The Trouble With Unions

THE AMERICAN labor union movement has split again. Led by Andy Stern, the leader of the Service Employees International Union (SEIU), a rump of private sector unions has split off from the AFL-CIO, the convocation of all American unions. Stern believes that in order to grow the union movement should put more energy and resources into organizing and less into politics. In response John Sweeney, leader of the AFL-CIO, responded with a call for the AFL-CIO to organize America’s great non-union corporations like “Wal-Mart, Comcast, Clear Channel and Toyota.”

The unions need to do something. Their private-sector membership has declined from 35 percent of the labor force in 1955 to about 8 percent today. But what should they do?

To answer that question we need to understand the history of organized labor, to understand why it flourished from the mid-nineteenth century to the mid-twentieth century, and why it has declined since then.

In the early nineteenth century labor unions were weak because the common law frowned upon any “combinations” in restraint of trade. But the spread of universal male suffrage in the United States began to whittle away at that legal disability, and by the 1840s in the United States working men had become a political force. Commonwealth v. Hunt established the right of workers in Massachusetts to combine in restraint of trade.

The legal gains didn’t help much at first because the severe business cycle of the era tended to wipe out unions during hard times. It was not till after the Civil War that things began to change. When the workers for the new railroads went on strike to protest wage cuts they discovered that they possessed a remarkable economic power. They controlled the heart that pumped the life-blood through the U.S. economy, and thus possessed the power to extract rent through the railroads from the American people. And from headline events like the Homestead steel strike and the Haymarket riots the union movement earned a public sympathy that pays dividends to this day.

In the 1930s John L. Lewis and Walter Reuther split off from the AFL and formed the CIO to put this two-pronged strategy to work on the great new engines of American prosperity, the auto industry and the steel industry. Because the U.S. market was somewhat isolated from the world economy, and the auto and steel companies were anyway the most advanced and efficient in the world, the CIO unions were able to demand and receive monopoly rents through their employers from the American people. Like the railroad strikes of the nineteenth century their strikes were experienced as national crises and the politicians encouraged, or “jaw-boned,” employers into meeting the demands of the workers. Thus did the unions grow to represent 35 percent of the private sector workforce.

But we who belong to the faith-based community that believes in economics understand that there was a problem with this happy setup. What would happen if competitors—say from Germany, from Japan, and even South Korea—arose to challenge, in price and quality, the products of the automobile cartel and the steel cartel? Our faith in economics tells us that the cartel would start to break up and lose the power to charge monopoly prices for its products and its labor. And so it did, although it took a little longer than might have been expected.

There was more. Workers began to understand that their real protection from the cold, cruel world of evil robber barons issued from the welfare state’s safety net and not from membership in a union. And the kinder, gentler business cycle of the last half-century has made people less fearful of economic ruin.

In response the labor movement expanded into an area of the economy where there still was an opportunity to extract monopoly rent: the government. While private sector union membership declined to 8 percent, public sector union membership grew to about the level that the private sector enjoyed fifty years ago. But the magic of monopoly is starting to affect the government sector: the unionized public-sector product is starting to feel as clunky and overpriced as the Detroit automobile of 1985.

The question organized labor faces is not who has the energy to organize the Wal-Marts and the Toyotas of the world. The question is whether the workers want to join a union, whether the targets have the market power to charge the American people monopoly rent for their workers, and whether Americans are ready to give up “Always Low Prices—Always.”

And think about the average tree-hugging liberal who rushed out to be the first in her yeasty Victorian neighborhood to drive a Toyota Prius with Hybrid Synergy Drive®. Suppose she and her friends at the book club just feel safer driving a non-union automobile?

Christopher Chantrill blogs at www.roadtothemiddleclass.com. His Road to the Middle Class is forthcoming.

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