Can Free Markets and Unions Thrive Together?

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Mark of New Jersey

Mark is a Founding Editor of The League of Ordinary Gentlemen, the predecessor of Ordinary Times.

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219 Responses

  1. Avatar BradP says:

    Mark,

    Why the change on card check laws?  It seems to me that secret ballots would be a very important part of insuring fair election practices.Report

    • Avatar Mark Thompson in reply to BradP says:

      That’s the reason I was originally opposed to card-check. As I’ve come to learn and understand more about the laws involved here, it’s become clear to me that in the labor context there’s nothing particularly sacred about the secret ballot.   All card check does is provide another manner for obtaining unionization.  Keep in mind that in a world where unions and unionization were basically unregulated, it would not be necessary to get any kind of a vote or majority of workers to form a bargaining unit – anyone who wanted in on the union could be part of the union and could obtain the benefits of any contracts negotiated by that union.  The notion that there needs to be an election or a majority of any nature in order for a group of workers to form a union that is not a violation of federal labor law is as far from libertarianism as can be.  Allowing card check is, in effect, just a very, very limited deregulation or softening of that decidedly un-libertarian restriction.Report

      • Avatar NoPublic in reply to Mark Thompson says:

        Allowing card check is, in effect, just a very, very limited deregulation or softening of that decidedly un-libertarian restriction.

        Which just coincidentally has the effect of giving the employer leverage to prevent unionization because of the public nature of the card process.Report

      • Avatar BradP in reply to Mark Thompson says:

        I can’t say that I find your argument convincing.

        It is not like allowing card checks is going to turn unions into some dynamic market force made up of constantly shifting collective bargaining structures.  All it will do is make it easier to bring more people into the heavily restricted system.

        In the meantime, it will create a great deal of incentive to apply pressure on those who otherwise wouldn’t be interested.

         Report

        • Avatar Mark Thompson in reply to BradP says:

          My point is that it makes a heavily restricted system marginally less restricted.Report

          • Avatar BradP in reply to Mark Thompson says:

            But my point is that making it easier to get into a heavily restricted government legal structure isn’t a meaningful loosening of its restrictive nature.  This doesn’t open up any organizational or negotiational avenues, it just makes it easier to get into the decidedly non-libertarian one.

            I would compare it to a loosening of police acceptance requirements.  Sure it gives more people the opportunity to get involved in economic activity that the government has monopolized, but that doesn’t do a lick to make things more libertarian.Report

            • Avatar Mark Thompson in reply to BradP says:

              At worst, it also doesn’t make things less libertarian. In reality, though, all it does is remove a small layer of bureaucracy that drastically and unnecessarily favors employers. Is it a huge step? Not at all. In fact, it is insignificant. That doesn’t make it wrong, though.Report

            • Avatar Mark Thompson in reply to BradP says:

              Also, too, your point makes little sense. We wouldn’t say that making it easier to get a pilot’s license (ie, a door into the extremely heavily restricted world of FAA regulations) is anything other than clearly libertarian.Report

              • Avatar BradP in reply to Mark Thompson says:

                I would say the difference is pretty clear:

                Making it easier to get a pilot’s license removes obstructions to entry into private markets, where one conducts one’s economic activity largely as he or she sees fit.

                Making it easier to get union certifications removes obstruction into a government legal structure.

                Putting it as simply as I can:  I believe that union certification schemes in the US are not merely unlibertarian, but are counter-productive to both labor and libertarian society.

                Therefore offering incentives to join this decided anti-libertarian structure does not make a society more libertarian, rather it merely strengthens non-libertarian structures.Report

              • Avatar Mark Thompson in reply to BradP says:

                You do understand how completely circular this argument is, right?

                What I honestly do not understand is how the majority of libertarians -and again, I very much still consider myself one – can look at the complicated mix of labor-management regulations, both pro- and anti- union, then look at the rapid death of the private sector unions in this country, not to mention rising inequality, and say “Ya know who’s really screwed by labor-management regulations? Employers!  Ya know who’s getting rich stealing from other people because of those regulations? Unions!  Any attempts to deregulate that field has to focus on eliminating regulations that favor unions, and until then, eliminating any regulations that harm unions is absolutely off the table.”Report

              • Avatar Kim in reply to Mark Thompson says:

                Mark,

                It’s propaganda. Sometimes people don’t see propaganda until it’s blown into their faces. What gets me are the ‘publicans who think that the Big Scary Unions are running Obama’s campaign.

                Squirrels are more of a national problem than unions! Squirrels! (national security issue, actually).Report

              • Avatar Jaybird in reply to Mark Thompson says:

                Part of the problem is that most Libertarians look at the unions as they exist in the US and they see, primarily, public sector unions and, of course, Detroit.

                So when you say “we need more unions!”, they hear “we need more unions like the one the TSA has and like the UAW!!!”

                Now, my take on that is to say, sure, we need more unions like they have in Northern Europe. How likely is implementation of Northern European Unionization? If we’re more likely to end up with another TSA and/or UAW, then what?Report

              • Avatar Chris in reply to Jaybird says:

                Given that much of libertarian economics is about how things would be different if certain conditions were different from they are now and have ever been, to the point thaty they often get kind of ornery if you make claims about their views from markets/capitalism as they are today, it seems unfair of them to reason about unions as they are today, eh?Report

              • Avatar Mark Thompson in reply to Jaybird says:

                The thing is that the TSA example is automatically outside the parameters of what we’re mostly trying to discuss, since we’re almost entirely concerned with private sector unions.

                As for the UAW….I’ll hold my tongue.  Suffice to say, I have a less than favorable view of how they serve their members.

                But that aside, does it ever occur to libertarians that a big chunk of the reason why the private sector unions seem to be so overwhelmingly, well, statist is that the statists actually give a crap about them?  Labor, just like any other interest group, doesn’t care how its interests are served; it just cares that its interests are served.  Just as with any interest group, whomever can show that it is concerned with those interests will find themselves with some or much of that group’s support on all sorts of other issues.Report

              • Avatar Roger in reply to Jaybird says:

                Mark,

                There is a difference between caring for unions and caring for employees. Employees and firms are cooperators in meeting consumer needs in a competitive environment. Employees do care about their companies and companies do care about their employees.  The details of course differs by employee and firm.Report

              • Avatar Jaybird in reply to Jaybird says:

                it seems unfair of them to reason about unions as they are today, eh

                Dunno. Are we talking about doing something where we pass more laws that are going to be captured in committee or repealing laws.

                If’n we’re talking about the former (and, it seems to me, we are) then we are once again in the position of arguing to libertarians about the need to pass more laws doubling down on the stuff we have now because the problem is, of course, it didn’t have enough or the right laws passed the first time.Report

              • Avatar Kim in reply to Jaybird says:

                Roger,

                You should tell that to Harley Davidson, ya? It’s in a corporation’s best interest to not care about the workers, if there are infinite workers. In a skilled trade, that’s different.

                As to giving a damn about employers? Haha. That’s a funny one. Employers get treated well to the extent that they treat employees well. I care about what my employer Does, cause it does good things. But i don’t care about my employer — a (regrettable) means to an end.Report

              • Avatar Roger in reply to Jaybird says:

                Kim,

                Actually, I think we are saying the same thing. There is a range of caring on both sides.Report

              • Avatar Mark Thompson in reply to Jaybird says:

                Jay – in terms of EFCA’s card check provisions, they actually are effectively a partial repeal, though they are worded as an exception to existing rules rather than a repeal of them.

                As the rules currently exist, a union has to get cards signed by a minimum of 30% of employees in the would-be bargaining unit (which is itself determined by a complex web of rules and regulations….a group of five or six workers assigned to a particular task cannot just decide that they are a bargaining unit) to begin with, and as a practical matter, just about always get more than 50%.  So card check is already a mandated part of the process.

                But once cards are turned in, the law says that they still have to go through a formal election process unless the employer consents to just recognizing the union.  As a practical matter, this gives the employer a boatload of additional time to start looking for non-union ways of getting its labor – again, appreciable periods of time are always on the side of the employer, providing it with time to start subtly firing employees, make hollow threats, or indeed to even start the process of outsourcing.

                Card check just repeals the requirement for that additional process in the overwhelming majority of cases.

                Sure, you might say, but secret ballots are more “fair.” Well since when was libertarianism so concerned with “fairness”?

                 Report

              • Avatar BradP in reply to Mark Thompson says:

                I do not realize why my argument is circular.

                And note that I come from the Kevin Carson school of thought on the issue.  The NLRB and the various labor-related acts have been attempts to rationalize and stabilize labor-employer relations.  These have stripped potential labor organizations of the flexibility to shift strategies to meet changing marketplaces.

                Unionization is no less improved by innovation than a factory would, but the laws in place have stagnated and bureaucratized unions.

                The government has replaced organic unionization with a suboptimal legal system.  Making it easier to form a union under this system merely strengthens a system that marginalized labor.

                I don’t understand how anyone can look at a law that basically shifts the incentives towards using a bureaucratically top-down managed system, and say it is a libertarian move.Report

              • Avatar Mark Thompson in reply to BradP says:

                Brad – my apologies for misunderstanding where you’re coming from.

                My feeling about card check and EFCA is not so much that they’re awesome from a libertarian perspective as it is that they’re neither good nor bad from that perspective, and they at least marginally ameliorate some of the problems caused to labor by that problematic statutory regime.Report

      • Avatar Mad Rocket Scientist in reply to Mark Thompson says:

        My opposition to card check stems less from the desire for a secret ballot, and more toward protecting persons, since Unions have an ugly history of intimidation & violence toward those workers who don’t want to join.

        Strong protections and penalties for such behavior would go a long way toward helping me be OK with card check.  Right now, unions who engage in such tactics are often given a pass.Report

        • Avatar BradP in reply to Mad Rocket Scientist says:

          My opposition to card check stems less from the desire for a secret ballot, and more toward protecting persons, since Unions have an ugly history of intimidation & violence toward those workers who don’t want to join.

          I believe those are one and the same.Report

      • Avatar Tom Van Dyke in reply to Mark Thompson says:

        George McGovern on card-check: ” There are many documented cases where workers have been pressured, harassed, tricked and intimidated into signing cards that have led to mandatory payment of dues. Under EFCA, workers could lose the freedom to express their will in private, the right to make a decision without anyone peering over their shoulder, free from fear of reprisal.”

        http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=367&topic_id=13231Report

        • Avatar Jesse Ewiak in reply to Tom Van Dyke says:

          Yeah, George McGovern had always been lukewarm to labor. But congratulations on finding one liberal against EFCA.

          But, voting for a union isn’t a civil right no more than than voting for officers in a corporation is a civil right. But, of course card check isn’t voting, it’s registration. I can look up your registration in many many states and nobody think it’s a massive breach of secrecy.Report

          • Avatar Tom Van Dyke in reply to Jesse Ewiak says:

            Jesse, I figgered nobody would take my word for union intimidation, but mebbe George McGovern’s.  It was an epistemology thing, not particularly looking for a leftish quisling.

            Indeed, this is the substantive objection to this card-check thing, that it is not democracy, but mob rule.Report

          • Avatar Mad Rocket Scientist in reply to Jesse Ewiak says:

            Don’t see too many stock holders getting threatened with violence for not electing the right board member.

            Also, not too many people getting intimidated by large thugs into registering D or R.Report

  2. Avatar E.C. Gach says:

    Excellent analysis of the topic Mark.  I’m especially curious how the union/business relationship will play out as the market edges closer replacing “jobs” with “contracts.”

    If we are really headed toward the gig economy, at least as a seizable sement of the overall economy, will segments of the workforce approach contracts from an already unionized position, like many construction contractors approach projects already.

    It’s concievable that middle-men will arise to fill the void between employers and laborers.  I can imagine quasi-union/work placement organizations taking on many of the responsibilities previously held by the employer (training, re-training, benefits, pension), though all in dminished form because of downward pressure from increased competition.

    This corporatization of the union doesn’t seem completely impractical, and would probably be viewed as compeletely compatible with the larger free market by many supply-siders/libertarians.

    Because that’s pretty much how I already view unions.  Corporations give capital a single legal idenity, and unions give labor a singular bargaining identity. They are the same thing in spirit.Report

    • Thanks, Ethan.

      I think that given the existing legal regime governing unionization, it is extremely difficult, if not impossible, to get to a point where “independent contractors” could be unionized before beginning their gigs.   Contractors are usually placed through an agency, and there is usually very little if any ability for applicants to connect and collaborate.  But even if there were such an ability, because of the fact that these workers are basically just “applicants” prior to an assignment, not performing any actual service to the agency beyond having a pulse and a resume, and because any attempt to unionize would require compliance with notice requirements, an election, etc., it would be extremely easy for the placement agency to avoid advancing any applicant protected by a union or seeking protection from a union.

      Hypothetically, a union, or its de facto equivalent, could become a placement agency, which I take is what you’re getting at here.  This seems to be similar to what Carson refers to in his linked post above as the “French model,” or “socially-based unionism.” There’s some definite possibilities here worth thinking about, though I confess I’m having a difficult time seeing how such organizations could develop.  Certainly it would need to be, in effect, a mutual aid society in a corporate form.  I somewhat suspect that these would die a quick death, as they would need to be overwhelmingly comprised of employed members, with the “profits” effectively subsidizing the unemployed; it would quickly become cheaper for employers to just bring the employed members on as direct employees at slightly higher direct wages (and fairly strong contractual protections against termination) to the employed members, and the employed members would have every incentive in the world to accept those offers.  Without the “profits” from having a high percentage of employed members, the safety net for the unemployed members quickly shrinks, and they become sufficiently desperate to accept employment at a lower wage independent of the organization.Report

      • Avatar Will H. in reply to Mark Thompson says:

        There are different ways that it works. For me, it goes like this:
        When the business agent in a Local sees that he has work that he doesn’t have the manpower for, he will enter the number of men he needs on the “Call List.” This call list goes out to all BA’s nationwide every month.
        When a BA in one of those other Locals has men out of work (“on the bench”), he goes through the list to send them out (FIFO). He sends a bio sheet to the BA that has the work, and it’s that BA’s choice whether to accept them.
        Then the BA calls the journeyman (only journeymen are allowed to work outside of their home Local) and gives him a referral. The referral is basically contact information, time and date. You show up when they tell you, and you fill out an intake packet, sit through a safety meeting, then meet the steward.
        That’s it.

        Some trades have the right to put their name of any out-of-work list in any jurisdiction. I don’t.
        Other trades can transfer into any jurisdiction, and the other Local may or may not have the right to reject the journeyman. My trade doesn’t work like that. The rules to transfer make it difficult. Part of that is the way that the pension is set up.Report

        • Avatar Will H. in reply to Will H. says:

          I went to check on the website, and there are two projects in Ohio and one in Wisconsin that I’m qualified for.
          As for the ones I’m not qualified for, Arizona needs five, Georgia needs five, Louisiana needs six, and Mississippi needs 20.

          That is by no means exhaustive.Report

      • Avatar Kim in reply to Mark Thompson says:

        http://www.aorbsinc.com/

        (a unionish thing for santas. kinda clubby.)Report

    • Avatar DensityDuck in reply to E.C. Gach says:

      “Corporations give capital a single legal idenity, and unions give labor a singular bargaining identity.”

      The last time there was a corporation with as wide-ranging a scope and as much power as the larger modern unions have, it was broken up by government action.  And yet nobody thinks it’s a problem that the UAW controls so much of the auto-manufacturing labor supply (and at multiple competing firms, for that matter.)Report

  3. Avatar Rufus F. says:

    The thing about replacing your workers with scabs is something people miss about “unskilled” physical labor- it’s actually extremely skilled. I wouldn’t have any easier time replacing the lead guitarist in my band with some new guy- the new guy might know all the notes, but that doesn’t mean his hands would.

    I’ll think about writing a post on this topic. There’s a big dust up about US Steel closing the mill here over union benefits they didn’t want to pay when they bought it a few years ago. Lots of heated feelings. I just need to find a good number of people from all sides to interview and do some actual journalism to get it right.Report

    • The thing about replacing your workers with scabs is something people miss about “unskilled” physical labor- it’s actually extremely skilled. I wouldn’t have any easier time replacing the lead guitarist in my band with some new guy- the new guy might know all the notes, but that doesn’t mean his hands would.

      +1.  This point cannot be emphasized enough.

      I’ll think about writing a post on this topic. There’s a big dust up about US Steel closing the mill here over union benefits they didn’t want to pay when they bought it a few years ago. Lots of heated feelings. I just need to find a good number of people from all sides to interview and do some actual journalism to get it right.

      This would be AWESOME.Report

    • Avatar Will H. in reply to Rufus F. says:

      For musicians, the rule is that you can record four songs under five minutes apiece every three hours before you have to have a break.
      Singers have different rules that they go by (different union); but if you think about it, it makes sense.

      Cruise ships are one place where a union musician can always get a gig. It’s a good gig; they treat you right and the pay is decent. It’s just that you can’t go home and kick back.
      But you have to be able to pick up stuff quick, and be at the top of your game. That’s why they use union musicians. They can’t take the chance of calling up Joe Blow from out of the paper.Report

      • Avatar Tom Van Dyke in reply to Will H. says:

        Yes, WillH, and more imp, you can’t replace an incompetent musician with a phone call out on the high seas.  You’d have to ‘copter him in.

        Similar is the sky-high wage for union movie techs.  Getting $100+ hour for holding a boom microphone seems silly until you realize that at a running nut of $30,000+ per hour, dropping the mic even once and losing 10 minutes, or blowing the audio on a take is a financial disaster.

        But I do question whether unskilled or semi-skilled workers are all that interdependent, or that replacements need to be ‘coptered in when things screw up.

        I mean, janitors?

        BTW, Ben & Jerry’s vs. the janitors’ union, c. 1999.  Interesting…

        http://www.dissentmagazine.org/article/?article=1590

        Businesses with an explicit mission of “social responsibility” (SR)— of which Ben & Jerry’s is probably the most famously liberal—have been proliferating since the late seventies. In addition to Ben & Jerry’s, such companies as Borders Books and Music, Starbucks, Noah’s Bagels, Whole Foods, Newman’s Own, Working Assets, and the Portland, Oregon-based Powell’s Books have recently been mired in acrimonious labor disputes. “It’s business, man!” says Marty Kruse, a used-book buyer and one of the initial Powell’s organizers, who thinks it’s foolish even to make an issue of SR union-busting. “We don’t live in some anarcho-syndicalist utopia. If you’re disappointed that they’re resisting, you’re being naïve.”Report

        • Avatar Rufus F. in reply to Tom Van Dyke says:

          Well, B&J are “famously liberal” in the new sense of the word- culture war bullshit, and not the old sense- siding with labor.

          As for the movie costs, this is no nonsense. Our cinematographer relative saw an actor nearly destroy his career by getting hungover and missing one day of work. “It might sound harsh, but that one day cost us $5 million”.Report

        • Avatar Will H. in reply to Tom Van Dyke says:

          Some of those mikes are amazingly expensive.
          I found that out going through an equipment rental place.
          $500 a day to rent one mike; and this is late 80’s, early 90’s we’re talking about here.
          I could buy 5 or 6 mikes for that kind of money.
          I’m more accustomed to PA equipment, where things are built to be durable.
          I don’t see needing to spend that kind of money on any one mike.

          But I can understand that the fellow handling the thing has a good understanding of it.Report

  4. Avatar Jaybird says:

    My first inclination is to wonder about immigration (legal or otherwise) in these countries and what they do with unskilled laborers… but I don’t know what I’d expect to see from asking that question.Report

    • Avatar Mark Thompson in reply to Jaybird says:

      Can you clarify?  Specifically, which countries? All the OECD countries, or just the ones with high unionization rates or high economic freedom scores or low rates or low scores?

      I’d not be surprised to find a fairly noticeable negative correlation between unionization and immigration rates. However, some very quick research suggests this may not actually be the case – Ireland, for instance, has a pretty high unionization rate (33%), one of the world’s highest Economic Freedom scores, and so far as I can tell about 20% of its residents are immigrants, an extraordinarily high ratio.  Canada has a similar immigration ratio from what I can tell, an average unionization rate (27%), and one of the higher Economic Freedom scores in the world.  So this, too, seems like it would turn up pretty weak evidence one way or another.Report

      • Avatar Jaybird in reply to Mark Thompson says:

        Insofar as immigration (specifically “otherwise” immigration) is a bit of a release valve for upward pressure on wages, I expected that the countries with the most immigration would have fewer unions.

        But I don’t know to what extent I’d be surprised if that were not the case.Report

  5. Avatar Max L says:

    This is a great piece.  Libertarians’ reflexive stand against unions, considering how heavy a regulatory hand it requires in practice,  strikes me as hard to justify.  Freedom of association and political competition is every bit as important for individual freedom as optimally efficient markets.  Moreso, IMHO.

    Just as a side question: I am guessing that the data points to the right of the average unionization or above the average for Economic Freedom are all well established liberal democracies, right?  Those are typically countries with very low rates of corruption and a lot of  transparency .  Your graph could then also be showing that where there exists a lack of corruption, it is not just government corruption that is affected,  but also other associations, such as unions,.  In those countries, unions are often not just blue collar but also white collar/professional associations and more cooperative with management.

    If the data points lying above average are not well established free markets democracies with low rates of corruption…then, well, my point is moot and your argument is stronger for it.Report

      • Ugh.  The intertubes ate this comment and I can’t recreate it.  But basically all of the countries surveyed are stable democracies.  However, the countries in or near the upper right portions of the graph are all in the top 20 least corrupt countries in the world by Transparency International’s rankings; the countries in or near the upper left do almost as well, but not quite as well, with all falling in the top 30, though none of the countries under 18% unionization are in the top 15.  The countries in the bottom reaches on the left don’t do so well.Report

        • Avatar Tom Van Dyke in reply to Mark Thompson says:

          Looking at the raw OECD chart, I wonder if Scandinavia isn’t skewing the attempt at analysis.  Scandinavian countries unionize @ a 50-80% clip, whereas no non-Scandinavian nation listed even approached 50%.

          I find the Scandinavian nations, with populations of 10 million or less and of great ethnic homogeneity, more sui generis and problematic than fodder for throwing into the undifferentiated pot of averages and attempts to derive general rules.

          I suspect we would get one set of conclusions by including them and the exact opposite one if we exclude them, so I fear we learn nothing except what is true of Scandanavia, not the OECD at large.

           Report

          • Tom: I can try to run the data without the Scandinavian countries, and I acknowledge that they skew the results a bit, which is part of why I tried to emphasize that this should not be used as evidence that unions are correlated with free markets. That said, eliminating them will probably just result in something even closer to zero correlation. Since I’m just interested in responding to the claim that unions require a heavily regulated economy to compete and are generally incapable of surviving in an otherwise comparatively free market, a zero correlation is sufficient for my purposes, as is for that matter a very weak negative correlation.

            That said, I’m hesitant to disregard the Scandinavian coutnries entirely here given that a big chunk of the argument I’m addressing assumes the existence of heavy globalization and ample options for employers to obtain cheaper labor elsewhere.Report

            • Avatar Tom Van Dyke in reply to Mark Thompson says:

              Thx, MarkT.  That gov’t has subsumed most of the unions’ vital functions  [worker safety, long hours, terminations, vacation] continues to threaten to moot this entire issue.  France as a whole might as well be a union shop with all its worker protections as discussed in this thread.

              Since I’m just interested in responding to the claim that unions require a heavily regulated economy to compete and are generally incapable of surviving in an otherwise comparatively free market

              This isn’t my bailiwick, but I see

              http://www.social-europe.eu/2010/08/the-french-system-of-collective-bargaining/

              One of the paradoxes of the French industrial relations system is that despite its low rate of unionisation, close to 8 per cent, it has a very high rate of collective bargaining coverage, close to 98 per cent. There are two major reasons for this: the extension of collective bargaining agreements by the Ministry of Labour and the legal form of union recognition according to which each of the five confederations CGT, FO, CFDT, CFTC and CGC were recognised by the government in 1966 as ‘representative’ at the national level and were therefore entitled to sign collective agreements at any level. Union pluralism has increased since, with the appearance of new confederations of ‘autonomous’ unions, namely UNSA and Solidaires.

              So, despite whatever Heritage sez about economic freedom, it seems to me that a country where 98% of workers are backed by the gov’t in forced collective bargaining isn’t a free market for labor in any respect.

              As for the Scandanavians’  higher unionization rates [2-4 times everybody else’s], it may just be a reflection on their greater communitarianism as a whole and resultant socio-political “regime,” and not very informative about the nature of unions themselves atall.

              So are we speaking of much more than [slightly?] higher worker wages here?  If so, what, exactly?

              How about unions in “right-to-work” states? Wouldn’t that be a cleaner test, apples to apples?

              BTW, are union toilets cleaner than non-union ones?  ;-PReport

          • Avatar Chris in reply to Tom Van Dyke says:

            Tom, You’ll have to take my word for it, or run the data yourself, but the relationship is slightly stronger if you take out Sweden, Finland, and Norway.

            By the way, to the larger point, unions were designed to work in markets, so it’s no surprise that they can and do.Report

        • Avatar Max L in reply to Mark Thompson says:

          Mark,   Thanks for the clarification.  That sounds about as expected.  And that will make the US one of the more unique case studies, where the history and composition of labor unions is complicated.

          By the way, the discussion thread below between yourself and Roger defending the Austrians is top notch.Report

  6. Avatar Jason Kuznicki says:

    First of all, your graph verges on the preposterous.

    It’s like saying “melanoma is clearly not hazardous to your health.”  And then justifying the claim by pointing at rising overall life spans.  Well, sure.  Life spans are rising.  But melanoma kills you just as dead anyway.  It’s just that melanoma is only a fairly small part of the picture.

    I have no opposition to the freedom of association.  But I find the National Labor Relations Act goes a good deal beyond that, however, and that it often makes unions a form of compelled association.

    As they are typically organized under law in the West (and setting Carson’s voluntarist unions emphatically aside), the effect of labor unions is usually not to decrease overall economic freedom a great deal for everyone.  Instead, their effect is to decrease economic freedom in one relatively small area.  This doesn’t make them a positive good, it just makes them relatively less bad than, say, socialism. (With which, historically, unions have been eager to associate themselves.  But I digress.)

    Until that charge is answered, the graph is just silly.  You’re looking for a very small amount of unfreedom — the compelled association of the government forcing you to join a union or forcing an employer to bargain with a union — by zooming out to a giant picture of the entire economy.  It’s no wonder you don’t find it.Report

    • Jason:

      This misses a lot, I think.

      If all you’re interested in is whether unions can or cannot survive without strong legal protections, and indeed strong coercion by the state, that is a question I directly addressed in my original post last year.  On the eve of the Wagner Act, private sector unionization rates in the US were twice current levels; this despite the fact that the only act that protected unions (the Clayton Act, which was just an attempt to defang the Sherman Act) had been effectively read out of existence, while anti-union legislation (such as the Sherman Act, but also including various state laws) was regularly enforced.  In the brief period where the Clayton Act had any practical meaning, unionization increased at similar rates to how it soared after Wagner.

      We of course also have no data on how many people were in more or less unrecognized unions prior to Wagner; but after Wagner, such people would have quickly become officially unionized.

      Yes, the Wagner Act was generally speaking the use of the federal government’s heavy hand on behalf of unions.  Then again, as Carson notes, it adopted employers’ preferred method of unionization more or less to the exclusion of other methods.  It also destroyed competition between unions by prohibiting recognition of more than one union for a given class of employees.

      The Taft-Hartley Act (which is now of course just as much part of the NLRA as Wagner), however, undid most of the positive benefits to unions of the Wagner Act and added negatives to the point where I’d argue that unions were noticeably better off in the pre-Wagner Act days.  Again, the data supports me on this, as I explained in my post last year.

      In response to this, the argument seems to become that labor unions are bad for economic freedom more generally.  The graph addresses this specific argument.

      One thing worth quickly mentioning on the Wagner Act is that there is fairly strong evidence to believe that its intent was not to redefine the employer-employee relationship, but was instead an attempt to quiet labor unrest that was viewed as endangering economic recovery (read: in the wake of early New Deal legislation).  (See Theodore St. Antoine’s first Michigan Law Review Article on this, 96 Mich. L. Rev. 2201).  Unions were causing an awful lot of trouble in their fights; the Wagner Act (and Norris-LaGuardia, for that matter) in some respects could be viewed as an attempt to impose order upon unions in exchange for legitimacy and power.  Notably, the Wagner Act passed not only overwhelmingly in the Senate – 63-12, with 13 Not Voting (almost entirely Democrats), but it got clear majorities from both parties, with Republicans going 13-8 in favor.  Although the parties were obviously not remotely the same then as they are now, the point here is that it’s always been awfully difficult to pass a bill by that kind of a bipartisan margin without at least the acquiescence, if not outright support,of big business.

       Report

      • Avatar wardsmith in reply to Mark Thompson says:

        Mark, Thanks for the OP, as good as promised (but still sadly nothing on Germany). I’ve been saving this link since your Federal Gov’t workers OP, you should find interesting fodder there. As for the Wagner act, how do you balance it against the Davis Bacon act? Furthermore I believe your finding that wages congregate around union wages misses the significance of DB. There could be tons of reasons union membership is down not inclusive of laws. For one thing, I’ve personally witnessed no less than a dozen major companies go out of business DUE to their union’s intransigence. Cumulatively they employed /union/ members in the 100’s of thousands. Those guys aren’t in /any/ unions anymore they drove their employers out of business and those employers weren’t replaced by others interested in facing that particular firing squad.Report

  7. Avatar Roger says:

    Thanks Mark, nice job explaining the situation.

    As I read up on the topic, I am indeed corroborating that libertarians tend to believe that free markets make unions superfluous. They see unions as labor cartels and believe that in a free market cartels can only survive over the long term via coercion, violence or regulatory support (where the coercion is supplied by government). This is what leads to their antipathy with unions. Their theory and experience with unions is that they thrive upon monopoly, regulation, coercion and violence.

    The problem that we face is that there are no pure markets to work as empirical laboratories for the system. Modern states do have complex regulations with pro union and anti-union elements, and each side can point to the part of the regulation that they oppose and rationalize the trends based upon the part of the rules they despise.

    I am not an economist or a regulatory expert, but the libertarians believe that the Norris-LaGuardia Act of ’33 and the National Labor Relations Act of ’35 gave unions “special interest legal advantages denied to any other institutions or individuals.” * They view right to work states as having more freedom — in general — than Closed Shop states. However, I am not able to voice these arguments, as I am totally unaware of the details. You will need to have that discussion with another libertarian. My only argument is that regulation as it stands interferes in complex ways positively and negatively with freedom of multiple parties, workers, employers, prospective employees, and consumers.  My assumption is that we can agree here, we will just bicker over the relative weights and impacts.

    Let me instead go to some fundamental areas of difference. I believe union sympathizers  are acting upon a false dichotomy. They view a division and struggle between employers  (capitalists and management) and workers.  Libertarians see this as a complementary relationship — they work together voluntarily to serve consumer’s needs. The real competition is between teams of employers and employees against other teams. Firms compete with each other to solve consumer needs in a constructive, value creating process. Successful firms are rewarded by consumers with profits and wages.

    Admittedly there is an area of negotiation in the employer/employee relationship when it comes to how the profits are distributed. In non union firms, this is something that individuals negotiate based upon their ability to produce profits for the company subject to the supply and demand of other potential employees. In union firms, they bargain collectively. Libertarians have no qualms with this, however, theory indicates that this will tend to help the least productive and harm the most productive, and thus is unsustainable long term voluntarily (the productive will defect).

    The true gain of unions comes from restricting prospective employees from joining the system. They are cartels that work by placing coercive barriers in the job market.

    Let me give an example of how we view the issue differently. You cite absence of minimum wage and maximum hour regulations as employer freedoms. Libertarians would agree but we also view these as prospective employee freedoms. These are regulations which prohibit both sides of the voluntary employment contract. Unemployed/ underemployed people are prohibited from working longer hours or getting a job below an arbitrary wage rate.

    Libertarians (and economists in general,I believe) see labor as primarily in competition with other labor. Union wages come at the expense of the prospective employee. It is not so much a competition between profit and wages but between the wages of incumbent employees and prospective employees. In other words, the struggle has always been between those with jobs against those trying to get a job.

    This comment is already getting too long, so let me break here, but I will return to address various libertarian points on how unions work, who they coercively exploit, how they harm the economy and how they are quickly disappearing in America.

    * Robert Anderson

     

     Report

    • Avatar Max L in reply to Roger says:

      This leaves me with a few questions. I admit, that they are the same questions that always strike me when reading a libertarian point of view on a topic like this one:

      As the original piece states, unions go a good distance towards leveling the negotiations between labor and capital.   I understand that you are saying this isn’t necessary, that the market will establish the correct wage as a function of competition between labor and labor, but doesn’t that miss the point of establishing the fulcrum for these negotiations in the right location?  Worse, absent pressure on ownership/capital,  that will apply pressure mostly in one direction and drive labor costs down eventually. That is efficient, in the short run certainly, but won’t it also always result in a vast concentration of capital at the very top? This makes it unsustainable both to an efficient market and to any non-authoritarian government.  How does libertarianism address this?  Aren’t unions, then, the least worst option?Report

      • Avatar James Hanley in reply to Max L says:

        absent pressure on ownership/capital,  that will apply pressure mostly in one direction and drive labor costs down eventually.

        Max, not necessarily so.  Labor costs, like any other thing that is bought and sold on the market, depend a lot on pure supply and demand.  In the ’90s, there were places where functional minimum wages–what employers had to offer to get employees–was well above the legally mandated minimum wage.  A rip-roaring economy is one of the best things for workers because employers have to compete for them.  A sluggish economy is one of the worst things for workers because they have to compete for employers.

        Which would be more normal in a more pure free market economy?  Well, we already know where each side stands on that, so we probably don’t have to rehash that part of it.Report

        • Avatar Max L in reply to James Hanley says:

          FWIW,  I think Roger,  in a followup post 2 down from this one, cites evidence that would back up my claim:

          “Union workers make 15-25% more than similar non union employees

          Shareholder returns drop 10% in the two years following union certification”

          Of course all boats rise in a favorable tide, but if only shareholders/capital stake rises counter-cyclically as well, then eventually the concentration of wealth gets to a toxic level.  At some point that is corrosive to growth, efficiency and liberal government.

           Report

    • Avatar Mark Thompson in reply to Roger says:

      I believe union sympathizers  are acting upon a false dichotomy. They view a division and struggle between employers  (capitalists and management) and workers.  Libertarians see this as a complementary relationship — they work together voluntarily to serve consumer’s needs. The real competition is between teams of employers and employees against other teams. Firms compete with each other to solve consumer needs in a constructive, value creating process. Successful firms are rewarded by consumers with profits and wages.

      It’s more that it should be assumed that people will act in their own individual best interest.  Where one party to a negotiation or deal has more power than the other party, the more powerful party will disproportionately benefit.  Collective bargaining helps to level this power imbalance, as the power of the group is greater than the sum of its parts in negotiations.

      Libertarians have no qualms with this, however, theory indicates that this will tend to help the least productive and harm the most productive, and thus is unsustainable long term voluntarily (the productive will defect).

      This theory doesn’t necessarily hold true, though.  First, to the extent that the evidence shows that unions increase wages for non-union employees, it suggests that everyone benefits, including the most productive, more than they otherwise would.  Second, the bargaining power of even a particularly productive individual employee is inherently and frequently limited, particularly for labor where there is a natural limit to how productive an employee can be, so it is quite easy for the collective bargaining power afforded by unions to place even a top-notch employee in a stronger bargaining position than he’d otherwise be.

      Libertarians would agree but we also view these as prospective employee freedoms. These are regulations which prohibit both sides of the voluntary employment contract. Unemployed/ underemployed people are prohibited from working longer hours or getting a job below an arbitrary wage rate.

      First, I am a libertarian (or at least I consider myself one, and most liberals consider me to be one).  Second, I don’t deny that these types of regulations wind up reducing employment, but the effects on employees are second-order effects, not direct effects; when a prospective employee offers to work below minimum wage, he is not creating any risk to himself, nor is it illegal for him to accept work below minimum wage, but when an employer makes an offer below minimum wage, it is he who is violating the law.Report

  8. Avatar Roger says:

    Various data points on Unions.

    Union workers make 15-25% more than similar non union employees

    Unionized companies make 10-15% less than similar non-unionized firms

    Shareholder returns drop 10% in the two years following union certification

    Unions reduce capital investment in the firm 6% directly and 7% indirectly (from lower profits)

    R&D activity drops by 15-20% or more in unionized firms

    US unionized manufacturing jobs dropped by 75% between ’77 and ’08. Non union manufacturing increased by 6% over the same time. In other words, the manufacturing net job loss has come entirely from the unionized portion.

    In construction, non-union jobs have grown tremendously (from ’77 to ’08) but union jobs have dropped by 17%

    Job growth is lower by 3 to 4 percentage points per year in unionized businesses

    Heavily unionized states recovered slower from last two recessions than those with less unions.

    All these data points come from the Heritage Foundation Backgrounder:

    http://www.heritage.org/research/reports/2009/05/what-unions-do-how-labor-unions-affect-jobs-and-the-economy?query=What+Unions+Do:+How+Labor+Unions+Affect+Jobs+and+the+EconomyReport

    • Avatar Mark Thompson in reply to Roger says:

      I don’t deny any of these, which line up fine with my understanding.  My point is that the reason for a good chunk of those statistics is Taft-Hartley specifically and union regulations more generally, ie, the heavy hand of the state.Report

      • Avatar Roger in reply to Mark Thompson says:

        Hi Mark,

        I am still nibbling around the edges of the overall argument. One of the major problems we will face after we agree to the basic trends is trying to get a consensus on the narrative explaining the trend.

        I see declining union membership and explain it by the economic theory that unions are a cartel and cartels collapse in a relatively free market. Unions have indeed been collapsing. I see one cartel after another either fall or diminish in importance as the theory states they will. Jobs are moving to right to work states or to lower wage countries, or die out due to lack of investment. We are on a path which leads to unions isolated in the monopolistic world of government service (until taxpayers revolt, which they eventually will).

        You see unions die out and say it is due to employer-friendly regulations.  That in the tangled morass of government regulation, the net effect is that employers are helped more than employees. Right?

         Report

        • Avatar Mark Thompson in reply to Roger says:

          Close, but my argument is a little bit more limited than that.  My argument is two-fold:

          1. The comparative strength or weakness of unions in a given country may or may not be due to government intervention in labor markets, but at the very least it seems clear that they are capable of surviving and indeed thriving in comparatively free and competitive (and globalized!) markets.

          2.  In the specific case of the United States, the decline of private sector unionism is explained largely, though by no means entirely, by heavy regulations that have the net effect of being decidedly more pro-employer than pro-union (my argument here is not, by the way, dependent on whether the NLRB’s enforcement is generally pro-labor).Report

          • Avatar Roger in reply to Mark Thompson says:

            Thanks Mark,

            This makes your argument real clear. And for the record, I think you are making a damn good argument.Report

          • Avatar wardsmith in reply to Mark Thompson says:

            Mark how does your survey treat the “relatively free and competitive” environment in France? Are you aware that it is virtually impossible to fire an employee in France? Look up the laws on “licenciement”. A company I was with had a sales office near Paris. We went to shut that office down, it never worked out (they never sold a single thing). We had one stinking employee who hid behind the law of licenciement and ultimately we had to buy him out. The deck is so incredibly stacked you wouldn’t believe it. I look at French unemployment now and am astonished anyone is stupid enough to hire someone (for life). Looking at their youth unemployment numbers makes perfect sense, they don’t get hired (except for gov’t jobs when their families are well-connected) because they can’t be fired. Where an American firm can hire someone young and untested, but get rid of them if they don’t work out, in France that option is unavailable.Report

            • Ward- you do realize that France has an even lower unionization rate than the US, right?  That country hanging out in the far bottom left of my graph? That’s France.

              Indeed, I expect that France is likely to be a fantastic study in how highly regulated markets can kill off unions.Report

    • Avatar Kim in reply to Roger says:

      Let’s talk steel. You show me a comparable industry to Pittsburgh steel in the 1970’s. Everybody (unions and owners) was letting the whole pile of machines go to rust, and raking it hand over fist. Using 1940’s tech, being outcompeted, but making money like no tommorrow.

      You show me a dang comparable non-unionshop that ain’t out of business. Pick your poison, any fucking industry.

      Cause I don’t think Heritage has “comparables.”

      I may not know comprehensive, but I do know steel.Report

      • Avatar Roger in reply to Kim says:

        The Heritage data suggested there was a strong correlation between unions and lower growth rates in jobs. It did not reveal higher rates of firm failure in Unionization. Parasites do not want to kill their hosts. They want to live off them.Report

        • Avatar Kim in reply to Roger says:

          pretty sure kos had a post up about greenbacking and the Big Auto, a while back.

          My point is mostly that “lower growth rates” in jobs is kinda easily explainable due to firm failure, particularly if you’re cherrypicking from 77-08. (odd years to choose — bubbalicious!).

          Figure the jobs in construction are probably more at parity now — as I know where the crashes happened — and where they’re still going on.Report

  9. Avatar Roger says:

    Mark,

    The union question revolves around something that needs to be made explicit. Where do the higher wages of unions come from?

    As the above data reveals it comes short term from from profits of unionized companies. Employers and unions usually agree on this point. Longer term it will feed back into fewer jobs, more unemployment, systemic underemployment, less capital investment and/or higher consumer prices. It makes society less productive and lowers overall standards of living.

    As long as unions are restricted to a privileged class of workers, the cartel works. Those incumbents in unions thrive at the expense of non-employees, consumers and stockholders. Large scale, it is simply a less efficient way to organize an economy. We all become collectively poorer.

    Does anyone disagree?Report

    • Avatar Mark Thompson in reply to Roger says:

      As the above data reveals it comes short term from from profits of unionized companies.

      No one would argue that.  But while the goal of a company may be to maximize profits, it is surely not the goal of society to make sure that companies maximize profits.

      Longer term it will feed back into fewer jobs, more unemployment, systemic underemployment, less capital investment and/or higher consumer prices. It makes society less productive and lowers overall standards of living.

      There are an awful lot of normative or unproven assumptions here.  Fewer jobs? Maybe, maybe not, but then again higher wages means that more families can afford to return to having a single wage earner, which many parents would do in a heartbeat.  Less capital investment? Perhaps, and that may well slow technological progress, though it would hardly stop it.  As for lowering overall standards of living…..every single one of the countries with a higher unionization rate than the US enjoys a quite decent standard of living, and several even enjoy higher standards of living by most measures, including Norway (unionization rate 53%).Report

      • I’d add to this also, that the US is fundamentally a consumption driven economy. When you have fewer consumers (due to lower wages) of goods, that generally depresses economic growth as a whole. For example, the current downturn and sluggishness is much attributable to the simple fact that people haven’t been able to consume as much goods or services.Report

      • Avatar Roger in reply to Mark Thompson says:

        Mark and Nob,

        This is another area of dispute. It seems like you guys are adopting a magical view of wealth creation. Wealth is created via production, not jobs or wages.

        To be specific, the point of production is to meet consumers  needs. The most efficient way for consumers to meet their needs is to specialize in fields of comparative advantage and exchange their production for that produced by others. Some specialize in the entrepreneurial area, some in supplying capital, some in fields of employment and so forth.

        Higher wages does not lead to more productivity, so it does not lead to more wealth. To the extent it leads to less capital investment it will lead to fewer jobs AND lower productivity. In other words less prosperity.

        Quoting Mises:

        “If [arbitration] fixes wage rates above the potential market rate, the consequences are the same that any other mode of fixing minimum wage rates above the market height brings about, viz., institutional unemployment. It does not matter to what pretext the arbitrator resorts in order to justify his decision. What matters is not whether wages are “fair” or “unfair” by some arbitrary standard, but whether they do or do not bring about an excess supply of labor over demand for labor. It may seem fair to some people to fix wage rates at such a height that a great part of the potential labor force is doomed to lasting unemployment. But nobody can assert that it is expedient and beneficial to society.”

        Are either of you arguing that we can arbitrarily push up the price of something and not get less demand for it? Are either of you arguing that paying above market rates leads to more productivity? Are either of you arguing that less capital investment leads to more productivity?Report

        • Avatar Mark Thompson in reply to Roger says:

          Lots of problems here.

          First, see below on the use of “above market wages.”

          Second, the statement that higher wages does not (or at least cannot) lead to increased productivity requires proof.  In some cases it may, in some cases it may not.

          Third, it seems you’re ignoring that higher wages means more consumer surplus.  That consumer surplus doesn’t just magically disappear under mattresses.  It either gets saved (and thus made available for capital investment) or spent (meaning more profits for the seller).  There may or may not be losses in net productivity, but it is hardly the case that net productivity gains will be reduced to zero.  In other words, the choice is not even theoretically between productivity gains and economic stagnation/zero productivity gains, but rather between maximized productivity gains and marginally less productivity gains.

          Fourth, you’re still assuming that maximizing net productivity is an appropriate social goal.  How the gains from that productivity increase are distributed makes a big difference – and no, I’m not arguing for massive government enforced redistributions of wealth to make up for increasing inequality here, just arguing that it’s a perfectly rational thing to prefer less net increase in productivity in exchange for more universally accessible gains in productivity.  If, for instance, the result of all gains in productivity is more money for the people at the top, then those people at the top will increase their demands for goods or services that benefit them and may or may not be useful to everyone else.  As a result, future gains in productivity will result in more and more goods and services aimed at the people on top, with the gains therefrom increasingly getting recycled amongst those people at the top.  In other words, gains in productivity can become more and more focused on serving the consumer demands of the people on top and less and less focused on serving the consumer demands of everyone else.

          The result in this hypothetical? Most people would have been better off with slightly less net productivity gains in exchange for noticeably higher wages giving them more demand-side economic weight over the form of “newly created wealth.”Report

      • Avatar Roger in reply to Mark Thompson says:

        Mark,

        I can’t speak to unionization rates and standards of living. Unionization is one small piece of very complex differences. Furthermore, economic theory doesn’t say higher prosperity comes from an absence of unions, it comes from an absence of above market wages. The data clearly shows that in the US that unions lead to significantly higher wages. I do not know how this bears out in other countries.Report

        • Avatar Mark Thompson in reply to Roger says:

          The problem with this argument is that you’re using “above market” wages as a synonym for “comparatively higher wages than non-unionized workers.” This fails to acknowledge that union wages are themselves part of the market.  When we talk about a “market price,” we are referring to an average of all prices in the market for that given product on a particular date, not some magical price that everyone in the “market” charges, and those outside the “market” don’t charge.  So if we’re talking about a market for wages, then it is definitionally the case that 50% (or close enough to it) of the workers in a given market will always make higher than the average, and 50% will make below those wages.

          So if by “above market,” we just mean “higher than average” wages, then economic theory tells us not a lick about what those wages mean for prosperity.

          If on the other hand, by “above market,” we mean “artificially higher than average due to government intervention,” then we need to either: 1. First settle the argument as to whether government intervention does more to help or hinder unionization on the whole (if the former, then presumably only non-union wages count as “market” wages; if the latter, then only union wages would count as “market” wages); or 2. Accept that there’s an awful lot of artificial government intervention in the labor market benefitting and hurting each side of the equation such that “market” wages include both union and non-union wages.Report

          • Avatar Roger in reply to Mark Thompson says:

            Mark,

            I’m using market rate as the rate at which “all those eager to earn wages get jobs and all those eager to employ workers can hire as many as they want.” It is where supply meets demand.

            The effect of price controls, minimum wages and so forth is to upset this market price. I am not an economist, but I think it is pretty much a consensus that establishing wages or restrictions in these will lead to less demand for labor. Right?

            I cannot address your point of whether government interference in total interferes more with unions or employers. In fact, I think my argument is that both forms or directions are harmful interferences. I totally concede that there is too much interference and that we need to be careful about just demanding less regulation one way or the other. Stupid deregulation is risky too.

            Another way of saying it is that you may be right that on net government hurts unions, but that still does not mean that they could exist in a free market.

            If I was a worker, I would do everything I could not to join one, and most of the people I know feel the same. There really is a strong sentiment among hard workers that unions are places where free loaders and pencil pushers go to free ride. I’m not saying this is true, but it really is widespread.

            Give me a chance to avoid a union contract and I will do so, and lots of others will too. Unions depend upon forcing people like me out of the labor market. It really is as simple as that. No?


            Report

            • Avatar Mark Thompson in reply to Roger says:

              Regardless of whether this is true, unions remain part of the wage market. Price controls, minimum wage, etc. Exist independent of unions.Report

            • Avatar Kim in reply to Roger says:

              It all comes down to personality. Many people, even those who aren’t loafers, prefer certainty. Those people’ll want a pension, seniority, all things unions provide.

              I knew a guy worked in a union shop. He did three times the work of his fellow employees — and got paid double. Not that anyone else knew about that, but it does go to show that you can get rewarded for extra work.Report

  10. Avatar E.D. Kain says:

    Excellent post, Mark.

    I think the goal, eventually, is to create a system in which individual rights are protected enough and prosperity and growth are shared enough that unions become irrelevant in a positive way. I don’t the process should be one in which free markets and organized labor work in tandem to achieve that goal.

     Report

  11. Avatar Will H. says:

    [W]hy would a business, in a relatively free and globalized market, ever choose to utilize more expensive union labor, and how do they survive?

    You focus too much at the wages end of things.
    I refer specifically to my own union and similar ones from here on out unless I say otherwise (I am opposed to public employee unions, including postal employees and teachers):

    Unions provide a service for companies that the companies wouldn’t otherwise have.
    One of these is a well-trained work force. As I heard one business agent in Omaha put it: I’ve been wiping my ass for over 50 years, but that doesn’t make me a proctologist.
    Sometimes, wiping your ass will do; but when you need a proctologist, just simply wiping your ass isn’t going to cut it.
    So, the certification programs are important; even more so with the specialties within the trade.
    Manning a project with the appropriate type and number of specialists that are well-qualified is easy for a union contractor, but it’s always hit-and-miss for the non-union company.
    The union also provides below-market loans to contractors to offset the expense of union labor.

    All of which would indicate that the unions take over a portion of the work that companies would otherwise be doing, such as administering benefits.
    And we only get the chance to strike once every three years. It’s not often done.Report

    • Avatar Mark Thompson in reply to Will H. says:

      Thank you for this, Will H.  These are great points I had not thought of.Report

    • Avatar DensityDuck in reply to Will H. says:

      Will, that’s not a union.  That’s a trade organization.  And maybe “union” should mean “trade organization”, but what it currently means is “organized collective bargaining unit”.Report

      • Avatar Will H. in reply to DensityDuck says:

        Something I forgot to mention:
        We don’t negotiate with individual companies (unless necessary), but with a trade organization that represents the companies.
        One group has entered into an agreement that 5 cents of every raise will go into a fund to provide for that trade organization’s advertising.
        But yeah, we’re a union alright, descended from an Assembly of the Noble and Holy Order of the Knights of Labor.
        And there are still certain specialties where you see 60 to 70% or better Freemasons.Report

  12. Avatar Ian M. says:

    A more interesting question would be can free markets exist? I don’t think so, nor have I heard of one outside of an economics textbook. So this discussion becomes so very meta to me – how do lovers of the idea of a free market react to workplace democracy? Unions can be voted out – 51% of the workers can vote out a union. A decertification campaign can happen every year. Where others see coercion of the individual I see a marginal, unpopular view which doesn’t move any coworkers. Unions come from a democratic process and can end by a democratic process. I think the anti-union sentiment usually comes from an egotistical view that unions would hold you back or protect incompetence. This is true and it happens, which makes a union somewhat like every other workplace bureaucracy. Poor managers and inept HR will hold you back and protect the incompetent also. What fascinates me is reading about unions and perceiving an embedded love of authoritarian leadership and hatred for democracy specifically in the workplace.Report

    • Avatar Jesse Ewiak in reply to Ian M. says:

      This. If unions aren’t covering the needs of the workers, they can be voted out of existence. Which is a lot more than you can say about the management of most companies. 🙂Report

    • Avatar James Hanley in reply to Ian M. says:

      how do lovers of the idea of a free market react to workplace democracy? Unions can be voted out – 51% of the workers can vote out a union.

      It’s not totally workplace democracy if the owner of the workplace doesn’t get a say, eh?  Your argument presupposes some ownership rights among the employees–that may be appropriate in a company that’s actually employee-owned, but not so much if, say, it’s a company I found, and in which you and I make a voluntary agreement for you to work for me.Report

      • Avatar Jesse Ewiak in reply to James Hanley says:

        Well, if he wants a vote on the unionization of labor , he can give up all the advantages of ownership of capital.

        Workers don’t have any ownership over the business they work in, but they do have the right to ownership over their own labor and if someone wants to pool that labor with others, more power to them.Report

        • Avatar James Hanley in reply to Jesse Ewiak says:

          Workers … do have the right to ownership over their own labor and if someone wants to pool that labor with others, more power to them

          And you can’t point to anyone on this thread who argues with that.  The question is whether it’s legitimate to force the owner to deal with them as a pool or not. And whether it can be made illegal for a worker who doesn’t want to pool to bargain non-collectively.

          If the laborers can persuade each other and the owner that it’s in everyone’s interest to bargain collectively, not one person here will argue that’s illegitimate.  But that’s not actually what you’re asking for, is it?Report

          • Avatar Jesse Ewiak in reply to James Hanley says:

            If they’ve followed all the rules as set in law, I see no reason why companies shouldn’t be forced to deal with unions as a collective. Just as capital organizes themselves in partnerships and LLC”s and corporations that have special privileges, labor organizes themselves in unions that do so.

            After all, I can’t sue the CEO of Exxon if they spill oil on my property. That’s one of the benefits of incorporation. On the other hand, it seems that you basically want a union that has no actual power. “Sure, you can organize, but that organization will have no actual rights or power. Meanwhile, we’ll continue to give the rights and privileges to another group of people that have organized.”

            Now, if you want to end incorporation as a barrier that owners can cloak themselves behind, then yes, we’ll just have to disagree on that overall view of the world (since even a commie like me can see why incorporation is a good thing :)).Report

            • Avatar James Hanley in reply to Jesse Ewiak says:

              If they’ve followed all the rules as set in law, I see no reason why companies shouldn’t be forced to deal with unions as a collective. Just as capital organizes themselves in partnerships and LLC”s and corporations that have special privileges, labor organizes themselves in unions that do so.

              Again, nobody’s saying unions can’t form partnerships, even legally recognized ones.  The UAW has a legal existence, and that’s not what people are objecting to. What they are objecting to is the idea that if GM wants to hire some new production workers, the law tells them they must buy their labor from the UAW.  (You don’t see that as a problem; that’s the fundamental disconnect between us–you have a lot more comfort with brute compulsion than I do.)

              The organization of the owners into a legal corporation is different, because that’s for the purpose of raising capital, not for the purpose of collective bargaining on the part of the owners.  In fact the owners don’t actually get a vote on the contract, do they?

              So your comparison is really an apples and oranges one.  They’re not actually the same thing.Report

              • Avatar Jesse Ewiak in reply to James Hanley says:

                They’re both fictional creations. Yes, corporations are organized to raise capital. Unions are organized to collectively organize all employees, just not those who are there at the moment the union is organized. If every new worker can come in and get the benefits and pay the union has organized for, what’s the point of a union?

                The owners don’t get a direct vote on contracts, but through voting for the Board of Directors and such, they choose who the union negotiates with.

                So, no, they’re not the same thing, but they’re close enough for government work.Report

              • Avatar James Hanley in reply to Jesse Ewiak says:

                Not at all close enough, even for government work.  Collective ownership doesn’t enhance bargaining power vis a vis labor–ironically, in the current system it actually diminishes it, because unions have less to gain from trying to organize the employees of a small non-incorporated firm.

                Your original point was that somehow the organization of the owners gave them some special power to the disadvantage of the workers, and that’s what justified an organization that brought back some balance.  That point is not true, and you’re sliding further away from an argument supporting it.

                If every new worker can come in and get the benefits and pay the union has organized for, what’s the point of a union?

                That’s a problem for unions, yes.  But that in itself is a weak justification for requiring employers to bargain with them.

                 Report

              • Avatar Jesse Ewiak in reply to James Hanley says:

                The organizing of owners does give themselves more power. Unless you really don’t believe a worker has an equal place at the table when they’re negotiating as one human being against a massive or even a mid-tier corporation.

                But to your other point about future employees. In other words, after the unions have done all the hard work of organizing and hammering out an agreement, the future employees should get all the spoils without paying into the organization that created the foundation for their pay and benefits?Report

              • Avatar Roger in reply to Jesse Ewiak says:

                Jesse has summarized my thoughts quite succinctly:

                If every new worker can come in and get the benefits and pay the union has organized for, what’s the point of a union?

                That gets to the heart of the issue. In a free market where the most productive employees are free to bypass unions, and the unemployed are free to undercut them, and employers are incentivized by market forces to work around them, why would they exist?

                 

                 Report

              • And yet, somehow, in 1920, we had a private sector unionization rate of 20%.

                See my comments above – there’s no basis for your assumption that “more productive” workers in a hypothetical free market would necessarily have the bargaining power necessary to obtain higher wages than those obtained through a group collective bargaining effort.

                And, again, you’re ignoring the fact that labor’s most effective tools are  taken away by regulation and exist only where labor markets are basically free and unregulated.Report

              • Avatar Roger in reply to Jesse Ewiak says:

                Mark,

                This is our first issue of factual disagreement. I am under the impression that prior to the 1930s only 4 million members of the work force were unionized. Not sure what the base was, but I am quite sure it was more than 20 million.

                Are you sure of that number? If correct it certainly bolsters your case considerably.Report

              • Avatar Patrick Cahalan in reply to Jesse Ewiak says:

                What is the difference in expected profit in a monopoly situation?  Duopoly?  Perfect market?

                What is the difference in expected labor cost in a closed union shop?  Open employment with right to work?  Unions forbidden?

                Do you have a different expectation for one than the other?Report

              • Avatar James Hanley in reply to Jesse Ewiak says:

                The organizing of owners does give themselves more power. Unless you really don’t believe a worker has an equal place at the table when they’re negotiating as one human being against a massive or even a mid-tier corporation.

                A worker has no better place at the table when they’re negotiating as one human being against a single-owner proprietorship.  My first job was working at a small diner–I had no bargaining power.  In fact I was summarily fired after two weeks. As an adult I worked for a family-owned building supply store, where I also had no bargaining power.  I also worked for several years for the world’s largest swimming pool supply company, a nice mid-tier corporation–my bargaining power with them was neither more nor less than it was with the very small businesses.  It’s just not the case that the owners organizing into a larger firm increases their bargaining power or decreases the employee’s bargaining power.

                What increases a laborer’s bargaining power is being valuable.  I’ve been in that position twice in my life, once with a public university, once with a small research organization that wanted me to write some policy reports for them.  It’s a good feeling, but it had precisely nothing to do with the size or the organization.

                As to future employees, what Roger said, but also, why are you assuming they come in getting the same thing the employees who did the organizing and bargaining get?  If they’re not as valuable to the business, they shouldn’t get as much.  If they’re more valuable to the organization, they should get more.  Absent coercion, which is what I’m arguing for, there’s no reason to assume they’ll get the same; so no reason to assume they’ll be free-riding on the union’s efforts.Report

              • I link these stats in my post from last year, but your memory is correct about 4.5 million unionized private sector workers (there are currently less than 8 million such workers despite several times more participants in the labor force). This still works out to just about 20 percent of the private sector workforce at that time. Keep in mind that the total population of the US at the time was just about 100 million, or one third current population. Women would not have ordinarily participated in the workforce and were just getting the right to vote, so relatively few would have been counted in these numbers. As I recall, family farmers are not usually included in workforce calculations, and obviously public sector employees are not included in these numbers, nor are children or retirees. Point being it doesn’t take much to get to a private sector workforce of 20-25 million in 1920. Even now, we’re at a private sector workforce of around a hundred million, or about a third of the populace, which is only slightly more than the 25% or so back then despite all the problems with discrimination.Report

              • Avatar James Hanley in reply to Jesse Ewiak says:

                I’m not quite as confident as Roger that unions wouldn’t be able to sustain themselves in a free market.  I have great faith in the ingenuity of humans, including union leaders.  They’d just have to change their approach and some of their purposes, in order to persuade businesses that unionization itself had something of valuable to offer them.  If the union took on the tasks of recruitment (which they often do anyway), training, and discipline, they might help the business keep a disciplined and well-running shop.  I don’t anticipate it would be tremendously wide-spread, but it might work for some businesses–they all contract out some services, and unions might figure out how to offer services at a quality/price point that businesses were willing to pay for.  They’d have to become service-oriented rather than confrontation-oriented, though.

                It’s also worth noting that some businesses are smart enough to treat their employees well enough that they aren’t interested in unionizing.  In business research Jim Collins’ book Good to Great, he discusses Nucor Steel.  They pay their employees well, and treat them well, including things like paying college tuition for their kids.  In return, the employees voluntarily arrive early to prep for work–new employees adapt or get driven out by old employees–and bust their humps. Their saying is that Nucor employees work like two men and get paid like three.  When union organizers have come, management has had to make the employees sit and listen, because the employees won’t listen voluntarily.

                That’s not an anti-union screed from me, but an anti-businesses that want to treat employees badly and avoid unionization pressures screed. It’s important to clarify in this debate that being dubious about unions != being pro-business.Report

              • I think the question of whether unions would survive in a free market would depend entirely on… which unions?

                Where the rubber would hit the road is, when a voluntary union says “Either accept this or we’re ALL leaving” is how management responds. With janitors, they may well respond “Okay” because they can find non-union janitors. If it’s welders, that’s a different matter entirely.

                It seems to me that what a free-market union would accomplish would be the segregation of easily replaced employees and more-difficult-to-immediately-replace employees.Report

              • James: I actually agree with this, as it is comparable to a point I made on the thread last week. I would just add that this is part of what I was getting at when I suggest that unions have a positive impact on nonunion wages. The desire to avoid unionization provides a strong independent and selfish incentive to treat employees well.Report

              • Avatar James Hanley in reply to Jesse Ewiak says:

                Mark,

                I’m glad you agree.  That lightning bolt in your hand makes me nervous about crossing you.Report

              • Avatar Jesse Ewiak in reply to Jesse Ewiak says:

                Hanley, I’m just going to say this since we obviously fundamentally disagree. If every businessman acted like your story, then we wouldn’t need unions.Report

              • Avatar Roger in reply to Jesse Ewiak says:

                James,

                The issue you are getting at is that unions can do something other than push for above supply-meets-demand market wage rates. I have absolutely no disagreement here.

                My question to you is can they sustain above market wages in a free market? If so, can they do so without creating more unemployment? My understanding of conventional economics is basically “no”. However, I will defer to your expertise on the issue.

                 Report

              • @Mark

                And yet, somehow, in 1920, we had a private sector unionization rate of 20%.

                It’s important to keep in mind that in 1920, the economy was highly regulated and had been since the passage of the Lever Act in 1917 and the imposition of other WWI controls.  Many of these were still in effect–the Lever Act was formally repealed only in 1921, although its regulations had been slowly dismantled during the preceding two years.  Many industries–coal mining, meatpacking, steel making–still had contracts from the war years that had yet to expire.  And the unions in those industries, with the partial exception of soft coal miners, were more or less destroyed in the next 5 to 10 years.

                Also, if we’re looking at pre-Wagner Act organizing, it’s useful to keep in mind the ways in which the state actually did facilitate unionization, especially if we look at local and state-level government, and not just federal government.  Construction trades and teamster trades were often tolerated and even encouraged by local-level politicians, such as Mayor Carter Harrison in Chicago.  And some states, such as Illinois in 1897, enacted an exemption in its antitrust law for union-management agreements, as part of a plan to facilitate unionization in the state’s soft coal industry (the exemption was declared unconstitutional in 1903, however).

                Antitrust laws (along with injunctions based on other laws or courts’ equity jurisdiction) could be used and were used against unions, but these uses were haphazard.  It was  only in the Danbury Hatters Case, if I understand correctly, that the US supreme court unequivocally said the Sherman Act applied to labor activities (the boycott) (the Debs case ten years earlier rested partially on the Sherman Act, but was sustained on different grounds by the Supreme Court).

                 Report

              • Avatar James Hanley in reply to Jesse Ewiak says:

                Jesse,

                If every businessman acted like your story, then we wouldn’t need unions.

                I partly agree.  Remember I’m not pro-business.  I’m perpetually amazed at the stupidity of business people in dealing with human resources–it seems to be the one area where most of them cannot get over their natural behavior patterns, the tendency of almost all individuals (not just business owners, but all) to not really know how to deal with other people very well, and the fact that few people have decent leadership skills.  If they saw people as valuable resources, they would act better.

                I know people don’t like to consider employees resources, and think that’s really the cause of the problem, but I disagree.  Business owners understand resources are expensive, and they tend to be cautious about them.  “Be careful with that machine, it’ s damned expensive to replace and repair!”  But somehow lots of business owners, and managers at all levels, don’t grasp that their laborers are valuable resources, too.  Replacement costs add up, but often don’t get calculated into the formal accounting costs of the company.  I had a student who had run a restaurant with her former husband, and complained about how badly he treated employees.  I asked if there was a lot of turnover, and she said, “yes, non-stop turnover, and it cost us a lot of money because we were constantly hiring and training, only to have those people leave.”

                The average business owner or manager is just dumb when it comes to dealing with employees.

                Where I disagree is that this makes unions needed.  Yes, they benefit workers (those who get into the union anyway); that can’t be disputed. What’s needed is a strong economy with tight labor markets, so the cost of not being a good employer really comes home to those folks. If labor markets are tight, workers don’t need unions.

                And of course I’ll never agree that the coercive aspects of unionism are legitimate.  You and I have radically different levels of comfort with the idea of top-down authority coercing folks in this way and that.Report

              • Avatar Roger in reply to James Hanley says:

                In the US, I should have said.Report

              • Avatar James Hanley in reply to James Hanley says:

                Roger,

                Well, it’s all in the definition.  If the service the union is providing to the firm gets paid for through an increased salary to the workers (who then transfer some of that to the union), the workers may end up with higher net pay than otherwise.  In that case I think it would be better classified as a market rate, even though it’s above what workers at other firms receive.Report

              • Avatar Roger in reply to James Hanley says:

                Thanks James,

                So should I read this as:

                Unions can increase the market rate if they negotiate more effectively than individuals?Report

              • Avatar James Hanley in reply to James Hanley says:

                Roger,

                I think that’s how I’m seeing it. I hesitate to assert bluntly, as a real economist might have something to say about it.Report

              • Avatar Kim in reply to James Hanley says:

                Roger,

                Pretty damn sure dkos has a cite on that one: industries with more unionization have higher salaries — for NONunionized workers. Because, ya gotta compete with the union — and that means higher salaries (or other equivalents)Report

              • What they are objecting to is the idea that if GM wants to hire some new production workers, the law tells them they must buy their labor from the UAW.

                That’s different from my understanding.  It’s not that they must buy their labor from the UAW–that would be a “closed shop” which is outlawed by Taft-Hartley*–but that anyone they hire must join (or have dues automatically deducted to support) the UAW.  The latter is known as a “union shop,” which is what right-to-work laws outlaw.

                *And yet, some industries, such as longshoremen, seem to operate on something that looks, to me, suspiciously like a “closed shop” basis.

                 Report

              • Avatar James Hanley in reply to Pierre Corneille says:

                Pierre,

                A bit sloppy on my part.  If UAW successfully organizes the workers, the company must by law bargain with the UAW.  It can’t bargain directly with workers, nor can it say, “Screw UAW, we want to go bargain with United Steel Workers instead.”Report

      • Avatar Ian M. in reply to James Hanley says:

        James, the owner gets a say at the bargaining table, where they come to an agreement with the collective bargaining union. Most owners simply try to wait out the unionization effort. Typically 2 years, but as long as nine (just the longest no-contract union ratification I personally know of). They have to keep pretending to bargain in good faith but in reality they just have to keep paying lawyers to set up meetings. Sorry, your owner as victim gambit is a failure because in the end, the union does have to convince the owner to deal.Report

        • Avatar wardsmith in reply to Ian M. says:

          @Ian, I’d say that door swings both ways. I’ve personally seen exactly the opposite, where the /union/ failed to bargain in good faith and eventually destroyed the company. I’ve also personally seen the local union vote overwhelmingly in favor of a contract, only to have the union bosses authorize a new vote where union members across the country who had nothing whatsoever to do with the operation voted “no”, destroying the company and destroying the jobs of their “brethren”. As I said above, I’ve personally witnessed at least a dozen companies in my neighborhood destroyed by unions to be replaced by… nothing. How precisely does the union “win” when they destroy their bread and butter?

          The rational thinker concept is of course a fallacy. People only rarely are rational and when emotions are involved are completely irrational. An executive at United Airlines told me about a meeting (after the ESOP) where the representative of the pilots union (himself a United pilot making about $225K per year) complained that his stock was becoming worthless (and he mentioned that he had over $3M in United stock, part of the agreement). His stock was becoming worthless because his own union was doing a work slowdown, sickouts causing flights to be cancelled and refusing to reach an agreement with management! Ultimately they “won” a wage concession, he made another $10K per year and wiped out $3M in asset value. Stupid doesn’t begin to describe some people.Report

          • Avatar Stillwater in reply to wardsmith says:

            Ultimately they “won” a wage concession, he made another $10K per year and wiped out $3M in asset value. Stupid doesn’t begin to describe some people.

            So, you’re saying that as a result of the slowdown, United stock prices went to zero? i think you must mean something else.

            But the union activity you’re describing here might not be as irrational as you suggest. If management is unwilling to meet even the most minimal of union demands, then management is (presumably) rational in rejecting them, and the union is (presumably) rational in making demands that management ultimately rejects since by definition, the union only exists as a tool to increase leverage at the bargaining table. If management can replace union employees with non-union workers, and it’s cost effective to do so, then the union has no leverage in any event. But attempting to exercise leverage isn’t irrational. It’s the purpose of the union.Report

            • Avatar James Hanley in reply to Stillwater says:

              Stillwater,

              Do you know any old (former) Continental Airlines employees?  They made demands so out of line with what management was willing to consider that Carl Icahn replaced them all.  Was Icahn an a**hole?  Sure, but it was the union that stupidly called his bluff. My wife’s dad was one of those employees–she’s the most anti-union liberal you’ll ever meet in your life; her family was impoverished by the union.

              The issue here isn’t the attempt to exercise leverage, but not understanding when their attempts are costing their members more than it’s gaining them.Report

              • Avatar Stillwater in reply to James Hanley says:

                No, I get that. Unions can certainly overplay their hand and my comment wasn’t meant to imply that they don’t. It was actually running the argument the other way: if management has the ability to hire non-union workers, and doing so is cost effective, then any demand a union might make will suffice for terminating negotiations with them. But in those circumstances, we wouldn’t say that the union is irrational in making that demand, because by definition the union is attempting to gain concessions from management that workers otherwise couldn’t get.

                But, you know, to be honest with you I find the whole thing quite confusing. One reason I’ve been reluctant to enter into this thread too much is an internal struggle over the principled justification of unions in their idealized state vs. the downsides of their actuality. (And also the degree to which their actuality is different from the idealized state). I have no great love for unions as they currently exist. But for some reason, I really strongly support unionism.

                Both sides of the negotiating table have vested interests. Both sides use leverage to attain those interests. Both sides want to see a sustainable partnership. My support for unions is based on the idea that even if labor were to perform above and beyond expectations and by so doing capital accumulated ridiculous profits, management would – as matter of logical and legal necessity! – feel no inclination whatsoever to reward the union in the next agreement (profit sharing). On the other hand, the direct result of being disenfranchised (so to speak) from the corporation they work for is that unions feel justified in engaging in extortionist practices (which often backfire).

                Personally, I think BP is on the right track here. And Mark has argued extensively for the merits of that track, by both unions and management.Report

              • Still:

                I just want to say that this:

                I have no great love for unions as they currently exist. But for some reason, I really strongly support unionism.

                …is exactly where I am.Report

              • Avatar Stillwater in reply to Mark Thompson says:

                That’s the central divide, at least in my thinking. On one side, I’m very convinced that unions have the right to exist, that they have the legitimate authority (whatever that means) to use extravagant means to achieve their ends, that they have the right to strike and disrupt as leverage for better contracts, etc.

                On the other, I realize that unions are also dysfunctional and sometimes their collective behavior is at odds with their demands. Simply put, if unions want better compensation, provide a reason to justify it!

                The rights/principle side of me supports their existence sorta necessarily. Alternatively, I’ve always believed that the problems with unions are contingent – that under-performance is something that can be remedied. In fact I still believe that. People like to do good work, actually earn their wage. That unions expect something for nothing – which is moreorless the line Roger and Ward are taking in this debate – strikes me as a result of not sharing in the successes of the corporate enterprise they engage in. So I maintain hope that US unions can get their shit together and make a change.

                But part of my disagreement with Roger and Ward, at least potentially, is that I think unions – and labor generally – should be beneficiaries of the overall success of a firm. Profit sharing – along with appropriate checks on performance, of course – would go along ways to resolving the dispute between labor and management.Report

              • Avatar wardsmith in reply to Stillwater says:

                @Stillwater, not to make you think I’m stalking you but I saw my name in your comment and felt I should set the record straight. I’m not on record as saying unions “expect something for nothing”. However, you’ve already admitted to their dysfunction (especially here in the US). Furthermore, the fact that unions have been controlled by organized crime should come as no surprise. The problem here is we say “unions” when more properly we could say, “some unions” or “this union”.

                Roger gave a link I believe for Nucor, which is non-union but believes in YOUR profit sharing concept. Are you honestly saying Nucor would be better off with a union?Report

              • Avatar Roger in reply to Stillwater says:

                Stillwater,

                My position is that they definitely have a right to exist, but that they cannot do so in a free market. I think the evidence and economics pretty strongly supports my hypothesis. Last week I was doubting this. This week — after reading what economists say and seeing how unions have actually fared in the US — I am no longer doubting it. The only way long term to influence above market wages is to form a cartel, and the only way to maintain a cartel is via market interference.

                People like to do good work, actually earn their wage. That unions expect something for nothing – which is moreorless the line Roger and Ward are taking in this debate 

                I definitely do not believe that workers expect something for nothing. They offer their skills and effort in return for wages based upon the fair price where voluntary supply meets voluntary demand. This is the exact opposite of what I believe.

                But part of my disagreement with Roger and Ward, at least potentially, is that I think unions – and labor generally – should be beneficiaries of the overall success of a firm. Profit sharing – along with appropriate checks on performance, of course – would go along ways to resolving the dispute between labor and management.

                Wages are their share of profits. Indeed, many workers get paid even as the company loses money. It is possible — for a while — for the employee to benefit as the stockholders lose. Profit sharing on top of base salary is fine, but all else equal it would lead to lower base salaries. Companies have experimented a lot with this and many big ones do have a way of sharing success (mine would match or double match our 401K contributions). My guess is many workers prefer relative certainty over  wide swings.  There is also commission work, which connects performance to pay.

                The area we continue to dance around, is that liberals just seem to have an innate sense that workers always get the short end of the stick and that the world would be better if we reconfigured economics so that workers got more. They never seem to come to grips with who they get their more from (nor do they really define fair). They assume it ends with the employers. Of course it does not. But that is probably best left to another comment.

                 Report

              • Avatar Jesse Ewiak in reply to Stillwater says:

                As a side note, I honestly think part of the reason why union-management relations are so low in the US compared to say, Germany is that in that country, strong unions were a compromise between management and the possibility of full-blown socialism. OTOH, strong unionism in this country was always the most far-left position that was concievable, thus management saw no reason to oppose it.Report

            • Avatar wardsmith in reply to Stillwater says:

              @Still, This article is very pro-union but still gets to the meat of the matter. Eventually of course the shares went all the way to zero, as anyone who has owned stock can tell you, losing the first 90% in value is bad, but the next 90% is brutal. As Blaise has so eloquently stated the ONLY true path to economic success is for individuals to think like owners (ultimately to BE owners). There will be continuing dislocations in the economy but eventually everyone will have to move to the new model.

              The last time I worked for someone other than myself, I still thought of the company as “mine”. When I quit the CEO himself tracked me down to ask why. I ended up going through 3 exit interviews (one with the CEO and some members of his senior staff). I was just a lowly engineer at the company at the time, with a role similar to what Patrick does now. They were primarily interested in what I thought was wrong with the company and what I thought needed to be done to fix things. It took the better part of a decade, but eventually they implemented the majority of my recommendations (unfortunately I’d dumped all my stock long before they were finished). Even the CEO didn’t think of the company as “his”, when I kept saying, “If this were MY company I’d do thus and so” and he’d answer, “I’m just a gun for hire, working for the board of directors”. This was a multi billion market cap company with a dominant position in their industry. That CEO and a VP also there at the time (long since retired) are still good friends of mine. If I’d have stayed there I’d have never had the access (for company politics reasons) to them I had as a “civilian”. It’s very easy to look up at the Brobdingnagian boss and see all his warts and flaws, it is far more difficult to wear those moccasins for a mile.Report

  13. Avatar Ian M. says:

    I also think, for the record, that a quote from the Wagner Act (or NLRA) is appropriate:

    The inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract, and employers who are organized in the corporate or other forms of ownership association substantially burdens and affects the flow of commerce, and tends to aggravate recurrent business depressions, by depressing wage rates and the purchasing power of wage earners in industry and by preventing the stabilization of competitive wage rates and working conditions within and between industries. (Title 29 of US Code, sec. 151)

    The reason collective bargaining exists isn’t to make workers happy, or to free them from their chains. These laws give a process to something that had existed for decades because the existent chaos “affects the flow of commerce”. The NLRA is, at it’s core, a pro-business piece of legislation and over the decades it did exactly what it was designed to do – limit or eliminate all truly effective organizing tools and get everyone talking with lawyers.Report

    • Avatar James Hanley in reply to Ian M. says:

      Ian M.,

      I rarely take seriously the justifications written into law.  They’re political claims; the classic case of “saying it doesn’t make it true.”

       Report

      • Avatar Ian M. in reply to James Hanley says:

        Your heartfelt opinion is very important, but it isn’t evidence or particularly compelling.Report

        • Avatar James Hanley in reply to Ian M. says:

          Ian and Mark,

          To clarify, I think the lawmakers could have been totally sincere in their reasoning, but that doesn’t mean their reasoning was correct.  The great majority of statutory regulation of the economy is based on misunderstandings of basic economics.  Lawmakers can be motivated by sincere political concerns, but as a consequence of misunderstanding the real causes of the things that concern them their solutions are not actually targeted toward the causes.  And the causes they claim to be seeing are frequently nonsensical.

          The snippet Ian quoted is a good case in point.  It gives me no reason to think the lawmakers were insincere, but that doesn’t stop it from being poppycock, pure cargo-cult economics.

          Damn near all the anti-trust legislation is exactly the same, based on a sincere concern about monopoly power (and the antipathy toward monopolies is shared by economists), but so badly misunderstanding how competition works vis a vis monopolies that it actually attacks competition–attacks the opposite of monopoly–so that the more competitively a business behaves, the “more monopolistic” it is claimed to be.

          A good case in point is the Microsoft decision, wherein the judge blamed Microsoft, not Apple, for Microsoft having done such a better job of producing more programs consumers desired than did Apple.  Presumably, if we take the judge seriously, “competitive” behavior consists of not innovating so much, of not seeking to meet consumers’ demands.  But in fact that is what monopolists do, not competitive businesses.

          The classic line on this comes from the Alcoa anti-trust case, in which Judge Learned Hand wrote what was surely the single most breath-takingly stupid argument of his storied career:

          It was not inevitable that [Alcoa] should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.

          Economists the world over shudder in horror.  And most law review articles suffer from the same problem, hubristic ignorance by their authors of actual economic principles. I met a law prof once who was convinced he understood economics because he’d read Galbraith’s The Affluent Society, and on that basis felt comfortable dismissing the whole of the Law and Economics paradigm.  Shudder.Report

          • Avatar Kim in reply to James Hanley says:

            James,

            don’t be so cavalier in dismissing that argument. money and piles of more money is the only thing keeping insurance around, after all. (it’s not a terribly good market for a lot of reasons… but the fact that companies fossilize inside it is certainly a problem)Report

            • Avatar James Hanley in reply to Kim says:

              Which argument?

              Keep in mind, though, that I draw my arguments about these things from actual economists, not people who talk about the economy without having done any formal training (“But I read Krugman’s column every Friday!” Sigh.)  I do tend to be pretty dismissive of those folks’ arguments, because they always sound intuitively appealing, but they’re always based on some fundamental misunderstanding of the basics.Report

              • Avatar Kim in reply to James Hanley says:

                the one the judge raised. it’s applicability varies based on the strategy employed by a corporation. The strategy for insurance companies is “we gotta lotta money, so we can insure a lot of people, and skim a bit for profit”

                Strikes me that the basis for economics, like many things, is strategy. ‘course, it’s hard to get formal training in that…Report

              • Avatar DensityDuck in reply to Kim says:

                You know who Harrison Bergeron is, right?

                If you think that story was scary then you should understand why Judge Hand’s decision was a bad one.

                PS Aluminum is not something that only Alcoa can produce.  If your product meets the AMS spec and is cheaper than anyone else’s, people will buy your aluminum.Report

              • Avatar James Hanley in reply to Kim says:

                Kim,

                I’m sorry, but you just have no conception of the relationship between competition and innovation.  Hand was dead fishing wrong.  His argument should not be dismissed, it should be expelled and left to starve to death for want of attention.Report

          • James – I don’t actually disagree with any of this, but think we’re talking about slightly different things.  I’ll readily concede that the Wagner Act was bad economics, just as I’d argue that its benefits to unions were shortsighted.  But in the context of this post, where we’re arguing over the sustainability of unions in comparatively free markets (and to an extent in a hypothetically Wagner-free country), it’s useful to understand the intent behind the act, and especially the problem it sought to solve.  It wasn’t perceived by any of the actors, some of whom were very much interested in protecting unions, as something necessary to keep unions from dying off.  The problem it sought to solve, in other words, was not “unions are dying in the free market, something must be done to save them.” The problem that it sought to solve (perhaps badly) was instead “unions and business are fighting too much and that fighting is fishing up FDR’s recovery plans. We need a process to make them fight nice.”  If, in the process, the Dems permanently captured the support of the labor unions, then so much the better for them.Report

            • Avatar James Hanley in reply to Mark Thompson says:

              Mark,

              To be honest, I’ve been responding to comments more than to your article, which is a bit of a disservice to you.  No disrespect intended, though.  I’ve said a little less about the actual issue because that element I’m still pondering.Report

      • James – take a look at the law review article I cited above, assuming you have access to Lexis.  There’s quite a bit of evidence to suggest that its overriding concern was with the instability labor strife was causing the economy.

        I would not, however, go so far as to call it “pro-business” legislation, as it was supported far more by unions than management.  But management seems to have been relatively ambivalent about it on the whole from what I can tell in my limited research thus far.Report

  14. Avatar Kim says:

    Nonsense! Sheer and utter nonsense!

    Why take the lumps for the incompetents you just hired, when you can Blame the union for Sabotage? And incidentally get the Union Organizers arrested?

    one guess who I’m talking about. 😉Report

  15. Avatar BlaiseP says:

    Several of us have alluded to the problem of comparing unions across national borders.  Each country has different laws for organizing.   As such, I’m not sure such comparisons can be of any guidance. When Wardsmith tried to close a Paris office, his obstacle wasn’t a union but a set of laws.   The French have raised the strike to performance art:  how that miserable county continues to exist from day to day is a great mystery.

    Allow me to reiterate a brief and tiresome point I’ve made around here before.  A Free Market is an oxymoron.  All working Markets are heavily regulated, both from within and without.   Want a Free Market?  Open a stock exchange in Mogadishu.

    All labor is a process of exploitation, for good or ill.   We must avoid trying to cast Exploitation as a pejorative.   It is a fact of life.   There will never be an equitable market in labor, skilled or unskilled, while some governments provide more fertile fields for exploitation than others.   It cannot be otherwise, else no employer would ever employ anyone.   “Fair” is impossible.   Fair is a word used by losers.   The employer must pay for talent if he is to make a product or sell a service.   If governments and employers, employees too, have any sense, they will engineer their societies to avoid a race to the bottom.  If a society decides it will quit the race to the bottom and instead pursues quality, wages will rise as a direct consequence and skilled workers will immigrate from other less-wise societies to do the quality work a race to the top must entail.    Quality goods command a higher markup.   Quality workers end up costing less than substandard workers:  they’re more productive, they require less supervision and can adapt faster.   Every society should go in search of quality:  they will achieve the quantity numbers they seek according to their market share.

    There are usually four people at the negotiating table:  the employer and his lawyer and the employee and his lawyer.   What emerges from those negotiations has to be legal by someone’s definition or the whole thing ends up in court and often gets assigned to an arbitrator, so that makes five at the table.   The USA started on the wrong foot with the trade union movement:   the workers and employers now treat each other as adversaries.   In Japan and Germany, they don’t.

    When MacArthur introduced the trade union movement to Japan, the employees jumped in bed with their employers, to MacArthur’s consternation.   Japan was a feudal society which entered the industrial age without the intervening centuries of the Enlightenment which gave Europe and by legacy, America, the notion of the Individual.   It never occurred to the Japanese worker to view the employer as the Bad Guy:  for all its faults, feudalism is a reciprocal system where fealty is rewarded with loyalty, where the Big Guy is obliged to reward the Little Guy for his services and derives considerable status in fulfilling those obligations.

    Germany has no closed unions: they’re illegal.  The Nazis abolished all trade unions: after WW2 the unions had to start over.  So did the employers, who formed associations of their own.   Since reunification, most unions have consolidated under three or four umbrella organizations.   The most interesting of these is the ver.di  , representing white collar workers, unaffiliated with politics.  Somehow, Germany just makes the process work.

    Maybe Japan and Germany’s unions gained something by starting up in societies flattened by American bombs.   Those societies got to start over.   We didn’t.   Our employers and trade unions were never obliged to coexist:  the years of postwar prosperity didn’t lead the USA to any change of heart.  The societies which rebuilt from scratch ate our collective lunches.   It seems we still haven’t learned anything.   For all the informed commentary on this thread, why are we still messing around discussing Closed and Open Shops?   We’ve seen what closed shops lead to:   let the Rust Belt stand in mute witness to this point.   America’s starting to look like those paintings done by the Romantics, rustic peasants living in the shadow of the ruins of prior greatness.Report

    • Avatar Mark Thompson in reply to BlaiseP says:

      Thanks for this, Blaise.  My only actual objection here is just that, although no idealized “free market” can exist, we can still talk in terms of relative freedom of markets.   As for your rest, I actually agree more than you might expect – keep in mind that this post is just addressed at a very specific claim or set of fairly strong, and mostly falsifiable, claims made by libertarians and conservatives.Report

      • Avatar BlaiseP in reply to Mark Thompson says:

        Freedom is measured in degrees of freedom.   Which variables would apply in market freedom?    I contend a society can engineer a race to the top or a race to the bottom.

        To gain traction and make profits, a corporation or individual must enter an existing market or create a new market.   Entering an existing market space requires overcoming the various obstacles inherent in that process:  some of those obstacles can be removed but never all of them.   He who creates a market can create the barriers to entry and reap the most gain while those barriers protect him, but it will not protect his product from eventually becoming a commodity.    Kodak invented the digital camera:  it’s bankrupt because it didn’t move fast enough to create that new market at the cost of its film market.

        I reject the concept of a Free Market, completely and utterly.   There are two zeroes on the parabola of markets:  no regulation or total regulation.   As varies risk, so much vary regulation.     Let us not despise the Libertarian or the Conservative:   they push from either end of that parabola:  the Libertarian toward less regulation, the Conservative toward more.   At the zenith of that parabola exists the best of all possible worlds, only maintained by the constant efforts of all concerned, workers, management and regulators.Report

        • Avatar Roger in reply to BlaiseP says:

          Yes, free enterprise require regulation. Otherwise they become free to exploitation (my definition, not yours). A free market is a system of rules on acceptable and unacceptable types of interactions and conventions.Report

          • Avatar BlaiseP in reply to Roger says:

            Let’s stipulate to two sorts of Exploitation.   The one is benign:  wages are always somewhat less than profits.    The other sort is pernicious:  cheap labor unprotected by worker safety legislation, kickbacks to middlemen hiring contractors, bribes, corruption of all sorts.Report

            • Avatar Kim in reply to BlaiseP says:

              are we talking profits being poured back into the company (r&d, investment), or profits being divested back into the pockets of “investors”?Report

              • Avatar BlaiseP in reply to Kim says:

                See, that’s where it gets interesting.   If the investor is in for the long haul, he wants to see the corporation thrive, which means investing the profits back into the corporation.    I used to know a bunch of day traders at CBOT.   They’d be in and out of the market several times a day.   Essentially, they were gambling,  equating the futures markets with a Vegas casino.    The market always eats these guys:  the rule is always “the more you play the more you lose”.    There’s a difference between trading in a risk market and gambling.

                When you’re playing with Other People’s Money, you think differently.   The employees ought to respect the investors for taking a risk on them, owning their company.  If they have any sense, the workers will do everything in their power to increase profits and lower costs.   If the corporation is on hard times, they ought to understand they need to work for less money since there’s less to go around.

                But take Kodak for example:   the R&D guys gave the world the first digital camera.    Why didn’t management and the board of directors jump all over that market?   Don’t blame the workers or the investors for that screwup.   Management and the board got complacent.

                Just a few days ago,  Sprint posted a loss because it’s gone to the iPhone, which has associated upfront costs.   Long term, Sprint will recoup every dollar of those costs.   At some point, people are going to wise up and realize those two year contracts mean they’re paying more for those phones than they ought to pay, but in the meantime, Sprint’s probably a great buy as the short-term investors start selling.Report

              • Avatar Kim in reply to BlaiseP says:

                It is far more profitable to burn down something than to create something, by and large.

                Just ask the hedge funds.

                Profit isn’t everything, surely!Report

              • Avatar BlaiseP in reply to Kim says:

                Heh.   The odds of a kitchen fire vary directly with the restaurant’s unprofitability.Report

              • Avatar Kim in reply to BlaiseP says:

                The problem with restaurants is that the proprietors rarely understand business… Restaurants are a horrid way to make money, but a decent (if odd) way to spend 12 hours a day…Report

              • Avatar BlaiseP in reply to BlaiseP says:

                Uh, I was referring to arson in an attempt to collect fire insurance.  Restaurants are labors of love.   I own one.  A restaurant also a great way to employ various members of one’s extended family in an attempt, however feeble, to keep them from cluttering up my house here in the States.Report

              • Avatar James Hanley in reply to Kim says:

                It is far more profitable to burn down something than to create something, by and large.

                Right, so name one billionaire arsonist.

                If you are in fact correct, we need to think about the actual meaning of your claim, which is, “destruction is more profitable than creation.”  If that’s fundamentally true, then we live in a universe so fished up that we as a species are in serious trouble.

                Fortunately, it seems not to be true.  The wealth of the Western world, the wealth of Japan, the growing wealth of Indian and China, all is ultimately based on creation, not destruction.

                Some people, though, look at instances of creative destruction, see only the destructive part, and think that’s what really accounts for wealth.Report

              • Avatar BlaiseP in reply to James Hanley says:

                Chainsaw Al Dunlap.Report

              • Avatar BlaiseP in reply to James Hanley says:

                The V-Man, Mike Vranos.

                Ron Perelman.

                Dude, you asked for billionaire arsonists.   I could give you two dozen without even thinking about it much.Report

              • Avatar James Hanley in reply to James Hanley says:

                Blaise,

                Were they arsonists or de/reconstructionists?  Did they really take over valuable companies and simply destroy them, or did they restructure value?  I’m not interested in the popular perception but what they actually did.

                And of those who are true arsonists, how many of them have actually achieved the wealth of a Gates or a Carnegie?Report

              • Avatar Kim in reply to James Hanley says:

                … silly silly boy. Bother to look at the money supply graph up through the crash. What made all that profit? Phantom loans on houses, potemkin villages all. Look again at the cancer economy, look again at hedge funds.

                I’m not going to give you a name, as I’m not going to bother trying to get behind who’s investing in hedge funds. It’s a well known fact of what hedge funds do.

                In the long run, burning things down is less profitable, because by the end, you wind up with nothing. But that’s only if you take the American perspective. The rich? They walk away.

                The rich also made a profit during the crash. look it up.Report

              • Avatar James Hanley in reply to James Hanley says:

                Oh, and also, was there actually more money in burning the businesses down than in building them up?  Because that was Kim’s implicit claim–that destruction pays better than creation.  And that could only be true if destruction was more wealth creating than creation.Report

              • Avatar Kim in reply to James Hanley says:

                James,

                Okay, let me make another argument. You can get a lot of money out of a company from burning it to the ground (stripping it of all assets, and then selling the hollowed out shell). Then you can steamroll on to the next company and do the same.

                This is a quick way to make a buck.

                (the slow same process is greenbacking w/o r&D, ya dig?)

                It may mean you make less profit long-term, as those businesses have gone the way of Circuit City…. but do you care? nah, you already made your millions.

                Besides, stripmining is a sure thing. Actually building is HARD, and takes talent. And is still risky.Report

              • Avatar Roger in reply to James Hanley says:

                I agree with James,

                Tearing down a dysfunctional arrangement and selling off its parts is a fundamentally a creative process. It frees the components to be used more productively. A garage sale is not the same as arson.

                I suspect Blaise and James have a very different perspective of wealth creation.Report

              • Avatar BlaiseP in reply to James Hanley says:

                James, you’re the guy who reads all these economists and stuff.   I read economists, too.   Let me give you a lesson in basic economics here, since most of the economists I read are also quants and use some of the stuff I’ve written.

                The guys I’ve named were straight up arsonists and crooks.   There’s no defense for what any of these guys did.   They destroyed their companies.   If you’d read anything but theory, you’d know their names.   Put down the theory for a while, my good man, and get a subscription to Investor’s Business Daily.   The cobwebs of theory and the paternosters of nonsense will be blown away in the fresh, healthful air of reality.   Jump off the gerbil wheel of endless rhetorical questioning and shake hands with the Corporate Leviathan.   Hobbes said profit is the measure of right in the world, and a dead corporation shall make no profit.   As with any other living thing, a corporation must be nourished and encouraged, not looted and abused and driven into bankruptcy.Report

              • Avatar DensityDuck in reply to James Hanley says:

                Any stockyard owner will tell you that a deconstructed cow is generally worth more than a live one.Report

              • Avatar James Hanley in reply to James Hanley says:

                Responses to all;

                I’ll take Blaise’s word for it that that these guys were real arsonists.  I’m not at all bothered by the assertion that there are such people.  Anyone who’s read me enough knows that I’m not brimming with awe and love for business people–just with awe and love for the competitive process.  I’m quite sure that there are business people who are focused on the short-term, and what they can take quickly.  Their mindset is, I think, little different from that of criminals, who are normally looking for a short-term score; they’re just smart enough to have figured out how to do it in a way that is both legally safer and more remunerative than what the average criminal does.  But, they’re still people who are short-sighted.

                I don’t object to Blaise providing examples, but my real purpose in asking for them was to see if Kim could back up her words by providing some.  She rarely, if ever, manages to do so, so it’s become something of a fun game.  And she lost yet again.

                The real question at the heart of what I was poking at was not whether some people do this, but whether destroying is, in Kim’s words, “far more profitable” than building.  And no response yet has demonstrated that it is.  Roger says that it is not, and I think he is right.

                Roger also says that some of these alleged cases of “arson” are actually reallocating resources to make them more profitable.  I think he is also right about that. (Which doesn’t mean that they all necessarily are.)

                So Investor’s Business Daily, which I do in fact skim from time to time (that is, a surprising number of articles that catch my attention on the intertoobz come from it and similar sources–I sometimes wonder if I should have studied business; I hate being a businessperson, but I am endlessly intrigued by the things that businesses actually do), is well worth reading, but won’t answer the real question I was getting at.  In fact the more I read both economics and business news, the more I see theory and practice converge.

                As to,

                As with any other living thing, a corporation must be nourished and encouraged, not looted and abused and driven into bankruptcy.

                I agree. But an equally valid statement is that dying corporations sometimes are not worth resuscitating, but their organs should be harvested so that continued productive use can be made of them.

                Both mercy killings for the purpose of organ harvesting and pointless murders occur.  And for the outsider it can often be damned difficult to know which it was, but only one of those makes a good storyline, so we know which story will get told most often.

                And finally, to Kim, the Brad DeLong/Paul Krugman lovefest is not news. I could go on at length about this, but I’ll limit myself to a couple of comments.  First, lots of economists still disagree with them, so your “tail between legs” comment is just more Kimmie-hyperbole. For example, Scott Sumner writes, “as far as I can tell us market monetarists have been right about everything the Keynesians were right about, and plenty they missed” (of course Sumner is neither a Keynesian stimulator nor an austerity guy–there are more than two positions!)  Second, it’s very disingenuous on their part because they’ve been claiming all along the stimulus was much too small to do any good, and yet now that the economy is recovering they claim it was because of the stimulus.  Finally, their argument is that stimulus worked, and conclude from that that austerity failed–that’s a bit of a logic fail driven by their ideological commitments.Report

              • Avatar Stillwater in reply to James Hanley says:

                James, I tend to think alot of the disagreement around these issues is time-based. The time t1 act of creating a corporation with value depends on creating value. By definition. And the time t2 act of breaking the corporation apart and selling off assets, for example, is inherently destructive. But Kimmie isn’t so stupid as to think that the creative act giving rise to the destructive one is irrelevant.

                What I think both Kim and BP are arguing obliquely for here is the view that creative destruction is something we ought not normatively encourage or excuse simply because profits can be made. The ‘creative’ destruction of an institution means that lots of jobs and the accompanying economic security are lost, as well as perhaps lots of investments (financial or otherwise) in that firm. So I think they’re responding – at least as I understand them – to the very minimal but loudly proclaimed idea that destroying a corporate enterprise is a good thing. I mean, it leads to a very basic question: good for whom? If it’s only justified at the end of the day because it’s consistent with or entailed by a very narrow normative theory of markets and their purposes (that all good things ultimately derive from maximizing profits, say), then it seems like there’s lots of room to disagree.Report

              • Avatar BlaiseP in reply to James Hanley says:

                ROFL.  Duck, lay off the analogies.   You’re no good at making them.   The stockyard won’t take a cow that can’t get to its feet.   But then, I guess you’d actually have to visit a stockyard to know.

                What on earth is this nonsense about a corporation being worth more deconstructed?   A few courses in corporate accounting will cure any such misapprehensions.   Jeebus.

                Let’s take Kodak as an example again.   Let’s say Kodak had set up a separate incorporation called Kodak Digital with its own P&L.   Kodak Film would then continue to run down the clock.   They owned the patents but were too lazy to litigate infringements and didn’t have the engineering chops to make a better backplane than their competitors.   They didn’t have to make the lenses.   Eastman Kodak hadn’t made a high end camera, ever.   They made their money on film and even the little Brownie camera was a convenient little tool for charging people for developing film.

                Eastman Kodak had no business in the digital camera marketplace, they were a chemical company.   A mere corporate division wouldn’t be enough space between film and digital.   That’s why corporations have charters.  Rule of thumb:  if Division A isn’t using parts and technology from Division B, make B a separate incorporation.    Of course the film division would lose market share.   They could have kept the film division alive, as a niche market space.

                Apple Computer got itself in the same cleft stick with the Apple II and III and the Macintosh.   It’s a miracle Apple survived the stupidity of Jean Louis Gassée and that stuffed shirt John Sculley. Apple could have licensed its OS and beaten down Windows. Even Bill Gates was advising Apple to license its OS. If those jamokes had played their cards right, Windows would be a bad joke, a curse and a byword. And nobody would have been happier than Microsoft itself, which always wanted to be a software shop.

                Creative Destruction is an 80s buzzword, long since discredited.  You’re either creating or destroying. Products come and go. Corporations can be bought and sold. But tearing down something valuable for short term gain is something only a chop shop does with stolen cars.Report

              • Avatar James Hanley in reply to James Hanley says:

                Stillwater,

                I get what you’re saying, and it makes me think I’ve been using a bit of jargon without specifying it appropriately.  “Creative destruction” is a term of art, stemming from Joseph Schumpeter.  It’s not mean to imply that destruction is necessarily creative, but is exclusive to those situations where the destruction is in fact creative–when breaking up an old way of doing thing and replacing it with something new produces an increase in overall value.

                So collectively, when all costs and benefits are added up, the new must be worth more than the old at net present value (which includes consideration of future revenue streams, appropriate discounted) for the change to qualify as “creative destruction.”

                Of course that doesn’t mean everyone affected by the change has their well-being improved.  Collectively the gains offset the losses, so it’s a Pareto superior change, and theoretically the losers could be compensated so they’re no worse off, while the winners are still better off than before.  Of course that bit of theory never becomes actual practice.

                And I don’t intend to suggest that all creations meet this standard–some, I’m sure, are just destructions that actually diminish overall value. But just as some lose from a creative destruction, some win from an uncreative destruction by capturing what value they can from it.

                But given the constrained definition of of creative destruction, it is something we ought to normatively encourage, because it increases net wealth.

                How to deal with the individual losers (as the old canard goes, the buggy whip makers) within that net collective improvement is a separate policy question. And its one where to some extent my empathetic side overrides my economists’ side.Report

              • Avatar Roger in reply to James Hanley says:

                Blaise,

                The point of the stockyard is indeed to deconstruct the cow. By doing so and then distributing the parts to those that want them, they create value. And it is not simply a process of “buying low and selling high .”

                Nor is “creative destruction” an empty 80s buzzword.

                 

                 Report

              • Avatar Roger in reply to James Hanley says:

                Stillwater,

                Let me add on to James’ comment. Creative destruction — though I hate the term — points out a critical aspect of Progress.

                Progress requires change. But change almost always creates winners and losers. James’ buggy whippers are the perfect example. These are the incumbents. They were people that added value in the past, but that now add little or no value. Their services are no longer needed, or at least not as much as before.

                From a libertarian perspective, these incumbent victims make up an interesting group. In a free market it is entirely possible for incumbents to be harmed indirectly or circumstantially by progress. Libertarians are against coercion, deception and violence — direct harm — but there is no necessary coercion in this kind of circumstantial loss. But buggy whippers are still out of a job. Their kids still need new shoes. Nobody harmed them, but they lost out just the same.

                The point is that progress requires change, and change creates circumstantial winners (machinists) and losers (whippers). If we discourage this creative destruction, we discourage progress. That is the dilemma.Report

              • Avatar Kim in reply to James Hanley says:

                James,

                sorry, but when you ask me to pierce the bounds of a corporation specifically designed to shield people from personal liability for their actions… I’m gonna pass. Not only would I like everyone to consider me incapable of such acts… These aren’t the people you’d like to piss off.

                Listen to whom blaise is talking about — he’s talking about the entrepreneurs, the folks what at least worked for their money.

                I gotta lot less problem with them (they’re still cheats, but they work for their stolen money), than the people what bankroll them.

                Hedge funds have a shitton of money in them. Smart Money, not Calpers. It’s the lazy folks bankrolling this to get tons of money that I got a REAL problem with. And they don’t get taxed on burning the place to the ground (5%?? 15%?? rofl). So follow the money, and there’s your proof. Hedge funds have been growing at an astronomical rate, and they are directly responsible for the cancer and fire economies.

                James, if you could drop me a few more links on the positions you mention, I’m always interested.

                (by the way, in case it wasn’t clear when I mentioned it earlier, my friend who has gotten stuff published in the econ journals wasn’t a first author. Hell, my work’s been published in psych journals. doesn’t make me a psychologist)Report

              • Avatar James Hanley in reply to James Hanley says:

                James, sorry, but when you ask me to pierce the bounds of a corporation specifically designed to shield people from personal liability for their actions… 

                I have no idea what you’re talking about.  You must have me confused with some other James on some other blog.Report

              • Avatar Kim in reply to James Hanley says:

                James,

                earlier you asked for some examples of people who were getting rich off slash ‘n burn. I instead point to the money, claiming that finding out stockholders for companies is hard/difficult and rather beside the point.

                Remember, 200 companies control 75% of the NYSE (less now, probably, now that Bear’s gone).Report

              • Avatar James Hanley in reply to James Hanley says:

                I still don’t get it.Report

              • Avatar BlaiseP in reply to James Hanley says:

                @James:  without getting into Kim’s gnomic utterances, allow me to put something forward about why Schumpeter’s “Creative Destruction” has been horribly misinterpreted.   As is my wont, I give examples.

                Henry Ford is widely credited with inventing the assembly line.   We both know this isn’t true, strictly speaking, but let’s go with it for now.   When Ford put together his Model T factory, it was engineered to produce one product.   When Chevrolet set up its factory in competition, it wasn’t nearly so compartmentalized:  it could produce different vehicles on the same assembly line with a bare minimum of retooling, a huge advantage for Chevrolet.   Ford spent years trying to retool the Model T factory so he could produce the Model A.

                Ford retooling was Creative Destruction.   He’d mastered the building of exactly one automobile and boy howdy he sold a lot of them.   But overspecialization almost killed Ford.

                The new is not worth more than the old, mostly because the new hasn’t been validated.  On a accounting basis, the new hasn’t earned back the investment required to make that new thing.   Sun Tzu says in The Attack By Fire:

                If it is to your advantage, make a forward move; if not, stay where you are.

                Anger may in time change to gladness; vexation may be succeeded by content.  But a kingdom that has once been destroyed can never come again into being; nor can the dead ever be brought back to life.  Hence the enlightened ruler is heedful, and the good general full of caution. This is the way to keep a country at peace and an army intact.

                Here’s where Schumpeter is right:  you can’t go on selling Model T cars forever.  Gotta keep evolving.   But here’s where he’s dead wrong:  destruction is not innovation.   Evolving is innovation.  Sure, the slow and stupid are eaten by the fast and clever and don’t ask the slow to enjoy being eaten.  But allowing all the US automakers to fail because the credit markets catastrophically failed is not to America’s advantage.Report

              • Avatar James Hanley in reply to James Hanley says:

                here’s where he’s dead wrong:  destruction is not innovation

                Schumpeter would never have uttered that phrase.  Rather, he would have said “innovation is destruction.”

                But sometimes, in the midst of the process, it’s not easy to tell which is which.

                I hear what you’re saying, though; that there is more net present value in reviving a failing company than dismantling it. And I agree.  But we can’t treat the reviving as though it has a probability of 1, because business owners and managers are, of course, imperfect.  In fact some just suck, and can drive a company to total failure before anyone can come in and rescue it.  So in comparing the NPV of reviving it vs. dismantling it we have to discount the NPV of revival by the probability of revival.  Otherwise we’ve stacked the deck in our comparison.Report

            • Avatar Roger in reply to BlaiseP says:

              I use it to mean gaining at another’s expense. Dictionary.com has this as the second definition:

              Selfish utilization: He got ahead through the exploitation of his friends.

              To be specific, I use the term as shorthand for zero sum, win /lose interactions. Voluntary and honest employment, trade, etc are by my definition not exploitative. Indeed they are inherently expected to be non exploitative and positive sum. All parties gain.

              Even sweat shops — if voluntary — are positive sum and non-exploitative in my definition.Report

        • Avatar Ian M. in reply to BlaiseP says:

          I think what exists at this point is a hodgepodge of rhetoric.

           Report

        • Avatar wardsmith in reply to BlaiseP says:

          the Libertarian toward less regulation, the Conservative toward more

          Blaise, Are you /sure/ about this? Everywhere I look the conservatives are in favor of LESS regulation not more. Your statement would have been perfectly acceptable had you correctly stated the Liberal wants more regulation and millions of articles would back that up. A small nit, but an important one.

          BTW this post was absolutely brilliant. I missed a flight coming home from Paris (circa 2000) because they were having an “unemployed” strike. I had to ask at least 10 people because I kept thinking they couldn’t translate from the French properly. After all, how could an unemployed person go on strike? What would they do, work for a change? And yet they managed to block the roads, trains, airlines and other components of civil society from operating. Naturally it had nothing to do with work and everything to do with political power. The problems in France are indeed systemic, I suspect there are Frenchmen who in their hearts of hearts want to return to Vichy. Germany appears to have done it right with their Mitbestimmungsgesetz. The problem is the law gave “labor” a seat at the table, but didn’t specify “unions”. As Roger and others have noted here, it is entirely possible to have an active and happy labor force that wants nothing to do with union thuggery.Report

          • Avatar BlaiseP in reply to wardsmith says:

            It’s a semantic difference.   Today’s Conservatives have never quite made up their minds about the nature of regulation.   When it comes to Defense of Marriage and violations of our Fourth Amendment rights and other such manifestations of Strong Government principles, they show their true natures.  A plutocrat seldom makes a good Conservative.   There is a difference.   The Conservative is the one howling about Burning Flags and other Assaults on Human Dignity and would really like nothing more than to regulate the shit out of everyone — everyone that is but himself.

            Liberals have lost their way, too.   Once they stood for individual liberty.    According to the Liberals of old, Government was supposed to operate on behalf of the little guy.   Today’s Liberals are more about that parabola itself, claiming The folks who howl about Big Gummint regulating everything were glad enough when the organizations which did stand up for the little guy, viz. trade unions, were run off the stage.Report

    • Avatar Ian M. in reply to BlaiseP says:

      “Fair is a word used by losers.” Actually, there’s some interesting research pointing to “fairness” being something inherent to primate behavior. http://scholar.google.com/scholar?hl=en&q=primate+fairness&btnG=Search

      So, I would say that fairness is something people want and strive for and isn’t for losers, but is natural. Dumping on fairness is sociopathic and unnatural, You’re right that labor is exploitative – a noncontroversial point that Marx and smith agree on. But both these thinkers were very troubled by exploitation and took emancipation of workers seriously.Report

      • Avatar BlaiseP in reply to Ian M. says:

        Let the word “loser” also apply to the Poor Persecuted Employers who demanded (and got!) the union-busting laws now on the books in the several states.  Now they must compete with the Chinese outfits who can beat them on labor costs.   The gods answer the prayers of the stupid, literally and immediately.Report

      • Avatar Kim in reply to Ian M. says:

        … you’ve never met a peasant? anyone who hears jackpot when they hear lawsuit… people glad to cheat, to “get what’s comin’ to me”?Report

        • Avatar Matty in reply to Kim says:

          I’m not getting this, how does the existence of cheating negate there being a tendency to dislike cheats? Surely the two go together, you can’t evolve strategies to deal with something that never happens.

          Incidentally I have met peasants, by which I mean subsistence farmers not any kind of insult. While like everyone else they are happy to see improvements in their life I have never found them less honest or trustworthy than other people or more greedy. They just seem an odd group to use to argue that humans don’t have a tendency to want fairness.Report

          • Avatar Kim in reply to Matty says:

            Sorry, my terminology didn’t translate terribly well.

            In Europe, people were all descendants of peasants and princes. You can tell the difference easily enough. The princes tend towards madness (occasionally pathological), and the peasants towards greed and squabbling.

            [which is to say: i didn’t mean that literally! and it’s my fault, so I’m apologizin’]Report

    • Avatar Roger in reply to BlaiseP says:

      Blaise,

      I agree with most of it as well. Perhaps Mark and I should use you as a negotiator to reach a consensus. I especially like the part about “starting on the wrong foot.”

      I define exploitation very differently than you though.Report

      • Avatar BlaiseP in reply to Roger says:

        Let us suppose we view a corporation as a Hobbesian Body, for Hobbes has a great deal to say about societies which might also be applied to corporations.

        It’s rather like that old joke about the various parts of the body deciding who would be king.    The brain applied for the job on the merits of his reasoning ability, the heart put in on the basis of his invaluable circulatory services.   The arms and legs were bickering, the liver put in an interesting application on the basis of process chemistry which nobody else could understand but the stomach and the pancreas, who jointly wrote a 324 page paper on enzymes, demonstrating the insufficiency of the liver’s arguments which has gone through four editions and is now used as a reference textbook on the subject.

        Then the asshole applied for the job.   Everyone laughed so hard he clamped up for a week.   By then the brain was foggy, the heart palpitating, the eyes bulging out, the guts in a terrible way…. and they all gave in and let the asshole be King.   Which shows you don’t have to be a brain to the be the boss, just a big enough asshole.

        What would it take for American Labor to take itself seriously and American Employers to take their workers seriously?    I would argue America suffers from Asshole Syndrome.   Too much short term thinking in play.   Workers and management are all on the same team, though they never think that way.   What might make them think as a team, beside these wretched little Team Building Exercises?    Money might.   As it’s currently set up, corporate executives only feel beholden to their stockholders, not their employees.    Change that and you’ve changed everything.Report

        • Avatar Matty in reply to BlaiseP says:

          I broadly agree though I’m not sure how beholden to stockholders most executives feel. I’d suggest that whatever its merits the system of having a company owned in small shares that are often held for very short periods exacerbates principal agent problems. As evidence you might look at the percentage growth in executive compensation relative to measures of shareholder value like share price or dividends.Report

          • Avatar BlaiseP in reply to Matty says:

            There’s another fundamental disconnect in the circuit:  worker input.   In Germany, large corporations are obliged to have workers on the board of directors.   As you say, if the CEO is only motivated to get the stock price up, there’s no end of damage he will do to his corporation.

            If executive compensation has soared, there are two sides to this Golden Parachute business: the executive wants to raise an obstacle to firing him for doing what he considers to be needful.   Sure, the board and the stockholders can get mad at him, but they’ll have to pay him to leave.    If the workers had some input at the board level, they could overrule the short sighted maniacs trying to kill the golden goose of the company which employs both the CEO and the newest worker on the assembly line.   Workers aren’t stupid.   They know it takes time to build and extend their market presence.   While their voices remain unheard, the only other route is for the workers to buy up the stock themselves.Report

  16. Avatar Roger says:

    Good morning Mark (and all)!

    I still have to circle back to a bunch of your arguments that I have glossed over. In the meantime, let me try to draft out my position on the sustainability of unions.

    Using the definition of market rate of “all those eager to earn wages get jobs and all those eager to employ workers can hire as many as they want.” I believe unions will have trouble sustaining above market wages in a free market:

    1) Employees will be free to ask for more by being more productive

    2) Prospective employees that want a job will be tempted to accept an offer below the union rate

    3) More productive prospective employees will be attracted to non-union firms, less productive employees to union firms

    4) The higher price of labor and lower caliber of worker will lead to some combination of higher prices, lower quality, lower profit, lower investment/ R&D compared to non union firms

    5) This leads to a shrinking of production and employment in the unionized firm compared to non union competitors. Over time they lose market share

    6) The presence of a hampered firm creates an opportunity for non union competitors to actively enter the market and steal from the less efficient producer

    7) The firm will even be tempted to “compete against itself.” It will open new divisions in less unionizable locales or businesses.

    8) Even the union-advantaged worker will bid against himself. He will take his higher wages and invest in higher return stocks (in non-union firms), shop at Walmart and buy a higher quality non-union car.

    What I would expect to see in this model is what has occurred in the US over past 40 years. Private unionized firms without natural monopolies have basically lost market share to non union firms or morphed into less unionized versions of themselves.  Non union companies thrive relative to unionized firms. Furthermore, right to work states grow relative to closed shop states and become more adaptive after economic disruptions.

    For the record, if you are right that regulations are on net anti-union, it would hasten this process.Report

    • Avatar Kim in reply to Roger says:

      A prospective employee willing to accept below the union rate must not qualify for the union. so you’re getting inferior employees, yes?

      Your opinion on why people join unions differs from mine. This will form the crux of the debate, I believe. And I fear that we are both right, and will drive each other nuts because of it.

      What’s wrong with lower profit? Do utilities ever post a profit? People STILL invest in utilities!

      As for 8, you’re really suggesting that dumb money is that smart? Lining up to be fleeced isn’t known as “investing”… Maybe I might not have said that ten years ago, but it’s true now.Report

      • Avatar James Hanley in reply to Kim says:

        A prospective employee willing to accept below the union rate must not qualify for the union. so you’re getting inferior employees, yes?

        Oh, lord, no.  You’re assuming unions perform a filtering function of weeding out the less productive, which is normally quite untrue.  Traditionally unions brought in relatives of existing members to the exclusion of non-relatives (also used to be very careful to exclude non-whites), and once in they work very hard to protect employees regardless of quality.

        My own union sees its role as to ensure that every new tenure-track faculty member ultimately receives tenure.  Whether they’re qualified or not is an issue for the administration to concern themselves with, not the union, and our job is to persuade the administration they’re that well qualified, whether they are or not. We have faculty who could easily be replaced with a higher quality person charging less.  I like to think that doesn’t include me, but I’m probably not in the best position to judge that.Report

        • Avatar Kim in reply to James Hanley says:

          your union would probably have a fit if they brought in someone with an Associate’s Degree for tenure-track, though — no matter the other quals (and to some extent, might have a point).

          Your points on nepotism is well put and taken with good humor.Report

          • Avatar James Hanley in reply to Kim says:

            your union would probably have a fit if they brought in someone with an Associate’s Degree for tenure-track, though

            The administration is more likely to object than the union.  Individual faculty members would object, but there wouldn’t necessarily be an objection from the union.

            I have some indirect evidence for that–on some rare occasions people with only a B.A. have been brought in as adjuncts.  It is the administration that has decided the College’s reputation can’t afford that; the union has never made a peep.Report

      • Avatar Roger in reply to Kim says:

        Kim,

        The first point would apply to the employee on the margin who would otherwise not be employed. At union rates he will not get the job (either someone else will, or nobody will as the marginal value of the next hire goes to zero). He will underbid. Yes he is a less productive employee, but his value is based upon a function of both productivity and cost. The firm and the employee both benefit from him accepting it. The union loses another piece of their control on wages.

        I actually think your earlier argument on joining a union for security is a good one. It is not the only reason, but it is a very valid one. Actually there were several other points that you made that I agree with and did not comment on due to lack of time. I even wanted to address your Brin post. I like following his blog.

        People invest in risk adjusted expected returns. Profits are the voice of consumer sovereignty. An absence of profit (or loss) is a sign of consumer rejection.

        I think people are reasonably smart at spending money reasonably wisely. As for investments, workers don’t make their own calls, they usually invest in a fund managed in some way by pros or matching market averages — which again are influenced by the effects of pros. But I don’t assume the pros are smart either. Just that high returns generate and attract capital and that low (risk adjusted) returns repel it.

        My argument does not depend upon all eight being either true or significant. Just that some are true. Over time, the system will evolve away from above market wage unionization.Report

    • Avatar Patrick Cahalan in reply to Roger says:

      What I would expect to see in this model is what has occurred in the US over past 40 years. Private unionized firms without natural monopolies have basically lost market share to non union firms or morphed into less unionized versions of themselves.

      The problem with this is that you’re looking at the U.S. in the last 40 years.

      The global labor marketplace looked a *lot* different in 1970 than it does today.  Examining what happened to union (or non-union) labor in the U.S. without taking that into account is going to give you a very different picture.

      Not that I necessarily think you’re incorrect, it’s just that the global labor market has been very, very dynamic (particularly in the last two decades).Report

    • Avatar Kim in reply to Roger says:

      Unions have stayed stateside, for the most part.

      Words to contemplate: Global Strike.Report

    • Avatar Mark Thompson in reply to Roger says:

      This is going to have to be my last word on the subject for awhile, but I appreciate the rigorous debate here.

      First, your definition of “market rate” doesn’t make sense. As noted above, market rates are by definition averages, not absolutes.  Applying your definition to your following analysis results in the conclusion that wages will always trend downwards until they approach zero, with or without unions, because anyone making above-average rates would be subject to the same pressures – there’s always going to be somebody as or more “productive” willing to work for marginally less than you, after all.  Additionally, I think you’re making a problematic normative assumption here that it is a good thing for everyone to be looking to earn a wage; but in reality not every “productive” activity is compensable by wages- being a full-time parent is surely “productive,” but it is not at all possible for it to be compensable by wages.  Frankly, not everyone who tries to work for a wage nowadays necessarily wants to earn a wage so much as they feel that they have to earn a wage because their spouse doesn’t earn high enough wages.  In other words, downward pressure on wages drives more people into the measurable workforce than otherwise would even want to enter that workforce.

      Turning to your points:

      1. Not necessarily, at least not as a practical matter.  This would certainly be legally true in our idealized hypothetical world.  However, to the extent such an employee works for an employer under a closed shop or union shop agreement between the employer and the union, it would not be practically true.  I realize that you’re trying to demonstrate that such agreements are not sustainable in your idealized free market; however, you can’t presuppose their lack of existence in order to make that argument.

      2.  True, but again, that they may be tempted to accept such work does not make it contractually possible, even if there are no other legal impediments protecting the union.

      3.  Disagreed completely.  Collective bargaining strength, particularly in an industry where individual worker “productivity” is inherently finite, may well be, and indeed often is, greater than the sum of its parts.  This is because of the leverage provided by collective action.  Moreover, where “productivity” is not inherently limited due to the nature of the job, your claim here incorrectly presupposes that: 1. collective bargaining must inherently set a rigid wage scale unconnected to “productivity”; and 2. wages are the only thing that employees are concerned with.  In our professional sports leagues, we actually do have a situation where an individual’s “productivity” is not inherently limited, and also where a number of franchises are in states with “right to work” (sic) legislation.  These unions have adapted so that, even as they set wage minimums, there is nothing to prevent members from negotiating on their own many times in excess of those minimums.  The unions negotiate instead on the total share that gets set aside for the players and on a whole host of issues regarding benefits, safety, and indeed rules.

      4-5.  See responses to 1-3, which address the assumptions on which these two points are based.

      6.  I don’t understand what you’re getting at with this point, which seems to assume that the unionized firm previously had a monopoly or at least some sort of ability to raise barriers to entry into the market.  But it is stipulated that a firm that charges higher prices for lower quality will rapidly lose market share in any ordinary case (though there are some odd exceptions to this). It is not, however, stipulated that a unionized firm will produce lower quality goods at higher prices (see 1-3 above).  Also, too, keep in mind that unions have a long-term interest, especially in a relatively free market, in negotiating agreements that: (a) leave a stable business model; and (b) create the strongest prospects for increasing union membership, since increased membership means increased future leverage.  Perhaps they will frequently ignore these incentives, but management is no less capable of ignoring its own similar incentives (how often do we see firms choose higher short-term profits at the expense of long-term stability?).

      7.  Stipulated.  But it is always the case that firms will look for cheaper sources of labor, with or without unions.  Additionally, since we’re dealing with a hypothetical idealized free market, there is no reason to think that other locales will of necessity be any less “unionizable” in any meaningful sense.

      8.  Surely he will act as any other consumer.  But, again, your assumptions are unfounded because you haven’t proven that unionized necessarily = higher price and lower quality.  As for the “higher-return stocks” investment claim specifically, I’d just add that you’re ignoring the fact that “high return” often also means “comparatively high risk.”   I am willing to stipulate that unionized firms will, comparatively speaking, tend to have lower short-run returns; I am not willing to stipulate that they will tend to be less-safe long term investments.

      Finally:

      Private unionized firms without natural monopolies have basically lost market share to non union firms or morphed into less unionized versions of themselves.  Non union companies thrive relative to unionized firms. Furthermore, right to work states grow relative to closed shop states and become more adaptive after economic disruptions.

      For the record, if you are right that regulations are on net anti-union, it would hasten this process.

      My argument of course is that anti-union regulations were precisely what caused this.  Let’s look too at where much of this business is moving: China and Vietnam.  These are hardly free market paradises, nor are they countries entirely devoid of unions (though Chinese unions are controlled by the government).

      The whole point here of course is in no small part that labor, relatively unrestricted by regulations,  has the power to actively prevent the movement of capital and of jobs to other locales.Report

      • Avatar Roger in reply to Mark Thompson says:

        Mark,

        Thanks for the reply. I am in no rush for a response. I think we both learned a lot from the dialogue (I have). Let me respond to your response. The only other thing I still want to address (later) is the normative questions which I have so far evaded.

        My definition of market rate is the same as wikipedias. It is where supply meets demand in a free market. Market rate – Wikipedia, the free encyclopedia

        No there is not always someone willing to do a better job for less.  When supply meets demand, that means you get the job (I know it is a dynamic process)

        I agree that competition between workers for jobs drives down wages (just as competition between employers drives up wages), and that the effect of this may lead to spouses working or delayed retirement. I guess this is an inconvenient truth.

        1. In a free market, anyone producing above the union negotiated rate would be strongly tempted to bypass the union. This is true of existing employees and prospective. The dynamic undermines the union longer term. I can indeed presuppose free markets, as that is what we are arguing — whether unions can exist in free markets.

        2. I see no barriers in contractually hiring people at other than the union rate. The company is free to write whatever contracts it wants.

        3. I agree that in a free market, for a union to exist they would need to be very different than the cartels we currently have that reward tenure and discourage productivity and slow corporate adaptation.

        4-7. We already agreed that above market wages means lower profits as a first order effect.  You view this as a feature. I see it as a bug.  Firms with lower margins face difficult choices. They can live with less profit, or less capital reinvestment, or increase price, or lower quality. All four of these actions lead to lower market share — all else equal — over time. See Detroit for examples.

        If there is a mix of high wage union and lower wage non union firms. The market will evolve toward increasing share of non unionization over time. If there is 100% unionization, then new (lower wage) competitors will be drawn into the market like flies to…

        8. Yes, firms can maintain the same price and quality at lower returns, Long term this dries up capital investment. Any which way they choose — all else equal — they are at a competitive advantage. Their days are numbered. I always assumed risk adjusted returns. Unionization doesn’t make them less risky, just less profitable.

        Mark, in delving into this concept, the economics literature that I reviewed all pointed in the direction away from your hypothesis. Mises and the Austrian economists seem to pretty consistently argue that above market wages require a cartel to exist. Cartels are not long lived in free markets. Economic theory, common sense and history within the US all support that higher wage unions require coercion to thrive long term.

        I hear you desire that every worker could freely agree to not defect (take a lower wage offer). Game theorists, economists, and I would be skeptical. At the minimum it would be easier for the firms to agree to not hire union workers than for 300 million workers to agree not to accept non union wages.

         

         Report

  17. Avatar James K says:

    An interesting article Mark.

    First, a technical point of your scatterplot.  Looking at the plot I’m pretty sure the correlation you’re picking up is spurious.  The small cluster of points on the right hand side of the graph are distorting the trendline.  Still I don’t think that harms your central point since you’re really asserting the absence of a negative correlation between unionisation and economic freedom rather than asserting a positive correlation.  Naturally the inclusion of control variables would help clarify matters, but since you’re not doing an academic paper here I can’t fault you for that.

    Second, I do agree somewhat that libertarians tend to be more hostile to unions than they need to be.  Part of it I think is simply historical animus (unions and libertarians tend to be on the opposite sides of a lot of political debates), but in principle unions are no different to corporations – they are groups of individuals working toward a common purpose and that’s fine, though we need to be suspicious when they start getting political (as we should be with corporations), and I think unions tend to be more overtly political than corporations (at least that’s true down here).

    Honestly though I don’t think it matters much.  I believe that unions are basically a dying model due to changes in the economy.  Unions had their heyday when government prevented competition, a lack of competition means there’s a large surplus the unions and corporations can split between them.  This allows unions to secure higher wages for their members.  But in a more competitive market there’s less surplus to distribute, making unions less beneficial to be part of.  Also, as the model of a job for life has evaporated it’s become easier to deal with an asshole boss by finding a new job (not infinitely easy, just easier), and protection from dismissal becomes less important (not unimportant, just less important).

    In other words, the benefits of unionisation are being eroded by the changing nature of the economy and therefore unionisation is falling.  Unsurprisingly government, the segment of the economy that has the least labour mobility and the least competition is the segment with the most unionisation.Report

  18. Avatar DensityDuck says:

    A union is an army.

    What do you call an army that loses a million men but wins the battle?

    A victorious army.

    People say the union makes things better for workers, and that’s true.  It does not follow that it automatically makes things better for any individual worker.Report

  19. Avatar Roger says:

    To all,

    Now that I have proven to 100% satisfaction that unions can’t exist in current form in a free market (Joking), we need to address the real issue. The underlying premise.

    Assuming that above-market-wage unions could exist in free markets, should they? Would the world be a better place? Would the average laborer be better off?

    The answer of course is HELL NO.

    First, let’s assume that only some employees get higher wages via unions, and some don’t. I do agree that the union employees would be gaining, but they will do so at the expense of their non union comrades. The union workers would get all the benefits and only pay some of the costs. As Mises proved convincingly over 50 years ago, the net result would be less employment (aka more unemployment and underemployment) and/or higher prices. The non-union sector would have higher expenses and lower income.

    Longer term, the Austrian economists have always stressed that the real struggle has never been between labor and capital, but between unionized labor and non-unionized labor. (If anyone can point out an economic refutation of this point, I am open to it).

    But, what if we were able to get 100% labor force unionization and — via collective bargaining secure substtively higher wages for labor. That would be all good… right?

    No, it would be terrible by liberals’ own standards. It would make the average laborer worse off. Why?

    Because prosperity and wealth come from productivity, not from redistributing the pie. The immediate effects of a larger part of the pie going to labor means less going to capital. This lowers the risk adjusted rate of return and would lead to less investment, less reinvestment and less entrepreneurial-ship. This would lead to fewer jobs and lower productivity.

    However, if all employers were unionized equally, then none would have a competitive disadvantage. They would all face higher costs and would all be free to respond with higher prices. In other words, the additional wage gains would be inflated away.

    The market isn’t totally efficient, so in reality we would probably get some spectrum of higher prices, fewer jobs and lower productivity. The average worker and average capitalist would both become poorer.

     

     

     Report

    • Avatar Kim in reply to Roger says:

      The immediate effects of a larger part of the pie going to labor means less going to capital.

      The immediate effects of a larger portion of the pie going to labor is an INCREASE in the velocity of money.

      Stop me when you get it.Report

    • Avatar Kim in reply to Roger says:

      Give the worker more pocket change, and all those out of work folks can get guvmint subsidies for being new entrepreneurs (for the first year or two, anyhow. expect 80% failure, as usual for new businesses. most people are idiots).

      It works for germany, neh?Report

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