Where Have All the Leaders Gone?

by Lee Iacocca

CAN UNIONS SAVE THE MIDDLE CLASS?

  The middle class may be hard to define, but it’s not an abstraction to me. I spent my life in the auto industry, and you can make a good argument that the auto industry created the middle class. Henry Ford took the first step. Way back in 1914, before there were industrial labor unions, Ford did a smart thing. He figured out that the best way to motivate employees was to give them a stake in success—and that meant a living wage and a reasonable workday. He shortened the workday from nine hours to eight, and raised the minimum wage from $2.34 to $5 a day. In spite of his critics—mostly from Wall Street—Ford’s idea worked. Profits soared, and for the first time the workers in his plants could also afford to become his customers. He once said, “The payment of five dollars for an eight-hour day was one of the finest cost-cutting moves we ever made.”

  Of course, Henry Ford wasn’t being purely altruistic. Part of Ford’s goal was to block efforts to unionize his plants. He always said that his company would unionize over his dead body, and it almost came to that. Ford was the last automaker to let the UAW in.

  Now, there are plenty of people who would say that the unions built the middle class in the twentieth century, and there’s some truth to that. Unionized workers didn’t have to depend on the paternalistic instincts of owners like Ford. The rights and dignity of the worker were upheld through fair wages, safe work environments, adequate health care, insurance for old age or disability, reasonable work schedules, and time off. It was a pretty radical idea, when you think about it. Through unions, ordinary working men and women could join together to exert real power. They could get a fair shake.

  Walter Reuther, who founded the UAW, was one of the clear leaders of the twentieth century. I met him once, and I always regretted that I never had a chance to get to know him better. He died in a plane crash shortly after I became president of Ford. He was a powerful speaker and a brilliant negotiator. Reuther had a gift for putting things simply. He always said that labor’s task came down to one thing: carving up the pie as fairly as possible. And the bigger the pie, the bigger the slice for the workers.

  I was told that Reuther would actually sit down at negotiating sessions and draw a picture of a pie. He’d divide the pie into slices, showing how much of it was going for raw materials, overhead, executive salaries, and labor. Then he’d tell them: “We’re not satisfied with our slice”—and he’d show them how he wanted to cut the pie differently.

  In a sense, the labor unions were too successful in the decades after World War II. They kept upping the ante, and we all went along because we had the cash and we were terrified of strikes. We set in motion the automatic cost-of-living allowance (COLA), which was adopted by industries across America. We caved in to the union proposal of “thirty and out,” which stipulated that after a worker had been on the payroll for thirty years, he or she was free to retire early, no matter how old, with a full pension. Now, you do the math: Say a worker starts at age eighteen. Thirty years puts him or her at the creaky old age of forty-eight. What were we thinking? It was one bonanza after another for labor. We gave away the store, and the UAW just asked for more. Nobody was planning for what might happen if times got tough—which they did. The automakers were forced to close plants and lay off workers in huge numbers. It’s still happening today.

  The “jobs bank” is a perfect example of an asinine concession the automakers made to the UAW in the 1980s. The jobs bank arranged to give workers who got laid off due to new technology, plant restructuring, or outsourcing full salaries for doing nothing, until such a time—maybe never—when they would be called back to work. Today, there are still over ten thousand workers sitting around playing cards or watching TV on company time. Does this make any sense?

  The glory days of the UAW are over, and that’s true for most unions. Today in the private sector, labor unions represent only 11 percent of manufacturing workers, and their membership continues to dwindle. Why? Well, a basic premise of business also applies to the unions: If you’re filling a need, you’ll do well. If you’re not filling a need, you’ll die. The unions haven’t changed with the times. They haven’t reinvented themselves to meet the new challenges of a global workforce and a global marketplace. Like many organizations that start out with high ideals, the unions have become too politicized and have lost some of their relevance. The question is, Can they get it back?

  THE MIDDLE-CLASS FEAR

  I talk to a lot of people in the course of a year. For one thing, wherever I go people come up to me and tell me about their dads who worked in a Ford plant, or their uncles who were Chrysler dealers, or their brothers who lost their jobs to plant closings. If I’m in a restaurant, there are always people coming over to shake my hand, to reminisce, to thank me for saving somebody’s job thirty years ago, or to give me a piece of their mind. There aren’t too many happy faces these days. Everybody is worried.

  I’ve been hearing plenty of sad stories, and, yes, a lot of anger, too. I can understand that. When you’ve worked all your life in a company, with the promise that you can retire with a pension and health care benefits, it’s a devastating betrayal when the company doesn’t hold up its end of the bargain. The average guy just doesn’t understand how this can happen, especially when he sees the guys at the top raking in unimaginable riches.

  But the thing that scares people the most is health care. It used to be just the working poor who couldn’t afford health insurance, but now that the price tag for the average family has reached almost $12,000 a year, it’s affecting the entire middle class. Today, 46 million Americans have no health insurance at all.

  If you’re going to be outraged about the lack of leadership in this country, health care is a good place to start. The situation is getting worse every year, and nobody’s doing a damn thing about it. The last time Washington even looked at health care was back in 1993 with Hillary Clinton’s task force. We all know what a disaster Hillary’s plan was—but hey, folks, that was fourteen years ago. Since then, nothing. The folks in Washington basically said, “Your plan is lousy so let’s just forget about it.”

  It’s a scandal, and we’re letting it happen.

  The burden of health care can single-handedly wipe out the middle class. All it takes is one medical crisis to drop a family from comfortably middle class to poor. It can happen overnight. You have a complicated labor, and suddenly you’re looking at $25,000 for a C-section. Your kid breaks a leg playing soccer, and it’s an $8,000 trip to the emergency room. Bypass surgery after a heart attack: $40,000. No wonder people are scared. And it’s not just the uninsured. Workers are paying an increasing percentage of health insurance costs in industries where companies just can’t afford to foot the whole bill anymore. With job security in the manufacturing sector at an all-time low, millions of workers are just a pink slip away from losing their health benefits. This is a solution that cries out for government leadership.

  A PLAN FOR REVIVAL

  Twenty-three years ago, in my first book, Iacocca, I proposed that we establish something comparable to a Marshall Plan for U.S. industry. I even had a name for it—the Critical Industries Commission. It would provide a setting for government, labor, and management to find a way out of the mess we were in. It would require collaboration. It would also require equality of sacrifice. Everyone would have to give up something for the good of all. Then the commission could get down to the business of figuring out how to strengthen our homegrown industries. In Japan and China, they protect their vital industries to a fault. Can’t we make an effort to meet each other in the middle for the good of the nation?

  Well, as you probably guessed, nobody took me up on my idea. And here we are, all these years later, much worse off than we were then. So I’ll give it another shot. Look, if the United States could establish the Marshall Plan to rebuild Europe after World War II, and if we could establish the International Monetary Fund to help rebuild the world, and if we can spend a trillion dollars trying to rebuild Iraq, why can’t we do t
he same thing for our country today? This isn’t charity; it’s necessity. It’s self-interest. Did we rebuild Europe because we were playing Mr. Nice Guy? No, we rebuilt Europe because we had an interest in a strong Europe.

  You have to face the problems head-on while they’re happening, or they build up and become catastrophes. Sometimes I think our government and even some of our business leaders believe that if they just ignore the crisis in the middle class, everything will eventually work out.

  The middle class is useful to politicians during election season, when the slogans are flying. It doesn’t matter if it’s Democrats or Republicans. Everyone presents themselves as champions of the middle class when they’re trolling for votes. They love to shake hands at the factory gates, but once they get to Washington they can’t be bothered with helping to keep those gates open. That’s why we need permanent solutions like the Critical Industries Commission.

  THE NEW AMERICAN DREAM

  I’ve often been asked to give graduation speeches at colleges and universities. Graduations are happy occasions. You look out on those faces and it’s really uplifting to think these kids have their whole futures ahead of them. But in recent years I’ve had to wonder how bright those futures will be.

  When I graduated from Lehigh University in 1946, I already had about twenty offers for employment. I started my first job at Ford the year after World War II ended. Harry Truman was President, and the world felt full of optimism. I remember thinking if only I could earn $10,000 a year I’d be satisfied. I couldn’t wait to get started.

  Today we need a new American dream that reflects the hopes and aspirations of the next generation. Let’s give some thought to what that dream might be. Can you think of a political leader who’s articulating it? Has anyone made you feel excited lately about the possibilities that are in store for your children and grandchildren? Nations aren’t built on rhetoric, but they start with good ideas. In the coming election season, there will be a lot of pandering to the middle class. Let’s make a commitment to cut through the bullshit and listen for the plan of action that has a chance of working. Let’s be the adults in the room, and do it for our kids.

  XVI

  The blame game is killing us

  It occurs to me that one reason we’re having so much trouble competing in the global economy is that we’re spending too much time, energy, and money fighting with each other in this country.

  America has the distinction of being the most litigious society on earth. We sue each other at the drop of a hat—or at the drop of a hot cup of coffee. About 90 percent of all civil actions tried before juries in the whole world are tried right here in the U.S.A.

  Our courts are jammed, and it’s no wonder, because so many people are looking to the courts not just to dispense justice, but to redistribute wealth. I don’t think that’s what the framers of the Constitution had in mind when they gave us our wonderful system of justice.

  Some of the wacky lawsuits you read about are pretty funny. Like the burglar who fell through the skylight and tried to collect damages from the owners; or the college students who sued their school because they’d been promised a course would be easy and it was hard. These stories belong in Ripley’s Believe It or Not. They are more of a distraction than anything else.

  It’s the serious lawsuits with awards in the millions and even billions that choke you up. They have squeezed decent companies dry, frozen competition, and cost the taxpayers countless billions in the costs of running civil courts.

  TAKING RISKS ON THE ROAD TO SUCCESS

  America’s ability to compete is directly tied to the lawsuit frenzy. You see, the first thing you have to do in order to compete is take a risk. If you can’t afford to take a risk, you can’t afford to compete. As Americans, we’ve always pictured ourselves as daring and entrepreneurial, but today we’ve grown so litigation-obsessed that nobody wants to take risks anymore.

  There used to be eighteen companies making football helmets in this country, but now hardly anyone does. Too risky. Maybe they’re a little unnerved by what happened to Riddell Sports. After an eighteen-year-old boy suffered brain injury during a football game, his parents sued the helmet manufacturer for damages, and won $14.62 million. They never actually proved that the helmet was defective. In fact, the medical experts suggested it was a preexisting brain condition. But the jury handed over the money anyway.

  We’ve virtually stopped making light aircraft in America. The biggest production cost is the liability insurance.

  One of these days we’re going to wake up and say, “The hell with it. Competing is just too risky.”

  Meanwhile, the competition is killing us. Other countries don’t spend their time looking for Mr. Deep Pockets. They’re too busy beating our brains out in the marketplace. The biggest damage award ever in the history of Great Britain was a little over a million bucks. That’s practically a nuisance suit over here!

  The Japanese don’t even bother with court. They’ve got about as many lawyers in Japan as we’ve got Sumo wrestlers here.

  Without competition, you don’t have innovation. Forget about progress. Nowhere is this clearer than in health care. If you’re a drug company, you might not want to mess around with actually finding a cure for a common disease. Too risky. Ask Merck. Conservative estimates put the litigation potential for Vioxx, the popular arthritis drug that may have triggered heart attacks in a few users, at $50 billion.

  And forget about developing a new vaccine for, say, avian flu. Why get into that can of worms (no pun intended)? Vaccines are particularly vulnerable to litigation, so if you’re a drug company, you might decide to spend your R&D budget on something safer—like growing hair (although you might be in trouble if the hair grew on a guy’s feet instead of his head).

  The real cost of litigation is that new doctors are avoiding certain important specialties—obstetrics, neurology, emergency room—like the plague. Insurance costs too much.

  You might be thinking, Well what do you expect from a guy who spent his life in the car business? But I’m not averse to all litigation. If a company or individual has been negligent or has shown reckless disregard for safety, he should pay for it. But I’m afraid that we’ve reached a point where we’re not just punishing gross negligence. We’re punishing people who take normal risks that can’t be avoided when you produce almost any kind of product.

  When we do that, we’re punishing ourselves. We’re wrecking our ability to compete. We’re stomping out progress.

  REVENGE IS NOT SO SWEET

  Punitive damages are the place where lawsuits really go overboard. It’s one thing to compensate victims for their physical and monetary losses, but punitive damages are out of control. Juries get swept up in the emotions of a trial, and before you know it they’re writing fifty-million-dollar checks.

  With punitive damages, people can get awards up to triple their damages, based on a very subjective notion of pain and suffering. Most of the world has never even heard of punitive damages. It’s a very American idea. So is the system of contingency fees in big civil action cases, which allows lawyers to win the lottery when their clients collect. It’s an insane system, and when people talk about tort reform, they’re talking about bringing it back into a zone of reality—applying some common sense to the way compensation is awarded. This is very hard for Americans to grasp, because we’re seduced by big jackpots.

  Maybe the real issue is what we value as a society. Why do we find it so easy and satisfying to hand over staggering amounts of money to a single individual who has suffered pain or loss, but hold back when it comes to showing compassion toward a community upended by natural disaster or economic blight?

  It’s something to think about.

  NO-FAULT LIVING

  There’s such a thing as being too safety conscious. I remember some years ago being at a party at the home of Lee Annenberg, wife of the late publisher Walter Annenberg. I was seated at a table with Lady Sarah Ferguson, who was then married t
o Prince Andrew. At one point, Fergie jumped up and said, “This party is pretty dull. Let’s dance.” I’d never danced with a duchess before, so I said I’d be delighted. Fergie and I started to jitterbug to a fast number when all of a sudden a very British-looking guy came out of nowhere and tapped me on the shoulder. At first I thought he was cutting in, but he said, “Sir, I am Lady Ferguson’s traveling gynecologist and she is with child. If you must dance, please do so by sliding your feet gently across the floor, rather than bouncing the lady up and down.”

  I gaped at him, but Fergie just gave him an annoyed look and said, “Hey, why don’t you buzz off?” We kept on dancing, but at a slower pace. I didn’t want to be party to creating an international incident.

  Later, I laughed at how excessively cautious the Brits were. I’m sure Fergie gave her keepers heart failure many times. She wasn’t a “safety first” kind of girl.

  But the truth is, we don’t live in a risk-free world, and we never will. We’re mere mortals, and, yes, bad things do happen to good people. We get sick. We have accidents. We are disappointed. Things don’t always work the way they’re supposed to. So, what do we do? We look for someone to blame. The new American way is: “If something bad happens, somebody has to pay.”

  There was a time not that long ago when we were more civil. We gave people the benefit of the doubt. We tried to work out our differences face-to-face, not through lawyers. We’d tell people to “have a nice day.” Now we say, “I’ll see you in court.”

  It’s not just our ability to compete that gets harmed by all the litigation. It’s our ability to live with one another, to help each other out in bad times, to cooperate because we want to and because it’s the right thing to do—not because we might get sued.