INVESTMENT PERSPECTIVE

What the UAW Strike can teach us about the ‘Just Transition’

At Radiant, we’ve been quoted many times as saying, ‘without the S, there will be no E’.  By this we mean that a true transformation of our energy system, transportation, agriculture, and infrastructure to one that is ‘cleaner and greener’ simply won’t happen if we gloss over the impact to human lives that will result from massive economic changes.  In 2019, the International Labor Organization (ILO) published a study that concluded 24 million new jobs would be created globally by 2030 in a shift to a greener economy^[1].  The report came with many important assumptions – not the least of which were those related to public policy– but it very effectively refuted the claims by many that a planet-friendly economic transition would necessarily spell disaster for labor.  The headline statistic of net job gain tells only one part of the story.  The more challenging aspect of an overhaul on the scale that is required is the obvious point that the people losing jobs are likely not the same as those gaining new ones.  So, what is to be done with those who are destined to lose out?

To date, there has been a technology focus in discussions of a green transition, but only hand waiving when it comes to the immediate effects on workers.  This is part of the reason ‘E’ has been turned into a political wedge issue, pitting labor against the environment.  Workers are afraid – and rightly so –that they will be forced to bear the cost of environmental externalities that we have all produced, with no participation in future upside.

The principle of a ‘just transition’ rests on the greening of the economy in a way that is inclusive.  It involves, ‘maximizing the social and economic opportunities of climate action, while minimizing and carefully managing any challenges through effective social dialogue among all groups impacted, and respect for fundamental labor principles and rights’^[2].  To some, this may sound fanciful, but there are plenty of good reasons to get this right, as the UAW strike against the Big Three auto makers has demonstrated.  As the strike entered its sixth week, it was estimated to have cost the US economy $9 billion^[3].  This massive labor action, and its ripple effects, can teach us a lot about why we (corporations, investors, the government, even individuals) need to plan for a ‘just transition’.

The UAW strike has not only provided a tidy remedial course on the macroeconomic ‘Factors of Production’ (labor, capital, and natural resources), but has also given us a real-time lesson in the stresses to an industry that exist at the intersection of ‘E’ and ‘S’.  The UAW strike could be summed up as the Union demanding wage increases and benefits greater than what GM, Ford, and Stellantis would abide, with the Union arguing that its members were asked to make sacrifices during the 2007-2009 bailout and continue to be under-rewarded even though the Big Three have prospered over the past decade, earning over $250 billion in profits. The auto manufacturers argue that they simply cannot afford to pay workers more, in part because of the cost of retooling their production lines to produce electric vehicles (EVs) – especially in light of the fact that EVs are not yet big money makers, and likely won’t be for some time. 

Other factors came into play, of course:  the eye-popping salaries of auto company execs, the share buybacks that have supported the stock price for investors, and the Inflation Reduction Act (which is arguably a subsidy to companies, helping fund their ‘green transition’)^[4].  Another forward-looking concern on the part of the Unions specific to EVs has been that the production of EVs requires fewer employees and different component parts including batteries that are often produced by non-union labor.  And it is the non-union manufacturers, like Tesla, that cause the Big Three to lose sleep at night.

On October 25, the UAW reached a tentative agreement with Ford, that, if approved, will include wage gains, cost of living increases, enhanced benefits for retirees, and the right to strike over plant closures – a clause specific to the future of EV production.  The deal with Ford now puts pressure on Stellantis and GM.  If the ‘pattern bargaining’ of the past holds, they will agree to roughly the same terms, but as of now, those negotiations are still in flux.  The automakers have been hit hard by the effects of the strike and reaction to negotiations^[5].  Ford, for its part, saw its share price decline by over 12% on October 26 as it withdrew earnings guidance for the coming year citing unknowns about the effects of the strike.  The company also indicated it was pushing out planned investment on EVs, referencing consumer demand and competition, but will the newly negotiated contract with the UAW also have a chilling effect on EV production?  This remains to be seen.

At its core, the UAW strike illustrates the significant challenges to labor, capital (and yes, natural resources) when it comes to transition.  Who should pay the price and who should reap the rewards? It is a tangled problem with no easy answers, but we do believe that some companies are doing a better job than others when it comes to recognizing labor as being on par with technology when it comes to green transition in any industry. Importantly, this does not require a wholesale capitulation to labor’s demands, rather a thoughtful roadmap for change that includes a plan for labor that is both equitable and as well-considered as plans for technological innovation.  While we are careful not to overgeneralize, we do believe that corporations that take steps toward the principles of ‘just transition’ will be better equipped to deal with a changing landscape than those who are backed into a corner by, say, strikes.  The UAW strike may be a cautionary tale of what is to come.