The Labor Monopoly

Doctor Rogge is Distinguished Professor of Political Economy at Wabash College. This article first appeared in the Summer, 1960, issue of Business Topics, the business review magazine of Michigan State University.

In the paragraphs to follow you will find me critical of both the goals and techniques of trade unionism. Nor can I soften this position by announcing that, in spite of my sharp words, I am basically pro-union. I am not for "good" but opposed to "bad" (e.g., racket-controlled) trade unionism. I am not for "responsible," but op­posed to "irresponsible" trade unionism. I am simply not pro-union, period. I can no more be pro-union than I can be pro-the Southern California Fruit Grow­ers’ Association or pro-the Retail Druggists’ Association of Amer­ica.

But there is worse to come: I am not even anti-union but pro-labor. I cannot direct my concern to one man rather than another simply because one is a laborer and the other one an entrepreneur or a landowner or even (God help us!) a member of the rentier class.

But, as W. C. Fields once said, "No man who hates both dogs and children can be altogether bad," and I will confess to one weakness. I am persuaded that proper economic policy requires that we fix our gaze steadily on the long-run interests of the con­sumer and ignore all else. Surely you are prepared by now for a quotation from Adam Smith, and here it is:

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it.¹

As a matter of fact, in the mod­ern literature on my specific topic, the labor monopoly, I have found almost nothing that was not explicitly and intelligently discussed in The Wealth of Nations. My regret is that our public policy in this area has moved so far from his wise counsel.

In effect, Adam Smith said that trade unions are forever and un­equivocally antithetical to the free economy; but he added that it would be difficult and destructive of liberty to legislate them out of existence and that this should not be attempted. He proposed that they be tolerated but in no way encouraged or granted special privileges and immunities.

This was Adam Smith’s posi­tion and it is also mine. In the sections to follow I shall present the reasoning and the value judg­ments that lead me to take this position.

A. REVIEW OF OPPOSING VIEWS

I am aware that the policy posi­tion I have taken is not consistent with the present policy of this country. I am keenly aware of the fact that it is not only opposed by but is deeply disturbing to many persons, both in and out of the academic world, whose good will and intelligence I respect. Both this respect and the desire to make my reasoning, my assumptions, and my judgments as explicit as possible impel me to state why I cannot accept the conventional policy of the government nor the conventional wisdom that supports it.

In beginning this review of the various shadings of the conven­tional wisdom, I must apologize for the obvious oversimplification and distortion of individual posi­tions that is involved in creating such useful and meaningful but arbitrary groupings as "the hu­man relations group" and "the la­bor economist group."

The Human Relations Approach

Perhaps the most extreme posi­tion is that taken by the personnel, human-relations group. To the members of this group, the ques­tion of whether there is or is not a labor monopoly is simply ir­relevant. It is irrelevant because monopoly is a market-type word and they have decided that the market doesn’t exist. Recently, I scanned a collection of books with titles such as Human Relations in Industry and was dismayed to find that my discipline, economics, is obsolete.

Thus Norman Maier in his book, Psychology in Industry, writes, "Except in very general ways the law of supply and demand no long­er applies to labor. "^² Joseph Tif­fin in the book, Industrial Psy­chology, writes, "In general, man­agement as well as labor is becoming less and less dependent on the so-called ‘law’ of supply and de­mand as a basic factor in deter­mining wage rates." 3

And so it goes. As Kenneth Boulding of the University of Michigan once said in a discussion of this topic, everywhere he turns he finds labor economists and in­dustrial relations specialists jump­ing up and down on the corpse of supply and demand and proclaim­ing, the labor market is dead; long live human relations!

Of course it is patently true that neither the employer nor the work­er looks with favor on the labor market process as it impinges dis­advantageously on him. To para­phrase St. Augustine, each is say­ing, "0 Lord, make me be forced to compete, but not yet." The hu­man relations experts say, "—not yet, or ever." Many of them look with horror on the competitive struggle of the market place and on the conflict of employer and employee over division of the prod­uct. They seem to imagine that the "right" system of industrial relations can be developed which will generate in each firm such a feeling of togetherness that hand-­in-hand employer and employee will march joyously into the New Jerusalem.

Attractive as this picture is, I am nonetheless convinced that neither employer nor employee nor human relations expert will like what he will get if we con­tinue to move away from the la­bor market, if we insist that the services of labor must not be sub­jected to the vulgar calculus of the market place.

If the employer does succeed in insulating his own workers from the temptations of the market place, he will find that he must then take care of them through thick or thin and that the guaran­teed annual wage will have to give way to the guaranteed life­time wage. He will also find that his motivation problems have as­sumed staggering proportions. Good human relations or lousy human relations, the worker you can neither fire nor promote on the basis of performance is going to be a hard worker to stir into action.

But the worker, too, will find his security a very mixed bless­ing. To discover too late that he has made an unwise first decision and yet to be condemned by the weight of seniority and other con­siderations to that job is likely to be a frustrating experience. The old freedom to pick up and move will be gone, because, of course, to move would be to threaten an­other man’s job and hence his property. Even the union that administers this job security system will find it a mixed blessing. The workers will now turn their ambi­tions to control of the controllers, and the fights for power within the unions will be bitter and bloody. Moreover, the amount of power exercised by the leadership over the economic process will be so tempting that cases of corrup­tion and racketeering will be com­monplace. These circumstances may in turn engender such a great amount of public ill will that the unions will find themselves more and more under the control and guidance of government. Even the human relations expert will be disappointed to find that competi­tion and conflict can go on outside the market place. In fact the non-market conflict is likely to be more personal and hence more degrad­ing than the old market-channeled conflict.

In sum, neither the employer nor the employee nor the human relations expert is likely to ap­prove of what he will get if he gets what he now seems to want. The question of the impact of the trade-union on a market economy cannot be assumed away by as­suming away the labor market.

The Macroeconomic Approach

I turn now to the economists and find in many of them a like tendency to consider the labor monopoly issue, at least in its typical concerns, to be largely ir­relevant. For example, to one group of economists, the micro-economic or individual-market aspects of labor monopoly are of little interest. What is important is the impact of wage determina­tions on the income- and employ­ment-determining aggregates. Thus, trade union influence on wage-rates is of significance pri­marily as it affects beneficially or adversely the chances of the econ­omy’s attaining and maintaining full employment. Thus, if unions have increased the downward-rig­idity of wage-rates, they may have introduced a valuable expecta­tions-damping factor in deflation­ary movements. Similarly, the re­distributive effects of wage in­creases may move the average propensity to consume in the right direction at the right time.

I have no doubt but that trade-union action may coincidentally and occasionally serve the inter­ests of economic stability; but I also have no doubt that it may coincidentally and occasionally work directly contrary to the pur­poses of economic stability, partic­ularly in an inflationary environ­ment. For the effect to be always the right one would require a de­gree of societal control of trade-union policy that is not likely to be asked or granted in our society.

Surely the interests of economic stability can be served by tech­niques more certain in effect and with fewer unwanted side effects than trade-unionism.

The Approach of the Labor Economists

Leaving the macroeconomic ap­proach I turn now to the approach of the labor economists. It is al­ways dangerous to ascribe a point of view to a group in which there may be a considerable range of opinion, but still I find a surpris­ing homogeneity of approach in the textbooks on labor economics.

In general the authors of these books treat the central question of labor monopoly with rare del­icacy and with esthetically re­markable displays of verbal foot­work. In many of the books, the word monopoly is not even in the index. Note the care with which the author of the following pas­sage has handled this question.

To return to the original question as to whether unions are monopolies, there is no doubt they hold some de­gree of monopoly power. That is their nature and purpose, and we give them legal protection with the specific aim of increasing the bar­gaining (i.e., monopoly) power of labor. In only rare instances do unions actually control the supply of labor to a firm or occupation, and their freedom to do so should not (in the opinion of the author) be pro­tected. But to say that unions hold monopoly power leaves the important questions unanswered. When and where is the monopoly power of the union clearly stronger than the mo­nopsony power of the employer, and what are the best techniques for re­moving the discrepancy—or the re­verse discrepancy? How can we pre­vent undue injury to the public from disagreements between union and management in essential industries? These and many other unanswered questions illustrate the pointlessness of discussing the problem of unions in the framework of monopoly anal­ysis, and point to the direction in which the answers—if, indeed, there are any—are to be found.4

J.M. Clark has phrased it as follows: "We are opposed to mo­nopoly; when we find a kind we do not want to oppose, we will call it by a different name."5

It may be true that a trade union does not match the descrip­tion of classical enterprise monopoly in every detail. But its goal of manipulating the market to ex­tract an advantage for those in­volved is certainly a monopoly-type goal. Personally, if I were paying dues to a union, I would most certainly feel cheated if the union leaders refused to act like monopolists, if they made no at­tempt to manipulate the market in my favor. I may question whether trade unions in America have in fact been able to exercise strong monopoly power, but I can never question their desire to do so.

Having denied that unions try to or do exercise monopoly power, the labor economists go on to state that unions use their monopoly power to combat the monopsony power of the employers. Here at last is the classical case for trade unionism.

The relevant question would seem to be the following: Do em­ployers in fact possess monopsony power in the labor markets in which they operate? Certainly they would like to do so and often attempt to do so. But I see noth­ing in the history of wage rates in this country and in compari­sons of union and nonunion in­dustry experience that would lead me to conclude that employers in this country do now or have ever exercised significant monopsony power in the labor markets. The weakness of the individual worker in obtaining "fair" wages is one of the most durable and widely-believed myths in the economic folklore of the modern world. Even my hero, Adam Smith, gave it some standing, though it may have possessed some greater validity in his day than in ours. Today’s worker, with his far greater phys­ical and psychological mobility, need hardly sit still to be ex­ploited, and a solid core of mov­able workers will protect even those who have little or no mobil­ity, just as I am protected in buy­ing television sets by those who are shrewd enough to know that it is not magic but easily under­stood processes which cause them to work.

It is my firm belief that, as a general rule, workers need trade unions, not to assure themselves of roughly competitive wages, but only to assure themselves of wages above what the competitive market would assign them. If this fits in with our value system, let us endorse it, but let us at least be honest about it.

Now whether, through trade-unionism, workers can in fact gain wages significantly different from what a competitive market would produce for them is itself a debatable question. I am in­clined to agree with Milton Fried­man of the University of Chicago, and others who argue that the economic impact of unions has been exaggerated by both their friends and their foes. Admit­tedly, they have been more suc­cessful in some industries than in others, and the joint-demand ap­proach gives us a pretty good ex­planation of why this should be.

Also, they have been most success­ful when they have been able to enlist the direct or indirect sup­port of government in their ac­tivities. Thus, my barber informs me that a nonunion barbershop in Indiana is almost certain to be found unsanitary by the state inspection teams, while a union barbershop can get by with almost anything.

In minimizing the influence of unions on wage levels and struc­tures, I do not mean to say that unions cause no problems. Cer­tainly, union action is capable of inconveniencing large segments of the American economy. Cer­tainly, they can and do interfere with the efficient use of workers and machines in the individual plants and thus tend to lower the overall productivity of the econ­omy. And certainly, they consti­tute at least a latent political pres­sure group of great strength and, from my point of view, of dan­gerous and mistaken social phi­losophy. (Yet, paradoxically, I am disturbed by our interfering with the right of union members to spend union funds in support of parties and candidates.)

But whether unions do or do not succeed in accomplishing what they wish to accomplish is not the important question. The impor­tant question is what should be the policy of the country toward a group that seeks to manipulate the market to the advantage of its members.

B. CRITICISM OF CURRENT POLICY

The American answer of this century has been that government should encourage and protect this particular group, the trade-union­ists, as they seek to organize and to manipulate the market. This answer seems to have been based in part on the countervailing power thesis, in part on certain ideas of distributive justice, in part on the great American tra­dition of siding with the under­dog.

Whatever the reasons were that led to this position being adopted, it has resulted in a series of leg­islative enactments, starting with the Clayton Act and various rail­way acts, which have given unions special privileges and immunities enjoyed by no other group in our economy.^e Surely this approach directly violates one of the tra­ditional philosophical positions of our society, namely, equality be­fore the law.

The special privileges of trade-unions have been imaginatively described by Edward Chamberlin of Harvard University, in the fol­lowing passage:

If A is bargaining with B over the sale of his house, and if A were given the privileges of a modern labor union, he would be able (1) to con­spire with all other owners of houses not to make any alternative offer to B, using violence or the threat of violence if necessary to prevent them, (2) to deprive B himself of access to any alternative offers, (3) to sur­round the house of B and cut off all deliveries, including food (except by parcel post), (4) to stop all move­ment from B’s house, so that if he were for instance a doctor he could not sell his services and make a liv­ing, and (5) to institute a boycott of B’s business. All of these privileges, if he were capable of carrying them out, would no doubt strengthen A’s position. But they would not be re­garded by anyone as part of "bar­gaining"—unless A were a labor union?

Surely if we must favor income redistribution (which I do not), we can find ways of implementing our wishes that do not violate the concepts of rule of law and equal­ity before the law.

C. CONCLUSIONS

What then am I proposing? I am proposing that we place trade‑unionism on the same basis as all other groupings in our economy and that whatever rules apply to the others should apply to unions as well. I am not proposing that we legislate unions out of exist­ence. I am proposing only that we treat them as we should treat all collections of people seeking to manipulate the market. For the proper policy I turn again to Adam Smith and to the famous passage in which he outlines his approach to collusion among busi­nessmen:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the pub­lic, or in some contrivance to raise prices. It is impossible indeed to pre­vent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from some­times assembling together, it ought to do nothing to facilitate such as­semblies; much less to render them necessary.8

This was his approach to trade-unionism as well, and this ap­proach was substantially the one that developed under American common law and was controlling until the legislative enactments of this century. Unions were tolerated but not encouraged, and were granted no special privileges, no immunities from the law of the land. I would suggest that we re­turn the problems of trade-union­ism to the jurisdiction of the common law, which would mean sweeping away the relevant sec­tions of the Clayton Act and the railway acts, as well as all of the Norris-LaGuardia Act, the Wag­ner Act, and the Taft-Hartley Act.

I realize that at this moment many of you find this a startling, perhaps even shocking, proposal. But let me sketch for you what seems to me to be the most likely path of movement in the years ahead. The relative popularity of state right-to-work laws is an im­portant straw in the wind. It sym­bolizes the kind of authoritarian answer to unions that is almost certain to become more popular as time goes by.

To me the right-to-work law is an unwarranted intrusion by the state in the dealings of employers and employees. If an employer and his workers agree that only Presbyterians or Masons or union members will be employed in the plant, the state has no business interfering in that agreement. (I might add that the state also has no right interfering in agree­ments that would limit employ­ment to nonunion workers; i.e., in outlawing yellow-dog con­tracts.)

As a matter of fact, in propos­ing right-to-work laws the polit­ical conservative is weakening his case against trade-unionism. In developing his case for right-to-work laws, he argues that work­ers cannot escape the exploiting union; but in developing his case against trade-unionism, he argues that workers can escape the would-be exploiting employer. My own guess is that the exceptions to the sufficient-mobility requirement are about as numerous and sig­nificant in one case as in the other—and that in neither are the exceptions of sufficient im­pact or duration to justify special legislation.

If you believe that the state should not intervene in dealings between employers and employees, then that means not only no Wag­ner Acts, but no right-to-work laws and no administrative review of wage settlements as well. Yet we seem to be headed for ever more intervention by the state in dealings between employers and employees, in the internal affairs of unions, and in the wage-price relationships in industry. Having created our Frankenstein, we are now going to break him to our will.

In the process the state is al­most certain to undertake to dictate decisions about matters that should be left to the market place, and to create authoritarian pat­terns of action that will be de­grading and debilitating to em­ployers and employees alike. Unions were able to survive the times of adversity; whether they will be able to survive their suc­cesses is open to question.

If this forecast of the shape of things to come be even partly cor­rect, then a suggestion that we re­view the legislative enactments of the last 50 years is not as ridic­ulous as it might seem at first blush. Failing a basic change in philosophy of the kind I have out­lined, I see nothing but increas­ing difficulty in the years ahead. I have made my proposal in ab­solute seriousness and with no desire to simply shock or antago­nize.

I am aware that it is difficult to "turn back the clock," but if we were convinced that it should be done, I suspect that we could find ways of doing it. I am also under no illusions that a full ac­ceptance of my proposal would mean the end of all the vexing problems that arise in the em­ployment relationship. Starting as I do with the assumption that man is imperfect, I can hardly arrive at the conclusion that he can create a utopia. The choice must always be among various degrees of imperfection and the choice I have made seems to be the least imperfect of those now avail­able.

—FOOTNOTES—

^I Adam Smith, The Wealth of Nations (Modern Library Edition), p. 625.

² Norman Maier, Psychology in Industry (New York, Houghton Miffilin, 1955), p. 6.

³ Joseph Tiffin, Industrial Psychology (New York, Prentice-Hall, 1952), p. 362.

⁴  Alfred Kuhn, Labor Institutions and Economics (New York, Rinehart & Co., 1956), pp. 594-95.

⁵ J. M. Clark in The Impact of the Union, edited by David McCord Wright (New York, Kelley and Millman, 1956), p. 364.

⁶ See listings in Roscoe Pound, Legal Immunities of Labor Unions (Washing­ton, D.C., American Enterprise Associa­tion, Inc., 1957); Sylvester Petro, The Labor Policy of the Free Society (Ron­ald Press, 1957).

⁷ Edward H. Chamberlin, The Eco­nomic Analysis of Labor Union Power, (Washington, D.C., American Enterprise Association, Inc., January, 1958), pp. 41­42.

⁸ Adam Smith, The Wealth of Nations (Modern Library Edition), p. 128.

***

The People

The people is a beast of muddy brain
That knows not its own strength, and therefore stands
Loaded with wood and stone; the powerless hands
Of a mere child guide it with bit and rein;
One kick would be enough to break the chain,
But the beast fears, and what the child demands
It does; nor its own terror understands,
Confused and stupefied by bugbears vain.
Most wonderful! With its own hand it ties
And gags itself—gives itself death and war
For pence doled out by kings from its own store.
Its own are all things between earth and heaven;
But this it knows not; and if one arise
To tell this truth, it kills him unforgiven.

TOMMASO CAMPANELLA, Italian philosopher, ¹568-¹689

Translation by John Addington Symonds