Thoughts For Labor Day

Dave Kansas makes the point in a Wall Street Journal article yesterday that labor unions are, intrinsically, neither good nor bad but can be either depending on what they do. It’s an interesting discussion for Labor Day, and it was an excellent article. Unfortunately it’s behind a paywall, so I can’t link to it for you, so I’ll do my best to sum up his points. His discussion, as one might expect from a WSJ writer, revolves around the investor’s viewpoint, but I think the points he makes apply more generally as well.

His first point is that heavily unionized European nations are growing faster than America with its 12% unionization. Sweden, Norway, Finland, and Denmark are all over 50% unionized and are all growing at 4% or 5% presently. He does say that European union representation is somewhat more cooperative than here, and I would add that there may be other factors affecting growth rates. These are all pretty small nations compared to the US, so the parallels may well be less than valid. Still…

His second point is the unionization participation in the “German miracle” and is a little bit vague in my view as it weighs in heavily on post-WW2 growth. As I have commented many times, growth which occurs from a base consisting of a pile of rubble is not very meaningful. People who talk about the growth rate of the fifties as if it was something we could replicate today are either delusional or just plain stupid.

He then compares FedEx which is not unionized and whose stock value has grown 15% in the past five years to UPS, which is unionized and whose stock value has increased by 20% in the same period. I’m not sure what to make of that. The stock market plunges if an oil executive sneezes, so I’m not inclined to believe that stock prices mean all that much, and would be more impressed if he was talking about profitability and net worth. Still, make note of the fact that the unionized company appears to have grown more than the non-union one.

He then brings up Southwest Airlines. Everyone who works for that company is a member of a labor union, and that company is far and away the most successful major airline company in the business. Powerful argument against the “evil union” theory.

Finally, he makes one point of the destructive influence of unions, that being the auto industry, and I hardly think that I need to fill in the details on that.

I think that part of the difficulty that we tend to have in discussing the issue is that we usually fail to distinguish between two very different terms; "collective bargaining" and "labor union." That is to say, we tend to think of the terms as synonymous when they are not.

Collective bargaining was the original purpose of what we know today as the labor union. It consists of nothing more than the workers of a business banding together and appointing one person, or a small group of persons, from within their ranks to negotiate with the management of the company regarding working conditions and wages. It does not require collecting any money from the workers, or at least not in any significant amount, and it is a constructive and healthy process because it equalizes power between workers and management.

Out of that grew the labor union process where the bargainers are no longer workers from within the company where the workers are employed, but professional negotiators whose wages are paid by money collected from the workers. The labor union then has officers and clerical staff, all full time persons, along with associated overhead, all of which is also paid for with money collected from the workers.

The process is no longer one of equalization of power, it has become an adversarial relationship because the negotiators must justify their salary, indeed their existence, by extracting higher and higher concessions from management. Just as our politicians promise the voters more and more benefits accompanied by tax cuts, labor union officials must promise the workers higher and higher concessions from business management.

All too often the labor union becomes an entity which uses the money it has collected from workers to wield power in ways not connected in any really valid way to the benefit of collective bargaining. The classic example is the SEIU member addressing a City Council and telling them, "We got you elected, and we can certainly throw you out."

Just as the election process in governance is a healthy process which leads to good government and a healthy nation when all participants contribute honestly, collective bargaining is a healthy process that leads to economic health when practiced in good faith by all involved.

Likewise, just as the election process being corrupted by power seekers leads to bad government, the corruption of collective bargaining by power seekers leads to a form of labor unionization that is destructive to good business.