The 6th Circuit case originating out of Michigan, Schuette v. The Coalition to Defend Affirmative Action, is up in front of the Supreme Court because of a single problem: the increasingly popular understanding of affirmative action as a superfluous tool in combatting the effects of centuries of discrimination against minorities, particularly people of color.
The controversy revolves around Proposal 2, a Michigan state ballot initiative that prohibited the use of identity criteria in state university admissions and public contracting. Proposal 2 was enacted in 2006, and immediately afterward coalitions of students and advocacy groups organized to challenge its constitutionality. After a lengthy and procedurally convoluted stem of litigation wound its way through the courts, the Court of Appeals (sitting en banc) struck down Proposal 2 on the grounds that it violated the Equal Protection clause of the 14th Amendment. The appeals court relied on a little-used Equal Protection doctrine developed in two cases, Hunter v. Erickson and Washington v. Seattle Independent School District to arrive at its holding that Proposal 2 was unconstitutional. This doctrine, termed the Hunter/Seattle doctrine (a glimpse into the amount of whimsy lawyers can muster), states that a popularly enacted law can violate the equal protection clause even absent discriminatory intent, given certain circumstances.
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UPS is an interesting company. It is heavily unionized–240,000 of its 400,000+ employees are members of the International Brotherhood of Teamsters. It is also wildly successful, weathering the storm of the recession with aplomb. UPS had $54 billion in revenues last year (versus $43 billion for non-union FedEx) but here’s the big difference between the two: as you would expect for a non-union firm, FedEx’s profitability is higher (by about $1 bn, $1.8bn versus $843 million), in part because the proportion of its revenue going to employee compensation is lower.
In fact, UPS spends about 2/3rds of its revenue on employee compensation, where FedEx spends about 45% on employee compensation. UPS thereby provides a good living for unskilled workers–particularly warehouse workers and couriers. UPS workers’ collective bargaining agreement surely works an inflationary pressure on FedEx wages as well.
UPS turning a billion less in profit surely means there is less to reinvest in the company, which can inhibit growth. UPS also has a little bit of a path dependency advantage, in that they were first to the larger market; UPS started as ground freight whereas FedEx started as air freight (thus contributing to the quirks in the governing labor law). But UPS nevertheless had a 40-year jump on FedEx, which necessarily grew at UPS’s expense. But again, FedEx had a comparative cost advantage because it could keep its labor costs down (and thus its prices down). And it maintained this advantage in part because of the aforementioned labor law quirk that allows FedEx to operate under the Railway Labor Act (making it much more difficult to organize their workers) whereas UPS is governed by the National Labor Relations Act (making it–comparatively–easier). Thus it isn’t efficiency per se as a result of so-called “labor flexibility,” but a mild form of regulatory capture that helps FedEx turn that larger profit. Erase that competitive advantage, and you have a closer profit margin, only with one firm paying its employees more.
But in any case, UPS has to be considered more successful. It employs far more people and pays them better, while maintaining majority marketshare. The wealth it produces shouldn’t be measured in its per-share value, but in the wealth created for its workforce–not just its unionized workforce, but its entire workforce. Paying employees is considered a cost, but it is spending into the economy in a way that has a greater benefit than paying dividends.
Granted, the capital requirements for this industry act as a significant barrier to entry, and the fact that there are only a handful of firms that even compete in this market is a variable; presumably, this places a limit on the amount of capital expenditure (and price cutting) necessary to compete. Nevertheless, consumers seem well served by the package delivery services industry, with both UPS and FedEx ranking high.
Really, it’s just a different way to think about profitability and competitiveness; that wealth creation should be considered vis a vis the wealth it creates for workers, not only shareholders.
If any one moment embodies the false veneer of the “all about numbers and policy,” vogue among a particular class of journalists who have moved into the Serious role in the Obama era, it is this risible–and indefensible–Matt Yglesias tweet:
— Matt Yglesias (@mattyglesias) October 4, 2013
The market-reformer loathing of Diane Ravitch is linked conceptually to an ideological need for school privatization, and the dismantling of teachers’ unions, to succeed. This is an attitude shared by the talented and prolific Dylan Matthews of Ezra Klein’s shop at the Post, and it is ideological and political, not policy-driven, numbers-driven, or otherwise analytical. What does underlie it is a bit mystifying, but worthy of investigating. Since the Chicago Teachers Union strike a year ago, the divide between a certain segment of the redistributionist/neoliberal left and the pro-labor left has deepened. But why is it so heated when it comes to education? Why have the two sides gone from talking past each other to gurgling up petty insults?
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