It's Time for the New York Times to Face Reality

To fully appreciate what I'm about to say, you need to watch the YouTube video below, or click here.

More than anything that I've seen or read thus far, this video demonstrates what's wrong at the New York Times.  Generally speaking, the executives at the Times are being forced to face reality, and employees at the Times, including columnists, don't understand reality.  The fact that Times columnists don't understand the real world has been evident for a long time in their articles, but their willingness to go public with their fears about proposed pension plan changes proves it beyond any reasonable doubt.

Specifically, Times executives are taking steps to make sure that the paper survives over the long-term.  They must make changes to their pension plan, or the company will go bankrupt in due course and cease to exist.  That's the same problem that General Motors faced, and GM would have gone bankrupt without a government bailout that it received as a part of President Obama's stimulus package. 

The president is touting the fact that he saved the auto industry, but that's not true.  He saved GM, not the auto industry.  The survival of the auto industry was never in doubt, but unless GM makes mammoth changes in the way that it operates, it still won't make it.  Like the Times, GM made promises to its employees that it could not keep.  The company promised to pay them a specific amount of money each month in retirement if they worked for a certain number of years, and in addition, it promised to pay their health care costs or a big portion of those costs until they died. 

That's called a defined benefits pension plan.  It doesn't work in the current environment because people live longer now than they did when those promises were made, and the cost of living and the cost of medical care are increasing faster than the executives at GM and the Times ever thought possible when they negotiated the labor contracts that are the immediate concern of today's employees. 

I'm not suggesting or implying that the executives at GM and the Times in a bygone era intentionally made promises that they knew they could not keep, but I am saying this: their assumptions about the competitive landscapes in their industries, life expectancies, and the cost of living in general were way off the mark.  As a result, today's executives must bring their pension plans in line with reality or they will face insolvency.  That's called prudent management.

The solution that's been proposed at the Times is called a defined contributions pension plan.  That means that the company is promising to contribute a certain amount of money each month to the pension accounts of its employees, and the employees will assume responsibility for determining how that money is invested.  If the employees invest wisely in a diversified portfolio made up of stocks, bonds, and real estate, they will actually be better off during retirement under the new plan than they would have been under the old plan.  Even more, since those pension accounts are not dependent on the company's long-term viability, the employees will not live out their golden years wondering if future generations of Times executives will destroy the company and their income stream during retirement in the process.

That's exactly what happened at GM and Chrysler.  Following World War II, U.S. auto manufacturers dominated the global market.  German and Japanese auto manufacturers had been destroyed during the war, and it took them a couple of decades to get back on their feet.  During the 20-year period between 1945 and 1965, U.S. auto makers could make any promise to their employees that they wanted, and it didn't matter since they could simply pass on the costs of those promises to their customers. 

The automobile market started changing quickly in the mid-1960s as Toyota, Mercedes-Benz, and BMW, for example, started selling cars that were more fuel-efficient or technologically advanced than comparable cars produced by U.S. auto manufacturers.  The rate of change accelerated during the First Arab Oil Embargo in 1973, and things came to a head during what is commonly known as the Second Arab Oil Embargo in 1979.  At that point, the resistance that U.S. car buyers had to purchasing automobiles from Japanese and German producers, our enemies during WWII, had subsided, and the quality and price issues took center stage in their minds.

Both Ford and Chrysler looked bankruptcy squarely in the eye during the early 1980s.  Chrysler needed a U.S. government loan guarantee to survive, and Ford made radical changes from top to bottom in order to stay alive and compete in the increasingly competitive global market.  GM was the only one of the Big Three that was able to carry on through that period without making major changes, even though a complete overhaul was desperately needed even then. 

Ford had improved its operations so much by the time the Great Recession of 2008 hit that it was able to get by without government assistance, but that cataclysmic event was GM's last straw.  By that time, GM had no choice but to change, die, or seek government relief.  Unfortunately for the company and for U.S. taxpayers, the company's executives chose the third option.  I say "unfortunately" because an auto maker that produces a car like the Chevy Volt still hasn't learned its lesson, and if GM doesn't change its ways, in due course it will go bankrupt.  No amount of government support can prevent that from happening over the long-term if the company continues producing cars that people refuse to buy because they cost too much and they are not good enough.

Every industry is being forced to come to grips with the new reality -- not just the auto industry and the newspaper industry.  The airline industry, for example, has been grappling with the paradigm shift for many years, and AMR, the parent company of American Airlines, is going through bankruptcy right now because it failed to adjust and its costs are still too high -- labor and pension plan costs in particular.  The U.S. government can't afford to bail out every firm in every industry that is experiencing significant change, and even trying is counterproductive.

That brings me back to the New York Times.  The company's flagship brand, the print edition, is experiencing  circulation and advertising revenue declines.  Revenue from internet subscribers, although helpful, doesn't address the underlying problems at the company: perceived inferior-quality content and excessively high costs. 

When Times executives signed the original labor contract the vestige of which is in dispute today, it was a totally different world.  There was no American Thinker, for example, producing better content and making it available over the internet for free.  Stated simply, there are not enough buyers who are willing to pay the price for the Times' inferior content to support the company's cost structure.  Ignoring that fact won't make the company's problems go away.  In fact, pretending that their world hasn't changed will lead to bankruptcy, unemployment lines for current employees, and really hard times for retirees.

Neil Snyder is a chaired professor emeritus at the University of Virginia.  His blog, SnyderTalk.com, is posted daily.

To fully appreciate what I'm about to say, you need to watch the YouTube video below, or click here.

More than anything that I've seen or read thus far, this video demonstrates what's wrong at the New York Times.  Generally speaking, the executives at the Times are being forced to face reality, and employees at the Times, including columnists, don't understand reality.  The fact that Times columnists don't understand the real world has been evident for a long time in their articles, but their willingness to go public with their fears about proposed pension plan changes proves it beyond any reasonable doubt.

Specifically, Times executives are taking steps to make sure that the paper survives over the long-term.  They must make changes to their pension plan, or the company will go bankrupt in due course and cease to exist.  That's the same problem that General Motors faced, and GM would have gone bankrupt without a government bailout that it received as a part of President Obama's stimulus package. 

The president is touting the fact that he saved the auto industry, but that's not true.  He saved GM, not the auto industry.  The survival of the auto industry was never in doubt, but unless GM makes mammoth changes in the way that it operates, it still won't make it.  Like the Times, GM made promises to its employees that it could not keep.  The company promised to pay them a specific amount of money each month in retirement if they worked for a certain number of years, and in addition, it promised to pay their health care costs or a big portion of those costs until they died. 

That's called a defined benefits pension plan.  It doesn't work in the current environment because people live longer now than they did when those promises were made, and the cost of living and the cost of medical care are increasing faster than the executives at GM and the Times ever thought possible when they negotiated the labor contracts that are the immediate concern of today's employees. 

I'm not suggesting or implying that the executives at GM and the Times in a bygone era intentionally made promises that they knew they could not keep, but I am saying this: their assumptions about the competitive landscapes in their industries, life expectancies, and the cost of living in general were way off the mark.  As a result, today's executives must bring their pension plans in line with reality or they will face insolvency.  That's called prudent management.

The solution that's been proposed at the Times is called a defined contributions pension plan.  That means that the company is promising to contribute a certain amount of money each month to the pension accounts of its employees, and the employees will assume responsibility for determining how that money is invested.  If the employees invest wisely in a diversified portfolio made up of stocks, bonds, and real estate, they will actually be better off during retirement under the new plan than they would have been under the old plan.  Even more, since those pension accounts are not dependent on the company's long-term viability, the employees will not live out their golden years wondering if future generations of Times executives will destroy the company and their income stream during retirement in the process.

That's exactly what happened at GM and Chrysler.  Following World War II, U.S. auto manufacturers dominated the global market.  German and Japanese auto manufacturers had been destroyed during the war, and it took them a couple of decades to get back on their feet.  During the 20-year period between 1945 and 1965, U.S. auto makers could make any promise to their employees that they wanted, and it didn't matter since they could simply pass on the costs of those promises to their customers. 

The automobile market started changing quickly in the mid-1960s as Toyota, Mercedes-Benz, and BMW, for example, started selling cars that were more fuel-efficient or technologically advanced than comparable cars produced by U.S. auto manufacturers.  The rate of change accelerated during the First Arab Oil Embargo in 1973, and things came to a head during what is commonly known as the Second Arab Oil Embargo in 1979.  At that point, the resistance that U.S. car buyers had to purchasing automobiles from Japanese and German producers, our enemies during WWII, had subsided, and the quality and price issues took center stage in their minds.

Both Ford and Chrysler looked bankruptcy squarely in the eye during the early 1980s.  Chrysler needed a U.S. government loan guarantee to survive, and Ford made radical changes from top to bottom in order to stay alive and compete in the increasingly competitive global market.  GM was the only one of the Big Three that was able to carry on through that period without making major changes, even though a complete overhaul was desperately needed even then. 

Ford had improved its operations so much by the time the Great Recession of 2008 hit that it was able to get by without government assistance, but that cataclysmic event was GM's last straw.  By that time, GM had no choice but to change, die, or seek government relief.  Unfortunately for the company and for U.S. taxpayers, the company's executives chose the third option.  I say "unfortunately" because an auto maker that produces a car like the Chevy Volt still hasn't learned its lesson, and if GM doesn't change its ways, in due course it will go bankrupt.  No amount of government support can prevent that from happening over the long-term if the company continues producing cars that people refuse to buy because they cost too much and they are not good enough.

Every industry is being forced to come to grips with the new reality -- not just the auto industry and the newspaper industry.  The airline industry, for example, has been grappling with the paradigm shift for many years, and AMR, the parent company of American Airlines, is going through bankruptcy right now because it failed to adjust and its costs are still too high -- labor and pension plan costs in particular.  The U.S. government can't afford to bail out every firm in every industry that is experiencing significant change, and even trying is counterproductive.

That brings me back to the New York Times.  The company's flagship brand, the print edition, is experiencing  circulation and advertising revenue declines.  Revenue from internet subscribers, although helpful, doesn't address the underlying problems at the company: perceived inferior-quality content and excessively high costs. 

When Times executives signed the original labor contract the vestige of which is in dispute today, it was a totally different world.  There was no American Thinker, for example, producing better content and making it available over the internet for free.  Stated simply, there are not enough buyers who are willing to pay the price for the Times' inferior content to support the company's cost structure.  Ignoring that fact won't make the company's problems go away.  In fact, pretending that their world hasn't changed will lead to bankruptcy, unemployment lines for current employees, and really hard times for retirees.

Neil Snyder is a chaired professor emeritus at the University of Virginia.  His blog, SnyderTalk.com, is posted daily.