A recent article in The New York Times quotes President Obama as saying, “I don’t buy the argument that providing workers with collective-bargaining rights somehow weakens the economy or worsens the business environment. If you’ve got workers who have decent pay and benefits, they’re also customers for business.” (March 2, 2009, p. B3.) This statement makes about as much sense as declaring that people who are successful at sticking up gas stations are also customers of gas stations.
The President’s statement reveals a great deal about his understanding or, more correctly, lack of understanding of economics.
Collective bargaining is the joining together, typically through the instrumentality of a labor union, of all workers in a given occupation or industry for the purpose of acting as a single unit in seeking pay and benefits. It is an attempt to compel employers to deal with just one party—i.e., the labor union—and to come to terms agreeable to that party or to be unable to obtain labor.
The imposition and maintenance of collective bargaining necessarily depends on compulsion and coercion, i.e., on the use of physical force against both employers and unemployed workers. This coercion is necessitated, in substantial measure, precisely by the seeming success that collective bargaining can achieve.
That success is measured in terms of the rise in wage rates that it achieves. That rise in wage rates is all that labor union leaders and their ignorant supporters are aware of.
Precisely this “success,” however, is the cause of major problems. The first is that higher wage rates reduce the quantity of labor that any given amount of capital funds can employ. For example, at a wage of $20,000 per year, $1 million of payroll funds can employ 50 workers for a year. But at a wage of $25,000 per year, it can employ only 40 workers for a year. With every further rise in the wage, correspondingly fewer workers are able to be employed.
Higher wage rates also serve to raise costs of production and thus the selling prices of the products that the higher-paid workers are producing. These higher selling prices reduce the quantities of the products that buyers are able and willing to buy. And thus, whether as the result of the reduced purchasing power of capital funds in the face of higher wage rates or the reduced quantities of products demanded by customers in the face of higher product prices, the effect of collective bargaining is a reduced quantity of labor employed, i.e., unemployment.
It is shocking, indeed, frightening, that the President of the United States, whose main concern at the moment is supposedly with overcoming mass unemployment and preventing its getting worse, does not understand that any policy that drives up wage rates drives up unemployment.
The unemployment that collective bargaining causes is what explains why it is necessary to resort to coercion against wage earners in order to maintain the system. The self-interest of the unemployed is to find work, and to accept lower wage rates as the means of doing so. And taking advantage of that fact is to the self-interest of employers. Thus there are two parties, unemployed workers and employers, whose self-interest lies with a reduction in the higher wage rates achieved by collective bargaining.
If these parties are free to act in their self-interest, the system of collective bargaining must break down. How are they to be prevented from acting in their self-interest?
The answer is physical force. Stepping outside the system of collective bargaining must be made illegal if the system is not to break down. That means employers and unemployed workers must be threatened with fines or imprisonment for acting in their self-interest and withdrawing from the system of collective bargaining. In the last analysis, they must be threatened with the specter of armed officers ready to cart them off to jail if they disobey the requirements of the system, and to club and shoot them should they physically resist being carted off to jail. (It is not always necessary that the physical force that imposes and maintains collective bargaining come directly from the government. It can often come from labor unions that the government chooses not to prosecute when their members physically assault strikebreakers, surround factories and refuse to allow entry or exit, start fires, set off stink bombs, shoot out tires, and perform other acts of vandalism and intimidation.)
In saying, “I don’t buy the argument that providing workers with collective-bargaining rights somehow weakens the economy or worsens the business environment,” President Obama confesses to not knowing that collective bargaining raises prices and causes unemployment. He confesses to not knowing that it raises costs and prices not only through the imposition of artificially high wage rates, but also in imposing on employers the use of unnecessary labor, sometimes as many as four or five workers to do the job that just one could do.
(A classic example of this is the insistence on the use of a carpenter, plumber, electrician, tile setter, and drywaller to make a simple repair in a bathroom, merely because the separate labor unions involved claim each operation as belonging to their respective members exclusively, i.e., claim a monopoly on that type of operation.) He confesses to not knowing how the enormous difficulties that labor unions put in the way of firing incompetent workers are responsible for such phenomena as so-called Monday-morning automobiles. That is, automobiles poorly made for no other reason than because they happened to be made on a day when too few workers showed up, or too few showed up sober, to do the jobs they were paid to do. The automobiles companies were unable to fire such workers without precipitating a crippling strike, to which the system of compulsory collective bargaining gave them no alternative.
Collective bargaining, with its imposition of higher costs and prices and lower product quality, is at the root of the destruction of the American automobile industry and many other American industries. President Obama not only chooses not to know this, but selects union leaders as his companions, including the leader of the United Automobile Workers Union. (The Times article from which I quoted him is accompanied by a photograph that shows him, in what appears to be a round of golf, with Ron Gettelfinger, who is the president of the U.A.W., James Hoffa, who is the president of the Teamsters, and John Sweeney, who is the president of the A.F.L.-C.I.O. The article notes that “Mr. Sweeney has visited the White House at least once a week since Inauguration Day.”)
The reader should keep in mind the coercive nature of collective bargaining. Then he should consider Mr. Obama’s observation that “If you’ve got workers who have decent pay and benefits [as the alleged result of collective bargaining], they’re also customers for business.”
Moreover, the workers who are unemployed by collective bargaining are not customers of business, or not very good customers (they can’t afford to be). And the products offered by business to its customers are poorer and more expensive because of collective bargaining. This is something, it must be stressed, that reduces the buying power of the wages of workers throughout the economic system, i.e., reduces what economists call their “real wages.” Mr. Obama needs to forget the nonsense he believes about collective bargaining and paying extortionate wages somehow benefiting business and learn to understand how it harms wage earners, how it harms every wage earner who must pay more and get less as the result of legally enforced collective bargaining. He must learn to understand how it also harms every worker who must earn less as the result of being displaced by collective bargaining from the better paying jobs he could have had if wage rates in those lines had not been driven artificially still higher by collective bargaining and thus reduced the number of workers who could be employed in them and thereby forced those workers into lower paying jobs.
Unfortunately, it does not seem very likely that Mr. Obama will ever learn any of this. He appears to be so charmed by the use of compulsion and coercion that he and his supporters in Congress are ready to unleash a reign of outright mass intimidation against American workers.
In a bow to Orwell’s 1984 and its world filled with such slogans as “war is peace,” “freedom is slavery,” and “love is hate,” Obama and his henchmen are readying “the Employee Free Choice Act.” This is an act designed precisely to end employee free choice, by depriving workers of the benefit of a secret ballot in deciding whether or not they want to join a union. In the words of The Times article, this is “a bill that unions hope will add millions of new members by giving workers the right to union recognition as soon as a majority of employees at a workplace sign pro-union cards. The bill would take away management’s ability to insist on a secret ballot election.”
Here we have it. Obama is against the secret ballot. No, he’s not yet announced any opposition to the secret ballot in elections for public office. But there’s absolutely no difference in principle between being against the secret ballot in elections concerning whether or not to unionize and being against it in elections for public office. In both cases, it is a matter of subjecting people to intimidation if they express a choice that is opposed to the one that an organized, powerful group wants them to make. In this case, that group would be the union goons who would distribute the “pro-union cards” that workers would be asked to sign or refuse to sign in their presence. Are Obama and his followers really so naive as not to know that any worker who would reject joining a union in these circumstances would, at a minimum, be exposing himself to ostracism and the chance of substantial personal economic loss in the event the union gained recognition and he is on record as having opposed it?
Be assured, they are not so naive. They look forward to the intimidation. They look forward to it in the recognition that that is what is required to swell the ranks of the unions once again.
The wider principle here is the readiness of Obama and his associates to resort to intimidation to further their goals. It is the method of street thugs and of dictators. That is what is present in their attempt to deprive workers of the secret ballot in deciding whether or not to unionize.
The last occupant of the White House often gave the impression of having an inadequate command of the English language and of experiencing great difficulty in speaking in grammatical sentences and using words in accordance with their proper meaning. The present occupant of the White House speaks impeccable English, with crisp, clear pronunciation. Nevertheless, his actual knowledge—of economics, of the meaning of individual rights, and of the nature of government—appears to lag far behind that of his bumbling predecessor.
Furthermore, while Bush may be accused of disregarding the rights of foreign terrorists at war with the United States, Obama is out to disregard the rights of peaceful, productive American citizens. This is apparent not only in his readiness to deprive American workers of the secret ballot in union organizing elections, but also in his efforts to dramatically raise the taxes of everyone earning more than $250,000 per year, in an attempt to achieve a substantial redistribution of income. It is also evident in his policies on energy and healthcare as well.
In sum, the “change” that Obama promised his mesmerized supporters in the election campaign, and is now in process of actually delivering, is nothing more than change from dumb to dumber and from bad to worse.
Copyright © 2009, by George Reisman. George Reisman, Ph.D. is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. He is also a Senior Fellow at the Goldwater Institute. His web site is www.capitalism.net and his blog is www.georgereisman.com/blog/. A pdf replica of his book can be downloaded to the reader’s hard drive simply by clicking on the book’s title, above, and then saving the file when it appears on the screen. The book provides further, in-depth treatment of the substantive material discussed in this article and of practically all related aspects of economics.