Monday, November 21, 2011

Who Shredded My Cheese?

It is the “Game” and we are all players.

Once there was a company in Northeast Ohio that made vacuum cleaners.  Time after time the salary negotiations for the workers went something like this:

The Union:  “Give us more money and benefits or else!"

The Company:  “Or else, what?”

The Union: “Or else we will go on strike and you will have no vacuum cleaners to sell!

The Company: “Okay, here you go.”

The union’s goal was to maximize the salary and benefits for its members.  The company played along and paid higher wages and benefits because it could raise prices and still make profits. 

But one day the salary negotiations went like this:

The Union:  “Give us more money and benefits or else!”

The Company:  “Or else, what?”

The Union: “Or else we will go on strike and you will have no vacuum cleaners to sell!”

The Company:  Sorry, you are not getting an increase.  In fact, this time you aren’t getting anything.  The Mexico plant can now make and assemble quality vacuum cleaners so we are expanding capacity there and closing this plant.

The Union:  “What?  Wait, why would you do that?  Okay, okay, let’s negotiate.” 

The Company:  “There is really nothing to negotiate.  You drove your compensation up so much over the years that it is three times higher than the Mexicans.  We can’t raise prices anymore because of increased competition.”

The Union: “But this is not fair.  You cannot do this!”

The Company:  “Oh yes we can.  Here we go. Adios.”

The company closed the plant and over a thousand workers lost their jobs.  Most of the people worked in assembly.  Many of them had worked for the company for over 20 years.

Unfortunately the skill these people had developed over the years was “vacuum cleaner assembly”.  In the new world economy, this is not a very valuable skill because Mexicans can assemble vacuum cleaners, Guatemalans can do it, and of course the Chinese. 

In this new world economy, you are not competing for work with the people in your city.  You are competing with everyone in the world.  It therefore is very important to have or be developing skills that are of increasing value in the world economy.

The people who assembled the vacuum cleaners were at one time winning the Game.  They had a marketable skill, but then the Game changed.  Somebody didn’t just move their cheese, they ground it up and scattered it around the world.

The “world economy” has had a significant impact on personal incomes in this country.  If you have a competitive skill, your value rises.  If you don’t, your value, and income, falls.  Even if you are not competing directly with foreign workers, you may be competing for domestic jobs with workers who have been displaced by foreign labor.    This means there is a surplus of workers for the “lower skill” positions and this drives salaries down.  As some workers rise up from the center and even more workers get pushed down from the center, the “middle class” shrinks.  Nobody caused this to happen, it’s the Game that changed and these are the results. 

Two weeks ago I said I supported the Occupy Wall Street protests because of legitimate outrage over unethical behavior of banks and financial firms.  However since then, OWS has taken a distinct “left-turn” and the focus has been on “income inequity”.  If this is now the rallying cry, it is no surprise the movement is producing more violence, more crime and basically more anarchy.

In a free-market economy there will always be income inequity.  The people who are risk takers, entrepreneurs and have exceptional skills will always be able to make more money than your average manual worker. The problem is that winning the Game has become tougher because the competition got larger, worldwide larger. Camping in the street and complaining about the Game may make you feel good, but it does nothing to change the rules of the Game, or to help you win it.  To win today, you have to work harder and the protesters don’t seem to want to do that.

And you may complain that the Game isn’t fair.  But guess what, few things in life are fair.  Today a baby will be born in Bangladesh and may not survive the week.  Another baby will be born in the Hamptons and will be wealthy his entire life.  The Game is not fair and sorry comrade, you cannot make it fair.  Karl Marx thought you could, but the reality is, that you can’t.

It doesn’t make sense to tax the successful people excessively and give the money to the least successful.  That would be punishing, not rewarding success.  In addition, the manager of this redistribution of wealth is Big Government, which means most of the new tax money will disappear down a rat hole.

However, our society must determine how much support the people at the top of the Game need to contribute to provide basic life services to the people that have been squeezed by the Game.  And due to changes in the Game caused by the world economy, they probably need to contribute more than they do now.  And you cannot ignore this issue.  Remember, the revolutions of the “Arab Spring” were all economic in nature and were a result of the people at the top hoarding too much of the wealth.  We must figure out a way to make the "new" Game work for everyone, but the solutions will not be easy.

Interesting Side Note:  The closed vacuum cleaner factory mentioned above was remodeled and is now used for light production and assembly work for several different companies.  A new company just rented space in the building to assemble, get this --- vacuum cleaners.  The product was previously assembled in China, but was redesigned to make assembly much easier.  This change made domestic assembly cost competitive so the vacuum cleaner will now be assembled here.  The jobs pay much less that the old jobs, but I would make the argument that the new jobs are paying the competitive wage for that skill, just as the old jobs paid the competitive wage at the time.    


  1. Mr. Ake,

    This is an excellent article by use of a perfect analogy. I have not read any of your previous articles, but look forward to it.

  2. Thanks John. If you or anyone else wants to be added to my blog mailing list, please e-mail me at