Morgan O. Reynolds is Associate Professor of Economics at Texas A & M University.
There is a long and violent history of labor disputes in this country. The facts really are not in serious dispute, only their interpretation. Facts always are interpreted within the context of a general theory of human action. One view, popular among Europeans and our industrial relations community to some extent, is that labor violence is sire-ply part of a wider tendency toward violence in the American character. A more influential view promoted by unionists and their academic defenders is that American employers were especially brutal and defiant toward their workers and toward unions, and, therefore, were at least as guilty as unionists in causing la bor violence.
Moreover, goes this theory, the violence which sometimes accompanies labor disputes is incidental, and surely is a small price to pay for the benefits produced by unionism. The well- known rationale is that labor must be allowed to combine for its own protection and use “labor’s weapons” to offset its inherent bargaining disadvantage relative to capital. Unionism allegedly offsets the excesses of capitalism, a system supposedly stacked against labor and in favor of propertied capitalists who control the means of production. In sum, unionists argue that the bene fits of unionism outweigh its modest costs in threats and actual use of violence.
In any analysis of unionism, there are two general issues to confront. The first is to discover the actual effects of unions on economic variables like the level of national output, unemployment, real wages, the rate of inflation, government spending, and so on. The second general issue is to analyze the means unions use to pursue their economic and political ends.
Union men basically argue that their objectives and their effects on the general public justify or excuse the threats and violence which often flare up in union disputes. This argument is familiar among collectivists, who usually argue that it is results that count, not the process. “You must break some eggs to get an omelette,” is their contention. Coercion supposedly is all right when exercised on behalf of the good causes that unions seek to promote, or to put it in economic terms, expected benefits supposedly exceed expected costs. Many people would argue, however, that the end does not justify the means, that, indeed, use of the proper means is the real end that we seek in human affairs. Most economists would also object that unions do not, on balance, produce economic benefits.
Useful theories in the sciences and in studies of human behavior are compact yet explain and predict a rich variety of observed and yet-to-be-noticed facts. The theory of monopoly or cartels in economics passes this test because its application to unions yields a tremendous payoff based on a handful of correct statements about unions. The theory explains an impressive array of facts about what unions do. Moreover, there is no. competing theory of unionism, no other general theory of unionism available. Even though imperfect, we cling to theories which help us to understand a wide range of behavior until a superior theory comes along. And there is no new theory of union behavior on the horizon.
My purpose here is to briefly recount the theory of unionism, show why threats and violence are an integral part of unionism, use the theory to highlight the problem of unionism in the public sector, analyze why the theory is ignored by most of the industrial relations community, and then discuss what to do in terms of public policy.
The Basic Theory
The economist’s special insight into union violence rests on the theory of monopoly, more properly, cartel theory, as well as the general notion that people respond to incentives. In economic terms, a trade union is a combination of sellers of labor services who individually have little or no control over the labor market but who seek to control the market through collective action. Unionists have never concealed their ambitions because they often have announced that their purpose was to “take competition out of wages” or to “take wages out of competition.” Unionists seek higher wages, shorter hours, and more comfortable working conditions, assuming that the leaders operate in the interests of their members, which I am prepared to concede for present purposes.
There is nothing different in principle between labor unions and combinations of other producers who try to restrict supply and push up the prices of their goods or services. Unions are labor OPECs, concentrated interest groups with interests diametrically opposed to those of consumers. The term consumer is really another name for the general public. Consumers are other producers, so unions represent minority groups of workers who pursue their economic gains at the expense of the majority. In Hobbesian language, the economy would be a war of everybody against everybody else if everyone were organized into unionized blocs.
Labor services are the key input, among the many inputs, that businesses and government agencies use in the daily productive process. Owners and managers of businesses naturally attempt to purchase the inputs they desire as cheaply as possible, given the quality they wish to use. They economize on costs in order to show a profit, an essential condition for survival in the marketplace, or else stretch a given budget further. Households seek low prices too, and therefore behave much like businesses in their buying behavior.
Competition Protects Workers
In a competitive labor market, without unions, what would protect workers from exploitation from “avaricious” buyers? Competition would. The presence of alternative buyers for labor services protects people in their capacity as suppliers of labor services. This protection is one of the paradoxes of a free market. Each person in markets composed of many buyers and sellers of similar services is powerless in the special sense that the prices of services are formed in an impersonal way, beyond the manipulation of any individual. Yet each person is all-powerful, too, because of the many alternatives available and the freedom to refuse or accept various options.
The fictional Irish-American philosopher, Mr. Dooley, said, “This country is ruled by courtesy—like the longshoremen’s union.” This comment gets at the heart of the continuing controversy over unions, which remain .the most controversial private (or quasi-private) organizations in our society. Controversy derives from the fact that unions are departures from a naturally competitive labor market and their power to extract economic concessions ultimately rests on their ability and willingness to use force. Unionists promise to deliver monopoly advantages to their members and their power to deliver on their promises rests on the ability to deny businesses and government agencies access to labor, the crucial input in the production process.
Even when all members unanimously agree to withhold their labor services from an employer in order to enforce demands for more pay and better working conditions, a union controls very little of the available labor in the economy. Simple withdrawal of labor by organized workers is rarely sufficient to enforce their demands, and therefore, they resort to violence or threat of violence to prevent other workers from entering the labor market and “undermining labor standards.” Unionized labor markets, to the extent that the unions are successful in their goals, are islands of monopoly wage rates in a competitive sea. These islands can be sustained only by sea walls which keep the rest of the ocean out of their markets, thus forestalling the tendency for prices for similar skills to equalize throughout the economy.
The Power to Strike
Ordinarily, only government can enforce protectionist privileges over the long run, but unions have been granted unparalleled rights of private coercion by government. Unions are a form of restraint of trade because they deny the majority of workers an opportunity to offer their labor services at prices lower than the unionists demand. Successful unionists use intimidation to cut off the labor supply to employers until employers submit to union demands. As Henry George, the 19th-century economic writer, put it, “Those who tell you of trades-unions bent on raising wages by moral suasion alone are like people who tell you of tigers that live on oranges.”
The presence of violence in labor disputes is not entirely undesirable, however, because it shows that unions do not have overwhelming power. It takes two or more parties for violence to break out. Many workers are willing to defy strikes, picket lines, threats, and suffer violence in order to stand up for their own freedom, and to work at wages that they find to be their best available alternative. This is preferable to the situation in England, for example, where unions have such overwhelming coercive power, and more people are imbued with collectivist ideology, so that few defy union rule in strike situations.
Violence also shows the incomplete power of unions because other organized producer groups like the American Medical Association, tree-pruners, cosmeticians, and so on, do not have to rely on strikes and private intimidation. Instead, they have licensing laws. In the event of encroachments on their market, they merely telephone the government for a policeman to restrain new entrants. If unions relied more directly on the public police force to restrain trade on behalf of worker cartels, the hoodlums and other specialists in violence would be less valuable to union officials. Unions then would look somewhat more respectable and less dependent on “undesirable” elements.
Unions in the Public Sector
Unions have grown rapidly in public sector employment since 1960 and government employees now are more highly unionized than employees in the private sector. About one of every two employees in state, local, and federal government is in a union compared to one of every six employees in the private sector. This creates special problems. Many observers have been inclined to say that unionism is permissible, even desirable in the private sector where it supposedly is a purely private matter, but not in the public sector. I do not share this sentiment, but there is a certain satisfying irony to our recent experience.
The National Labor Relations Act of 1935 specifically excluded government employees from its coverage, no doubt based on the opinion that only capitalists abused their “helpless employees,” rather than government as an employer. But beginning in 1962, under President John F. Kennedy’s executive order 10988 to promote unionism in the federal bureaucracy, there has been a gush of legislation and regulation to promote unionism and collective bargaining in the public sector. Proponents of pro-union legislation claim that government employment is just another industry, and that employees should receive the same “protections” as those in the private sector.
The irony is that the coercive privileges that politicians granted in 1935 to unions in the private sector have now come home to roost and confront politicians with the same defiant, coercive opponent in public employment. Government originally sanctioned union threats and force against private enterprises and non-union workers in the private sector, and now faces unions which are prepared to do the same against government itself. Governments that submit to coercive strikes necessarily govern with the forbearance of union officials, an unhappy arrangement which cannot last in the long run, especially in a democratic society.
A Question of Sovereignty
Special features appear to distinguish government from private industry and the first is the issue of sovereignty. One definition of sovereignty is the supreme and unchallengeable right of compulsion. A genuine sovereign cannot be forced to do something by a private person or a private agency and still be called sovereign. Whoever can force government authorities to submit to his will is government.
Government officials of every political persuasion from Ronald Reagan back through our political history have denounced the use of union force against government. Franklin Delano Roosevelt, for example, said in 1937, “A strike of public employees manifests nothing less than an intention on their part to obstruct the operation of the government until their demands are satisfied. Such action looking toward the paralysis of government by those who have sworn to support it is unthinkable and intolerable.” A public-sector union, on strike, announces its in tention to cut off the government’s supply of labor and shut down its operations until its demands are met. This can hardly meet with approval by government officials or by the general community.
A second major difference between government and the private sector is that most government services are paid for through general taxation. Taxpayers are forced to pay, whether they want the services or not. In the private sector, buyers have the option of refusing to pay for a good or service, or else buying it from someone else. No private enterprise, excepting unions, can legally extract revenues through the use of force; they must cater to buyers through voluntary exchange. Union power in the private sector also is constrained by management’s incentive to hold down costs and stay competitive in the marketplace. Governments do not face the same intense pressure for efficiency. The issue can be termed taxation without representation. Unionists, in effect, say that the government (ultimately the taxpayers) is not paying them enough and that they intend to force government to pay them more. If there is not enough money, raise taxes. If the government attempts to hire replacements to perform the services at lesser expense, organized workers use threats of force or force itself to prevent the substitution.
The Market Cannot Serve if Competition Is Forbidden
The third issue turns on the necessity of certain governmental services. The marketplace cannot protect the public very well when there are no good, legal alternatives to government- supplied services. In some cases the inherent nature of the services, arguably, can limit competing suppliers, in accord with the concept of so-called natural monopoly or pure public goods. But usually government artificially prohibits or severely handicaps private competitors. Examples are fire protection, garbage removal, schooling, hospitals, public utilities, and even prison-keeping. Private contractors can supply these services and are allowed to do so in some cases. Naturally, they are more efficient than government bureaucracies, generally at 60 per cent or less of government costs. The presence of multiple producers vastly reduces the vulnerability of citizens to extortion by public employees who operate in a centralized system of government monopolies.
Most observers argue that protective services by police and courts are unique services which can only be provided by government. In fact, law and order is the basic purpose for the existence of government and only anarchists argue otherwise. If we can get along without public protection from aggression, there is no reason to have government in the first place. No mayor or governor can stand idly by during a police strike while society reverts to lawlessness. A police strike is very much like the aftermath of a natural disaster. Owners are not around to protect their property after a natural disaster and even normally law-abiding citizens find irresistible the temptation to take something. Looting and stealing rise sharply unless something is done. Citizens form vigilante committees or, more often, the National Guard is called up.
Collective bargaining by the police, or any other group of public employees, and strike threats are sire-ply two sides of the same coin, as any realistic person must admit. There are other differences in degree between the private and public sectors which we might discuss, but they need not detain us here.
The Industrial Relations Community
Now let us turn to the industrial relations community. The industrial relations community consists of the thousands of personnel directors, labor lawyers, and industrial relations scholars who write about unions and collective bargaining. Why does this community have so little to say about the economic theory of unions and the role of labor violence? The answer, I believe, is threefold: It consists of one part honest ignorance and confusion, one part class interest, and one part financial self-interest.
Most people in industrial relations are ignorant of the truths of economics, and economists are partially to blame because they have failed to explain things clearly, sometimes because economists have lacked the courage to point out unfashionable truths. But a very important element in accounting for the ignorance of economics on the part of the industrial relations community is willful. The intellectual community fails to look frankly at unionism and labor violence because of an emotional attachment to the view that employees are exploited under free market arrangements, receiving too little of national income, while “fat investors” receive too much.
Union violence is exciting in and of itself for many intellectuals, who generally are bored by stability and gradual material progress. Labor violence also provides intellectuals with support for their view that workers are alienated from the economic system. Workers are not alienated. A minority of employees merely respond to the incentives that they face under a legal regime in which unions are tacitly allowed wide latitude to use coercion. Strikers convicted of vandalism, assault, and other crimes are routinely reinstated in their previous jobs with back pay. This is a formula for irresponsibility. These incentives and immunities account for the commonplace threatening and violent behavior of organized workers, not alienation from their work or the economic system, as the academic and intellectual left typically assert.
Even more important than romantic visions of social change and ferment in accounting for the failure of industrial relations analysts to adopt the correct theory of unionism is the fact that our system of mediating, conciliating, arbitrating, fact-finding, and the whole panoply of machinery often labeled our “system of industrial jurisprudence,” provides power and income to the academic community. Industrial relations types perform as expert witnesses, directly shape a turbulent hodgepodge of labor law, and derive handsome fees in the process.
A Vested Interest
Consider arbitration, for example. An arbitrator must maintain his acceptability to unionists, as well as managers, to sustain this source of income; otherwise the parties will choose other arbitrators or settle their differences directly, saving the expense of arbitration. The situation is analogous to a court system in which each judge would derive his income directly from the disputants and would thus take their reactions into account in his decisions.
Concepts like “past practice” and “common law of the shop” were introduced so that arbitrators could decide more grievances for unionists. Employers now are saddled with a kind of arbitration which they probably never expected to pay for. Although arbitrators deny that they are concerned about rendering at least 50 per cent of their decisions in favor of union grievances, it is well known that commercial organizations issue ratings on arbitrators and prospective arbitrators, basically in terms of “pro” or “anti” union. The incentives for arbitration and other consulting income help to explain the bland nature of the academic literature in industrial relations, where no scholars are known as “anti-union.” It simply pays to be confused. Or, as Thomas Sowell has remarked, “The advantage of intellectuals is that they are not perceived as interested parties.” The hard truths of economics are inconvenient in such an environment.
Labor violence is an inevitable side-effect of government-supported worker cartels in an economy that has large numbers of managers and workers who refuse to cooperate with strikes and union coercion. So what can we do about this unsatisfactory state of affairs? There are a variety of competing proposals, many of them excellent, but I want to remind us of what our long-run objective ought to be. Our aim should be to restore the rule of law by repealing the entire muddle of labor laws and regulations which have effectively exempted unions from the rules which apply to everyone else. We should repeal all the laws, statutes, rulings, and regulations which exempt unions from the peaceable behavior expected of everyone else. Unions essentially are immune from contract and tort law and they should be brought back under it. Justice should no longer peek and ask whether or not a union man committed a violent act in pursuit of union purposes. A violent, illegitimate attack is an act of aggression which ought to be punished regardless of its announced purpose.
We cannot declare that this is a free society until everyone is free to accept the best available offer for his or her labor, best in that person’s own opinion, free from threat, regardless of how much these decisions supposedly harm the higher-income-people represented by union officials. The benefits of unionism do not outweigh the costs of union violence. There are no benefits from unionism for the great mass of working people, only costs. Unions are not public servants that offset the excesses of capitalism, but sectional interest groups with coercive privileges. Peter Wiles’ indictment, written in 1955, says it well:
It is truly amazing that anyone should suppose this crude, selfish, violent and piecemeal process to contribute to social justice. It is, when we come to think of it, incredible that the building up by some salary and wage earners of monopoly power, in greater degree here and lesser degree there, should improve the distribution of income among them all; so incredible that the supposition has only to be directly given utterance to be dismissed.