Imagining a Mutually Beneficial Labor Union

The Capitalist Manifesto by Andrew Bernstein is a must read for anyone seeking to understand the current economic, political and philosophical situation, and to find a solution. Bernstein presents a rock solid defense of capitalism against all comers, logically demonstrating capitalism's moral and practical superiority, and then uses his clear arguments to demolish the common myths and falsehoods presented by anti-capitalists of all stripes.

Rather than offer a detailed review (though I hope to return to various topics raised by this excellent book) I'd like to present a hypothetical scenario that occurred to me while reading Bernstein's discussion of unions, near the end of the book.

Bernstein makes the case that "unions seek, and through government intervention gain, monopolistic control over an industry's labor supply." Various laws and Supreme Court rulings have "compelled employers to to recognize and bargain with unions -- and forced non-union workers to accept the union as their sole bargaining agent... [T]he government also required companies to bargain with such coercive unions 'in good faith.' No matter how outrageous a union's demand, the company was legally obligated to respond with a counter-offer... that made some concessions."

Once a union catches hold, it wields its coercive power by mandating a litany of absurdities: "feather-bedding" where more workers than are necessary must be hired for a job, technological advancements (and thus productivity increases) are outlawed in an attempt at keeping people in jobs, and make-work schemes are employed, "such as requiring that pipe delivered to construction sites with screw thread already on it, have its end cut off and new screw thread cut on the site." These practices are so outside the bounds of sanity that if someone where to write fiction about them, it would be too crazy to be believable.

With all of that being said, could unions have a place in a free market system? Of course, Bernstein answers. As long as government is not there to act as a coercive force on one party's side in violation of the rights of the other side -- the very definition of a free market -- then workers can voluntarily organize and employers can choose to recognize the union, or not.

This last point got me to thinking... would there be a place for unions in a free market? Of course their existence is possible, but is there any case where they might be a productive force benefiting employer and union-member alike? Would unions not only be possible, but also likely?

Let's look at a hypothetical example. What if there were 3,000 factory workers, all at roughly the same skill level and pay scale (regardless of specific job description) who, essentially, offered the same product on the labor market. The company would have to employ X number of human resources staff, have the infrastructure in place to deal with individual contracts for each employee, track them all (for bonuses, reviews, discipline, and the like), employ X number of attorneys, etc... just as the cost of managing the workforce.

Now, what if the employees decided to band together and offer a "volume discount" for the labor they supplied, and bargained collectively, letting the employer save money and time on administrative burdens because everyone in the union would agree to abide by the negotiated contract.

In return, the union could ask for higher wages, more time off, a fast-track for training and advancement... something of value. Both parties would benefit, and no one's rights would be violated. It wouldn't be coercive, and productivity and merit would still be the drivers because workers wouldn't see the union as the sole source of employment and advancement (i.e. by seniority alone), and the employer wouldn't be the evil bastard that the union wanted to soak for any concession it could. Instead, joining the union would simply be a shrewd business decision for the laborers. And for the owners, it would offer administrative efficiency, allowing time and money to be dedicated to other productive ventures, increasing the profitability of the company, and likely leading to more workers being hired.

It's difficult to imagine more detail than that, considering how far our society is from such a mutually beneficial employer/employee arrangement. But the point is that, left free to decide on their own how to maximize their opportunities, with whom to contract and for what purpose, it is not a bit of a stretch to think that creative people would find ways to make unions a productive advantage, leading to greater prosperity for all involved.

Such is the awesome power of capitalism.


Roberto Brian Sarrionandia said...

I was thinking about this just the other week.

Thanks for elaborating, great post.

C. August said...

Thanks. I'm glad you liked it.

John J said...

I think that your assertion that the employer would be able to gain from negotiating with one party misses a few points.
First of all, negotiating with large groups reduces the number of contracts (to one), but that's not all that there is. You also have to make sure that the contract makes all 3000 employees happy, which is going to be much more complicated. This is the common economics problem of "transactions costs" in large groups. It's just very hard to get large groups of people to agree on more than very vague, basic things.
Second, the incidence of "form contracts" generally reduces the costs of negotiations for new, low-level hires to basically nothing. For example, when McDonalds hires a new cook, they just pull out their standard employment contract. They don't actually do any negotiating, but have a "take it or leave it" standard offer. It's only when you're dealing with very highly compensated employees that individual negotiations occur (because the "marginal gain" is much higher). Think of it this way: you have a standard, set-price contract for buying a cheeseburger because the gain from haggling is tiny and the time it would take is relatively more expensive. When you buy a house, you have individualized negotiations and extended bargaining because the marginal gains are thousands of dollars. HOWEVER, these expensive, productive, higher-up employees are almost never unionized; since when was there a "chief financial officer union"? (maybe doctors at hospitals are an example of an exception).
Then, there are moral issues. If there aren't any efficiency gains (there might be, but it's not as cut and dried as you presented), the only thing that the union members can trade on is that the irreplaceable and valuable employees will strike if the employer does not raise the compensation for the replaceable workers. This is blatant parasitism, and is the main modus operandi for modern unions. Unions also will want to limit the ability of the employer to fire its members (they always have in the past; maybe they wouldn't in a moral society?). Again, the union is only functioning to allow the lazy, inefficient, and unskilled to trade on the willingness of the productive to sacrifice for them by striking; without the threat of losing the productive work of the "better" workers, the worse ones would just be fired.

However, there is one caveat I wish to add: day laborers, especially immigrants or non-English speakers, may benefit from unions in a moral fashion (though only in the efficiency sense; there will probably not be any large change in compensation, just more job stability and more efficient negotiation).

C. August said...

John, so are you saying that, even in a fully laissez-faire capitalist society where the union would hold no coercive force, and the company was not compelled to even recognize the union -- where the two parties would deal with each other voluntarily -- that there would be no case where this could happen to mutual benefit?

Note that I was simply hypothesizing what men might do if they were fully free to act. While I honestly can't imagine that unions would be very common or even needed at all in such a society, I thought it was interesting to contemplate how it might work.

John J said...

Mr. August,
I certainly agree; it's an interesting idea. I was trying to address some of the points you made about how it might work, and reasons why the current model would not work.
"Union" as a concept has certain baggage. It entails several necessary characteristics, namely collective bargaining. I was mainly attacking the morality of collective bargaining. I have not been able to find a satisfactory defense of the practice, and I believe there's even an essay in "The Anti-Industrial Revolution" that attacks the practice.

I do think you had a point in that there might be organizational gains in certain situations, thus my last paragraph. As you say, such situations would be very tenuous and rare.

Anonymous said...

Why not go a step further - the workforce band together and buy the company or set up their own company - they are the company. Any collective bargaining is a function of the governance and internal management of the company.

garret seinen said...

One point that I didn't see brought up, in a hard currency world, the main function of unionization would no longer be striving to match wages to a devaluating dollar.
I can see the wisdom of organizing 'unions' to supply skilled labor pools for new and expanding employers to draw from without the hassle of screening etc.
Further though, mechanization would largely eliminate all repetitive work. Work available would continue to shift toward maintenance, construction and service. Only new ventures would use large numbers of people (cheap machines) on startup until expanding markets covered the cost of mechanization.
We'd all have to become more intellectual, and I'm thinking, there'd be lots of time to do so.