Thursday, July 8, 2010

And now the union card.

"I told you so"s are obnoxious. But I can't resist.

Among the posts in this blog's archives are numerous warnings and predictions about just how bad a president candidate Obama would be. I worried about many things, including what has now become Obamacare, Obama financial reform, Obama foreign policy all of which have made Americans poorer and more vulnerable.

I also warned about Obama's agenda to increase the power of labor unions. Mostly this escaped the radar, even of many of his critics, but it is now apparent that this is a major part of his social reform agenda and an incredibly dangerous one.

Obama, as a senator, was an enthusiastic supporter of a bill, still pending, to scrap the secret ballot requirement for union organization - effectively making it easier for union organizers to intimidate workers into agreeing to the formation of a union. His presidency thus far has shown how far he is willing to go to support existing unions and encourage new ones (see here for the latest on this) - most egregiously his support of the powerful teachers unions that are responsible for the high cost and low quality of America's failing public education system. To support their extravagant benefits and yearly wage-increases, the teachers' unions are holding America's children hostage in failing, dangerous schools.

Union support goes hand in hand with the Obama administration's alliance with workers in the public sector at all levels of government. The extent of unionization in the American economy is relatively low, by comparison to other industrialized economies, and many of our unions are in the public sector. We all know that unemployment remains very high at around 10% - 15 million unemployed people, and many more who have given up looking for jobs. What many may not know is that employment in the public sector has gone up and so have wage levels. While the rest of the economy struggles to maintain employment and earnings levels, government workers expand in numbers and receive higher wages. The only way this can happen is by increasing taxes (now or in the future) to pay for them. Increased union formation would add fuel to this destructive process.

You might be tempted to ask, "What's wrong with union's? Don't they help workers?" There is a robust mythology surrounding the union mystique - folklore, nostalgia, loyalty and so on. But the sad truth is that unions are an economic curse. They are, in effect, legal labor monopolies that force the employers in an industry to deal only with the union - to employ only union members - and thereby to protect union members from competition for jobs. Unions are able to benefit their members by raising their wages and reducing the number of workers employed. They increase the cost of the payroll, reduce profits and investment in the industry, raise product prices and reduce wages elsewhere. Union members gain at the expense of non-union workers, and the rest of society.

This kind of monopoly power in the hands of any corporation would be greeted with righteous condemnation, but, somehow, in the hands of unions it is often regarded as justified. One explanation is that unions support workers who are relatively powerless compared to corporations. This assertion betrays a lack of understanding of how markets and competition work to protect all parties. But, even taken on its face, if this were ever relevant in the past, it is not relevant now. Current unions do not, for the most part, contain "powerless" blue-collar workers. Instead they are made up of professionals - articulate, educated, affluent - like teachers, pilots, health-care workers, skilled craftsmen, civil servants and so on. And the businesses that suffer (directly and indirectly) most from their successes are not the large powerful corporations, but rather the small businesses that are the economic backbone of the American economy, the engines of thrift and innovation.

Union power subverts creative economic activity. It is predicated on special protections from competition and it results in a stultifying and often violent bureaucracy. Historically it has been responsible for the crippling of whole economies, in Britain, in Israel and in many European countries. Add this to the list of horrors that this administration has unleashed upon us. How long will this nightmare endure?


Peter Lewin said...

Though no comments have appeared here, I have received a few informal bits of feedback.

They suggest the following sort of thing: That while unions may be harmful now that economies are well developed, they had an important and beneficial role to play in the protection of labor during the formative phase of econonmic development - the early industrial phase of bad working conditions, child labor, etc.

I think this is false. For labor associations to benefit workers in general they do not need to have a monopoly/closed shop. Perhaps what we call unions now were, for a time, simple labor associations, like mutual-help societies, who helped immigrants and inarticualate workers navigate in the new world. Awarding labor groups a powerful monopoly to exclude competition to its members may benefit the members but not workers in general.

There is a perception, based no doubt on Marxist categories, that "Labor" needed to have a countervailing (J.K. Gailbraith) power to balance the power of "Big Business Capital." Again false. What resulted was what is called bi-later monopoly - two monopolies facing each other. The result was higher prices, lower quantity produced, less competition and innovation.

Work conditions, in general, improved as a result of economic growth and increasing awareness and condemnation of bad conditions, not as a result of unions.

Peter Lewin said...

That should be "bi-lateral monopoly."