27 April 2010

Low Road Labor Policy in Professional Baseball

Relatively speaking professional baseball players make a lot of money in our society. This is neither profound, new, or interesting to me.
More remarkable is the differences in policies towards paying players between teams.
It is also commonly accepted that "big market" teams like the New York Yankees, Boston Redsox, etc. have much higher payrolls than most other teams.

For example in 2010 the Yankee's first baseman Alex Rodriguez is slated to make 33 million dollars. The entire salary for the 40 man roster of the Pittsburgh Pirates in 2010 is approximately 35 million dollars.

Major league baseball does not impose a salary cap on teams, but rather uses a revenue sharing program to attempt to compensate for differences in markets. Revenue sharing takes a flat percentage of each team's revenue (I think about 30%), pools the money and distributes the total evenly back to the 30 teams that comprise major league baseball. It is essentially a program of tax and transfer intended to get a few extra million dollars into the hands of poorer teams, allowing them to hire one or two extra star players, to attract more fans and thus more revenue themselves.

The major league teams that are losing money in revenue sharing are the financially successful ones. I don't have a problem with this process.

These same teams that are financially successful tend to be the ones who have the highest payrolls, and also are the most successful on the field in terms of winning games.

Taking Marx's simple model of dividing the work day (or baseball season) into
where A--B represents covering of wages, that is the necessary labor of the players, and B--C representing surplus labor appropriated from the players by the owners.
The obvious goal of any owner is to make the area B--C as big as possible, that is maximize the surplus they extract from their labor.
Almost across the board professional baseball teams take a route commonly known as "high road" labor policy.
That is, they pay as much as possible to attract the best talent available. The logic is that having good players will win games. Winning games sells tickets and merchandise, as well as increases advertising revenue regardless of what market a team is in. Teams generally attempt to maximize revenue by increasing the productivity of their labor.

Pittsburgh is an exception to this. In terms of labor policy the Pittsburgh Pirates are the Wal-Mart of Major League Baseball. The team is attempting to maximize profits not be increasing relative surplus value, but rather by making the necessary labor (A--B) as small as possible.

The Pirates ownership pays as little as possible to maintain a "professional" franchise, and keeps the millions that they receive in revenue sharing each year as profit. As a result the team is terrible, as I write this the pirates have lost 20 - 0 and 17 - 4 in the last couple of days, and honestly it will be a miracle if they can win 60 out of 162 games this year.
For obvious reasons attendance in Pittsburgh is terrible, merchandise and ad revenues are basically non-existent.

The problem spills over as other teams who are trying to provide a high quality entertainment product to their fans when they have to play a team like Pittsburgh. Writers have been calling for various solutions to this for years, including the forced sale and movement out of Pittsburgh of the Pirate's franchise. What drove me to write this was reading about a new idea, suspending the entire franchise for the rest of the year, which I found to be really interesting, if completely impractical.

It is not a new idea that low road policy sucks for labor (imagine being a player on a team that isn't even trying to win, or a cashier at Wal-Mart for that matter), but now it is aiding in the destruction of the great American pass time.

25 April 2010

Financial Capital and the Collapse of General Motors

Some lazy and determinist thoughts on the need to file bankruptcy:

I am reading Alfred Sloan's "My Years with General Motors" and I found something that he wrote about the Great Depression very striking. Sloan comments that from 1929 to 1930 GM sales fell by 1/3. He comments that due to some cyclical sales in the 1920's General Motors was equipped to handle this type of thing by layoffs, stop orders, and wage and salary reductions. It is remarkable (but maybe not surprising?) that 80 years later GM was unable to handle a slowing of sales that was far smaller in percentage terms.

I realize that things are vastly different in the American and global auto market than they were in the early 30's. That being said, GM was structurally similar to what it used to be heading into its latest collapse, just on a much larger scale (ok not that similar). Even still by the late 1920's GM was comprised of five major divisions producing a vast array of cars as well as many other divisions making light bulbs, refrigerators, etc. The business was complex then as well.

Sloan devotes almost an entire chapter of his book to Ford's inability to innovate to "close body" designs costing him and his company the position of market dominance that GM took over.
80 years later General Motors fails to innovate on the industrial side? Financial innovation at General Motors was doing just fine. Some of the most "interesting" derivative packages of the last 15 years have come out of GMAC (Ditec). Like many American companies GM became a player of the financial shell game rather than trying to maintain their role as a leader in industrial capital development. You would think someone in the company would have read Sloan's book?

Anyway returning to my point...It was not a collapse in sales that forced GM into bankruptcy, they should have been, (and from what I can tell were?) equipped to handle that in a similar fashion to how it was handled in the late 1920's. What hurt GM was the same thing that had been making it so much money in the last 30 years, involvement in the financial sector. The automobile production divisions of GM had been losing money for years before last year's bankruptcy filing. A slowing of sales at a loss shouldn't impact things strongly and the profitable auto divisions had been dieing long before 2008 (large SUV's). The problem that pushed GM over the edge must have been embedded in finance.
The credit problem was two fold.
1. Sales did fall in the last couple of years because of the recession. The fall in sales slowed cash flow through the enterprise. This slowing of cash made it harder to borrow at the same time that "liquidity was drying up" across the economy.
2. As a lender GM was making a lot of money off of loaning money out (to buy cars and other things). If people were no longer borrowing GM could no longer lend.

The need for General Motors to declare bankruptcy was based on the system that allowed GM to survive for so long and become what it did, that is, a lumbering dinosaur who didn't know what its own ass looked like (how is that for a good dinosaur analogy). This dinosaur was lumbering around lending and borrowing, slowly forgetting that it was supposed to be eating and shitting.
Bad dinosaur! If you don't shit you die. And finance capital profitability does not lend itself to a stable productive enterprise.