controllers. Later that year, copper producer Phelps Dodge Corp. replaced striking steelworkers. In 1985, Geo. A. Hormel & Co., broke a meat cutters strike by hiring replacement workers. And in March, 1990, Greyhound Lines replaced 6,300 striking drivers. The replacement was costly and forced the company to seek protection from its creditors under Chapter 11 of the bankruptcy code. But the drivers union ended the strike, and Greyhound is still operating. Hormel and Phelps Dodge are currently profitable.

That Caterpillar management now has the upper hand was demonstrated by the way the company behaved the day workers first attempted to return: Peoria, Ill.-based Caterpillar refused to take the workers back right away, saying the company had learned to operate with 15 percent fewer workers than it had before the strike.

Caterpillar changed course on Thursday, saying it would take back all of the strikers, but would reduce its staffing through attrition and an early retirement program.

Nevertheless, Mr. Shaiken said the company's decision to turn away its returning workers for three days was "a very poor sign" for the union. "That has got to win the Frank Lorenzo award for setting the worst possible tone," he said, referring to the head of Eastern Airlines who was so intent on destroying the airline employees' unions that he destroyed the company.

The decline of the union's power will mean lower wages for future generations of American workers, Mr. Shaiken and other economists believe.

Caterpillar Chairman Donald V. Fites said he is trying to cut his company's costs as painlessly as possible for current employees. He has offered annual 3.4 percent increases on top of the average production wage of $16.98 per hour.

Caterpillar has also promised to guarantee the job security for six years of most of its production workers.

But future workers won't be so lucky. The union wanted the company to hire new workers at the regular union wage. Caterpillar said it can't afford to keep some of its parts-making and distribution operations going at that wage.

A little-discussed but important aspect of the dispute was over Caterpillar's insistence on the right to pay new hires in some divisions -- including the York, Pa. parts plant -- as little as $7 an hour.

In fact, the company said it would shut down the 1,900-worker York parts plant unless it could institute a two-tier wage system.

Mr. Fites, a veteran of the company's overseas operations, has said that the disparity between production wages in the U.S. and other countries cannot be sustained. Caterpillar, which sells 60 percent of its bulldozers and other heavy equipment overseas, must keep its U.S. operations competitive with those of Japan's Komatsu, for example, Mr. Fites said.

Many economists agree that increasing international competitiveness is bound to level up living standards among countries in the long run. But some say that because of policies like Caterpillar's, the leveling is being done by beggaring American workers.

June Zaccone, who teaches international economics at Hofstra University in New York, said Mr. Fites is "quite right" about the necessity for international competitiveness.

But that may mean the union members who work at Caterpillar will be among the last production workers to earn a middle class wage, she said.

Overall, the real income of American production workers has been shrinking since 1972. If wages were equalized into the value of dollars in 1982, the weekly earnings of production workers would be only $256, she said. In 1972, the same workers earned the equivalent of $315.

The spread of the two-tier wage system only makes it worse for young workers entering the job market, she said. The average rate of pay for new workers in the late 1980s was only $5.63 per hour.

Besides, she noted, Mr. Fites's insistence on cutting labor costs smacks of hypocrisy.

"He is certainly not willing to reduce his standard of living" to match those of executives in other countries, she noted.

The company's proxy statement indicated Mr. Fites earned $522,500 in cash compensation in 1991, down from $558,281 in 1990. But Bill Casstevens, treasurer-secretary of the UAW, said the statement hides a $78,461 increase in other forms of compensation for Mr. Fites, and similar increases for other top Caterpillar managers.

Since the use of replacement workers has given companies the upper hand they had 50 years ago, unions are pressing for legislation now in Congress to ban replacement workers.

The bill has passed the House and is expected to pass the Senate next month. But President Bush is expected to veto the bill, and Congress has so far not mustered enough votes to override the veto.

As a result, Mr. Shaiken said unions may have to look to tactics of the past to win back power. Because unions can no longer cause companies pain by disrupting production with a strike, they are going to have to find other ways to disrupt production, he said.

"We may see the in-plant tactics [such as plant occupations and sit-down strikes] of the 1930s," he said.

But Mr. Dize said many in unions like his are instead, shifting to a future of "corporate campaigns," using boycotts and bad publicity, rather than strikes, to pressure for their demands.

The Teamsters, recently taken over by a group of reform-minded leaders, had been trying for 15 months to get a contract with the companies that haul cars, Mr. Dize said. The union said the companies were starting up non-Teamster subsidiaries in an effort to undercut the union.

The Teamsters, once known for their violent strikes, fought back by kicking off their first-ever "corporate campaign."

The union members called for boycotts of Ryder, Inc. truck rental stores. Miami-based Ryder is the nation's largest truck hauler. Teamsters demonstrated in front of Ryder-sponsored golf tournaments and staged events to bring in local media, he said.

While insisting on the elimination of "double breasting" (a term used to describe the practice of creating competing subsidiaries), the union said it would allow each local to negotiate some terms on their own -- a marked difference from the UAW's insistence on national patterns.

"We don't have patterns," Mr. Dize said. "We give different places different agreements. We know they don't make the same in every place."

The result?

Earlier this month, the Teamsters announced they had reached an agreement with all the car carrying firms -- without the pain of a strike.

Though neither side has commented on the specifics of the settlement, Mr. Dize said "We got everything we wanted."

Adam Smith on Replacement Workers

Ever since President Reagan used a little-known clause in federal labor laws -- which forbid firing of striking workers -- and instead "permanently replaced" striking air traffic controllers in 1981, companies have been using replacement workers to fight off strikes.

Liberals and union leaders have been crying foul, while conservative economists and company executives have said the use of permanent replacements is only fair.

This way, workers have the right to strike, and companies have the right to replace strikers, they say.

But is the current situation equitable?

Many economists are claiming that replacement workers have returned the balance of labor-management relations back to that of a previous age.

It turns out that the founder of modern-day economics, Adam Smith, worried about this same problem in his native England and came to some surprising conclusions.

In 1776, Smith wrote:

"Workmen desire to get as much, the masters [his word for bosses or owners] to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labour.

"It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into compliance with their terms. The masters, being fewer in number, can combine much more easily.

"In all such disputes, the masters can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks with which they have already acquired. Many workmen could not subsist a week."

"We rarely hear, it has been said, of the combination of masters . . . but whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and every where in a sort of tacit, but constant and uniform combination, not to raise the wages of labor."

Eighty years later, Karl Marx studied the economy of England and saw a nation consisting primarily of rich owners and poor workers. He predicted the masses of poverty-stricken workers would eventually revolt against the capitalists and become communists.

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