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OSEC Congressional Testimony

Statement of Robert B. Reich Secretary of Labor before the Committee on Labor and Human Resources, United States Senate [03/30/94]

Chairman Metzenbaum, Senator Hatch, Members of the Subcommittee:

I am pleased to have the opportunity to appear before you today to help close the chapter on the last twelve years and to outline a new, more productive chapter in the history of worker-management relations.

The Clinton Administration's plan for economic recovery and long-term growth calls for this nation to invest in our future. And as our national economy becomes, increasingly, a global and technological economy, America's ability to be competitive will depend on how well we have invested in developing a skilled and motivated workforce. To succeed in this new economy, we cannot afford to waste any of our resources, especially the resource most firmly rooted within our borders: our people, their ideas, their education and their skills.

But to compete effectively on a world-class level, we need even more than a high-skill, high-wage workforce. We also need a new framework for labor relations -- one that stimulates employee productivity and enables management to get the most out of its employees' skills, brainpower, and effort. Workers on the front line have unique perspectives on production and immediate access to information that smart businesses depend on for quick response and high quality. So it is not surprising that an increasing number of companies are finding that they profit when they treat their workforce not as just another cost to be cut -- but as an invaluable asset to be developed.

The Administration is committed to fostering practices that improve productivity. And I have seen many illustrations that both productivity and profitability increase when workers have a voice -- whether through collective bargaining or other means of promoting cooperation between workers and management and fostering employee involvement and participation in workplace decision-making. We cannot afford to limit American competitiveness by any practices that inspire workers and managers to work at cross purposes. What will make us most competitive is a dedicated and innovative workforce -- and this requires a partnership between workers and employers, predicated on teamwork and mutual respect.

In short, good labor-management relations make good business -- and a healthy economy. But in the most recent chapter of American labor history, productive relations between some companies and their unions have been thwarted by increasing distrust, hostility, and litigation. The permanent replacement of strikers exemplifies practices and attitudes that make real cooperation between labor and management impossible, by undermining the basic foundations of the collective bargaining system. As an editorial in the Journal of Commerce pointed out, labor cannot approach negotiations with trust and a sense of shared purpose when management has a gun pointed at the union's head. Management that has the option of simply eliminating the other side has little commitment to finding a mutually satisfactory resolution of differences.

The practice of permanent striker replacement became a prominent feature of American labor relations only in the last dozen years. I believe many employers were emboldened when, in 1981, 11,400 PATCO strikers were fired and permanently barred from reinstatement. Although PATCO was considered an illegal strike involving public sector employees -- which differentiates it from the work stoppages addressed by this legislation -- the action taken in 1981 sent a loud signal to the business community that the hiring of permanent replacement workers was an acceptable way of doing business. This, coupled with a distorted focus on short-term performance at the expense of long-term interests, began a decade characterized by a wave of labor disputes in which thousands of employees lost their jobs after they engaged in completely lawful economic strikes.

Strikes are usually an act of desperation, a last resort which employees undertake at great economic and often personal risk to themselves and their families. When workers enter negotiations, the last thing they want to do is strike. But the availability of that option is a crucial counter-weight to the economic powers that business owners and managers bring to the bargaining table. This is why the right to strike is a fundamental premise of American labor law.

At its best, collective bargaining is a win-win process. But without a viable right to strike, employers have less incentive to engage in serious bargaining with their unions, to hammer out mutually satisfactory solutions. And unions see no point in trying to work cooperatively with management when there is no real avenue for dialogue.

In the changed climate of labor relations, more employers have been willing to choose intimidation over serious negotiation. Some companies even advertise for permanent replacement workers before they begin negotiations -- stockpiling them just like raw materials. Successful bargaining is made even less likely if the workers do take on this added risk and strike -- and are permanently replaced. The rehiring of the strikers, and the fate of their replacements, add highly-charged, problematic issues that replace and obscure the original dispute. A study conducted in 1989 by Professor Cynthia Gramm of the University of Alabama-Huntsville indicated that the use of permanent replacements not only complicates the dispute, but also prolongs the strike. Productivity is reduced by prolonged strikes -- as well as by the permanent displacement of skilled and experienced workers.

Although permanent replacements have been used by only a minority of employers, the practice affects even those employers who would never use, or even threaten to use, this weapon. All employees receive the message that they are disposable, each time a workforce is permanently replaced or threatened with permanent replacement. This undermines, throughout the economy, the trust necessary for true cooperation between workers and managers.

Enactment of the Workplace Fairness Act will enable us, finally, to close the book on this counter-productive recent chapter in American labor law. The legislation would restore balance in collective bargaining, allowing management to operate during a strike through alternate means, but not destroying fundamental union rights. The Administration supports this legislation, because it would foster the equilibrium and stability in industrial relations which are critical to the health of our economy. The sooner that we can conclude this chapter, the sooner we can turn our attention from the past and begin, together, to write the next chapter.

But we risk failing to meet the challenges that await us if as Louis Brandeis said nearly ninety years ago -- we "assume that the interests of employer and employee are necessarily hostile -- that what is good for one is necessarily bad for the other. The opposite is more likely to be the case. While they have different interests, they are likely to prosper or suffer together." We need to remember that management doesn't "win" when labor "loses," just as workers don't triumph when businesses fail. Maintaining a balance of power that promotes labor-management cooperation promotes our long-term economic strength; undermining that balance puts us all at risk.

This recognition stands behind the profitability of firms that give employees a stake in the future of the business by making them real participants in decision-making. In the automobile industry, for example, the use of employee-involvement systems at Ford has dramatically improved assembly-line productivity and quality. In the steel industry, National Steel -- a company that employs advanced labor-management participation -- posted operating profits of $11 a ton last year, at the same time its major rivals were showing $19 a ton losses. There are numerous success stories -- such as Motorola, Federal Express, Xerox -- that illustrate the mutual gains to businesses, labor, and the economy as a whole that accrue from mutual cooperation, responsibility and respect.

Times have changed since the thirties, when the first chapter of modern labor law was written. The traditional model of standardized mass production, based on economies of scale and the use of front-line workers as fungible components of the production process, will no longer sustain a high-wage economy. Instead, American competitiveness will be driven by a very different business model -- one not so easily pigeon-holed as producing "goods," rather than providing "services." This model relies on a structure that furthers constant experimentation, development and the flexibility to respond quickly to new ideas and needs by providing incrementally better products. Because workers are integral to the central process of collective innovation, they need flexible skills and responsibilities that will enable them to contribute.

As we write the new chapter of labor-management relations, characterized by mutual interest, rather than polarized distrust, we too will need to be flexible and open to new partnerships and new responsibilities. In this spirit, the Commerce and Labor Departments have joined together to facilitate these vital new relationships between workers and managers, by sponsoring the Commission on the Future of Worker-Management Relations. As Secretary of Commerce Ron Brown and I announced last week, the ten-member panel will be chaired by the distinguished professor and former Secretary of Labor John T. Dunlop, and will include former Secretaries of Labor and Commerce as well as a balanced group of experts from business, labor and academia.

The Commission is charged with examining the current state and legal framework of worker-management relations and with recommending changes necessary to enhance workplace productivity through increased worker-management cooperation and employee participation. The passage of this legislation will enable the Commission to begin work with a clean slate. Then, with their help and yours we can start to concentrate on the solutions of the future, and not on the problems of the past.

Thank you. This concludes my prepared remarks. I would be pleased to answer any questions.

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