Individual responsibility should be the new social contract

Will the rose-tinted remembrance of the American social contract please stop? Caterpillar produced spectacular returns by standing up to its unions and demanding that the company move into the new economic reality. This should be applauded, but instead, we’re presented with this:

But now, having pulled off one of the most impressive corporate turnarounds in recent memory, Caterpillar — like the rest of corporate America — must confront a new question: What is the new social contract it has to offer around which a stable political business model can be built?

I think the outcome of a political business model would look a lot more political and a lot less business. We’ve already proven through experience that socialism doesn’t work. Do we need another round of handouts to unions to demonstrate that Caterpillar will see its business diminish from its current progress? Instead, we’re treated to nonsense like this:

Imagine, for example, what the public reaction would have been if [CEO Jim] Owens had announced that, in recognition of the year’s spectacular results, each of Caterpillar’s 22,000 unionized employees would get a special bonus of, say, $3,000. I can assure you it would have been widely noted in the press and praised as a significant first step toward a new social contract. And who knows how much extra loyalty and commitment it would have engendered from Caterpillar’s blue-collar employees.

Unions seek to guarantee a specific benefit for their members. When performance exceeds those requirements, why should they share in the excess? They traded risk for security. If I invest in t-bills because I don’t like the possible negative returns of the stock market, I don’t have the right to demand a higher interest payment when booming business causes federal tax receipts to soar beyond expectations.

In the author’s hypothetical example, Caterpillar should redistribute $66,000,000 from the shareholders, the rightful owners of the capital, to earn praise from the press and to create the beginnings of a new social(ist) contract. Why? And what kind blithering idiot gives away $66,000,000 for a plan that the might engender extra loyalty and commitment from employees? If you’re a “free agent”, sure, I can say that might make sense. But those employees signed an actual contract, something more explicit than any social contract could ever be. Do they no longer have to honor that, even though they’ve begged for that security and risk mitigation? Sorry, but I believe in economics and contracts. Caterpillar’s recent experience suggests I’m right.

Oh, yes, I can just hear the dismissive response from corporate types now. They’d point out that Caterpillar investors who earned a record $4.21 a share would hammer the company stock if that figure were reduced by even a penny. They’d point out that unions like the UAW have traditionally opposed performance pay, or traded it away for higher guaranteed pay or benefits. And they warn ominously that this kind of “excess” compensation would quickly render the company uncompetitive again.


But none of that really matters. Because the real world choice for the corporate elite is now quite clear — not just here in the United States, but in Europe, Latin America and Japan, as well. Either the members of the business community will have to come up with an improved social contract that allows them to run competitive companies while ensuring that the gains of globalization are spread more equitably, or they will have to face the almost certain prospect that angry and anxious voters will roll back globalization in ways that will hurt the global economy and their newly globalized companies.

Or to put it another way: It’s time for the Jim Owenses of the world to show the same backbone and ingenuity in dealing with the excessive and unreasonable demands of Wall Street that they previously showed in dealing with workers and labor unions.

The central planners should stop reading Karl Marx and start reading Adam Smith. And maybe throw in a few viewings of Wall Street without Oliver Stone whispering sweet nonsense in their ears.