As a follow-up to my recent article on the role of unions in the demise of Hostess, the venerable baker of junk-food snacks, I just came across one of the better pieces of economic reporting on this case, from the Wall Street Journal‘s Holman Jenkins.
Jenkins argues that the press has been placing blame on the wrong union. To be sure, it was the bakers’ union’s decision to strike that triggered the liquidation of Hostess. But it was the Teamsters who were responsible for making the company permanently unprofitable.
[O]ne of the major parties to the Twinkie bankruptcy, the bakery union, has been unstinting in explaining the company’s trouble in written and spoken word to anyone who wants to listen. The Hostess brands are valuable. The Hostess bakery and packaging operations are reasonably competitive and efficient, and while some reorganization and downsizing are inevitable, these properties are still worth owning.
Hostess’s problem, as the bakers point out in bankruptcy filings printed in legible English, and as Hostess management has pointed out in its own equally readable filings, is that Hostess’s valuable parts are held back by Hostess’s high-cost, Teamster-staffed system for moving Twinkies and other delights from production facility to store shelf.
This high-cost distribution system means the company doesn’t make money on many of its existing sales. It means it can’t profitably extend sales to new customers and new geographical markets that might keep Hostess factories busier than ever.
In an earlier column, Jenkins explained the restrictions imposed by the Teamsters.
Union-imposed work rules stopped drivers from helping to load their trucks. A separate worker, arriving at the store in a separate vehicle, had to be employed to shift goods from a storage area to a retailer’s shelf. Wonder Bread and Twinkies couldn’t ride on the same truck….
Under pressure on Monday from Judge Robert Drain to back down from their strike aimed at forcing the company to liquidate, the bakers themselves pointed to “what everyone in the baking industry knew: Hostess’s production costs were neither excessive nor out of line with the market but its distribution costs were—to the tune of between $80 million and $130 million annually.”
Hence the bakers’ decision to strike, even if at the risk of bankrupting the company: “the bakers might well prefer to hold back further concessions, let the company liquidate, and try their luck with a new owner or owners who might materialize for its bakery operations.” In other words, they are hoping that a new owner might re-open the same plants—but connect them to its own, profitable delivery system. Jenkins concludes that the real story here isn’t workers versus management but “union vs. union.”
All of this showcases to an even greater degree the destructiveness of labor unions—not just the unions as currently managed, under the influence of an anti-capitalist ideology, but unions as such.
The basic principle of the labor union is “collective bargaining”: all workers bargaining with their employers together, as a group. What is the alternative to collective bargaining? Individual bargaining—the normal system most of us live under, in which we negotiate individually with employers for our wages or salary and our benefits. To be sure, most employers do make some attempt to standardize pay and benefits, since they know that employees will tend to compare notes and regard big discrepancies as unfair. But all of us know the advantage of individual bargaining: an employee who is confident of his skills and his productivity knows that he is valuable to his employer and can bargain for advancement or better pay.
The premise behind collective bargaining, by contrast, is that workers are all interchangeable cogs in the capitalist system, with nothing to differentiate them from one another—or from the “reserve army of the unemployed,” as Marx called them, who could potentially replace them—and therefore no individual has bargaining power with his employer. In this view, the only power workers have is the threat of walking out en masse and preventing their employer from hiring replacements. Hence the function of a picket line, and its violence, as well as the purpose of the various laws that have been passed to force workers to unionize and to prevent employers from hiring replacements, giving the unions a legal monopoly on the supply of labor.
Anyone who has ever run a company, or for that matter, anyone who has ever held a job, ought to know better. Workers are not interchangeable cogs. Some are faster, better, more reliable. Anyone who has ever been an employer or manager knows that there are certain key employees he would hate to lose and dreads having to replace, and he will do whatever he can to retain them, whether it means offering them better pay, opportunities for advancement, or just a kind word. As for safer and more pleasant working conditions—one of the things unions sometimes take credit for—the actual driver of such improvements is individual bargaining: employers have to pay a significant premium to find people willing to work in a job that is dangerous or unpleasant, giving them an incentive to reduce the hazards of the job.
Ask yourself, then, who really benefits from collective bargaining. The answer is: the employee who does not have anything to offer, who fears standing on his own merits, who knows that he is eminently replaceable. And so we find that this is precisely who the unions are designed to protect.
As in the case of Hostess, a look at the actual function of unions reveals that the fiercest union battles are those that pit workers against one another.
The unions undermine the interests of workers because the incentive for the union leaders is to make higher and higher demands for pay and benefits. After all, that is how they justify their existence, by sticking it to the evil capitalists and delivering the goods for their members. But as in the cases I cited in my previous piece, this gives union leaders an incentive to keep making demands beyond what the employer can bear, making the firm unprofitable and ultimately killing it off.
To give you an idea of the economic ignorance and demagoguery that drives these demands, consider the main argument for how labor unions supposedly benefit the economy: by raising pay for employees, they make it possible for workers to afford all of the goods their employers are manufacturing. Leave aside for a moment the sheer stupidity of this argument. (Raising workers’ pay correspondingly raises the cost of the goods they produce, making these things less affordable for everyone.) More important, this ignores the only genuine economic basis for higher pay: improved productivity. If labor is not more productive, if workers aren’t producing more goods for the same amount of work, then at some point demands for higher pay will mean operating the factory at a loss, which is economically unsustainable even if management wanted to attempt it. As Jenkins puts it, with respect to Hostess, the owners didn’t plow money into new products or advertising because “management was doing the job of management, withholding investment in a business model that would not return that ¬investment with a profit.”
But you can see why the unions would have an interest in ignoring productivity growth: because they have nothing to do with it. The real source of higher pay is new skills acquired by workers, better organization, innovation in product design, and the introduction of new machinery which makes it possible for one worker to churn out more goods with the same effort. Yet the unions don’t provide any of this. They don’t invest in research and development or engineering or ergonomics or time-and-motion studies. Quite the opposite. As the Teamsters’ rules for Hostess demonstrate, they stand in they way of improvements in productivity.
What do unions do instead? In the Hostess case, we see a competition between different groups of workers to see who can load up the employer with the highest pay, best benefits, and “feather-bedding” work rules so that they can suck up as much of the company’s payroll for their union and leave less for the other unions.
And it is not just a contest between workers in competing unions. Union rules that mandate hiring, firing, and promotion by seniority, for example, are targeted directly at those workers who enjoy the most individual bargaining power: the hardest-working, most reliable, and most competent. The purpose of these rules is to deprive them of their special bargaining power and to steer the benefits they might have earned to their less-competent peers instead.
My favorite example of the dog-eat-dog world of union work rules is the phenomenon of bumping rights. When a unionized firm (or state or local government) gets in trouble and has to lay off workers, unions rules often give workers with more seniority the prerogative of “bumping” less senior workers out of their jobs. So if your job in one area of the factory or office is eliminated, you can take over someone else’s job, and he can bump somebody else out of another job, and so on until the low man on the totem pole finds that the protection of the union doesn’t apply to him and he’s out on the street. Under this system, a single layoff creates a cascade effect in which a whole group of workers find themselves shifted into jobs for which they are ill-suited or unqualified. Perhaps more important, it creates a vicious sense that everyone in the company is out to take the job and pay of everyone else. The effects—and I can attest to this by seeing a relative go through the ordeal of “bumping”—are described as “hideous” and “very demoralizing.”
Then there is the phenomenon I discussed in my previous article, in which a union will shake down a smaller employer to get a better deal in its next round of negotiations with a bigger employer. After I wrote that piece, my dad reminded me of the name for this practice: “pattern bargaining.” As I pointed out, it creates yet another perverse incentive to sacrifice some workers for the “greater good,” to be enjoyed by others. “I guess they call it ‘collective’ bargaining for a reason: you may lose your job, but the proletarian masses will come out ahead.”
Over the long run, of course, it’s less clear who comes out ahead. The beneficiary, in the case I mentioned before, was supposed to be the United Auto Workers, who were guaranteed a generation of cushy benefits from the big Detroit automakers—which didn’t exactly turn out as promised. But we know that the Union leadership benefited. Fulfilling the caricature they project onto their private-sector counterparts, union executives often collect high pay and lavish benefits in exchange for delivering short-term gains at the expense of long-term sustainability. No wonder one union worker is suing the SEIU, the biggest public employees’ union, to look at its internal financial records.
None of this should be a surprise, because we have so much evidence, from throughout the 20th century, about the consequences of collectivism as a social system. Unions are a voluntary (or semi-voluntary) experiment in collectivist economics, and they work out like any other experiment in collectivist economics. The best workers are sacrificed to the worst, the population is divided into rival gangs seeking special favors at each other’s expense, the leaders live as lavishly as the capitalists they denounce, and productivity is strangled until the whole enterprise collapses. Under the Soviet Union, this happened to whole societies. Under the influence of labor unions, it happens one company or industry at a time.
This is why private-sector unions have been slowly dying out, and it’s why the remaining unions—particularly public-employees’ unions—should be deprived of special political protection and allowed to wither away, too. Unions are a creature of collectivist ideology, in theory and in practice, and they can only achieve the basic aim of collectivism: the sacrifice of the individual.