Marginal Revolution: I heart unions, unions are we

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I heart unions, unions are we

Ezra Klein tells me to go out there and tell people I support unions. I do. Alex likes unions too. But we felt unions do not go far enough. So we bypassed the capitalist altogether and started marginalrevolution.com. (The sinister Jane Galt, on the other hand, rules over Winterspeak and Mindles with an iron fist and rakes in all that Amazon revenue for herself, surely they need to combine against her.) MR is run solely by its laborers and when it comes to decision-making I can assure you there are no secret ballots.

Labor-run firms are common in law, book agency, real estate, landscaping, and many other sectors; we even see them in airlines. When labor in charge creates more value, labor starts its own firms or buys out the capitalist or buys greater control rights. Growing capital markets make these evolutions easier all the time. Cooperatives, which are governed by consumers, also are found. Mutuals, non-profits, and yes unionized firms are common too. I heart all of these organizational forms. Keep in mind that if both workers and customers will be better off, yes it probably can happen; it is naive to think that liquidity problems are the major issues preventing workers from enjoying greater control rights.

In the short run, the mental model of the left-wing bloggers is a bunch of janitors trying to get better working conditions but opposed by employers. In the longer run what is striking is the competition across different organizational forms. It doesn't always make sense to give labor residual control rights over capital goods, or the right to halt production.

Posted by Tyler Cowen on March 9, 2007 at 08:55 AM in Economics | Permalink

Comments

"Cooperatives, which are governed by consumers, also are found." Don't let your mental model exclude rural areas. Production and marketing cooperatives run by farmers have long been a feature of agribusiness. And rural electric and telephone cooperatives existed before the New Deal. (Part of the New Deal was putting government authority and money behind co-ops, which usually suffer from free-rider problems.) But like any legal organization, co-ops depend on the favor of the law. And the competition among different forms of organization can occur in the market place, or on Capitol Hill as it makes the laws that define the market place.

Posted by: Bill Harshaw at Mar 9, 2007 9:57:33 AM

one of best posts on MR ever.

Posted by: sa at Mar 9, 2007 10:53:32 AM

I concur with SA

Posted by: Matthew at Mar 9, 2007 11:16:14 AM

Tyler makes the point, but let's reiterate it. Labor unions were a specific type of solution (forming a cartel of workers) that only worked for a super specific type of problem (monopsony company towns in isolated areas with geographically constrained workers) that simply doesn't apply anymore. And where labor really should run things, it does. The free market in this case allows for plenty of different economic relationships, including those where labor should be in charge. It really is time for intelligent liberals to give up their infatuation with labor unions. That's just living in the past.

Posted by: Keith at Mar 9, 2007 11:30:56 AM

So do I. Brilliantly put (as always).

Posted by: Rob at Mar 9, 2007 12:00:19 PM

There is no need to fear that control of more wealth will fall into the hands of the rift-raft. The current trend is for managers to turn themselves into capitalist by selling mutual banks and even some credit unions to the public. They can reap part of the benefits from the sale, get stock options and live happily ever after.

Posted by: joan at Mar 9, 2007 1:21:42 PM

Great answer -- I've been working at a labor-run firm for most of my professional life (a firm, in fact, that has no employees who are not also equal owners). So it's hard to see how anybody could be more 'labor-correct' than I am. Cool ;)

Posted by: Slocum at Mar 9, 2007 1:23:30 PM

I disagree with tyler's "who cares, let it be" attitude towards unions.

first, the idea that unions don't work and therefore will never materialize in the form liberals desire seems a bit naive (look at western Europe).

Second, being a lawyer, I must admitt that I don't think the labor market is working in the field of law. Simply put, the ABA is artificially restricting the labor supply of lawyers. forcing us into 7 years of post secondary school education is excessive and arbritary.

a lot of the restrictions the ABA puts into place restrict potentially qualified lawyers into the field (espcecially in the international realm).

Posted by: thehova at Mar 9, 2007 4:25:56 PM

The ABA isn't so much a union (an organization of workers designed to act as a designated 'go-to' group to negotiate with management over the terms of employment - essentially, if workers were farmers, unions could be cooperatives) as a guild (an organization of tradespeople designed to limit entry into the profession - some modern trade 'unions', especially in the building trades in the north, behave this way also. They are also basically guilds.). The 'union' in law TC has in mind is the firm, with its vested partners. The AMA is the samekind of critter, with the same issues, as the ABA, except worse because the government has less place in medicine than it does in law, which is, after all, a creature of the state.

Posted by: rvman at Mar 9, 2007 5:24:34 PM

The ABA wouldn't need to artificially restrict supply if the AAJ didn't artificially inflate demand.

Posted by: Matthew at Mar 9, 2007 5:48:37 PM

Employee run firms, such as law partnerships and consultanting firms, are most common where "the assets go down the elevator every night" -- most of the assets are human capital.

I worked for a large company that had bought a consulting firm and I was asked to analyze its performance. I found that in the years when the consulting division made a profit, the consultants won big bonuses on the threat of quitting that ate up much of the profits that were supposed to go to the parent corporation. But in the years when the divisio made a loss, the consultants never paid back any of their bonuses from the good years. So, we found a slightly lesser fool corporation and sold the consulting division to them at a loss over what we had paid for it, and we were glad to see them go.

Posted by: Steve Sailer at Mar 9, 2007 7:25:23 PM

Employee run firms, such as law partnerships and consultanting firms, are most common where "the assets go down the elevator every night" -- most of the assets are human capital.

There appears to be (at least) one major exception to this tendency: professional team sports.

I suppose the exception makes sense in football (American and "soccer"), where production processes tend toward the "weakest link" archetype. But it is at least mildly interesting that the employee-run and -owned organizational form failed in baseball (namely, the Players League).

Posted by: brianS at Mar 9, 2007 7:34:46 PM

In pro golf, the players took control around 1970. Previously, the American male golf tour was run by the Professional Golfers Association, which is numerically dominated by local teaching pros. A rebellion of the star touring pros took place about 35 years ago, and effective control was tranferred to a new Tournament Players division nominally still under the PGA, so the PGA Tour name was kept, but the players largely choose their own management.

One change that predictably followed was that the touring pros made it easier to stay on Tour -- previously, only the to 60 money-earners were granted free entry into all the tournaments the following years, and the others had to shoot their way in at a Monday qualifying round. This was boosted to the top 125 money-earners, leaving only about 25 openings in the typical tournament field of 150 for everybody else to struggle over.

Posted by: Steve Sailer at Mar 9, 2007 7:58:58 PM

In team sports, players typically enjoy multiyear contracts which protect them against injury or loss of interest. Individual sports like golf don't have this luxury, so the players take more control to extract more of the profit.

In team sports, the big profits are typically extracted by blackmailing local taxpayers with threats to leave. The team owners have this down to a science, and the athletes know this, so they don't have much incentive to try to take control themselves. They just periodically strike to make sure the owners give them a reasonable share of the loot.

Posted by: Steve Sailer at Mar 9, 2007 8:04:36 PM

Steve's exactly right that worker-run firms are mainly found in industries with low capital intensity. At the same time, I think Tyler's claim that there are worker run airlines is mistaken. Unions own a substantial stake in United, but they don't run it. They currently have only 2 of 12 seats on the board of directors.

I think that there are fundamental obstacles to labor-run firms in capital-intensive industries because of monitoring costs. Lenders to worker-run firms would have a hard time keeping the workers from "stealing" the capital, in the form of high wages or something similar. Even in traditional firms, lenders and owners can barely keep the CEOs from pocketing the capital.

But these capital-intensive firms are precisely the ones that tend to have monopoly power. They're precisely the firms where there are rents to be extracted, and the only question is how big a share the workers get.

Posted by: Ragout at Mar 9, 2007 9:27:04 PM

My late father-in-law was the head of the musicians union in Chicago. He had a wonderful bulletproof office with solid steel doors weighing 1,500 pounds built to protect his 1930s predecessor, Petrillo, who had defied both the Capone mob and FDR. Sadly, the musician's union isn't what it used to be when Petrillo could shut down all recording in the U.S. for 14 months during WWII, even when FDR pled with him that a lack of new records was hurting the morale of our GIs fighting abroad.

Under my father-in-law in the 1980s-90s, the musician's union came to be more of a guild for the musicians in the Chicago Symphony, Lyric Opera, and the ad hoc orchestras for touring Broadway shows.

Posted by: Steve Sailer at Mar 9, 2007 11:53:22 PM

Steve sailer makes some stimulating points. Indeed, unions seem to be a context specific reaction to a larger problem that corporations(or some variant thereof face) and it's employees face. Whether the unions as we knew them in the 20th century will be up to the task in the 21st century is a moot question. One thing is certain, owners and employees will be always be in conflict-maybe explicit or implicit whether it be in the 18th century or the 21st. Unions were a good answer when large tracts of the US businesses were economies of scale monopolies and it was a faustian bargain between employees and owners. But today when capital and labour are much more mobile, i don't know if it actually makes sense for employees to opt for a private sector union when it's highly uncertain whether a business entity will be around 20 years from now. My guess is that unions performed some very important roles that are somewhat removed from the role that people most focus on-nemly wage bargaining. Workplace safety, risk pooling for medical insurance and pensions are some of the few. If we see individaul level solutions emerge to these problems it is possible that the unions in their current form may cease to exist.

Posted by: sa at Mar 10, 2007 3:47:17 AM

In team sports, players typically enjoy multiyear contracts which protect them against injury or loss of interest.

This assertion is at least questionable in the case of the NFL, where almost no "multi-year" contracts are guaranteed -- and seem mostly to be an artifice to allow players/franchises to negotiate more cash up front in the form of signing bonuses that are for salary cap reasons attributed to multiple years. But these contracts are regularly terminated early.

In team sports, the big profits are typically extracted by blackmailing local taxpayers with threats to leave.

while I agree with the latter part of this sentence (that franchise holders seek to "blackmail" local taxpayers into subsidizing their stadia), I question the former. The NFL derives a very large share (over half, I believe) of its revenue from its TV contracts. Those revenues are pooled and shared.

Posted by: brianS at Mar 11, 2007 1:09:16 AM

Right, the NFL is rather different, especially in players' rights. Your son would be much better of in baseball or basketball than in football, where players are burned up fast physically and long term contracts aren't honored.

Posted by: Steve Sailer at Mar 11, 2007 5:27:31 AM

Was looking up info on unions and stumbled across your site. Nice. And intelligent too.

Posted by: Glenda at Mar 15, 2007 10:56:00 AM

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