All Commentary
Tuesday, February 1, 2000

Unions and Antitrust: Governmental Hypocrisy

When it Comes to Antitrust, Courts Routinely Ignore the Rule of Law

Section 1 of the Sherman Antitrust Act states that “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce . . . is hereby declared to be illegal.” Notwithstanding that the antitrust laws have been used to favor particular competitors rather than the competitive process, the Act implies that the federal government stands for open markets.

However, on top of its other failings, antitrust law is a particularly egregious example of government hypocrisy because Congress has exempted unions. That is how the U.S. Supreme Court interprets the Clayton Act (1914) and the Norris-LaGuardia Act (1932). Moreover, Congress has gone further with the National Labor Relations Act (NLRA), which promotes and protects unions as combinations of workers in restraint of trade.

Economists define a cartel as an agreement among sellers (or buyers) of a product or service to eliminate or restrict competition among its members. For example, if General Motors, DaimlerChrysler, and Ford attempt to fix prices and assign sales quotas, that organization would be a cartel and illegal under the Sherman Act. (Whether it should be is another story.)

Similarly, if the employees of General Motors, DaimlerChrysler, and Ford organize to fix wages (set a standard union rate) and set up job demarcations (specify who does what work) that organization would be a cartel. Using ordinary English, the worker cartel (union) would be a combination in restraint of trade, but it would not be illegal under the Sherman Act.

The Clayton and Norris-LaGuardia Acts give unions a statutory exemption regarding specific “anticompetitive” activities, including secondary boycotts, picketing, and strikes. Whenever unions undertake other activities that are not specifically exempted, but which are “anticompetitive,” they, too, are declared exempt simply because they must be in order to make the NLRA effective.

For example, in the Allen Bradley case (1945) the Court ruled that collusion between unions and employers that restricts competition in labor markets is exempt, but collusion is not exempt when it restricts competition in other markets. Yet restrictions on competition in labor markets necessarily affect other markets. Every collective bargaining contract is the result of joint action of an employer and a union to fix wages and work rules in a labor market, and this necessarily affects the prices and availability of the goods and services produced by that labor. The Court had to make this spurious distinction to avoid contradicting the NLRA.

Ignoring Constitutional Principle

A basic principle of the rule of law under the U.S. Constitution is equal treatment under the law. The statue of Justice wears a blindfold signifying that all courts, including the U.S. Supreme Court, should apply the same rules to all irrespective of their identities and circumstances. There is not supposed to be one set of rules for some and a different, contradictory set of rules for others. But when it comes to antitrust, courts routinely ignore the rule of law.

Consider Hunt v. Crumboch (1945). A union used its closed-shop contracts (which when forced on employers are anticompetitive) with shippers to drive a trucking firm out of business simply because the union leaders didn’t like the owners. All the shippers with whom the target firm might have done business had agreements with the union that they would use only unionized truckers. The target was willing to unionize, but the union refused to accept any of the target’s employees into the union or to supply the target with any unionized drivers. Simply put, out of pure malice, the union drove the target firm out of business through its legally privileged combinations in restraint of trade. These activities were declared legitimate because, and only because, they were carried out by a labor union. The Court conceded that “Had a group of petitioner’s business competitors conspired and combined to suppress petitioner’s business by refusing to sell goods and services to it, such a combination would have violated the Sherman Act.” Hypocrisy replaced the rule of law.

The Remedy

One who understands the competitive market process knows that so long as combinations in restraint of trade are not supported by government, they are unlikely to be launched, and if launched they will quickly collapse when members cheat on one another and discover ways to compete not covered by the cartel agreements.

The remedy for governmental hypocrisy in antitrust is not to apply antitrust regulations to unions. Antitrust regulations are inconsistent with the principles of a free society. They are not needed and they are never used to protect the process of competition. The last thing we need is for bad law to be applied equally.

There is only one way for a free society to treat business enterprises and unions equally with respect to antitrust—apply the law to neither. Depend on the open market process to maintain competition. Government’s role is merely to enforce the rules of property, contract, and voluntary exchange.

However, doing away with antitrust regulation is not enough. Government must cease supporting combinations in restraint of trade. This means the NLRA must be repealed and replaced with voluntary unionism. Some may dismiss this proposal as politically impossible. But nothing of value will ever be accomplished if innovators only propose what seems to be politically possible. History is replete with stories of the politically impossible becoming the status quo. In the 1950s the abolition of Jim Crow laws in the United States seemed politically impossible. Until the early 1990s the abolition of apartheid in South Africa seemed politically impossible. In comparison, the abolition of compulsory unionism seems not much at all.

There is an excellent real world model for the abolition of compulsory unionism—New Zealand. In 1991, the New Zealand Parliament enacted the Employment Contracts Act, which eliminated most forms of compulsory unionism. Today, individual workers are free to decide whether to represent themselves or to authorize an agent to represent them in bargaining for wages, salaries, and other terms and conditions of employment. Unions may represent only their voluntary members. There can be no forced membership or forced dues. Employers and workers are free to choose whether to enter individual or collective contracts. An employer may have individual contracts with some workers and collective contracts with others. All arrangements are made and carried out on the basis of mutual consent. Competition among alternative forms of labor representation is unrestricted and unregulated. The rule of law in labor relations has been re-established in New Zealand. We must do the same in the United States.

  • Charles Baird is a professor of economics emeritus at California State University at East Bay.

    He specializes in the law and economics of labor relations, a subject on which he has published several articles in refereed journals and numerous shorter pieces with FEE.