Is there a place for unions?

Unions.  The word alone can strike fear into anyone not raised on a diet of pickets and protests.  Unions can wreak havoc, torment business owners, thwart entrepreneurs, and generally create a healthy dose of economic mayhem.

Here in SA we know full well the power of unions.  Talks of strikes, debates about strikes, threats of strikes, actual strikes, lobbying the state for more protection, sabotage, looting, and very other form of mass labour tactics are routinely employed by unions.

The question for any lover of freedom is: is there a proper place for unions in a free society and, if so, what is it?

Some gung-ho free marketeers advocate banning unions.  This is folly and falls into the same coercive trap true lovers of freedom should reject.  Freedom of association is important, and the freedom to associate with a union is every bit a part of that freedom, as much as the freedom to marry or befriend whomever you choose.

Likewise, unions in a free society should be allowed to admit to membership anyone they choose, provided that this person is willing to join.  Unions should be allowed to discriminate as much as possible, just like we all do in choosing our marriage partner or friends.

So the first point is that in a free society, workers unions have every right to exist as any other organisation, and every right to freely admit or reject anyone from membership.

The problem we face today is that in the face-off between unions and business owners, there is a set of state-enforced unequal freedoms.  While unions are free to form and strike, businesses’ freedoms are greatly constrained in responding to these labour tactics.  The result is that by legislative fiat, the state is able to perpetrate a situation in which unions can dominate, disrupt, and destroy productivity.

So we have a partly free system.  One in which unionised members get more freedoms than their fellow citizens who happen to own and run companies.

In a truly free society, companies could respond to strike action by raising wages as the workers demand, but equally they could respond by firing their workers and hiring new staff willing to work.  The response would depend on the unique characteristics of the business, the nature of the employment, the amount of alternative labour available in the economy etc etc.  In short, the labour relations dynamics would be complex and unique, but they would be conducted freely and with optimal outcomes for the people making free choices.

A striking employee threatened with losing his job can make a decision.  Stop the strike action and accept the terms of employment, hold out for better terms and risk losing his job, or any other move in a complex choice set based on the realities and balance of power in the negotiation process, provided these choices don’t impinge upon the basic freedoms of the employer or any other person.

The ‘Win-Win’ Trade

When an employer hires and employee, the two effectively enter into a trade.  Now, any given trade freely entered into by the two parties will by definition result in both parties being better off after the trade is done than before it was done.  This is true here too.  An employer trades money income for the services of the employee, which he deems more valuable than the money income expended.  The employee trades his talents and productive abilities for money income, which he deems more valuable than his work output.  The two trade freely and BOTH are better off than they were before.

If the employer offers too little money or requires too much productive effort, the worker will be deterred from entering into the trade.  By the same token, if the worker demands too much money or offers too little productive effort, the employer will be similarly deterred from trading.  The relationship is one of repeated trades, every day or every week or every month, as the two parties repeatedly exchange productive output for money income.

Simple right?  You’d think so, but the way unions and their sympathising lawmakers go on one could swear they’d missed it.

Now obviously in every trade both parties want to do as well as possible from the trade.  But the beauty of trading is that, when entered into freely, it creates a win-win outcome.  Sure one side might ‘win’ more than the other, but the ‘win’ that each person experiences is an absolute one in comparison with a previous condition, not necessarily a relative one in comparison with the other person.

In their quest to win, unions have partnered with lawmakers to get the upper hand, aiming for not only bigger victories in the employment ‘trade’, but also squeezing their counterparts, employers, to, in many cases, the point of loss.

Employers could simply respond by stopping trading with the employees and offering other potential employees a trade that both parties are happy to accept, but laws and regulations often prohibit employers from doing this.  In other words, labour law often requires that the employer has to keep trading with the employee, and has to offer a minimum price for the employees’ services.  Fortunately (although very unfortunate), it is not illegal to close down or go out of business, and often employers throw in the towel or are forced to close down because the trade they are forced to enter into is no longer Win-Win but Win-Lose.  When that happens, it’s really Lose-Lose.

The Joke’s on U-nions

Unions, through shrewd political maneuvering and partnering with brain-dead politicians, have created a legally protected minimum price of the services their members offer, as well as a legally protected ability to renege on their terms of trade with the employer, and yet still have the employer legally obliged to honour his end of the deal.  No other service providers in the economy are given as privileged a position, and yet these clever spin-doctors are forever able to convince us all that they’re really the downtrodden and underprivileged class!

The tragic irony for us all is that no-one wins in the end, as the law prohibits the market for productive output to clear at the right price.  And so the amount of trading between employers and employees diminishes.  There becomes an oversupply of workers wanting to offer their productive output services at the regulated price, and an under-supply of employers willing to pay that price for the services rendered.  That gap is commonly known these days as unemployment.

Business activity is reduced, and there are fewer jobs for unemployed workers to do.

But the market is not fooled.  You cannot regulate higher wages successfully and sustainably any more than you can regulate higher prices of tomatoes, or cars, or hats, or electricity, or movie tickets, or porn, or vodka, without damaging the market, hurting both producers and consumers, creating gluts in supply, and ultimately forcing people to create an underground or ‘black’ market.

The members of an economy busy themselves every day trying to meet the complex and endless needs of others.  In doing so they create value that is traded for money that is in turn traded for things these people need to live.  In producing aggregate value, individuals and businesses in aggregate (the market), will settle on an acceptable level of aggregate wages paid to employees to produce that aggregate value.  Above this level of aggregate wages, companies are discouraged from producing more output.

If some in the economy are given the privilege by the state, backed up by the power of the courts and police, to demand and receive higher wages than they otherwise would in a free market, the aggregate ’societal wage’ cannot magically climb without lowering output and employment.  This is typically felt by the peers of the workers receiving the protection – those people without work, barred from entering the workforce because the state says that the wage they are willing to accept is an ‘illegal wage’.

And so unions really don’t increase aggregate earnings of the poor at all, but rather increase the earnings of their members (in the short term), while keeping thousands or millions of others out of work.  Unions, in the regulated system of cronyism, are one of the most discriminatory and privileged classes of all.

What is the place for unions in a free society?

In a free society unions have the right to form and to strike and demand whatever wages they please.  But, likewise, employers are free to fire these workers when they strike.  In fact, in a free market, an employer can stipulate that a worker may not strike or the deal is off.  Or he may stipulate that he only hires non-union members.  The worker may then decide whether he values his union membership more than the job.  If so he will politely decline to work for the employer and remain a union member.  If not, he will relinquish his union membership and take the job.

In this type of market I believe we would still see a form of unionisation for lower-skilled, undifferentiated occupations.  The value of the union could be to keep workers informed of the going market wage rate, so that should wages of some workers lag behind the going rate in the market, workers would be kept informed and would be able to ask for higher wages.  Should the employer refuse to pay this wage he would quickly lose staff that would be able to attain the wage elsewhere, and he would struggle to attract new staff who would be lured to other companies paying higher wages.

Unions could help uneducated workers structure employment contracts with employers, they could provide collective unemployment insurance schemes for members from contributions, they could provide privately funded skills training for members, or they could act as a central information repository for employers to find staff or workers to find better-paying jobs.

In a free market, a union would be able to provide valuable services to its members, but it would not be able to take part in the tyranny of the working class over the entrepreneurs who risk their capital, their good credit standing, and their very livelihood, and sacrifice a stable monthly paycheck, in order to create new value in society.  Union membership would diminish greatly, and unions would no longer be the considerable political force for ensuring poverty that they currently are.

Unions have a place in a free and just society, but a limited and value-adding one.