Steve Miller , Delphi and coming crisis.

I didn't know who Steve Miller is, till today. A friend has sent me a link about his views on what went wrong at Automotive components company Delphi.

http://www.businessweek.com/bwdaily/dnflash/oct2005/nf20051011_3919.htm

He was talking about various obligations to workforce that is leading to bankruptcy of many US corporations. He says, it's due to globalisation. Most probably true. A manufacturing company has no reason to produce goods in US these days. With countries like Mexico, China, India providing cheaper goods & services it's a scary scenario for rich industrialised nations. Here is an excerpt from the above mentioned article.

"Broader Context

Let me turn to what I think is the broader context in which the Delphi drama is being played out.

The two overarching themes here are globalization, and our aging population.

Globalization is a fact of life these days. We no longer exist in a national economy, but a global economy. This is a good thing, in that it brings rising standards of living not only to Americans, but to all the world's citizens.

But what has been brought into sharp relief is the differing value the global market places on knowledge workers versus basic manufacturing workers. I was struck by what I saw when I visited our Delphi operations in Mexico last week. Our average hourly worker makes about $7,000 a year, while the average salaried worker makes about $35,000 a year. A spread of five times! The same spread, or wider, exists in all low-cost countries.

The implications for America are enormous, and it boils down to this. If you want your kids to enjoy the great American dream, get them a good education. The days when manual unskilled labor can deliver $65 an hour are disappearing.

My recent experiences have been with three industries that are undergoing profound change -- as CEO at Bethlehem Steel, as a board member at United Airlines (UALAQ ), and as CEO at Delphi. Steel, airlines, and autos.

What those three industries have in common is a social contract, worked out over the past half-century with strong centralized labor unions, to elevate their workforces with elaborate defined-benefit retirement programs. Back in the days when you worked for one employer till age 65 and then died at age 70, and when health care was unsophisticated and inexpensive, the social contract inherent in defined-benefit programs perhaps made some economic sense.

Today, defined-benefit programs are an anachronism, and we are witnessing the slow agonizing death of defined benefits as industrial compensation policy. First off, they force people to stay with one employer, even though we have a much more mobile and flexible population these days. The lack of portability of defined benefits is a real issue.

Second, the notion of having all your retirement eggs in one basket -- your employer -- is a concentration of risk that is simply inadvisable for anyone in today's fast moving economy.

Finally, these programs have a way of threatening the existence of traditional large employers. GM is a junk-bond credit these days as it staggers under a burden of $150 billion of combined pension and health-care retirement obligations.

People are living longer these days. And medical science is rapidly expanding the capability to spend vast amounts of money keeping you alive for decades. Of course, that is a good thing. But the question is, how can we afford it? As a society, we must generate enough wealth in our working years to support our income aspirations and health-care needs in our sunset years. It is getting more difficult every year.

In the midst of these trends, the unions in the traditional steel companies and the traditional auto companies bargained for 30-and-out. The theory was, create more jobs by retiring people sooner. And aren't 30 years in a grimy factory enough? But this means that people can start work at age 20, retire at age 50, and expect full pensions and health care till age 90 or so. In other words, enjoy the fruits of your labor for more years than you were at labor. As a society, somebody has to pay. And to the shock of the Big-Three auto makers, they've found that customers won't pay when they have choices.

Beyond Delphi, things are going to get messy for the Big Three in coping with all this. The current labor agreements expire in 2007, and it will be a historical collision point for all these social and economic forces that are at work. GM has already declared it can't wait till then to trim its $80 billion of accrued retiree health-care obligations. Clearly, they are headed down the same Chapter 11 path as Delphi, unless there is dramatic change in their staggering legacy labor burden.

My worries go beyond the auto industry. What I am describing is also embedded in our debates over Social Security and Medicare. The overwhelming voltage in the political third rail of touching these entitlements will forestall corrective action for years, but the problem will only grow. I fear something like intergenerational warfare, as young people increasingly resent having their wages reduced and taxed away to support social programs for their grandparents' income and health-care concerns.

I didn't come here to suggest answers for all this. I don't have answers. But I just wanted you to view what is happening at Delphi as simply a flash point, a test case, for all the economic and social trends that are on a collision course in our country and around the globe.

I cannot avoid the adverse impact this will have on the many fine people who work at Delphi. But hopefully, I can help soften the blow, and help preserve the magnificent industrial assets that a century of innovation and hard work have brought us. "