Sunday, August 10, 2014

What labor unions really do, why they are important, and why they are whithering away

In their desperation to avoid talking about population, progressives will often claim that the solution to poverty lies in the workers organizing and forming labor unions.  Unions are indeed useful.  Unions equalize the bargaining between individual workers and massive centralized corporations.  There is nothing anti-capitalist about unions: think of them as corporations whose product is labor and whose shareholders are the workers themselves.  Perhaps the best arguments for unions comes from that famous progressive Adam Smith, from The Wealth of Nations:

“Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad.  They say nothing concerning the bad effects of high profits.  They are silent with regard to the pernicious effects of their own gains.  They complain only of those of other people”

“What are the common wages of labour, depends every where upon the contract made between those two parties, whose interests are by no means the same.  The workmen desire to get as much, the masters to give as little as possible.  The former are disposed to combine in order to raise, the latter in order to lower the wages of labour.  It is not difficult to forsee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute and force the other into a compliance with their terms.  The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen.  We have no acts of parliament against combining to lower the price of work; but many against combining to raise it”.

Even in a tight labor market, where labor is intrinsically valuable, an individual worker could get screwed in negotiations with a centralized corporation that has a big legal staff.  Unions are vital in making sure that workers get their fair share.  However, unions cannot make what is worthless valuable!   Unions can only ever get traction in a tight labor market.  There is effectively no record of unions ever making significant gains in a third-world style economy.  First labor becomes valuable, then unions ensure that workers get their fair share.  It is never the other way around.

No matter how bad the overall labor market, in a competitive professional sport there is only ever one best player, and the labor of this person is therefore of high economic value.  But these champion athletes still need competent agents to avoid getting a raw deal, or signing one-sided contracts.   However, the most skilled agent cannot get an elderly male with a bad back and sore feet and poor vision and no particular athletic talent, a multi-million dollar contract with the National Basketball Association.  Agents for professional athletes, like unions for more ordinary workers, must first have something valuable to negotiate with.  When impoverished people line up around the block desperate for any work at any rate, unions cannot negotiate better wages.  In this case unions only add extra costs and fees to the workers, which is pointless because they cannot negotiate better deals, so the unions inevitably fade away.  Nobody beats supply and demand, not even unions.

Unions do not work miracles.  They are only agents for average workers.  They cannot turn Bangladesh into Finland.  End of story.

The only chance for workers in a third-world labor market lies not in unions, but in guilds.  A guild may superficially resemble a union, but it operates according to very different principles.  A guild protects its members by keeping secret the skills and knowledge needed to perform a certain job, strictly limiting the number of people who can join the guild, and thus creating a monopoly of that class of labor.   Guilds are negative: they only carve out small islands of prosperity in oceans of misery, and they cannot raise the level of an entire society like unions and a tight labor market can.  Guilds are also anathema to the free exchange of information which underlies modern Western culture. 

Guilds mostly faded away a couple of centuries ago (although medical doctors in the United States and petrochemical workers in Mexico are effectively guilds), but as the pressure on workers increases – as it becomes increasingly obvious that the person you have trained in your skill today will likely take your job from you or your children tomorrow – we should expect guild-like behavior to slowly make a return.  This turning away from intellectual openness, this meanness of spirit, will be just one more symptom of a coming dark age.

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