Freeman

ARTICLE

Strikers are Bound to Lose

OCTOBER 01, 1959 by PAUL L. POIROT

A major strike, such as the re­cent one by steelworkers, focuses attention on the corruption of union leadership, the unwarranted violence attending strike action, and the impropriety of compulsory union membership. Indeed, such a strike might even spark legislative action to withdraw or qualify to some degree the monopolistic powers granted labor unions through earlier legislation.

On the other hand, the steel­workers will have had a sounding board for their resentment of the high salaries paid to management officials of the various steel com­panies and the profits earned by the most successfully managed op­erations.

But the charges and counter­charges and emotional and physi­cal disturbances of a strike throw no light whatsoever on a funda­mental issue raised by General Francis Amasa Walker long be­fore there was either a U.S. Steel or a steelworkers union. (See the excerpts from his writings on pages 10-13 and the related article by John Chamberlain on pages 5-9 of this issue of THE FREEMAN.) Walker‘s irrefutable observa­tion is that profits are taken out of costs—not added to prices. The more steel profitably produced, the greater will be the downward com­petitive pressure on steel prices, tending to squeeze out of business the least efficient managers, the high-cost marginal producers. These "no-profit" producers can least afford to pay high wages, and therefore tend to hire the least efficient workmen, yet their mar­ginal production at high cost de­termines not only the price of steel for the entire industry but also the level of wages that will be paid to all steelworkers.

If this point were understood by steelworkers, it would revolution­ize the entire concept and modus operandi of unionism. Industry wide bargaining, with insistence that every steel company sign an identical contract, should be the last thing any self-respecting steelworker would want. For he would see that under such an arrangement his own wage, regard­less of his skill and productivity, couldn’t possibly rise above the wages paid to the least efficient workmen by the "no-profit" man­agers.

The enlightened steelworker would start seeking a new type of union leader. Indeed, he would turn for leadership to the very man the union bosses have been most vigorously denouncing: the highest paid executive of the most profitable steel company in the business. This manager’s record shows that he is most capable of cutting costs. This means that he could afford to offer the highest wages in the industry for the most highly skilled workmen, and that he would actually do that very thing—if the union would let him—in order to maximize the profit­ability of his business.

If steelworkers want to be more highly paid, the surest way is to produce more steel, at greater profit to the company (which means at lower costs). The more this can be done, the more will the "no-profit" managers and compa­nies be chased out of their un­worthy undertakings. Then, and only then, can the market prices of steel decline in response to keener competition. And not until that happens will there be any great requirement upon or incentive for successful management to pay higher wages in order to obtain and hold the best workmen. According to Walker‘s view, the trend has been entirely in the wrong direction—and organized labor has spearheaded that drive, to the grave detriment of society generally and to the injury of all but the least worthy of its own membership. The effect of indus­try-wide bargaining has been to perpetuate in business the "no-profit" steel operators, whose high costs hold steel prices up and steel­workers’ wages down.

The same results are obtained through featherbedding and slow­downs and absenteeism and all the other union devices that tend to equalize the output of a good workman and a poor one—of profitable management and "no profit" management. The result is less steel at higher prices and at lower wages than would otherwise be effected through active compe­tition.

Other equalizing devices that work in the same general direction are minimum wage legislation; unemployment compensations that have been forced toward prevailing wage rates; excess profits taxes that deprive the suc­cessful of the rewards for cost re­duction and of the means and in­centive for expansion; the arbi­trary awarding of government contracts to companies that "need help"—indeed, the whole "ca­boodle" of welfare state practices, which generally have had ample support from organized labor.

These are a few of the things upon which the recent steel strike shed little light, if any. But the light struck in the nineteenth cen­tury by men such as Walker still flickers—ready to show the way to labor union members, the Amer­ican public, anyone who has had enough of coercive political man­agement of his life and who seeks a better alternative.

ASSOCIATED ISSUE

October 1959

ABOUT

PAUL L. POIROT

Paul L. Poirot was a long-time member of the staff of the Foundation for Economic Education and editor of its journal, The Freeman, from 1956 to 1987.

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