Rethinking Unions II: A Time to Kill (Firms)

Previous in the series:

I started off this series hoping to get some good comments that would further my rethink. Jim Bennet is an articulate representative of a current in the comments – “The first thing is for the union to realize that the primary interest of the union is to see that the employer survives and prospers.” I disagree but only because it ignores an important case, when employers do not deserve to survive.

I am starting from the premise that in capitalism’s 3 legged stool, there is no privileged leg. Capital, labor, rents, all have their heroes and their villains. All need to have the heroes promoted and the villains marginalized. This line of cooperativist thinking denies the need for villain marginalization. But sometimes we do need to kill off businesses. Sometimes we have too many firms and the weak need to go to the wall while salvaging their resources as much as possible. If either hero promotion or villain marginalization processes are weak or missing, the capitalist system suffers economic performance drops. We must have robust systems to more efficiently kill firms that need to die and labor can play an important role in that capitalist process. Labor needs to judge capital and act accordingly.

Let’s take a look at the UAW, for example and grant that everything they say about GM management is true. Let’s stipulate that collectively, GM management is unimaginative, largely made up of poor planners, make repeated bad decisions over a span of decades, and are generally responsible for running an American icon into the ground. So why did the union let them get away with it when they could have destroyed GM and served their members better? Stipulating that the UAW is entirely right about its indictment of GM management should have led to entirely different behaviors and would have largely saved Detroit and helped keep the rust out of what we now call the rust belt.

The UAW should have looked ahead to the inevitable train wreck and politically encouraged company formation in the areas where its members lived. It should have reworked its own structure so that union members moving to “nonunion” firms didn’t lose out with the union by it. It should have educated its workforce on the need to pass judgment on bad management in a practical sense and the importance of creating enough jobs at good employers so there would be sufficient lifeboats at other firms when GM eventually collapsed under the weight of its poor decisions. The UAW did none of this. That’s a good reason why the UAW needs to be replaced.

The UAW should have encouraged the creation of laws to allow quick approval of low volume models so that custom car builders in the Midwest would be a constant challenge to “the big three” and increase the chances of an American firm with better management rising up on a consistent series of hits and replacing GM. That could happen either by simply outcompeting GM or as NeXT software did to Apple by the guppy swallowing the whale and giving the larger company a management transplant.

A proper representative of labor would be agitating against laws restricting the sale of automobiles to expensive dealership networks, for reducing the cost of approving cars so they can be driven on public roads, and generally for pro-startup legislation. A proper representative of labor would pressure local municipalities and counties to constantly diversify their job base so that no matter how badly a particular company did, members wouldn’t be stuck in dying towns with few job prospects.

A capitalist system that had unions like this would have improved growth prospects, healthier communities, and be much more hostile to bad management wasting resources and serving their shareholders poorly. It makes you wonder why nobody’s made this sort of organization.

15 thoughts on “Rethinking Unions II: A Time to Kill (Firms)”

  1. Unions were legalized in the 1930s with the intention of turning them into political armies. Like I said yesterday, burn it down, plow it under, sow it with salt, then wait for six generations.

  2. German unions have their origin in Socialism and shared ownership appeals to them. This did not produce good policy when the Wall came down. They could have allowed Germany to complete as a low cost producer until East Germans caught up with productive methods but they did not. This cost me some money and I don’t forget.

  3. Unions are essentially political organizations and really always have been. The leadership of them are not long term thinkers, any more than Congress is. They are going to do what they think is best for themselves and current members of their Union. No Union official would would encourage the formation of competitors to the employers of their members….they’d be thrown out of office.

    Unions have little value in today’s environment, except for the fact that they exist. Unions don’t keep management on their toes….the THREAT of a union is much more effective.

    FYI – I spent 30+ years negotiating with Unions, including the UAW, OCAW, Steelworkers, ICWU, Teamsters and various AFL craft unions. Michael Kennedy is quite correct in his assessment.

  4. Until as recently as the last decade, union leaders very much believed in Gailbraith’s “eternal corporation” that had no competition, could fix prices and would never die. Under such a delusion, unions have always enter negotiations from the premises that (1) there is for all practical purposes no way their actions can seriously harm an eternal corporation and (2) that eternal corporations have a functionally unlimited amount of money and that the only thing under discussion is how much of it should go to the union. Under such a conception, unions never stopped to think about any harm that might be doing the companies they organized in.

    I remain convinced that unions are mentally stuck in the golden era of 1945-1965 when US heavy industry had no major competition. Unions could ask for the sky an industry would shrug and pass the cost onto consumer (especially outside the Great Lake states) and foreign consumers. Once competition returned, they simply couldn’t adapt.

    Unions are the primary drivers of crony capitalism and they protect poor management by forcing the government to bail out poorly managed companies directly or through tariffs or other interventions. Unions do everything in their power to cripple the non-union competition for unionized companies.

    The best thing we could do for unions would be to make it illegal for the same union to represent workers in competing companies. In that case, workers would have to take the health and management of the company into account. Of course, that would undermine their political/class-warfare utility but it would be better for consumers, shareholders and the union workers themselves.

  5. T.M., the transaction costs of leaving one employer and going to another are substantial for employees in big corporations as the system is set up now, and employees have strong incentives to minimize the number of times they do it. It would take a huge amount of restructuring to make this otherwise. A big start would be severing health insurance and pensions from employment, and (as I said in my prior post) repealing the Wagner Act, which makes unions a quasi-state organization entitled to use part of the state’s monopoly of force. This may happen as a result of the general decline of large corporations, but it’ll be a long process, probably.

    Unionism is a generic label that masks the difference between quite dissimilar activities and types of organizations. Craft or skilled trades unions began in times and in industries where workers had to have highly specialized skills and local knowledge and it was difficult to find adequate replacements. Craft unions were essentially seller’s cartels of specialized skills, trying to use moral suasion and appeals to long-term interest to prevent some skilled workers from breaking ranks and selling their skills below the level set by the union. They were effective where the skills were genuinely scarce. First-generation industrial revolution industries often had a core of skilled specialists at the heart of their processes — mould makers in iron foundries, or locomotive engineers on railroads. These would be unionized even when the mass of ordinary workers were not. Then less-scarce skill levels would unionize and appeal to labor solidarity to have the skilled workers join them on strike — railway brakemen would appeal to the engineer’s union to join them on strike. This would work sometimes. But the mass of industrial workers were too replaceable for this to work as a general strategy. This is why steel and auto were not really unionized until the Wagner Act, which legitimized “industrial” unions as a semi-state, compulsory organization in mass workplaces.

    The 1948 Taft-Hartley Act allowed states to exempt themselves from some of the Wagner Act’s provisions. Since then industry and population has flowed to the exempting, “right-to-work” states, draining non-exempt states of people, jobs, tax revenues, and electoral votes. It is likely that unionism will retreat to its original function of being a skilled workers’ cartel, or reform itself very radically. The pattern Shannon advocates is typical of Japanese “company unions”, which are more than they seem, and worthy of independent discussion.

  6. TM you are writing about what you wish would be the union’s thinking – not what it is. You could tell the UAW – and inept GM leadership – let the company go down – there is so much hatred in the “rank and file” that they’d rather the company go bankrupt.

    And of course Obama came to the rescue.

    Did you see pictures of those foaming-at-the-mouth teamsters in Wisconsin recently?

    Do you think they are going to change their thinking?

  7. Robert Schwartz – Unless you’re looking to abrogate freedom of association, labor associations in some form will exist. I’m uncomfortable handing the state enough power to do as you suggest. The cure seems worse than the disease.

    Mike Doughty, Jim Bennett – Union membership is a key function but I think you treat it more as a constant and less as a variable. I’m still working on my own thoughts in this area.

    Shannon Love – Delusional incumbents always make a field ripe for new entrants. What makes upstart unions so rare?

    Bill Brandt – I am working my way through a model business plan for a union that would be a superior organization to the incumbents, would sweep their tired, old business models before it and would be a “game changer” that would substantially improve capitalism as it is practiced in the real world.

    I do not believe that this would change the foamers. The problem with them is that they constitute too high a % of the current union population and effectively dominate the unions. Diluting their influence is a key metric.

  8. TM Lutas – What makes upstart unions so rare?

    In a word – violence. I’ve witnessed this first hand. In the early 1970’s there was a group in the Detroit area, the Workers Action Movement, that began attracting members within the UAW. There was speculation that their more radical agenda would eventually overtake the UAW in some plants where they had substantial support and perhaps they would supplant or take over the UAW. They engineered several wildcat strikes and sit down strikes at various auto plants (primarily Chrysler plants) in the Detroit area in 1973. Chrysler and the Detroit Police did little to effectively address these actions. The UAW, on the other hand, seeing a challenge to their status and authority as the bargaining agent for the workers in these plants, companies and industry, organized “flying squadrons” of the biggest, hardest, most committed members of each UAW local. They descended on the stuck plants with pipes and 2x4s in a coordinated attacked at the same time as the police were pulled off to attend a “meeting”. A goodly number of WAMmers, as they were called, were hospitalized, although in many places the large number of flying squadron members used intimidation and minor violence to chase strikers out of the vicinity. The carnage effectively ended the WAM. This is just one, rather extreme example of why there are no “upstart Unions”.

    To some of you this will seem like ancient history, but things haven’t changed much in the union’s willingness to use violence and intimidation, as evidenced by much more recent activity in Wisconsin and around the country.

  9. Anonymous – I think the soul of the UAW was born in the 30s with the massive strikes against primarily Ford – Didn’t Ford shoot some of them? Unions have always relied on violence and intimidation to enforce their authority. Some years ago I was talking with a retired Flight Attendant who was with our late (and missed) airline PSA. They even painted a “smile” on the nose of all their planes. It was started post war 2 by some old Air Force guys – 3 if I am not mistaken – and a DC3. The headquarters was always San Diego.

    PSA was in many ways the predecessor to Southwest airlines – wise cracking flight attendants – the whole airline had a different – “happy” persona to your typical airline. The short story is that like so many regional airlines they were absorbed by some old legacy airline (in the case US Air) and the airline – and their routes – disappeared.

    But according to the FA shortly before that happened the unions came in and wanted to unionize the workers – managers (a few) were actually beaten up.

    The mgt lives too well off union dues – I think the leader for the union representing supermarket workers here actually has his own jet – well, the union’s jet.

    I don’t see how this reform is supposed to happen although among the unionized work force about 40% have in the past voted Republican. And there is a movement to dilute the power of the management who donates over 90% of their political money to the Democrats. But it is not coming from the unions.

  10. By its very nature a union will attract the unhappy and the unimaginative to its core membership. An employee who is happy or satisfied with his job will work with the company to improve things. The best employees are sufficiently secure in their skills that they will readily go work for a better (either in pay or opportunities) competitor or even start their own companies.
    When a corporation announces it is outsourcing manufacturing the unions always decry the job losses, but you never hear them vow to set up a competitor and beat their old employers at quality, service and price.
    To most people the idea of getting a job and sticking with it until retirement is fairly attractive. The alternative of having to compete for their job, to put in additional work for keeping their skillset relevant and the horror of the company going under through no fault of individual employees is scary. However it is the reality in this day and age of not only global competition, but also of knowledge and skills becoming more fluid and the continuing disintermediation by the internet.

    The capitalist answer to unions is competition. Stop politicians from raising the barrier of entry to aid their cronies. Give those who are complaining the opportunity to put up or shut up, and let those companies who are beyond reform fall by the wayside. Invest in relevant training.
    In the Netherlands the government has made some long-term adjustments that decouple healthcare and pensions[*] from the current employer. If done carefully (and avoiding the usual socialist pitfalls) such would be a good thing for personal security and labor market mobility.

    [*] Not that unions are not trying to plunder the existing pension funds for the baby boomers and stick the young generation with the bill.

  11. TM Lutas Says: Unless you’re looking to abrogate freedom of association, labor associations in some form will exist. I’m uncomfortable handing the state enough power to do as you suggest.

    Please do not say that. I do not suggest that unionization be made illegal, I was just saying that the current concept of unions is so bad, that it should be scrapped.

    The fact is that the continued existence of unions is due to their unique statutory privilege to violate the common law and anti-trust law by entering into contracts with employers that restrict the associational rights of employers and of non-member employees. Further, as the unnamed commenter above discusses, unions are based on thinly veiled threats of violence, that turns into real violence at the drop of a hat. If governments treated unions as they would others who conspire to commit acts of violence, more union officers would be in jail where they belong.

    I think that closed shop contracts should be banned, and that union acts of violence be treated like other mob acts of violence, with long sentences.

    I do not think that either of these measures would impair anyone’s constitutional rights.

    I also think that public employee unions are an abomination in a democracy. Collective bargaining with them is an abdication of legislative prerogative which is prejudicial to the democratic rights of the citizens. Public employees do have the right to associate, but they do not have right to closed shops or automatic dues collection.

  12. Robert Schwartz – The most sustainable and effective way to change the sad situation of labor associations in the US is to replace them with something superior. Your paradigm of (rightly) talking down the current mess but not providing something better in its place leaves the door open for union conceptions that are actually worse. The US union movement is not the worst case. Outright communist agitation and frequent general strikes meant to bring down our system of governance are inferior options to be avoided.

    I’ve already gotten past the “unions are bad” stage and am trying to move on to “what would be better?” as a follow on. Rehashing “unions are bad” doesn’t move the ball down the field. Your second comment is a “how would we implement it” contribution and that’s much better. It’s future oriented.

    I would say that the measures you suggest are going to be strongly opposed by a much bigger political coalition if there isn’t a healthy worker association concept waiting in the wings and being obviously suppressed by the current incumbent unions. The general impulse will (rightly) be not to overly privilege capital over labor. So long as people generally see this as a struggle between labor and capital instead of sub-factions inside labor, there will be little appetite to move things forward in a sustainable way.

    Union goons breaking worker heads who want to form a different type of union are the best way to actually pass the legislation you advocate. But we remain stuck at the stage of what this better worker association would look like and how would it be implemented. That’s an important missing piece that I’m trying to talk about in this series.

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