Previous in the series:
I, II, III, IV, V
Embrace and extend is a proprietary software company strategy that was made famous by Microsoft’s use of the practice. The idea was to embrace an open standard, create the best implementation of that standard in part by adding proprietary extensions, and get everybody to use your version and become addicted to the proprietary goodness which was not released as an addition to the standard. Everybody buys your commercial software that includes the enhanced standard feature and you gain an extra dollop of lock-in profits for several product cycles.
The challenges of moving beyond current unionization efforts to a true workers movement is a bit like a photo negative of Microsoft’s strategy. What’s desired in this case isn’t to create something proprietary to extend a standard for advantage but to identify the jewels in the proprietary 1st generation unions, standardize and spread their benefits to all workers, and create efficient methods to achieve legitimate worker ends without the violence and without the contribution to crony capitalism that present day unions participate in.
Jewel #1 – Education
US vocational education is generally a mess. Union vocational education is generally considered a viable, quality system.
Jewel #2 – Benefits provider
According to the US tax code ( 501(c) 5 ) Unions have the ability to provide benefits consistent with their purpose. That makes them natural health insurance and pension providers that are financially distinct from the company. Union provided benefits are associational and allow increased worker mobility between firms covered by the same union which is both good for workers and good for capitalism.
Jewel #3 – Worker Protection
This one’s a very flawed jewel, but in a dysfunctional organization that has not yet gone broke, the union might be all that is between you and bearing the cost of changing jobs in a sticky economy when you’ve been done an injustice or have even been asked to do something dangerous or illegal.
Adaptation #1 – The open badging movement in education needs extension into the vocational education sphere. This isn’t really a technical challenge, that part is being handled by the technical crowd admirably. Instead the major unaddressed issues are social and organizational ones. People need to know about the badges both in HR departments and in the job seeking population. Badges need to be something that can give you an edge in finding a job. Badges need to be something that lets you find more good employees and filter out more duds. This is a major work in progress and nobody’s really cracked the code yet though there are a lot of entrepreneurial initiatives trying to work out the issues including big names like MIT and Harvard.
Adaptation #2 – Unions are a ready made association that can stay with workers throughout their working lives and provide benefits no matter what happens to a particular employer. This is a very valuable service, one that could use as many entrants into this market as possible in order to prevent membership gouging If you’re a Catholic, scout master, and bricklayer, picking your benefits among your three major associations gets you better possibilities if all of them are participating as benefits provider associations. This is going to require a sea change in legislation so that cross-state associations can provide benefits packages. President Bush proposed this early in his 2nd term and had his head handed to him. President Obama is obviously not interested. Would our next President do better? On the first day President Romney says he would work to replace Obamacare with a more common sense set of reforms. Would this qualify as part of the solution?
Adaptation #3 – Ultimately, this is the most difficult of adaptations because here is where threat and intimidation get applied in a form of street justice to handle situations that are ill suited to the formal justice system. If management behaves badly, unionized workers impose costs is generally how it works. But the ultimate expression of this tactic in current unions, the strike, is disruptive without being very effective. An entire industry has grown up around making it ineffective. Either formal justice needs to be radically reduced in costs to make these situations solvable by the courts or street justice needs to move into the 21st century so that it has lower dead weight loss, lower overhead, and higher effectiveness.
When I was president of the county medical association, in the late 80s, we used to have an annual retreat. We would invite interesting people to join us to discuss issues impacting medicine. The CMA had similar retreats and one year we had Jesse Unruh spend a long weekend with us. He was already sick with the prostate cancer that killed him but he was great.
The county association retreat, one year, had the chief of the confectioners’ union health plan spend a weekend with us. He was one of the best guests we ever had. He knew health care inside and out. I learned a lot from him. Confectioners work for many small employers and their health plan has to take this into account. They manage it very well.
One of the unions basic problems was mentioned in Jay Cost’s new book, “Spoiled Rotten.” George Meany was asked one time what the unions ultimate desire was. He said , “More.” That’s the same thing that Johnny Rocco (Edward G Robinson) said he wanted in :Key Largo. “More,”
The raison d’être of labour unions is the balancing of power.
A multi-billion profit corporation does not negotiate a fair wage with a petty worker. The corporation is in a much stronger negotiation position and can rip him off, hire him at about the minimum wage that he’s going to accept. This is no way to build and sustain middle class prosperity.
Labour unions can organise the workers into a whole, and negotiate from a position of greater strength. The government’s job in this is to make the labour union just strong enough for a fair negotiation, but not allow it to become clearly superior in negotiation power. The ideal is power symmetry. Politicians who don’t even strive for power symmetry but instead on focus on pushing one negotiation party down and the other up are poor politicians. The same goes for ideologies.
– – – – –
There’s a major challenge for labour unions even if they have achieved near-asymmetry of negotiation power: Free-riding.
A compulsory membership is a legislative answer to this problem. It’s not universally popular because it forces people to do something.
Club-like services for members are another path, and labour unions have attempted to use it well. You seem to be endeared with this idea as well. The problem with club benefits is that they can usually be had with a non-labour union club, that is with a cheaper club where you pay no fee share that goes into financing of strikes. It may still work if the club benefit is a kind of natural monopoly and if the labour union establishes it first, but I doubt that this is really enough of an answer.
I’d rather promote the idea that the labour union negotiates wages only for union members and a law forbids better net wages (after subtraction of union fees) for non-union members (in order to avoid that cash-rich corporations break labour unions up with a long-term strategy through depriving the unions of its members). This way there would be no catastrophic popularity of free-riding.
SO – It’s probably the toughest nut to crack, lowering the overhead cost of the strike service. I think that a strike is only useful if you don’t have plenty of alternatives in the industry to just move on to another firm. If it’s cheaper to just change jobs, why force idiot managers to improve conditions? Just move on and let them go broke.
That’s only helpful if other companies are better.
What if an entire country has pushed its labour unions to the edge and all corporations rip off their employees one by one?
There’s also the unemployment thing which tells us that a substantial share of the employees cannot hope to easily get a better job. A spouse with an essential job in the same city, friends and family in the city, a house etc are further drawing down labour mobility.
SO, if some employers are underpaying workers, doesn’t that create an opportunity for other employers to offer those workers jobs at better wages?
Sure, but why should they do so as long as there are cost efficient workers ready to accept at the lower wage level? After all, there’s unemployment and underemployment.
What you’re describing are the upper middle class and upper class jobs; mid and upper management, top engineers and scientists, math virtuosi, certain sports professionals. Those jobs have a labour supply shortage, and that’s why even individuals have enough bargaining power when facing a potential or current employer.
The existence of unemployment implies that wages are too high, perhaps because government regulations, minimum-wage laws, etc. raise labor costs above the level at which it makes sense for employers to hire.
Manufacturing wages in China increased during the past decade as demand for manufactured products increased and workers were able to command higher wages. These wage increases would not have happened if you were correct.
SO – It is unlikely that there is a uniform level of badness in companies in an industry. The process of leaving the worse for the better would work to improve the average and provide a bit of hope that an entrepreneurial entrant could improve things by stealing away from the top firm by treating them even better. Within any national bell curve of worker treatment, you can create a pressure for better treatment. You are right that so long as there are cost efficient workers ready to accept lower wages, the pressure will be largely ineffective. Reducing unemployment down to frictional levels eliminates this supply of workers. So a proper worker movement would be very interested in anything that legalizes jobs to soak up all that unutilized labor because it would make their pressure tactics work much better.
Coincidentally, such a worker’s movement would tend to encourage new entrants to a field and create a counter-pressure for the natural tendency for monopoly that people have been complaining about forever as a feature of capitalism. The worker’s movement would do this in order to enlarge available labor opportunities, in other words for their own reasons. But it would have the happy coincidence of constantly keeping companies on their toes. A worker’s movement would be against corporatism and would have enough eyes and ears available to catch these little gotchas and seek their removal, again to increase overall worker opportunity.
Nobody’s claiming that unemployment is not a problem. What’s being claimed is that a free market oriented worker’s movement would be an improvement over current practice and an improvement to what is currently called modern capitalism. Ultimately entrepreneurs need to find more business models that can sustainably make money with high school drop outs to soak up that labor pool. A worker’s movement, a real one, would be intensely interested in enabling that process. The current labor membership clubs we have are not interested by and large because entrepreneurial companies tend not to be unionized as there’s a personal connection between management and labor.
The existence of unemployment implies that wages are too high, perhaps because government regulations, minimum-wage laws, etc. raise labor costs above the level at which it makes sense for employers to hire.
Add unions as a source of higher labor costs that reduce overall employment. Unions get higher wages for their members by colluding with government to exclude non-members from the labor market. Classic monopolist tactics.
“SO – It is unlikely that there is a uniform level of badness in companies in an industry.”
It’s not about badness. To follow economical principles is their job.
“Add unions as a source of higher labor costs that reduce overall employment.”
That’s the case when they’re too powerful, which they are in almost no country nowadays (save for a few specialised labour unions in few countries, such as flight controllers or pilots – their power is disproportionate to the quantity of their members).
Fair wages couldn’t be blamed for unemployment. It takes other reasons to explain unemployment than them. Moreover, lower than fair wages usually bolster in upper management compensation and shareholder profits, not the company’s investment in new jobs.
The strict relationship between wage level and employment is one of the overly simplistic parts of economic theory that deserved to drown under a mountain of more intricate factors long ago. There are special interests which remind us of the 19th century reasoning about wages and unemployment, though.
SO – You say that “To follow economical principles is their job” and that’s fine, as far as it goes. But your previously described situation either does not happen by following economic principles, or the rare cases where it can happen, the alternative arrangements are all worse. It doesn’t happen that everybody drives down wages to minimum acceptable in modern capitalism in the 1st world. Here’s a real life example of how companies hurt their competition by offering higher wages. CompUSA hired me back in the day for a new store and they explicitly had a policy when they opened new stores of going into the local Staples store and hiring those who were working instead of lazing away with the minimum done to retain their job. The amounts were minor. Other stores, higher up the economic food chain literally would go into CompUSA and do the same thing to them. It was a form of economic warfare. If you set your wages too low, your competitors would increase your labor turnover and free ride on your hiring process. That’s just the way things are in retail. Other companies have similar mechanisms to encourage the theft of employees. Competition via higher wages is not just theoretical. Even in high unemployment times, non-commoditized labor has this sort of competition happening.
The worst case scenario for the working class is to have a huge pool of unemployed labor. It will reliably destroy your bargaining power as a worker. In that case, yes, sweat shops abound and wages are awful, right up to the point where people gain skills to differentiate their labor and the sea of unemployed cannot actually replace these newly skilled workers. Maximizing job creation by lowering costs sucks up that spare labor pool in the fastest way possible. At which point normal economic development starts and the worst of the sweatshops quickly lose their work force.
Lutas; remember that your example does not speak against pursuing power symmetry between employers and employees. It rather describes an exception to the rule which becomes only relevant when the rule says that employees get ripped off some of their share of the value added.
Fwiw, some thoughts on ’embrace and extend,’ generally
http://www.tdaxp.com/archive/2007/03/13/jesusism-paulism-part-vi-embrace-and-extend.html
The time when unions were needful is long past. While certain places might still justify it, for the most part, there’s nothing to unionize against, only things to unionize for. And that makes the unions inherently all about greed and that is an inevitably corrupting influence.
As MK notes above, it’s about wanting “More”
Unions should exist only when there is something to unionize “against”, never “for”.
And if you are determined to have some kind of union, it should have a shelf life only as long as its contract — break up the union and have it re-voted for re-institution each time — with union leaders in one cycle unable to hold positions in subsequent cycles.
In that form, it’s kind of like term limits on government — it stops the people in power from aggregating power over time, and discourages the inevitable mission creep of functionality endemic to bureaucracies: Always searching for something new to do once the real goal has been accomplished (think MADD attempting to force blood alcohol limits towards zero). By forcing everyone to re-evaluate the purpose of the union, you stop it from mission creep and ask the simple question: “Do we need this organization any more?”
Ideology seems to override arguments here. There’s nothing to unionise against? Really?
Of course there is. I already laid it out – you need to unionise against the power of the employer in order to get a fair share of the value added as wage. You need unionisation to get your fair share unless you’re in some niches where skilled labour is in short supply.
That’s not greed. Greed would be to demand more than the fair share.
I understand that much political propaganda (guess who financed it!) argues that labour unions are greedy and thus evil, but labour unions are really primarily an institution for balancing the market failure of power asymmetry which doesn’t allow for an efficient outcome without such such a compensation.
I worked in labor relations for 32 years with several large corporations and negotiated against the UAW, OCAW, the Chemical Workers, Steelworkers, UPGWA and various trade unions. For what it’s worth, I agree wholeheartedly with IGotBupkis. As for ideology vs. arguments; the “arguments” for unions I see here are nothing more than dressed up ideology (and not very well dressed at that). “Fair share” is in the eye of the beholder. “More” is exactly the “argument” that unions make.
you need to unionise against the power of the employer in order to get a fair share of the value added as wage
Much of that “fair share” is being taken from lower-productivity workers whose jobs disappear because the market value of their labor is less than union-mandated wage rates. Unions benefit some higher-productivity workers by screwing the workers on the low end. You keep avoiding this point. It is basic economics: if you raise the minimum price that people are allowed to charge for something, in this case their labor, there will be less demand for it.
“…are nothing more than dressed up ideology…”
Actually, it’s economic science, microeconomics to be accurate.
@Jonathan:
Even if your view was correct (which is debatable, but your view is at least interesting), there’s still the problem of where the low productivity workers are supposed to money for their living and for raising their children properly.
In the end you have all too often in mature economies the choice of having the slight inefficiency of them earning more than their productivity and the usually much bitter inefficiency of supporting them with a social net. You cannot let them starve, if for nothing else then for the good of their children. There aren’t enough blow-minimum-wage work opportunities in most mature economies that look better than crime.
The economy has the purpose of generating goods & services for consumption, sustain itself and to allocate the purchasing power. The first and second are already a problem (just look at the horrible trade balance deficits and savings rates), while the third is usually an outright failure.
It makes little sense to reject social transfers AND to insist on the economy not employing anyone above his/her productivity.
I do for example promote that businesses which are not exposed to foreign competition should bear the burden of the social nets and absorb the un- and underemployed people. A retail store a bit down my street has a robot for accepting empty bottles. A worker should do that, it’s the perfect job for unskilled unemployed people.
@Jonathan:
Even if your view was correct (which is debatable, but your view is at least interesting), there’s still the problem of where the low productivity workers are supposed to money for their living and for raising their children properly.
In the end you have all too often in mature economies the choice of having the slight inefficiency of them earning more than their productivity and the usually much bitter inefficiency of supporting them with a social net. You cannot let them starve, if for nothing else then for the good of their children. There aren’t enough blow-minimum-wage work opportunities in most mature economies that look better than crime.
The point is that if you artificially raise wages via labor cartels (unions) or minimum-wage laws the jobs of low-productivity workers disappear; there are fewer total jobs in the economy. Either the work those workers did goes undone or it gets done by machines or it gets done by paying high-productivity workers a little more. Either way this is a bad outcome because low-productivity workers are often young people with little education who need desperately to learn basic skills of earning a living. They are much better off having low-wage jobs than having no jobs (even if they then receive safety-net payments).
Jonathan; the availability of social transfers in addition to low wage works at first sight, but at second it’s a systemic mistake.
Let me explain with an example:
– no labour union negotiates a fair wage
– substantial unemployment
– the wage level for decent living is 10
– the productivity is 7
– the government doesn’t know the productivity and is willing to subsidise the employee with up to 6 (arbitrarily, we could also say 10)
Result: The employer understands the situation, knows that the applicant cannot afford to not work and cannot get a better offer. The employer offers 4. The employee is fine, he gets 4+6 and lives decently.
The nation as a whole has to pay additional taxes: 6, half of which is a free rent to the employer (shareholder + top management) for ripping off the employee AND the exploiting the government.
Compare with another example:
– a labour union negotiates a fair value added participation for workers overall, and by assumption a bit too much for underskilled workers
– substantial unemployment
– the wage level for decent living is 10
– the productivity is 7
– the government does not provide social transfers to workers
Result: The employer agrees to pay 10, understands that he pays 3 too much. Some middle class workers get to pay 3 too much (social transfer built into wage contracts).
Now add to the latter a society -wide understanding that businesses which are not exposed to foreign competition are responsible for keeping unemployment low (this is really a key in the fight against mature society’s structural unemployment).
The end result would be that the labour union-driven approach is vastly less inefficient than the social transfers-driven approach.
Words cannot easily describe my degree of horror at the idea of having my medical insurance dependent on the goodwill of the union bosses or my willingness to suck up to a “shop steward”.
(Before anyone says I should be equally horrified at the thought of having it depend on my employer, my employer has an incentive to keep me happy lest I walk out the door. Union bosses have no such incentive; their power and money come from control of the mass of workers, not the productivity and skill of any given worker. There’s no reason for them to avoid targeting a single worker who annoys them, and it encourages les autres.)
Then again in theory the labour union guy is empowered by democratic legitimation and supposedly being overseen by the workers. The boss is not legitimated by the workers, but by the shareholder(s) vote.
So your trust in democracy doesn’t seem to be as great as our trust in what you perceives as incentives structure.
(I personally have never met a boss who was much-concerned with keeping his workers “happy”, and I doubt many bosses fear that their workers run away as long as there’s substantial unemployment).
IGotBupkis – The kind of organization I’m talking about would mean you sign up and get an account/password for free. Congratulations, you’re in the union now, yearly dues = $0. Collective bargaining is what I think you’re really concerned about here and that’s something that would definitely be a cost item. Some people would kick in for an advocate to collectively bargain. Some people would not. Those who do not, don’t get the advocate’s services. The advocate either delivers, or does not, and payments for collective bargaining services are going to wither away if the business does its job right and treats workers well. There is no legislative change necessary to implement this system. It’s authorized under current law. The current labor membership club arrangement doesn’t like it because it doesn’t fit into their business model so they never try it.
But since the same account/password gets you training, gets you help on job searches, and gets you some nice swag, people are going to be in the union forever. That means that any time management starts turning the screw, people can just sign up for collective bargaining on the next contract round. The union starts acting like the apocryphal competitor to Standard Oil that just hunkered down without payroll and made Standard Oil undercut his best possible prices for years on end. Eventually he broke Standard Oil by just doing… nothing.
SO – Fair share of economic value added is an emergent number that comes out of the interplay of the labor market. You can enlarge your market share by hurting your competitor. You can hurt your competitor by stealing away workers. Workers only break even at 1 year and are loss producers the first six months. So people go on employee raids as both attempts to free ride on your competitor’s HR department and attempts to lower competitor productivity. This will tend to raise wages in fits and starts until you are hitting the limits of the strategy as it negatively impacts on profitability and becomes too painful. How many times am I going to have to make this point before you address it? Employers raise wages in the real world for reasons you do not consider.
If I might ask on a separate point, what business is not subject to foreign competition? I suspect that they are few and far between.
Jaed – Since the union would just be one of any number of associational vendors that you can walk away from at any time, I don’t think that your fears are likely to be realized. In the real world, unions contract with professional healthcare companies to manage these plans. No shop stewards determine medical care.
A retail shop or telecommunications service in Tennessee is certainly not exposed to foreign competition. Same for car repair shops, an airport, security services etc etc.
Actually, a very little share of the remaining U.S. GDP should be exposed to substantial or potential foreign competition. Such a competition requires either proximity to a border or production or an export-capable product (technically export-capable = technically import-capable). A few more exceptions exist in cases where a very different product can serve as a substitute (= import-capable product as substitute for non-export-capable product).
Every retail shop is exposed to foreign competition. Internet shopping is a major threat because just about everything you are selling at retail is also available on the Internet via multiple channels. In the general case, airports I’ll give you though there are circumstances where people will taxi across the border and then fly further to take advantage of price differences. Certain parts of security services can and are being outsourced and the % is likely to grow. You can watch cameras from anywhere.
Here’s a non-importable/non-exportable service that is nonetheless subject to foreign competition, heart surgery. Also just about any other complex medical procedure is subject to medical tourism competition in a similar fashion. I’m quite dubious that that’s the only example.
Think of Walmart when you think of retailers. There’s no way somebody is going to dispatch a packet with eggs, muffins and frozen stuff from Mexico in order to deliver to Wyoming.
The U.S. has it much easier than the smaller countries; it only needs to negotiate a bit with Canada and voilà , almost no competition from across the border left. Harmonise economic policies a bit with Canada and you’ll end up being effectively sealed by high transportation costs and time delays (even substantial time zone differences) to almost all foreign competition. It doesn’t get easier than that.
Compare for example with the Czechs; they have a border within one or two hours of driving, no matter where you’re in their country. THAT makes it difficult to optimise economic policy. The U.S. is on easy mode in this regard.
Besides; it doesn’t matter whether there’s a tiny bit of foreign competition. There’s a threshold for significance, as in almost everything else.
In the end, the economy has the job to create goods and services and to distribute them (income distribution). The outcome may be unsatisfactory (it always is), which may warrant government intervention in order to compensate for some market failures at the very least. Several per cent unemployment cannot be solved by burdening (with extra costs) the share of the economy that’s in competition with foreign businesses. You either make use of an inherently inefficient social transfers system or you burden the share of the economy that’s safe in order to solve the problem with smaller inefficiencies.
SO – Ok, so we’ve gone from “very little share of the remaining U.S. GDP should be exposed to substantial or potential foreign competition” to “U.S. has it much easier than the smaller countries”. I can certainly live with the latter. It’s true. It was the former that I had problems with. The emerging trend of the Internet of things is going to take the entire world and shake well. Any predictions on the impossibility of foreign competition at this point in the game when the IoT hasn’t settled down are unlikely to pan out.