The Oracle of Delphi.

Commentary about business and finance.
Oct. 11 2005 3:02 PM

The Oracle of Delphi

Steve Miller's vision of the post-bourgeois workforce.

On Saturday, Delphi, the giant auto-parts company, filed for bankruptcy, kicking off what is sure to be one of the great cram-downs in American history. In a series of interviews with the New York Times,the Wall Street Journal,and the Financial Times, Delphi CEO Steve Miller offered unionized workers a choice: They can accept pay cuts of about two-thirds or face the termination of their pension plan, which is underfunded by several billion dollars.

Miller, whom no one will confuse with the Gangster of Love, has performed similar drills at bankrupt industrial companies like Bethlehem Steel, Morrison-Knudson, and Federal-Mogul. And the experience has given him some insight into the forces transforming the industrial world, leading Micheline Maynard of the New York Times to dub him the "Oracle of Delphi." As he told the Financial Times,"Delphi is simply a flashpoint, a test case, for all the economic and social trends that are on a collision course in our country and around the globe."

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When he ruminates on the dialectics of global capitalism, Miller calls to mind a famous, simplistic big thinker with prominent facial hair. No, not Tom FriedmanKarl Marx. Because what Miller is talking about—and the effort he's been engaged in at companies in the steel and auto industries—is the re-proletarianization of industrial work.

Transforming masses of unskilled, insecure industrial workers into middle-class stakeholders was a key achievement of the U.S. economy in the 20th century. Henry Ford introduced the $5 day in 1914 as part of a larger effort to make his hourly workers—many of them immigrants and minorities—think and behave more like respectable middle-class Protestants. In the following decade, the spreading belief that better-cared-for workers would prove less susceptible to unionism, socialism, and communism led to the advent of welfare capitalism. Through the New Deal and the Cold War, the grand bargain between government, industry, and labor held fast. With pensions and paid vacations, factory work became a ticket to the middle class, providing home-ownership and comfort, job and retirement security, health care, and leisure. (Where I grew up—in mid-Michigan in the 1970s—it was not uncommon to find Oldsmobile workers playing golf at public courses.)

In recent decades, however, this grand bargain has collapsed slowly—and in the case of Delphi, all at once. There's plenty of blame to go around: clueless managers, atavistic unions, and indifferent politicians. Broadly speaking, the United States has collectively decided that certain industries, like electronics, are not worth keeping. Other industries, like meatpacking and chicken-processing, are worth keeping, but only if they're staffed by a new proletariat—immigrants who labor for low hourly wages and without benefits or union representation. And now we're being told that other industries like steel, coal, textiles, and auto parts can survive only to the extent that middle-class stakeholders choose to become insecure industrial workers.

To be sure, Miller is right that broad forces like globalization, free trade, and the emergence of China as an economic power are making life difficult for U.S. manufacturers. But many of the wounds are self-inflicted. And our system has some perverse incentives that encourage smart executives like Miller to restructure at the expense of workers.

Once Miller arrived on the scene in July, it was clear that he was going to drive Delphi straight into Chapter 11. He had little in the way of stock, and his reputation wouldn't take a hit if Delphi failed. Taking companies in and out of bankruptcy is what he does for a living! What's more, Delphi, which was spun off from General Motors in 1999, faced intractable structural problems. GM essentially spun Delphi off so it could get auto parts for less than it costs to make them. And when raw-material costs spiked, Delphi couldn't pass on its higher costs to its main customer. So, Miller didn't try that hard to restructure outside of bankruptcy. According to the Wall Street Journal, Miller's last offer to the United Auto Workers union was a 75 percent wage cut. (In Delphi's defense, the $65-per-hour compensation it had negotiated with its UAW workers was clearly unsustainable.)

The beauty of Chapter 11 is that it allows companies to walk away from so many obligations to lenders and employees. If the UAW doesn't come across, Miller can ask the court to impose salary changes. Or he can toy with the notion of kicking the underfunded pension onto the increasingly feeble shoulders of the Pension Benefit Guaranty Corp., which Miller did at Bethlehem Steel in 2002. Delphi says it may be able to save the pension plan, but only if workers accept a two-thirds pay cut—wages and benefits of $20 per hour.

Now, $160 per day in wages and benefits isn't bad. That comes to about $41,600 per year. But is it enough to sustain a bourgeois lifestyle? Henry Ford instituted the $5 day because he wanted his employees to buy his cars. Back out $10,000 for benefits and insurance, and Delphi's employees may make enough to buy a 2006 Buick Terraza. But they won't have anything left over.

The United States isn't de-industrializing. Rather, many of its historic industries are getting smaller, and the jobs they offer are declining in quality. The scary thing is that this re-proletarianization of industrial work is moving up the value chain, from raw industrial materials (steel, coal) to components (auto-parts makers and textiles). Where's it going next? Higher up the value chain to the companies that make the finished products. For the Oracle of Delphi has warned that if Ford and General Motors don't heed his message, they could be next. "I am very concerned about what happens to the Big Three," he said. Miller shouldn't be too concerned, though. GM or Ford could be his next gig.

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