The Free Market 26, no. 9 (September 2005)
Those of us who appreciate liberty, voluntary exchange, and workers’ property rights to their own labor have long objected to the American organized labor movement. Since the 1930s, this movement has been defined by the AFL-CIO.
This “mother of all unions” is the biggest, with a membership of just under 13 million workers at the end of 2004. It is the baddest, defined by corruption and thuggery that can only result from state protection (and that would be snuffed out if labor were defined by market forces). And today, it is broken, after last week’s announcement that Andrew Stern’s Service Employees International Union and James P. Hoffa’s Teamsters are leaving the AFL-CIO. Both unions command 3.2 million workers.
The schism reflects deeper problems than a simple disagreement about strategy between Stern and John J. Sweeney, the AFL-CIO’s longtime boss. Both the United Food and Commercial Workers and Unite Here, which represents apparel, hotel, and restaurant employees, are boycotting the AFL-CIO’s annual convention and are likely to go their own way as well. The union family is showing its dysfunctional colors.
This is a huge split, fomented by falling living standards of union members, the ascendancy of the hard-to-organize service sector, the inability to unionize an automobile industry that is escaping Detroit, and an increasingly competitive, dynamic, and global economy that eschews high-priced and stagnant labor markets. Take away the public-sector employees, who operate outside of market forces, and labor union membership in the US is at a record low 7.9 percent of all wage and salary workers. As they say in the South, you can stick a fork in organized labor. It’s done.
What amazes me is what took this development so long to come about. From an Austrian perspective, the same logic that informed Ludwig von Mises’s prediction that Soviet communism would never last explains the demise of American organized labor. Mises argued that socialism’s lack of market prices would make economic coordination impossible. How would shortages or surpluses get communicated to economic planners? How would changes in consumer tastes and preferences be known? Socialist governments, which often become warlike in order to maintain popular support, would never match the efficiency of the market system. Their longevity reflected the West’s willingness to subsidize them more than any inherent soundness to socialism as an idea.
In the same way, labor unionism, when state supported, removes workers from the normal coordinating mechanisms found in labor markets. These markets operate like any other market for scarce resources. Firms demand labor and pay wages for it, demanding more at lower wages and less at higher wages. Workers sell their labor to these firms, selling less for low wages and more for high wages. Through the interaction of buyers and sellers of labor, labor markets tend to clear, coordinating the movement of labor inputs in the production process.
The rise of unionism, on its own, would normally pose no threat to labor markets’ coordinating tendencies. Any group of workers would be free to organize and demand higher wages in exchange for labor. Firms would be free to pay those wages—or not. If some workers held monopoly power in the supply of their labor—which could be the case if they had unique skills that were especially valued by firms—then firms may very well choose to pay higher wages. In a competitive labor market, these workers’ success at earning higher wages would also sow the seeds for their eventual reduction, as the higher wages would signal other workers to obtain the skills necessary for their lines of work too.
This benign case of unionism becomes destructive, however, when these workers receive protection from the government. This introduces violence into what otherwise would have been peaceful, voluntary exchanges of labor between buyers and sellers. Make no mistake: absent the state, any success that organized labor might have in obtaining higher wages, and thus increasing the costs of production, would be short-lived. With government comes the introduction of force in the relationship between labor producers and consumers, either directly (such as when authorities jail unanointed nonunion laborers for working in unionized industries) or indirectly (such as when union violence occurs, as allowed by the Norris-LaGuardia Act of 1932).
As socialism is impossible in the long run, so is state-supported labor unionism, because all of the government protection in the world cannot stop market forces from operating. These forces explain the dire straits that organized labor faces today. Taken as a whole, the growth of outsourcing, right-to-work laws, technological changes that improve the movement of capital and labor, all reflect that market forces in labor markets can be delayed when government and organized labor are joined, but not completely squelched.
The reason is simple. No matter what governments do to protect a special class of workers, consumers’ desire for lower prices never ceases, setting in motion entrepreneurial activities that will make centralized labor organization a thing of the twentieth century.
So let’s cheer the division of organized labor. Its implosion is a reminder that, in the long run, market forces trump state power. And that’s an idea that unites Miseseans . . . even without state-support.
Christopher Westley teaches economics at Jacksonville State University (cwestley@ jsucc.jsu.edu).
