All Commentary
Sunday, September 1, 1985

The Three Faces of Unionism

Dr. Hans Sennholz heads the Department of Economics at Grove City College in Pennsylvania. He is a noted writer and lecturer on economic, political and monetary affairs.

Myths surround one of the most important yet least understood institutions of contemporary society—labor unions. These myths persist, not only because the critics are weary of facing and exploding them again and again, but also because labor organizations have a vested interest in reinforcing them. The very existence of unions depends on the perpetuation of the myths that comprise the labor union ideology.

The core of the ideology is the notion that the market order does not function fairly and equitably and that it victimizes working people. Adam Smith remarked that workers labor under a disadvantage in their dealings with wealthy employers. Jean-Baptiste Say, J. R. McCulloch, and John Stuart Mill echoed the notion. Alfred Marshall confirmed it, as did A. C. Pigou and nearly all contemporary economists. They all commiserated with laboring people and, therefore, extolled the benefits of labor organizations for the purpose of removing the disadvantage. They often stood shoulder to shoulder with socialistic writers who hailed labor organizations as ramparts against the evils of competition and as mainsprings of social justice.

The union ideology is as animate and alive today as it was at its beginning. Most contemporary economists still cling to the age-old notions of employer holding power and labor inability to wait, or to some aged exploitation doctrine. But in contrast to yesteryear, unionism now is deeply entrenched in tradition, legislation and jurisdiction.

Labor unions are well-organized and well-financed institutions that do everything in their power to preserve their existence. To ensure their survival, yea, their growth and expansion, they pursue every feasible option along ideological, economic and political lines. Struggling valiantly for self-protection and self-preservation, they have assumed ambidextrous features and faces, which may predominate differently over time, according to the strength and kind of resistance confronting union efforts. But regardless of the predominant face, the activities of labor unions are always directed toward self-preservation by remaking the union environment, removing disabilities and extending the scope of union opportunity.

Inculcation and Indoctrination

Labor organizations are among the most effective educational institutions in all matters of economic and social thought. Well-financed, always activist, they engage in systematic propagation of economic doctrines reflecting union views and interests. They energetically work through all media of communication and impart their doctrines on all levels of education. From coast to coast countless union organs make extensive use of historical narratives that tell the union story, of foes and friends, of sacrifices and triumphs. They speak of the worker’s noble struggle for recognition and status in the late nineteenth and early twentieth centuries, and of violent resistance by greedy managers and owners. When in desperation workers resorted to strikes and boycotts, management fought back with lockouts, blacklists and strikebreakers. But in the end, so the unions report, justice prevailed and organized labor became strong enough to bar gain on an equal basis with its evil adversaries and call a halt to labor exploitation.

The remarkable success of this union rendition of labor history is built precariously on several subtle and specious pieces of popular reasoning. Every union organization routinely builds on the fallacious notion that labor conditions were deplorably poor in the past, but improved materially when unions appeared on the scene. Union spokesmen routinely echo the primitive syllogism that events coinciding in time must also be related causally. They repeat ad nauseam that at the beginning of the labor movement more than a century ago, when few workers were organized, hours were long and wages were low. But the knights and heroes of labor confronted the exploiters and fought them to a halt. Union effort and sacrifice brought remarkable improvements.

The advocates of government regulation of hours and wages usually draw a similar conclusion. Labor conditions were poor before government intervention; they measurably improved since government passed minimum wage laws and forcibly limited the hours of labor. Consequently, they confidently conclude, the intervention by wise legislators and civil servants materially raised the workers’ level of living. Unfortunately, neither the advocates of labor legislation nor the proponents of union organization tell us how the improvement credit is to be divided and attributed.

If it were true that events coinciding in time are, ipso facto, connected causally, we could also conclude that acid rain and water pollution in recent years have visibly improved our levels of living, that the roar of jet engines has enhanced our environment, and the increase of heart dis ease and cancer has added to our quality of life. Of course, no rational observer would draw such a conclusion. But we are urged to believe, and millions of people actually do believe, that labor unions and labor legislators did improve working and living conditions through strikes, threats of strikes, or legislative restrictions.

It is self-evident to economists that labor’s phenomenal progress resulted from increased productivity, that is, from more output per man-hour. Labor reaped great benefits as labor productivity rose due to increased capital investment per worker. Better tools and equipment provided by investors caused output to double every twenty to thirty years. Moreover, inventors created new products and devised new techniques while entrepreneurs made better use of existing capital as well as manpower. With the rise in the marginal productivity of labor, employer competition in the labor market caused wage rates to rise and labor conditions to improve.

Union Harm

Workers themselves did not contribute to the steady improvement in their working conditions unless they managed to save and invest in facilities of production. In fact, wherever labor unions caused output to decline through strikes, inefficient work rules, labor agitation, or any other reason, they actually kept wage rates lower and working conditions poorer than they otherwise would have been. The visible deterioration of economic conditions in countries with powerful unions, e.g., Great Britain, illustrates the point.

The remarkable sway of union ideology rests on a logical error that confuses coincidence in time with causal relation. Throughout most of union history the spokesmen of labor, voicing crude versions of the exploitation doctrine, made their demands for more, more and ever more in exchange for ever less labor exertion. In most parts of the world laboring under stagnant economic conditions, such demands would have been simply dismissed as sheer lunacy—the machination of madmen.

Entrepreneurs Raise Productivity

In the capitalistic countries, however, entrepreneurs and capitalists in time succeeded in significantly raising labor productivity, thereby boosting wage rates and improving labor conditions. They actually delivered what unions were demanding. But who was acclaimed as the great benefactor of labor? The agitators proclaiming exploitation and profiteering, or the capitalists—entrepreneurs who were quietly building tools rather than consuming their incomes so that there should be more in the future? Unfortunately, public opinion was led to applaud the loud agitators and feature the union leaders.

Labor leaders forever reinterpret labor history. They extol virtues and motives of the agitators of labor unrest such as in the case of the Great Railroad Strikes of 1877 when twenty people were killed in Pittsburgh. Rioting, looting and burning destroyed millions of dollars worth of railroad property. In the end, Federal troops had to be used to suppress the disorder. Unions commem orate the Chicago Haymarket Riot of 1886 when a bomb was thrown killing one policeman and wounding many others. Seven perpetrators were arrested, four of whom were hanged. Unions treasure the memories of the Homestead Strike of 1892, the Pullman Strike of 1894, the Coal Strike of 1902, and the most bloody Colorado anthracite coal mine conflict leading to the “Ludlow Massacre” of April 20, 1914, when women and children burned to death. Unions cannot forget how slow state and local governments were in coming to the aid and support of labor, and how, in many cases, they actually thwarted the efforts of workers to gain their objectives.

Union thought deeply influences the tone and emphasis of economic writings. There are few textbooks in economics that do not laud the valiant efforts of labor organizations toward improving labor conditions. There are few economic commentaries that do not extol the virtues of labor unions. They pave the way for socialism; in fact, most labor unions actively proclaim, promote and disseminate the doctrines of socialism. After all, it is difficult to censure the competitive system for its labor inequities without drawing the conclusion that it should be abolished. But even where union leaders cast their lot with the market order, their tacit assumption of labor exploitation tends to pave the way for the command system.

Economic Functions and Policies

Labor leaders fervently disseminate crude notions of the labor theory of value and the exploitation doctrine, which provide the raison d’être of unionism. Without union protection, we are told, most Americans would be laboring from dawn to dusk for pennies an hour. Unions are said to have raised, and continue to raise, the wages of all workers through association and collective bargaining, to have improved working conditions and reduced daily chores and working hours. Because of their great faith in labor unions and labor objectives, the American people continue to endure destructive strikes and threats of strikes, tolerate union coercion and violence, suffer many inconveniences, and credit economic improvements to labor leaders. To many millions of Americans, membership in a labor union is an important social duty and the strike a noble task.

Unfortunately, the exploitation doctrine, wherever it serves as guidepost for human action, engenders disaster. The labor legislation it breeds not only reduces labor productivity and wage rates, but also sows discontent and social conflict. The minimum-wage legislation and other attempts at raising wage rates and fringe benefits above those determined by the market, create unemployment and depression, which in turn calls for ever more government intervention. The labor unions it sponsors not only reduce labor efficiency through a multiplicity of work rules, cause maladjustment and unemployment, especially of junior members, but also reduce eco nomic service generally, which keeps levels of living lower than they otherwise would be.

The basic method of all unionism is restriction of labor competition; the basic effect is unemployment. In an unhampered labor market without labor unions, wage rates and working conditions are determined by the productivity of labor, which, in final analysis, is the value ascribed to services by consumers, clients and patients. Competition among employers, together with opportunities for self-employment, tend to lift the wage rate of every worker to this very level of productivity. If, for any reason, someone should earn less than his productivity rate, his employment would be highly profitable. He would become the object of employer bidding for labor, which would lift the price of his labor back to his productivity level. If, for any reason, he should demand more than his productivity rate and claim a share of capital or entrepreneurial income, he is a candidate for unemployment. That business would be more productive without him.

Professional people, too, are subject to these principles of the market. Their incomes are determined by the value judgments of their customers, clients and patients who are the supreme directors of the production process. Surely, there is deplorable government intervention that makes matters worse. In the health-care industry, government may subsidize and regulate the industry through Medicare, Medicaid and other schemes, which make it vulnerable to politics. The industry must expand or contract, prosper or suffer, always readjusting to changing political fortunes. A labor union representing doctors would not improve the situation; it, too, would reduce the quality and quantity of the service and provoke ugly confrontations.

Restricting Entry

Unions restrict competition in their part of the labor market in order to raise the wage rates of their members. They are not concerned with outsiders whom they bar from access to union industries. Nor do they give much thought to their junior members who may lose their jobs as a result of union activity. But they are rather effective in their efforts to raise the employment costs of senior members while inflicting grievous losses on junior members, outsiders, employers, and consumers. Unions restrict the competition of outsiders whom they fight with every available method, even violence on the picket line. The excluded workers must seek other employment or remain unemployed. Their fate is of no concern to the unions.

When, many decades ago, unions were limited to a few industries only, the labor they cast out could find employment in other parts of the labor market that were still free. In them the supply of labor would rise, which would lower the wage rates of unorganized workers. But with the spread of unionism throughout basic industries and the proliferation of labor legislation, e.g., minimum wage legislation, there is no escape for the victims. Unemployment has become a chronic mass phenomenon that is holding more than eight million Americans in its grip.

Unions favor collective bargaining which, in union terminology, means the substitution of a union’s bargaining for the bargaining of individual workers. In reality, it is the bargaining of a select group that asserts the power of the picket line to keep all outsiders from bargaining. Collective bargaining, in this sense, means the denial of the right to bargain by outsiders. When some union agents sit down to deal with an employer, other agents and members are guarding his gates and forcibly preventing outsiders from competing. The employer, fearing violence at his site and willful destruction of his property, may have no choice but to deal with the agents.

Bargaining By Coercion

If union bargaining were truly collective it would give a voice to all workers at the gate, including eager job seekers. In reality, it is confrontation at the point of a gun. The “right to strike,” which is sacred to all unionists, is said to be a natural right to abstain from work. In reality, it is the right to force other people to join the strike. It is the right to prevent willing and eager workers from taking the place of striking workers.

During a recent strike by some 52,000 hospital workers against 30 New York City hospitals and 15 nursing homes, 1,199 workers were arrested or charged with serious strike-related offenses. (The New York Times, August 26, 1984, pp. 1, 47). If 1,199 workers were caught in the act and apprehended, it is likely that many more committed criminal offenses and escaped undetected and unmolested. Surely, the New York police, like any other police, are not likely to apprehend every scofflaw in the very act. Moreover, they cannot possibly prevent the violence or threats of violence against reluctant union members who would work rather than strike and against unemployed workers who would love to fill the open jobs. The potential violence committed against fellow workers and their property usually exceeds by far the destruction wrought on employer property. But in the case of hospital workers the greatest harm undoubtedly comes to the patients whose suffering is aggravated by the wanton denial of care.

Labor unions are the product of the ever-changing labor ideology. From their modest beginning nearly two hundred years ago until this very day their words and actions are clearly discernible in the writings of the critics of the private property order. At the beginning and well into the nineteenth century, however, the legal system remained free from labor ideology, which permitted the courts to examine critically union organization and activity. Courts found that trade societies formed either to benefit their members at someone else’s expense, or to work harm on workers who did not join the movement, were disturbing the peace and disrupting social cooperation.

In an 1815 decision involving the shoemakers of Pittsburgh, the court ruled that union activity was harmful not only to employers but also to the community at large. Under the influence of English common law, some judges even held that labor organizations, in denying basic rights to outsiders and forcing other workers to join every strike, were conspiracies prejudicial to the public interest. But while the courts may have limited the effectiveness of early labor organizations, they did not prevent the continuation and expansion of the union movement. After all, ideas control the world; they are mightier than the laws of politicians and the prohibitions of judges.

Political Reform Movement

From the very beginning the union movement was also a political reform movement that sought to achieve by political force what it could not attain by economic force. Where trade unions proved powerless in changing the laws and principles of the market, their representatives were more successful in the halls of politics. As political reformers they labored to introduce government intervention in the economic and social order.

Unionism is an offshoot of modern political and economic ideology; the country that pioneered modern political and economic thought, Great Britain, was also the first to give rise to unionism. It was primarily political at its inception, a constituent of a popular reform movement that later took its name from a national charter, the Chartist movement. Concentrating on political demands, it advocated universal manhood suffrage, the ballot, equal districts for Parliamentary representation, annual parliaments, the payment of members of the House, and the abolition of property qualifications for membership in Parliament.

Some two million Chartists expected successful political action to lead also to economic changes, since political representation of the working classes would lead to measures favoring them. Chartist leaders usually urged peaceful methods, but their agitation aroused resentment and often encouraged violent action. Chartism did not bring the revolution its opponents had feared, but it did lead to political reforms and, above all, leave a foundation for future labor movements.

With the decline of the Chartist movement during the middle of the nineteenth century, British unions for a while concentrated on economic issues. Toward the end of the century, however, they turned to politics once again as socialist ideas—although non-Marxian—were swaying the movement. Their renewed interest in politics brought forth the Labour Party, their primary political instrument. In Great Britain as in other countries following the British example, labor unions now are firmly affiliated with the Labour Party or the Social Democratic Party. Union members may be required to pay “political levies” along with their union dues.

On the European continent, unionism typically developed as part of a wider labor movement, with a Marxian political party usually taking the lead. The party organization generally is the intellectual elite of the movement, affording guidance to and often assuming control of the unions. But political control tends to divide the movement, with different political parties establishing competitive unions. The predominant current is socialistic although some unions are affiliated with Christian parties (mostly Roman Catholic), nationalistic or democratic parties. A few communistic unions are associated with the party of Marx and Lenin.

From Unionism Pure and Simple to Political Action

The American labor movement, throughout most of its history, kept its distance from socialism and partisan politics. It was “trade unionism pure and simple,” with the single purpose to engage in collective bargaining in order to raise wages and improve working conditions of union members. It tacitly assumed that, under capitalism, workers may prosper provided they are organized. But the logic of its own ideological base, the labor theory of value and exploitation doctrine, gradually led it to the socialist philosophy that promises lasting relief to labor only by a radical reform of the system. Collective bargaining must take second place to political action.

Since the 1970s the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) has become a prime supporter of statist remedies for economic problems, real and imagined. With many unionized industries sinking into deep depression and membership unemployment rising to fifty per cent or higher, the traditional instruments of union power, collective bargaining and work stoppage, have lost most of their potency. In fact, they demonstrably make matters worse, causing industry to sink ever deeper and unemployment to rise ever further. Of course, labor leaders would never admit any union responsibility; instead, they are quick to point at the administration in power as the maker of depression and unemployment. They become supporters of political action.

The AFL-CIO now supports the enactment of legislation that would protect unionized industries from foreign competition. It advocates such protectionist measures as domestic-content laws and import quotas, and opposes all efforts at lowering trade barriers on imports from developing countries. It calls for a tripartite National Industrial Policy Board, made up of representatives of organized labor, government and business, that would oversee the re construction of the nation’s sick in dustries and decaying communities. Labor is backing legislation that would prohibit plant closings or at least make them prohibitively expensive, and would inject grants and subsidies into struggling, heavily unionized industries.

Unlike the AFL-CIO of old, which had no intention of running the country, the new AFL-CIO acts as if its very survival depends on political action. This new perspective is making labor unions a part of a larger, liberal-socialist movement for economic, social and political reform. In the footsteps of the European movement, the fiercely independent unions of old are turning into vocal institutions of ideological indoctrination and party politics. But no matter what their strategy may be, the only way of obtaining higher wages, shorter hours, and better working conditions for all is, and always has been, to raise labor productivity.

  • Hans F. Sennholz (1922-2007) was Ludwig von Mises' first PhD student in the United States. He taught economics at Grove City College, 1956–1992, having been hired as department chair upon arrival. After he retired, he became president of the Foundation for Economic Education, 1992–1997.