Sunday, January 31, 2010

Hello Unions? Good-Bye Prosperity!

Physical capital—some of it in the form of natural endowments such as a deep-water harbor, much of it the product of human investment in dwellings, factories, offices, and infrastructure—is, of course, a profoundly valuable partner in both our work and play. The greater the quantity and quality of such capital (all else the same), the higher will be our productivity and wages and the more stimulating, satisfying, and comfortable will be our leisure hours.
Such capital will, however, always be a tempting target for interest groups seeking to redistribute some of its returns from its owners to themselves. Since physical capital is immobile, it can be “taken hostage” by opportunistic actors and its value appropriated in ways that will soon be described. And since it is durable, the ill effects of such actions will generally be disguised for years or decades. _PDF CATO PDF

Cities represent a concentration of both populations and capital. Persons looking for opportunities flock to cities for jobs, higher education, and for political connections to various syndicates and collectives -- both licit and illicit. Labour unions are an important political collective, representing a bridge between licit and illicit political organisations.

Detroit was once a very wealthy city, bursting with opportunity. Among the many organisations and collectives that flocked to Detroit to grab a peace of the booty, were the labour unions. the early decades of the 20th century unions usually represented less than a tenth of Detroit’s labor force. And, as we have seen, the city’s growth was spectacular, while its industrial base produced enormous wealth not just for entrepreneurs, managers, engineers, and traders, but for laborers as well. In 1930, there were 275 U.S. counties with at least 5,000 manufacturing workers within their borders. Those in Michigan’s Wayne County (which includes Detroit and adjacent cities such as Dearborn, Hamtramck, Highland Park, and River Rouge) earned average wages higher than those in all but three other counties—which contained Youngstown and Warren, Ohio, and Gary, Indiana (where the nation’s largest steelmakers had facilities). Manufacturing wages in Detroit exceeded the national average by fully 33 percent, and when compared to wages in smaller factory towns elsewhere the contrasts are even more dramatic: factory workers in El Paso, Texas, earned only 60 percent as much as those in Detroit, while workers in York, Pennsylvania earned 56 percent as much and those in Greenville, South Carolina, 40 percent as much. Detroit’s absolute and relative prosperity is difficult to reconcile with pro-union rhetoric during this period (and historic treatments since), which stressed the need for countervailing power for workers in the face of employers’ unfettered monopsony power. 
 ...Though firms in Detroit and other American industrial cities had kept unions more or less at bay for the first third of the 20th century, the onset of the Great Depression created an extremely favorable ideological and political environment for unionization. The erroneous but widespread belief that falling wages and prices were a cause of the Depression rather than necessary adjustments to restore growth in employment and output contributed (along with many other factors) to the passage of several pieces of federal legislation that encouraged the cartelization of labor and product markets. Of central importance was the National Labor Relations (or Wagner) Act, which eliminated many of the strategies commonly used by firms to defend the quasi-rent value of prospective or existing physical capital. For example, it took labor disputes out of the courts and vested enforcement of the Act in a politically appointed National Labor Relations Board; prohibited several “unfair labor practices” judged to be obstacles to organization; and enforced exclusive bargaining and union pay rates for all workers—whether union members or not—in Board-certified bargaining units. But, as we will see, by limiting defenses against the appropriative actions of labor cartels, such legislation would actually increase firms’ reliance on the remaining ones—especially redeployment of productive capital to less vulnerable locations and input substitution. Again, this would have dire consequences for “union towns.”
The results were particularly dire for Detroit as a union town. Several additional cities in Michigan, Illinois, Ohio, Pennsylvania, New Jersey, California, and other states with strong union control have paid "the ultimate price" for their affiliation with unions: crime, poverty, capital flight . . .

Labour unions have largely plighted their troth to the US Democratic Party, as shown by campaign contributions of unions to the two majour parties.
Wherever the Democratic Party controls, labour unions rule -- and prosperity will fly away sooner than later. With the election of the radical-left Democratic Party congress and president, unions were gleeful in anticipation of a rising dominance by unions over commerce and industry nation-wide.

But something odd happened on the way to the celebrations. Somehow, "the people" -- the ones the unions and the DP are supposed to be looking out for -- began to catch on. The working classes began to understand that the DP and the unions did not really care about them, but instead were only looking to line their pockets. If the next elections were held today, neither Obama nor much of the DP contress would fare well.

Small, local unions can sometimes give workers an advantage when they are under dire circumstances. But the benefit is usually only temporary and limited to a small percentage of the population. As the ripples of union interventions spread throughout the economy as a whole, glaring problems begin to reveal themselves. Union pay and benefits rise out of all proportion to the productivity contributed by the workers themselves. Society's resources are mal-distributed as special interests take over the divvying up of the booty. Prosperity and opportunity fly out the window.

That is where many US cities find themselves today, and where the entire country will find itself if the Obama - Pelosi reich is allowed to carry out its radical agenda of "social justice" and "environmental justice."

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