Question: How will auto workers fare after the bailout?
Sarah Horowitz: What I find particularly upsetting is not just what’s happening to people who have been working their whole lives in the auto industry but also that the United Auto Workers founded by the Reuther brothers, to me, were kind of like the Harvard and Yale of the labor union movement. And it’s really a testament to them that autoworkers were able to work and have careers and really be middle class and really do well. And in the middle of all of these situations and our whole economy is essentially this view that there’s something in that that’s not workable.
And, I think, some pieces of that may very well not be workable and some pieces of that, I think, are showing what the next phase of our economy is going to look like. And by that, I mean, if you look at Detroit as one of our large economic centers in this country, you had a whole group of people who could afford a lot of things and pay a lot of taxes and supported a whole lot of other industries all brought to you in large part by the United Auto Workers.
And so, we have to be careful that we don’t kill the patient by curing one piece of this problem. So I think it is a good thing that the Obama administration is recognizing that this is really new ones, this isn’t just about fixing the auto industry per se but that it’s a whole ecosystem and system together.
Question: What’s the best solution to the crisis in American manufacturing?
Sarah Horowitz: Well, of course, I wish I had, like, a very short and pithy answer to that but my hunch is that because this is called Big Think, big ideas, that we’re realizing that you can’t expect a certain rate of return on manufacturing in the auto industry and expect to have one in America. That is that we can’t have private equity rates of return of 18% to 35% and that we’re going to have to be thinking that there’s something important about having certain industries and there’s going to be a governmental role in keeping this alive. That it’s crucial that we make things in America.
And, I think, this is the beginning of that realization. I think that people are starting to see, there’s something important here. I think, sometimes, people think, this is just about bailing out the auto industry beginning, middle, and end, then done.
I think, hopefully, there’re people who are saying, wow, there is something deeper here that we need to understand, that government can be a source of capital or can subsidize some parts of capital or can bear some bits of the risk because we recognize that it’s really important to have a middle class in America. And I think that’s really what’s at stake. We may very well come out of this but the question is, are we going to come out of it looking like Argentina with a very small group of rich people and a very large group of everybody else. And I don’t think that’s what America is about.
Question: Did labor kill the auto industry?
Sarah Horowitz: I just think that it’s just factually wrong. If you say that there are elements in terms of the costs of health and pensions, which, I think, is true, then that’s a piece of it. It’s also a piece of not having a government strategy that says, we don’t care that Americans may very well, when asked, say they want the biggest Bahamut cars that they can get their hands on. But that’s not why we have government leaders and that; one of the reasons why people want bigger cars is because other people have big cars and it’s not just because they’re pigs.
I have a child and I know that when I go out and I want to make sure she’s okay.
And when kids are very young, you have to make sure that the airbags are one thing and another thing. And having everybody having SUVs is just like a big arms raise. And government has to start saying that that’s not acceptable. And those are the kinds of things that, I think, we need to do is to start to having some public policy about what’s acceptable, what isn’t acceptable. If you’re still going to go out, need to have a big hulking automobile, you should be paying a lot of extra fees associated with that. I think we need to be looking at the incentives and the disincentives.
Question: Is there any defense for massive bonuses?
Sarah Horowitz: No, I really feel bad because 20 million just doesn’t buy what it used to.
But, what I think is more profound, I think it’s really easy to just be angry at all these CEOs. We’re so angry at them and they live in Greenwich, Connecticut and blah, blah, blah.
But we set up the rules of the game. And when I say we, I mean, like, the citizens allow this to happen over the last 25 years. That we said, the job of any good CEO is to get maximum return on investment, period. It doesn’t matter sort of how they do it. And if any of them show restraint, then we’re going to punish them. And you saw that that happen with the CEO of Home Depot, who now, looks like a genius but in the last 5 or 7 years, he said, I think it’s important to pay people wages that are good solid wages with benefits. And there has been a whole debate about, was that okay because was he maximizing shareholder returns.
So I think that we really have to stop and say, did we set up the rules of the game so that these people just play it that way. And then, I think, having said that, that really is the bulk of it. I think that we, as a society, have to hold ourselves responsible for certain things. And part of that is that we really believe that within our right to really use up the earth’s resources in a way and be very wealthy and have state of the art kitchens and fancy things and these corporate CEOs were just the worst of it. But it’s something that, I think, we see all over the place. And I think it’s a culture of greed that, I think, is bad.
Question: Did labor mismanage its own costs over the years?
Sarah Horowitz: When the new deal was enacted, gave up a lot of control over its own health insurance and pensions and became, really, the consumer of these items. And the new deal, which I would have supported and supported and a big fan of the new deal just want to have another new deal. But what happened is labor developed a whole expertise of being able to set up health plans and insurance and housing and labor was really entrepreneurial because it had to take care of its own members. And one of the biggest problems is that the UAW negotiated for health and pension and then it was delivered by big insurance carriers.
And the big problem is this one way cost and the inflation associated with healthcare. And so, that’s one of the reasons why it became very expensive. If, let’s say, there were clinics and they were run by nurse, practitioners, and physicians’ assistants and there was, like, real attention to wellness and attention to diabetes and obesity and high blood pressure and we really managed it, we did these innovative things. If the union has the membership and has the control over its own business of the insurance, it’s going to see to it that the members get those things because their economic interests are aligned. When you’re just negotiating for it, you don’t really care. All is that this is how much that piece of insurance or that pension cost and you just want to make sure that the worker is not bearing that cost.
I’d say that the problem is that labor was one piece of a whole system that wasn’t managing those costs but it was never asked to manage those costs in the collective bargaining system.
Question: How were unions different in the past?
Sarah Horowitz: I would say that in the ‘80s; if you remember back to 1980 or ’81 or ’82 with PATCO. Ronald Reagan came in and made sure that that was one of the top items on his agenda. And when you look at what happened to labor there definitely is a connection between that and the way our labor laws work.
If you are an employer in the middle of an organizing drive, it makes very good sense to fire the key workers because there’s no penalty. The penalty means that the worker, eventually, might get their job back and you just have to “make them whole.” And what make them whole means is just pay them back with inflation. There’s not any real damage to it. Whereas, if you’re an employer and you don’t pay wages, the Department of Labor will come after you and there’re, potentially, criminal charges attach to that. So clearly, we had a government that has not, necessarily, wanted to see the rise of unions in a way that, let’s say, FDR certainly did.
Question: Has labor been too passive in the U.S.?
Sarah Horowitz: Well it’s funny because in France, the French Labor Movement actually has about the same low rates of unionization that we have. It’s just everybody is out on the street. And another interesting kind of factoid is that unions tend to grow during prosperity, not during times like this because people are scared of their jobs.
The only exception was the 20s and the 30s. So I think it’s more; it needs to be more tactical. And this is really relatively new. We really haven’t seen it. And I do think that people are ready. And I think they’re ready for--this sounds ridiculous but they’re ready for change mostly because the alternative is worse.
Question: What is the role for unions in the new economy?
Sarah Horowitz: Well, I have a long view of unionism, not just here but in general. Next week or two is Passover. Passover is really, it’s a Jewish celebration but it’s really the story of the first labor action where Moses goes and tells the boss that the way the materials are, for the bricks, is impossible for the workers and the working conditions are terrible and the boss says, actually, thanks for telling me, not only I’m going to not solve your problem, I’m going to make it worse. The workers rebel, they go.
The first strike is exodus. If you think about that, we had mutual aid societies, guilds, we had craft unions, industrial unions, and, now, new forms of unionism.
I’m not so pessimistic on unions. I think that unions will evolve. But I think that they do have to evolve. And we have to have new kinds of movements that don’t replace old movements but they sit side-by-side so, I think that, as a third of the workforce is independent, we’re going to be needing new forms of unionization that don’t rely on the old collective bargaining model. Which isn’t to say the collective bargaining model is a bad model, it’s just when people go from project to project, you can’t have that, you have to think about new strategies and those new strategies have different business models. So, I think that’s going to be important. And that’s where, I think, the kind of interesting discussion is.
Well, I think it’s really interesting that the government is, now, owning large chunks of the banking industry. And the non-profit sector has a lot of revenue generating activities in it. And as Bill Drayton, who’s the founder of Ashoka, talks about; they’re moving together in an interesting way. And clearly, the only reason why the non-profit sector and the for profit sector are different sectors is because the IRS puts them in 2 different categories.
And so, it’s really just about a set of activities. And I think that what we’re coming to this moment in time, marks the realization that this terribly fast capitalism is not sustainable. That it has its place when it’s a very small percentage of the economy but it really doesn’t have a place for the majority of the kinds of things that we need to see. Small businesses can’t function at those rates of returns and most large businesses can’t either. And, I think, unions need to realize that when they bring their workforce together, they have a lot of power in the market and that they can use market strategies. And I think, often, people in the labor movement are so dislike markets that they lose opportunities where they shouldn’t lose them and that they are speaking to an ideology over the facts on the ground.
And just as I think the business people have to start realizing, they’re not going to get super rich like they did before. Those days are over, at least, in our lifetime. I think so too, labor people have to get over that it’s just a collective bargaining model and you get as much as you can from the boss and you move on and that there are strategies within. I think what’s going to be very interesting is the next stage of capitalism. It’s going to be very new and different than the last 50 years, for sure.
Question: Does labor hamper industrial grow?
Sarah Horowitz: I think that there are people who feel that when an industry has unions, it becomes difficult for management to react nimbly. And I think that that’s something that, I think, is a more interesting thing about how businesses can function. And in some ways, it’s about how do you bring unions in as an important constituency to start talking about different issues and not just this antagonistic way of collective bargaining as the only thing. And that, I think, is important. And I do think that business should run business and union should run unions. I think that it is important to let a business be nimble. I think it makes no sense to prevent that.
Question: What overseas models should the U.S. be watching?
Sarah Horowitz: Well, for benefits, I like the French. I like the mutuals because they have a basic amount that’s a public program so everybody has that basic amount. And then, through the associations of unions and other kinds of professional and other associations, it’s a private system but it’s grouped together and people can compete.
The other area that I looked to as an interesting model is the northern area of Italy, the Emilia-Romagna region, because they compete in markets even globally but they have strategies. And government plays a very active role in enabling these companies and these cooperatives to be able to compete and have the resources that they need. And so, the region has the 17th highest standard of living in Europe and a very flat distribution of income. So, I think, there’re a lot of interesting regions. Some models in Quebec, about using capital for these kinds of patient market endeavors. So I don’t think there’s a shortage of models.
And I think that the Obama administration seems to be very open to these things. And so, I hope that these become things that become part of their agenda.
Question: How will globalization change capitalism?
Sarah Horowitz: Well, I think that there’s a growing realization that if globalization is just to run its course, there will be greater movement to the countries that have the lowest labor costs and the worse environmental standards. And I think that gets back to the rates of return on capital. That you could be the mayor of a depressed area and if some business came in and said, we’re going to create a thousand jobs but sadly, the shareholders are not going to get rich, we’re going to kind of break even or just have a little bit of profit, the mayor would be, like, great, a thousand jobs, like, how good is that? That gets some people off the welfare rolls. It pays some taxes. Some kids are going to be going to the public school.
And so, I think, we’re realizing that we’re going to have to start creating things in this country. And that means it’s not a race to the bottom, that those are investments, and that they can’t compete with that 18% to 30%. That’s just not sustainable. And I think that’s, really, going to become the issue is what is sustainable as opposed to what is super profitable.
Question: How has social networking transformed unionizing?
Sarah Horowitz: It’s another tool. The strike as a tool, sit down are tool, petitions are tools. These are tools. Sometimes people confuse tools with strategies. And what, I think, a lot of the social networking sites are showing us is that there are ways that you can communicate with people, bring people together, mobilize them in ways that we haven’t been able to before.
I think that’s where the Freelancers Union has been really successful is because we’ve been able to leverage that. And, we now have over a 100,000 members. We never would’ve been able to do that without the Internet.
Question: How has the Freelancer’s Union adjusted to the downturn?
Sarah Horowitz: Well, let me just say yes. We had 65,000 members last year. We have about 106,000. And we’re growing between 3 and 4,000 a month now. And I would say that our strategy was with these assumptions in mind. Not so much that we knew that the market was going to tank but recognized that the market in which freelancers and independent contractors play in was one that wasn’t really even recognized as a market.
And if you look at Clay Christensen’s work on disruptive innovations, you could really see that this was something that was just not on people’s radar. This group couldn’t unionize under the National Labor Relations Act. Government hasn’t really seen them as a constituency. Interestingly, last week, I don’t know if you saw that Mayor [Michael] Bloomberg announced a partnership with the Freelancers Union, recognizing the importance of developing an unemployment system, looking at the [IB] taxation system, and some of the issues around workspace.
And I think it’s significant because Mayor Bloomberg is not just the mayor of a particularly small town but of New York and he is known for his acumen about business. So, I think our strategy has been to build the safety net, to have an orientation of entrepreneurship where we build it ourselves. We build our own institutions. We run our institutions. We’re self-sufficient. We’ve been self-sufficient since 2006. I like the discipline of that.
If there’s something that we’re doing badly, our members let us know. They let us know loudly, constantly. While it maybe annoying in the moment, it actually, I think, keeps us really robust. And I think that’s really good and I think others should do that too.
Question: What is the gig economy?
Sarah Horowitz: I really like the way Tina Brown put it. And I think that they’re interesting generational things. So that if you are talking to somebody who is, let’s say, over 50, who has been laid off and he’s just confronting freelancing, it’s a very difficult transition for people who have known a job or you get your benefits and the regularity of a paycheck. But after somebody has gotten; come to realize they’re not going back to that or if they do, it’ll be short-term, then they realize that it is what it is.
I think people who are graduating from college expect this now and just don’t have the resentment; and are just much more, like, okay, how are we going to deal with it. I think the interesting group that is probably the most clueless are elective officials, ironically, probably because they collect the regular paycheck and their W-2s. Unless they’re in a campaign and then, their, like, young staff say to them, by the way, actually, the workforce just change. And I think, like, when you listen to the debates of congress people and senators, it’s, like, remarkable to me at how they are in such a bubble and don’t understand, like, just on the brass tacks of what this economy is really like. I think that that’s something that still is pretty disappointing to me, as I listen to the discussions in Washington, that they really aren’t aware of these profound changes.
I think that the distinction between W-2 employment and 1099 is going to become less and less. And the singular form of work is going to be just much shorter term, which isn’t to say that there aren’t going to be jobs that are full-time there’s still going to be employers that will pay extra benefits to retain the people that they need or want. But as a trend, for sure, I see that. And I don’t see how it wouldn’t be with globalization. And the shift in where capital is going to Asia, India, China, these things are just going to really have big ramifications for us here.
Question: What is your vision for health care moving forward?
Sarah Horowitz: I like the idea of having, like, a basic amount that all Americans have. And I don’t really care whether it’s a public plan or it’s the government finances, a private plan, I just want to set amount of money that every individual can count on, that they’re going to get health insurance and not have to worry. And I think that’s just civilized. And then, I would like to see the government encourage the groupings of people to come together. The employers have been an important grouping and, in many ways, the only grouping since World War II. But I think that we have to move beyond just the employer and have others.
An example will be the Federal Employee Health Plans, the benefit, FEHBPs. And what people often think of is that those individuals just get government plans but they actually go through their union, the unions come together, and through groups. That’s how they get all these choices. So I think that it will be great if groups like ours will be able to group together and start delivering that kind of safety net that would supplement the basic amount that all Americans would get. And so, what you will get for that grouping is, number one, you have actuaries and experts and advocates who will be able to really argue about coverage, who would really make competition meaningful. What I think will be the worst case scenario would be that we individualize everything.
And I think that that’s the vision of both the left and the right, which troubles me. So the left is, we’ll have single payer and the individual will get from the government. We’ll have individual plans for the individual versus the insurance company. But just play out the scenario of one person has a problem and they have to call and they stay on the phone and they have no leverage. But if, let’s say, a number of people within a plan have that same problem, you can troubleshoot it, you can act as an ombudsman. And it really goes much more with our national culture of the [IB] realization that we associate. That’s what makes America a strong democracy, not because we’re just a bunch of individuals. And I think that’s underappreciated right now, especially in Washington.
Question: What critical skills are necessary for freelancers in this economy?
Sarah Horowitz: Well, what I think is proving to be true is if you are a freelancer or you’re a somebody who has worked in this way, you understand how to maintain a network, whether you do it on Facebook or you just do it yourself. That’s really critical, that how to pitch work. So that a company may lay people off. But there’re still certain things that are going to need to get done and you can figure out where that’s going to be and you can make your pitch and you can get that job, where you know how to manage your money during times of feast and famine.
All the things I’ve said are like the ABCs of freelancing. And so, it puts people who have those experiences at an advantage right now. So we’re not seeing that our members are getting as hard hit as traditional workers right now. Their incomes are definitely going lower. And the ones whose work are evaporating, literally, are going to go on welfare. Really, it’s scary. But as a group, I think that’s something that is going to stand to anybody in good stead, especially now but going forward. I wouldn’t say that everybody should learn to be a programmer, it’s in technology. I think it’s more of the skill set of that kind of work is going to become the most important thing.
Question: Are there geographic restrictions?
Sarah Horowitz: Yeah. It’s funny. When we charted our membership, it, like, just completely dovetails with Richard Florida’s work. So for us, it’s New York, the parts of New Jersey like Jersey City, Hoboken, Philadelphia, Austin, Texas, sprawling part of Florida, Miami, etcetera, California, Oregon, Washington State, Chicago.
I think that it’s a number of things where it is going to be that sort of hardcore knowledge economy base. But also, when you talk to people in these worlds, they really are thinking about sustainability. They really are talking about the do it yourself notions, the idea that you really do have to do it yourself because you can’t have faith that it’s going to be done for you. And that’s where, again, it’s not at the level of being an Adam, it’s that you realize I must join with in a group because that’s the only way that one will survive and do well.
I do think it is going to be that cluster. And then, when you think about just the resources of what it takes to live in the suburbs, it’s just very difficult. That’s not to say, like, all suburbs are going to, like, shrivel up and die but I just think it’s less and less sustainable and it’s alienating.
Question: What’s the best entrepreneurial advice you’ve ever received?
Sarah Horowitz: It’s really funny because I’d say the quality that I have that I think is essential is being resilient.
I called up the daughter of this trade union leader that I really admire, named Sidney Homan. And I said, how did he figure out what to do? He did banks, he did housing, he did this, he did that? And she said, he would just solve the problems.” And I got off the phone, I said, solve problems, like, what? And maybe that was 10 years ago. And now, I think, yes, that’s exactly right. Because that’s where people are telling you what they need so they’re telling you what the agenda is and if you can start figuring out how to solve problems, then you’re adding value.