Friday, January 06, 2006

Why the MTA is no IBM:

Last week I did a post about why the American economy is so resilient. I mentioned how the reason was because of our belief in the capitalist system where we give the entrepreneur freedom to run their business without interference. I mentioned how contract disputes like the one between the MTA and TWU, which led to a strike, only slow down an economy and make it vulnerable to mediocrity. I mentioned how unions as seen in Europe are the roots of all evil when it comes to the crippling of a business and countries GDP growth.

Coincidently last night IBM one of Americas oldest and largest companies announced that it would be freezing and moving away from it current pension plan for its employees. The plan IBM was using is the same one the MTA has been desperately trying to get the TWU to concede on, a defined benefit plan. Like the MTA, IBM realizes that with an aging population, higher lifer expectancies, and lower fertility rates, a defined benefit plan (where every retiree gets a defined amount at retirement) is a recipe for big losses for the company in the future, jeopardizing its stakeholders from employees to customers to investors. This is why the MTA wanted new employees to retire at 62, so the cost to the city and its taxpayers wouldn’t be so high.

Fortunately for IBM and why American companies are so efficient is that unlike the MTA who has to beg their employees to change with the times, IBM was simply able to just say this is what we’re doing. No work stoppage, no crippling of the system and loss of revenue for it and its customers. IBM simply was able to adapt by saying they were freezing the current plan and will now be moving to a 401K based scheme simply catching up with the rest of the country.

Because of this move IBM will save $3 billion by 2010 allowing it to keep its cost low, stay competitive and not have to lay people off. Now as New Yorkers, just think of the MTA and its inability to make a similar adjustment because of the union they have to fight with and how much New Yorkers will have to pay in taxes and fare hikes in the future because they couldn’t save money like IBM.

"According to the system of natural liberty, the sovereign has only three duties to attend to ... first, the duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of protecting, so far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice, and thirdly, the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain..."

Adam Smith, The Wealth of Nations

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