Unions on the Rise?

A good article by Clive Crook of the Financial Times discusses the improving fortunes of unions in America. Crook looks at some of the indicators their rising influence (key sign: fawning Democratic hopefuls) and how they can aid as well as impede economic activity.

Even though Crook’s piece is helpful, he somehow seems wide of the mark. He may not understand the roots of the antipathy towards unions in America. Even in their heyday, organized labor was held in less than high esteem, and it wasn’t due as much to their obstructionist role in commerce (America wasn’t in the thrall of corporate interests back then) as to their rampant corruption. Even today, quite a few union members seem ambivalent. While they acknowledge that they do better with the union than they would without, many feel the union extracts too high a toll (in terms of dues) relative to the benefits delivered. In other words, they suspect self-dealing.

And Crook misses why unions have become a more respectable cause. One reason is the widespread disgust with CEO pay. The less sympathetic executives become (and they’ve had plenty of warning that they ought to rein in their behavior, which has gone unheeded), the more measures to clip their wings look justified. If investors can’t pressure a CEO to cut his pay package, perhaps a worker revolt may. Mind you, that isn’t literally what the public is thinking, but the abuse of the power of the office by many CEOs calls for a countervailing force, and labor could credibly step into that breach.

A second reason is the Wal-Martization of workers. Employment at will and America’s weak safety nets seemed viable in a robust economy when employers felt some loyalty toward their workers. But now many companies see them as disposable, a cost rather than an asset. The degradation of job quality and security is producing a pushback.

Third is that some unions are moving away from the traditional reflexive opposition to management and are working to craft win-win situations, in which they work to improve the standing of the industry and also make certain they share in the gains. Andrew Stern, the head of the Service Employees International Union, which is the largest and fastest-growing union in America. A 2005 New York Times article discussed Stern’s approach at considerable length:

Over the years, union bosses have grown comfortable blaming everyone else — timid politicians, corrupt C.E.O.’s, greedy shareholders — for their inexorable decline. But last year, Andy Stern did something heretical: he started pointing the finger back at his fellow union leaders. Of course workers had been punished by forces outside their control, Stern said. But what had big labor done to adapt? Union bosses, Stern scolded, had been too busy flying around with senators and riding around in chauffeur-driven cars to figure out how to counter the effects of globalization, which have cost millions of Americans their jobs and their pensions. Faced with declining union rolls, the bosses made things worse by raiding one another’s industries, which only diluted the power of their workers. The nation’s flight attendants, for instance, are now divided among several different unions, making it difficult, if not impossible, for them to wield any leverage over an entire industry.

Stern put the union movement’s eroding stature in business terms: if any other $6.5 billion corporation had insisted on clinging to the same decades-old business plan despite losing customers every year, its executives would have been fired long ago…..

Having grown up around his father’s small-business clients, and having spent much of his adult life at bargaining tables, Stern had learned a few things about the way business works. He came to embrace a philosophy that ran counter to the most basic assumptions of the besieged labor movement: the popular image of greedy corporations that want to treat their workers like slaves, Stern believed, was in most cases just wrong. The truth was that companies in the global age, under intense pressure to lower costs, were simply doing what they thought they had to do to survive, and if you wanted them to behave better, you had to make good behavior viable for them.

Stern’s favorite example concerns the more than 10,000 janitors who clean the office buildings in the cities and suburbs of northern New Jersey. Five years ago, only a fraction of them were unionized, and they were making $10 less per hour than their counterparts across the river in Manhattan. Stern and his team say they were convinced from talking to employers in the fast-growing area that the employers didn’t like the low wages and poor benefits much more than the union did. Cleaning companies complained that they had trouble retaining workers, and the workers they did keep were less productive. The problem was that for any one company to offer better wages would have been tantamount to an army unilaterally disarming in the middle of a war; cheaper competitors would immediately overrun its business.

The traditional way for a union to attack this problem would be to pick the most vulnerable employer in the market, pressure it to accept a union and then try to expand from there. Instead, Stern set out to organize the entire market at once, which he did by promising employers that the union contract wouldn’t kick in unless more than half of them signed it. (Getting the first companies to enter into the agreement took some old-fashioned organizing tactics, including picket lines.) The S.E.I.U. ended up representing close to 70 percent of the janitors in the area, doubling their pay in many cases, from minimum wage to more than $11 an hour. Stern found that by bringing all of the main employers in an industry to the table at one time, rather than one after the other, he was able to effectively regulate an entire market.

This is a huge departure from the union thinking of old, and the SEIU’s success is likely to bring other unions around to a similar posture.

From the Financial Times:

The US has an unusually low rate of union membership. Barely 10 per cent of its workers are members (and as few as 7 per cent in the private sector), down from about 35 per cent in the 1950s. Whether you see this as a strength or a weakness most likely depends on whether you think the US economy is succeeding or failing. Weak unions make for flexibility and rapid growth in productivity, the engines of US economic pre-eminence. To see what strong unions do for industrial competitiveness, look at GM. But weak unions also squeeze wages at the bottom, worsen inequality and create economic insecurity, the issues that most preoccupy the country and its politicians.

Avidly courting union endorsements in the approaching presidential primaries, all the Democratic candidates are taking a pro-union stance…These are not just rhetorical commitments. All the candidates are supporting legislation promoted by the labour movement that would make it easier for unions to organise…

American workers have often been cool towards unions. In the mid-1990s polls generally found that only about a third of non-union workers wanted to join one. In the past few years, the proportion has risen to more than half. The Democrats’ beefed-up pro-union line is faithfully reflecting this shift in mood. Both spring from the economic strains and insecurity of which so many Americans complain.

But is a recovery of union power a good answer to those problems? GM notwithstanding, the idea should not be dismissed out of hand. Certainly, enough of the wrong kind of union activity can wreck an economy. Britain made that clear in the 1960s and 1970s. But unions need not be so obtusely adversarial and self-destructive. Unions and works councils in Germany and Japan have not impoverished those countries. Unions do raise wages, sympathetic economists point out. When they do, it is usually in industries where product markets are not very competitive and there is a rent for managers to share with labour. When product markets are competitive, there is no rent to divide: the effect of unions on wages is then typically smaller and no economic harm is done.

Pro-union economists also point to evidence that productivity may actually be higher when a union is present, provided that the enterprise is well run to begin with. Perhaps higher wages enable managers to hire better workers, or else encourage companies to invest in labour-saving machinery. This could make for a productive, profitable company with contented workers – although not without losers, one must remember. Because of higher-than-competitive wages, employment is lower than it would have been. The insiders gain, in the best case at little or no cost to shareholders. But outsiders are worse off.

As a rule, though, unions are bad at accommodating disruptive change – the very thing the US does best. The weakness of the country’s unions is surely no coincidence: they are weak because the economy is dynamic, and vice versa. American unionism has modernised lately, but much of what remains is still political and adversarial. Its body language says, we are out to get the bosses. It seeks a voice not just for workers in the office or factory, but for labour in the aggregate. Its agenda is anti-competitive and stridently protectionist, and consequently anti-growth.

The late Rudiger Dornbusch, ever a fount of economic wisdom, was fond of the maxim, protect the worker not the job. Unions are wired to ignore that good advice. Their leaders’ power and pay is bound up with the existence of particular jobs. They are institutionally opposed to creative destruction and economies need a lot of that to thrive. But if workers, not jobs, are to be protected, governments do need to step in. The list is familiar, and has a strongly Democratic flavour: more generous employment subsidies for the low-paid, high-quality education, universal health insurance and help for workers who fall victim to restructuring.

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