I have some very quick thoughts in reply to Erik Kain’s post at Forbes comparing unions and corporations. His point, in brief, is:
Corporations are legal entities, sanctioned by the state. Why should we be any less sanguine about unions than about corporations? Corporations pool capital and resources, unions pool labor. What’s the difference?
One important difference is that corporations are subject to anti-trust regulation. However, I think libertarians who are otherwise critical of anti-trust activity should be wary of invoking this too strongly. If the market is the best mechanism for ensuring firms do not behave anti-competitively, then why won’t that work for unions?
Another important difference is that, as Coase argued, there are costs to using a price mechanism to coordinate economic activity, and corporations exist as an alternative institution for when such transaction costs are high. One can conceivably frame the voice function of unions in this way as well, however I think that’s better characterized as public goods problem where the group collectively benefits and individuals have insufficient incentives to express worker preferences.
The other “face” of unions, other than the voice face, is the monopoly face. One the one hand economists generally recognize that this is a problem with unions, not a benefit. On the other hand, many non-economists who favor unions use this as an explicit justification unions. If you see anti-competitive behavior as an unintended downside of unions, then one can draw parallels to corporations. If, however, you see anti-competitive behavior as a reason that unions exist, then the comparison falls apart.
The most important difference between the two is that unions suffer from a much more problematic fundamental legal framework. Labor economists are much more likely to argue that the fundamental laws defining unions need reform than IO economists are to complain similarly about corporations.
So what are the complaints? Economists generally agree that worker voice is an important and useful function of unions, and yet unions are vastly diminished in the economy. The problem is that the laws regulating unions, in part due to the way they encourage antagonistic relations with management, have led to what is likely an undersupply of the fundamental purpose of unions: worker voice. As an institution they are failing to provide their primary benefit. On the other hand, the monopoly face of unions is also problematic and some economists argue incompatible with a dynamic economy, but labor laws discourage alternative forms of worker voice that are less prone to these anticompetitive effects.
This isn’t to say corporations are perfect, or that no unions provide net economic benefits. But to put things in overly reductive terms, many economists who are pro-union and many who are anti-union agree that the fundamental laws defining and regulating unions need reform. The same can not be said of corporations.
There is much more to be said about this issue and I don’t consider the above comprehensive overview, but rather a few aspects.
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Wednesday ~ August 31st, 2011 at 8:54 am
Hyena
Have you read Kevin Carson’s “Labor Struggle: a Free Market Model” (http://goo.gl/kYA9j)?
Wednesday ~ August 31st, 2011 at 10:21 am
Benny Lava
From a purely utilitarian standpoint I’d like to offer this anecdote about unions.
I rode a cable car in San Francisco a while ago. The men that run the trolleys (and they are all men) need to have a great deal of upper body strength to pull the grips properly. They all looked like former football players. I am not big enough for that job. And thus it isn’t a job that you can do when you are in your sixties either. Thus the typical “thirty and out” makes sense. Start in your 20s, retire in your 50s. But what about people who do the less strenuous job of driving a bus?
Wednesday ~ August 31st, 2011 at 11:35 am
Curt Doolittle
Wonderful topic.
Good line of reasoning.
nits: there are a couple of libertarian arguments related to the Anti Trust and Union problems. And I don’t think you understand them. And by not understanding them, you’re just confirming your assumptions – not about libertarians, but about the value of both aggregates and the state.
1) Humans can form a corporation without the state, as long as there is someone to reinforce property rights and contracts. The state wanted MORE corporations because they were so profitable. Limited liability was a contractual property of the corporate contract not a state creation. The state simply did not invalidate the contractual property of the corporate contract’s limited liability protection and adopted it. That does not mean that the state supports corporations. It does not mean that the state created corporations. (It didnt’). I only means that the state did not VIOLATE the contract provisions established between share holders.
2) Humans can form a union without the state, as long as there are property rights (to one’s self) and contracts will be enforced. However, the state has removed the ability of the employer to replace striking union workers. This creates a monopoly of labor capital. In REAL TERMS it means creating a scarcity where none exists, and forcing money to be redistributed through an existing structure of production rather than letting competitors and labor develop an new structure of production.
3) The other classic libertarian response would be that the state creates all monopolies and they cannot exist without the state. This is both logically true and demonstrably true in practice. So the state creates the problem. However, assuming we still want protections, Anti-trust provisions can be (logically and ethically) used as a scheme for protecting lower PRICES using competition. And it can ONLY be a scheme for protecting lower prices. However, under our current legal and ethical models, Anti-trust, is discussed and argued as a scheme for protecting the abstract artifice of ‘competition’. And that’s illogical because we can’t ‘know’ we’re doing that, and because even trying is open to political corruption. In practice, anti-trust is used to protect the intersets of corporations, preserve a variety of consumer choices, and maintain employment — it’s an illogical attempt at anti-trust mixed with a myriad of externalities that are even worse than the supposed monopoly. (The damage done to our economy by the MIcrosoft browser pursuit was the best current example. MS wanted to give something away for free. Apparently this was monopolistic. But it can’t be. And subsequent events have proven the entire project against microsoft has been pointless. The market cured Microsoft’s dominance through innovation and competition.)
So, it’s not that the state did something good here. The state created the problems in order to protect interest groups from the ups and downs of the market. But the market’s ups and downs are, in effect, the very purpose and utility of the market – reorganizing all capital in real time to respond to changes in scarcity. The state seeks the steady state, because the state consists of people, and people seek the steady state. But that’s not the value of the market. Just the opposite.
FWIW: That ‘Man acts’ may be a Misesian truth. But Mises didn’t follow that assertion with the equally true ‘Man Organizes’. And It’s the second proposition that creates political complexity.
If you think teaching macro is hard just try to teach people to deduce from first causes rather than assumptions.
Thank you.
Wednesday ~ August 31st, 2011 at 8:40 pm
Adam Ozimek
Curt, I think you exaggerate the role of competition protection rather than prices in anti-trust. The Small but Significant Non-transitory Increase in Prices (SSNIP) criteria is central to anti-trust in theory and practice.
Thursday ~ September 1st, 2011 at 11:20 am
Curt Doolittle
Adam.
Thank you for the reply. Yes, I’m exaggerating it to draw attention to it.
But I think the Microsoft case is a pretty clear example of the problem and that it was one of the best examples of abuse by the state. If a company wants to give something away for free, it’s pretty hard to see how that is not in the consumer interest, especially when, as time as shown, the company has become highly vulnerable due to innovation, and ‘the browser’ has become ‘free’ because of that. In the current argument between ATT and TMobile, there are at least three criteria the state is using, one of which is jobs that would be lost. (I agree with the state’s position because I think the evidence for price collusion between Verizon and ATT is there.) My point being that the libertarian position, which you mentioned, and the reason I responded, is that prices are the only criteria we would use in making such a decision, because the other criteria force transfers onto non-participants.
Many libertarians just tow the ‘no interference’ line without understanding why – and you’re right to criticize them. But only if it’s the right criticism. The response I posted above tries to restate that reasoning. a) that the state is not necessary for either corporations or unions, and b) that the state grants extraordinary extra-market privileges to corporations and to unions, which in turn creates the problems we’re addressing. So my criticism is first that I think your criticism is against rothbardians not against libertarianism, and second that the Forbes article falsely positions the state as a benefactor, when it is the cause of the problem. Further, historically, that it is extremely difficult if not impossible to create a monopoly without the state supporting the monopoly. So the state is the creator of the problem, not the one who attempts to improve it.
Since I write too fast and am often lazy with direct references myself, I’m loathe to suggest that the phrase ‘…invoking this too strongly’ in your third paragraph is ambiguous. So there is also the possibility that I am misattributing the word ‘this’ to one of the many possibilities implied. If so, then lets just say I agree with you.
We all tow our little part of the spectrum of ideas, and my part is to push the virtue of propertarian analysis rather than circumstantial ideology or positivism. I have to try to defend that little bit of the intellectual spectrum not only against people outside it, but against the Rothbardians inside it, if you understand my meaning.
Thank you for your work.
Curt
Thursday ~ September 1st, 2011 at 4:47 am
Tel
Kurt, I disagree with you on the issue of limited liability. There is no way a group of people making agreements between each other can contractually remove their individual liabilities to some third party… because that third party did not agree to any contract.
However, a corporation can damage a third party (e.g. pollute a river and cause injury to people downstream) and then when sued, the corporation can go bankrupt without those damages being passed on to the individual shareholders. This ability provides special protection to the shareholders, and it limits the damages that a third party can claim. What’s more, if those shareholders got generous dividends in previous years, those already-paid dividends are also safe from litigation.
Thus, corporate limited liability really does require a special privilege from central government. In Australia there was a period when “bottom of the harbour” schemes were popular, but the government tightened things up a fraction and made the directors (not the shareholders) liable in those situations.
However, outside the issue of limited liability, I agree that individuals can easily form a corporation or a union (or both at once if that happens to be convenient) with no need for state involvement. That is to say, they can pool resources, labor or both. However, in modern states the formation of these entities is strictly regulated, so individuals are now constrained to operate by the official rulebook, and the state always becomes involved.
Thursday ~ September 1st, 2011 at 11:33 am
Curt Doolittle
RE: “There is no way a group of people making agreements between each other can contractually remove their individual liabilities to some third party… because that third party did not agree to any contract.”
Ummm….. That’s too general a statement for me to separate necessary causal relations from assumed norms. And I’m pretty sure that you’re using assumed norms rather than necessity.
The third party must have implicitly agreed to the contract in order to do business with the entity. It’s called ‘payment terms’ if your a creditor. If instead, you mean, that the organization engaged in theft (transfers) such as pollution, then that again, does not require state sanction of any sort. In fact, in case history, the state created the problem of allowing pollution, which if I remember correctly was in england, and the state, in order to support the factory owners so that the state could collect more taxes, undermined the right of farmers to sue the factory for polluting the land. Just as you and I are undermined from using the courts to address malfeasance by corporations using the courts, and instead, must proxy through the state.
The courts are a market. And they are a better solution than politics, since politics is by definition and necessity, the art of conducting transfers – and without that definition, there cannot exist politics.
Thursday ~ September 1st, 2011 at 6:59 pm
Tel
I was reasonably clear in my example, if the farmers take a corporation to court over pollution, and the farmers win their case, the corporation can just go bankrupt. The shareholders walk away.
What can the courts do when the corporation has no money and the shareholders are not liable?
Wednesday ~ August 31st, 2011 at 12:40 pm
Lord
I think most would consider corporate tax law demanding of reform, but the biggest problems are agency problems.
Wednesday ~ August 31st, 2011 at 12:44 pm
Craig
Sometimes, there are just universes of insight in a trifling, off-hand comment. Consider: “[L]ibertarians who are otherwise critical of anti-trust activity should be wary of invoking this too strongly.” Now why would this be the case? Aren’t Libertarians the ones who start from absolute, unshakable principles and follow them, fearlessly, to the ends of the Earth? Let property be safeguarded, though the heavens fall?
But of course you are correct: Libertarians should be on their guard in “invoking this too strongly,” and the reason, of course, is that it will lead them into territory they find disagreeable. Which of course means that ostensible Libertarian principles are not the same as actual Libertarian principles. In case there is any lingering doubt on this point, “Libertarians” are simply corporate stooges who fancy themselves philosophers. Film at eleven.
Wednesday ~ August 31st, 2011 at 2:39 pm
Wonks Anonymous
A lot of libertarians are deontological absolutists (particularly Rothbardians), not not all.
Wednesday ~ August 31st, 2011 at 3:23 pm
Craig
I think it goes further: a lot of libertarians think they get to be both deontologists and consequentialists. Cosma Shalizi, unsurprisingly, gets it exactly right:
“On the one hand, the sanctity of private property and private contracts is held to be a matter of inalienable natural right, guaranteed by the fundamental facts of morality, if not a basic part of Objective Reality; capitalism is the Right Thing to Do. On the other hand, much effort is devoted to arguing that unfettered laissez-faire capitalism is also the economic system which will produce the greatest benefit for the greatest number, indeed for all, if only people would just see it. Natural right therefore coincides exactly with personal interest. A clearer example of wishful thinking could hardly be asked for.”
http://www.cscs.umich.edu/~crshalizi/weblog/253.html
Thursday ~ September 1st, 2011 at 1:39 am
Tel
Not all libertarians believe that property rights are “inalienable natural rights”, many just believe that property rights are a darn good idea. Even those who do accept “inalienable natural rights” will also admit that a system for enforcement of those rights represents a practical problem that needs consideration.
Most libertarians don’t even accept that “the greatest benefit for the greatest number” is a measurable quantity in anything other than a gut feel sense, or by selecting some arbitrary metric (such as GDP) and just accepting that what you measure is probably wrong, but might be better than nothing at all.
Wednesday ~ August 31st, 2011 at 7:51 pm
Curt Doolittle
LIBERTARIAN DOES NOT EQUAL ROTHBARDIAN
Thursday ~ September 1st, 2011 at 9:33 am
FuturEconomy Blog » Linkage: ‘New Utopia’, CEO Pay vs. Taxes, Corps vs. Unions, Capitalism Lite
[...] found this mildly anti-union commentary to be informative in terms of how many “libertarian”-leaning economic observers view [...]
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