Monday, December 15, 2008

Brothers, You Asked for It

The following article was written by Joe Meuth. Joe is a student of Objectivism looking to apply and to promote rational ideas in our culture. His areas of particular interest include economics, corporate governance, ethics, and politics.

The most appropriate thing that can be said about the imminent bailout of the auto industry is a line spoken by Francisco D'Anconia: "Brothers, you asked for it!" The sundry regulations that have crippled the auto industry, among others, have enjoyed widespread support over the years. Now is a good time to set the record straight concerning one of the most egregious violations of the property rights of industrial concerns: The National Labor Relations Act. [see Sec. 7. [§ 157.] and Sec. 8. [§ 158.]] To do this, the nature of the act and how it violates rights needs to be exposed, and the fallacious economic idea on which it is often supported needs to be corrected.

Consistent with the context-dropping pragmatic tendencies of our time, the events of the last 70-plus years have been practically ignored in the public discourse. The pseudo-solutions in the form of various bailout plans that have been bandied about recently will not put an end to the inability of American automakers to compete because none of them eliminates the fundamental cause of their problems: that automakers are not free to run their business as a rational person would; they are not free to determine wages paid, and they are not free to manufacture products that their customers want (thanks to CAFE and other laws).

Since the passage of the Wagner Act, industry has been forced to negotiate with Unions over wages and benefits. This is a violation of a business owner's right to hire and fire as they see fit. In a proper, free society, wage decisions are arrived at voluntarily between the employer and the employee. In a free society, employees would be free to organize unions, and business owners would be free not to negotiate with them and free to fire employees who joined a union. Neither employee nor employer would be able to initiate force against the other.

The costs that unions have imposed on the auto industry by force cannot justifiably be ignored (as they have been) when discussing solutions to their problems. The wage, benefit, and legal expenses brought about by the coercive nature of unions are the tangible costs. A less easily quantified cost is the lost time that is spent negotiating with union leaders or shutting down a factory while a strike is underway.

The idea of a union runs counter to the general American idea that wages, like anything else, must be earned. Why then do they enjoy support from people who aren't associated with them and who have no vested interest in their continued presence?

The most common economic misconception about unions that I am aware of is the false idea that unions raise the general standard of living. When the subject of unions is raised, someone usually says, "We'd be worse off without them." (Of course, whether or not society is better or worse off with unions is a secondary concern, and "society" has no right to violate the rights of individuals for the sake of its alleged or actual benefit. And in fact, no actual, long-term benefits have ever accrued to society when individual rights have been violated). To understand why the assertion that unions raise the overall standard of living is wrong, one needs to understand what brings about an increase in wages and the amount of goods produced. As Ludwig von Mises and others have proved, and an honestly applied common sense will readily see, the reason why wages in the US are higher than anywhere else is that more capital per worker has been invested in plant and equipment here than anywhere else in the world. More capital investment means better technology, more machinery, and higher productivity. Higher productivity then leads to higher wages and an increase in the supply of goods produced (this is one of the reasons why, in a free society with a currency backed by gold, prices generally tend to fall), so not only does the worker benefit from higher wages, but also from the fact that the goods he purchases with those wages will be cheaper and more plentiful because of the capital invested in production.

How does this relate to Unions? Unions extort higher wages and benefits by force, thus decreasing the amount of money available for investment in the enterprise. This in turn leads to less capital employed and fewer goods produced, which places downward pressure on wages and upward pressure on prices. The general standard of living is decreased because of the foregone production and the absence of those goods that would otherwise be on the market.

When Americans lament the fact that foreign cars are often of higher quality and cheaper than American-made vehicles, they are recognizing the near-end result of labor unions. What is the end result? It should be clear by now: bankruptcy.

The Wagner Act effectively declares that workers have a right to the product of their labor (wages) but that business owners have no right to the product of their work and investment (profits). By enabling parasites against hosts rendered defenseless against them, the auto makers cannot help but be in the situation they are in.

There are other regulations that need to be eliminated, such as CAFE, but taking away the threat of force that is currently backing unions and stifling industry would be a first step in the right direction.


Burgess Laughlin said...

Mr. Meuth, thank you very much for this article. Not only does it provide timely information about a particular problem, but it is also an inspiration, I hope, to other weblog writers. You have invested time into knowing your subject. You have specialized enough to be prepared when the latest crisis of the day emerges in your area.

You are not chasing ambulances as some weblog writers do hoping frantically to gather enough information to form an opinion.

My favorite line in your article is: "The National Labor Relations Act. [see Sec. 7. [§ 157.] and Sec. 8. [§ 158.]]"

That shows that you are not merely opinionating but that you actually know the subject matter and have actually read the applicable law.

Best to you in your career, and thanks to Brian Phillips for hosting your article.

Brian Phillips said...

I agree that it was an informative, well-written article. And I appreciate Joe allowing me to post it. (Not to put any pressure on Joe, but he has asked about writing additional articles.)