Delphi, the giant auto-parts maker, filed for bankruptcy protection in October 2005 after failing to convince the United Auto Workers (UAW) to make massive contract concessions that would help stem losses at the company.¹ Robert Miller, Delphi's chief executive, had claimed that the company was burdened by too many employees and excessively generous wages, medical coverage, and pensions. His post-bankruptcy plan to save the company included making big cuts in the size of the Delphi work-force, leaving the cheap auto parts market to lower-cost producers abroad, concentrating its U.S. production on complex components like electrical systems, and using the bankruptcy court to force concessions from the UAW.

The Delphi bankruptcy filing sent shock waves through the entire American automobile industry and its unions because it seemed to portend the future of the Big Three auto makers, Delphi's main customers. By late 2005, General Motors was on the brink of bankruptcy, having lost over $4 billion in the first nine months of the year, and saddled with over $5 billion in annual health care obligations. Though the UAW agreed to substantial cuts in their health care coverage just weeks later, GM soon announced that it would cut at least 30,000 jobs and close four factories, with more to follow.² Ford's North American division was losing money by the middle of 2004, and the company as a whole reported substantial losses by the third quarter of 2005, and announced job reductions and plant closings beginning in 2006. DaimlerChrysler remained profitable in 2005, but less so than in previous years, and experienced a substantial drop in sales in North America in the third and fourth quarters. The business press was reporting rising nervousness about the future of the company.

To be sure, many of the Big Three's troubles had been self-inflicted. The decreasing sales of the Big Three's high-profit-margin, gas-guzzling SUVs and light trucks in an era of escalating gasoline prices played a role as did the growing popularity of cars from other companies (Toyota vehicle sales actually grew during this period). But some changes that have affected the auto industry have been affecting all manufacturing in the U.S. (as well as in Japan and Western Europe) for some time. Most important, the number of manufacturing jobs has decreased even as overall manufacturing output has been growing briskly, putting pressure on unions to make concessions on wages, health care coverage, and pensions for remaining workers and retirees. While these trends first hit the steel, textile, and airline industries, the transformation in the auto industry has been particularly noteworthy because the Big Three arguably were the foundation for the expansive American economy of the post-war era and middle-class living standards for high school-educated, semiskilled workers. From the 1950s through most of the 1970s, the Big Three, facing little foreign competition at home and enjoying a seemingly insatiable demand for cars to fill the new freeways linking booming suburbs to cities and one another, enjoyed substantial and steady profits, and were willing to share this largesse with employees as well as investors. Over the years, the UAW, representing most Big Three workers, won contracts that gave them job security, high wages, full medical benefits, and substantial pensions. ³

Why have things changed so dramatically? Experts point to several factors impacting manufacturing in general and the auto industry in particular. First, improvements in technology-information technology to manage supply chains and speed the design process, "just-in-time" manufacturing methods, robotic assembly, and more--have led to extraordinary gains in productivity, so more things (including cars) can be produced with far fewer workers. Second, as world markets have become more integrated and open, producers everywhere face stiffer foreign competition, forcing them to lower prices and look for ways to cut production costs, including labor. The end result in autos and other areas of manufacturing in the U.S. and other rich manufacturing countries is that fewer manufacturing workers are needed, those who remain need more education and technical skills, and unions are less able to protect the gains they had won earlier.⁴

These changes have dramatically reduced the living standards of semiskilled workers with a high school education or less. In the past, the road to the middle class for many of these people was paved by hard work in union-protected, high-wage, high-benefit jobs in industry. Today, there are proportionally fewer of these jobs for such people, who increasingly make do with low-wage service jobs with little job security and few guaranteed benefits. The loss of manufacturing jobs for those with only a high school education has had a particularly devastating impact on the African American community.⁵

These changes in the American economy are enormously consequential for American society and political life. Though unemployment is low by historical standards and mean household incomes have been rising, a very large group of people face hard circumstances and grim prospects. What to do about it-whether to provide more and better education and training, stronger social safety nets, and more incentives for companies to create jobs or leave it to the natural workings of the market economy-is part of the ongoing political debate today between Democrats and Republicans, liberals and conservatives. Other important changes in American society, culture, and economy, as well as America's position in the world, are also reshaping American politics and government. Tracking these many changes in the structural level of our analytical model, and examining how they are influencing American politics and what government does, is the focus of this chapter.

¹Now for the Reckoning," The Economist (October 15, 2005), pp. 71-73; "Industrial Metamorphosis," The Economist (October 1, 2005), pp. 69-70; Paul Ingrassia, "Showdown," The Wall Street Journal Online ( www.wsj.com, October 13, 2005); Michael Maynard, "As Delphi Goes, So Goes G.M?" The New York Times (October 11, 2005), p.1; and Robert J. Samuelson, "Do American Manufacturers Have a Future?" The Wall Street Journal Online (www.wsj.com), October 19, 2005).

² Micheline Maynard, "G.M. to Cut 30,000 Jobs and Close Some Factories," The New York Times (November 21, 2005), p. A1.

³Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-First Century (New York: Farrar, Straus and Giroux, 2005); Robert B. Reich, The Work of Nations: Preparing Ourselves for the 21^st Century (New York: Alfred A. Knopt, 1991).

⁴Ibid.

⁵William Julius Wilson, When Work Disappears: The World of the New Urban Poor (New York: Knopf, 1996); and Louis Uchitelle, "For Blacks, a Dream in Decline," The New York Times (October 23, 2005), section 4, p. 1.

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