¹ A large number of economists are greatly concerned over the growth of collective bargaining; but generally their concern has not led them to undertake research in collective bargaining. Recently Professor Henry Simons has been the most articulate of these, as in his “Some Reflections on Syndicalism” (Journal of Political Economy, vol. LII, 1944, pp. 1–25).Google Scholar Another large group of economists has undertaken extensive researches in collective bargaining. On the whole, however, this group has not directed its studies at theoretical problems concerning the pricing process and competitive organization. So far as research in labour has been directed by an interest in social problems, it has largely been concerned with industrial peace, the worker's Standard of living, and “industrial democracy.”

There are, nevertheless, a few notable theoretical investigations of collective bargaining and its place in the pricing system. Tannenbaum, Frank, The Labor Movement: Its conservative Functions and Social Consequences (New York, 1921)Google Scholar, was a pioneering work. It has been neglected by other scholars. I do not know of any other equally comprehensive study; but recently Dunlop, John, in his Wage Determination Under Trade Unions (New York, 1944)Google Scholar, has made significant contributions to this no man's land in labour economics; and Polanyi, Karl, The Great Transformation (New York, 1944)Google Scholar, is of at least equal, value Other contributions can be named.

² The most moderate desires for comfortable living may call for a wage rate far in excess of the competitive level. This is, of course, because the wage rate is a resource allocator and an income distributor at the same time. We shall say more about this shortly.

³ Professor Dickinson, Z. Clark, taking note of serious threats to the competitive system, concludes: “These grounds for pessimism, however, are to some extent balanced by more hopeful signs. The younger unions are undoubtedly developing a greater sense of enlightened self-interest and social responsibility.” (International Labour Review, vol. XXXIX, 1939, p. 632).Google Scholar

As our evidence will shortly suggest, the younger unions are possibly the most disruptive of competitive organization. “Self interest and social responsibility” do not by any means promise policies consistent with competition. In particular, social responsibility may mean responsibility to alter the system, not to maintain it.

⁴ This objection raises a very difficult question as to what it is that a union attempts to maximize. Certainly the wage rate is not the only object of union policy; the number of people who are to be paid a wage is of comparable importance. But the membership of a union varies—what is more significant, varies as a result of its own policy. There is thus no one correct policy. Furthermore, as a political organization, the union may pursue advantages for a governing majority (or a governing minority); its policies may represent compromises among a variety of factions. In any case, whether one constructs theoretical models or examines the actual policies followed by unions, one concludes that the pursuit of extremely high wage rates may be the object of rational and intelligent union policy. Samuel Hill's study of the New England teamsters reveals that some of the old locals of teamsters—not truck drivers—committed suicide by raising wage rates for those who possessed the old skill and excluding all new applicants from membership ( Teamsters and Transportation, Washington, 1942, p. 86 Google Scholar). Who can say this was not intelligent in terms of the interest of the then members of the locals?

⁵ Again, Hill's, study of the teamsters provides an excellent illustration. “Since the industry has been expanding almost continuously during the entire period of organization, although individual employers have gone out of business, the union has not been faced with any shrinkage of employment, except during 1938. Consequently it has not had to think of its policy in terms of selling labor in a market where the demand for that labor was highly elastic or contracting. Rather it has been confronted with the unusual situation in these times of a fairly inelastic demand curve for its product (labor) which is moving steadily to the right rather than remaining stationary or moving to the left” (Teamsters and Transportation, p. 146).Google Scholar

⁶ In the nineteen-twenties Lewis, John declared his intention to drive high-cost mines out of the bituminous coal industry by means of wage increases. “There will be fewer mines and miners and it will be a prosperous industry” (Hardman, J. B. S., ed., American Labour Dynamics, New York, 1928, p. 182).Google Scholar

⁷ Millis, H. A. and Montgomery, R. E., Organised Labor (New York, 1945), pp. 383–4.Google Scholar

⁸ A well known example is the price-maintenance agreement of the photo-engravers and their employers, according to which the union received wage increases and, in return, withdrew its members from employers who cut the established product prices. When formal agreement was declared illegal, the two panties continued on an informal basis ( Lester, R. E., Economics of Labor, New York, 1941, pp. 147–9).Google Scholar

⁹ Professor Slichter apparently believes that employer resistance may be an effective check on wage demands. “The success of collective bargaining in Sweden and the United Kingdom is largely attributable to the way in which the return on capital has been protected by large and powerful organizations of employers” ( Slichter, Sumner, American Economic Review, vol. XXXII, 1942, p. 14 Google Scholar). But foreign competition may deserve most of the credit; and, if so, it must be granted that the situation in the United States is not comparable.

¹⁰ The term is not only descriptive; it has the further advantage of currency attained through Professor Simons' recent discussion of it (Simons, “Some Reflections on Syndicalism”).

¹¹ How Collective Bargaining Works (New York, 1942), pp. 431–3.Google Scholar

¹² Golden, Clinton S. and Ruttenberg, Harold J., The Dynamics of Industrial Democracy (New York, 1942), p. 330.Google Scholar Italics mine.

¹³ Ibid., p. 330.

¹⁴ American Federation of Labor, Convention Proceedings, 1923, pp. 31–2.Google Scholar

¹⁵ Reed, Louis S., The Labor Philosophy of Samuel Gompers (New York, 1930), passim.Google Scholar

¹⁶ Woll, Matthew, Labor, Industry and Government (New York, 1935), p. 228.Google Scholar

¹⁷ Murray, Philip, C.I.O. Re-Employment Plan (C.I.O. Department of Research and Education, 1945), p. 10.Google Scholar

¹⁸ Time does not permit mentioning many interesting examples of encroachment on managerial prerogatives falling short of syndicalism. See Chamberlain, Neil, “The Organized Business in America” (Journal of Political Economy, vol. LII, 1944, pp. 97–111).CrossRefGoogle Scholar

¹⁹ It might be objected that I have in the discussion of the degree of incompatibility, overlooked significant contributions of collective bargaining to the success of competitive organization. For example, unions may increase efficiency and thus enlarge the national income while offsetting their wage rate increases. It seems likely, however, that unions will press as hard against the new upper limits to their rates as against the old. Furthermore, unions are doing their best to establish the right of workers within a plant or industry to share immediately and in large measure the gains from technological improvements. Now, while it is true that in a competitive system real wages should increase with increases in productivity, it is distinctly not true that wage rates in any particular plant or industry should increase with particular increases in productivity associated with that one plant or industry. Labour is properly priced and allocated in a competitive system if, say, all unskilled labour in a particular market sells at the same price and not if unskilled labour attached, for example, to the steel industry, enjoys wage increases not enjoyed by other labour in the same market not, however, employed in steel.

The second major contribution that unionism may make to the improved operation of competition is the elimination of monopsony. Again, however, this provides no assurance that unions on balance will improve the operation of the competitive system, for there is no reason for a union, once having eliminated low monopsony wages, to fail to press on for wage increases going far beyond the competitive rate. In terms of wage objectives and in terms of the ability to achieve them, there is no reason to distinguish a union operating in what was prior to its operation a monopsonistic situation from one operating in what was previously a competitive situation.

²⁰ Or not at all.

²¹ This remarkable characteristic of a competitive pricing system—that it should allocate the resource labour and provide a method of income distribution at the same time in the same operation—has often been held up as evidence of the system's merit, and there is much to be said for such a view. But, at the same time, this same characteristic is a root of the worker's hostility to a competitive labour market and of his unceasing interference with its successful operation.

²² As is indicated by the early development of work rules and restrictive practices in the older craft unions, by union espousal of the lump-of-labour theory, by the attention given, even by the new industrial unions, to technological change, by the growing union advocacy of the guaranteed annual wage, and, of course, by syndicalism.

²³ Another aspect of the problem of income inadequacy and the responsibility of the competitive system therefor is worth brief note. With all the development of extensive free services to individuals, particularly free public education, and despite the great use of income taxation as a lever for the equalization of income, we observe that these considerations are frequently disregarded in discussion of the distribution of income and in complaints of income inequality. In the United States today during the war unions object strenuously to existing wage ceilings, not always because they put upper limits on workers' net income, but because they hold down earnings before taxation. Workers apparently much prefer the receipt of high wage rates with subsequent taxing away of their incomes down to a lower level to low rates with low taxes. There are many explanations for these facts, but it seems fairly clear that they are in part a reflection of the prestige attached to income before taxation. In a competitive system great importance is attached to one's earnings; their size becomes a,measure of social status. While this is an intangible, its importance is easy to underestimate. With all that can be done in a competitive system to reduce the actual inequality of income distribution through taxation and free services of government, there still remains, at least so far, great dissatisfaction with the inequalities in the primary distribution of income.

²⁴ One can carry this too far, of course. Even in periods of unemployment, concern for an adequate labour supply in future periods of labour scarcity, as well as concern for harmonious and efficient relations within the plant, will impose some obligation on the employer to administer his plant in a manner satisfactory to workers.

²⁵ An adequate answer requires a re-studying of the history of organized labour. We already possess information on factors militating for or against the growth of unions, but we lack information on factors determining the ability of a union to control wage rates. More generally, we lack information on the relation of union growth and power to imperfections in competition which on theoretical grounds we should expect to contribute significantly to union power. The point in mentioning this lack is to indicate the great research opportunities in this area.

²⁶ If these developments in union organization and control take place, it is essential that we re-think the relation of government to business, and as a matter of fact reconsider the very concepts themselves. If it were possible for a society simply to discard words that have (become troublesome through their inaccuracy, a good case could be made for discarding the words “government” and “business.” The rather sharp distinction between government and business is a product of the rise of laissez-faire. Business and political institutions were closely merged in the Middle Ages; later ithan that, such organizations as the British East India Company represented a combination, of political and business functions in one institutional arrangement. With the development of the price system, it was possible for government to throw off certain public functions such as the determination of what was to be produced and how it was to be distributed, since, through the operation of a pricing mechanism, these public functions could be administered with public control but without the instrumentalities of the political state. Under these circumstances the function of government was to govern, to lay down rules, to provide for law and order. Many of the functions of government today are business functions, and it is thus no longer correct to say that the almost exclusive function of government is to govern. On the other hand, imperfections of competition have permitted business organizations (including unions) to free themselves to a significant degree from the public controls embodied in the pricing mechanism and thus to establish, sometimes through property rights and sometimes through the coercive powers of unionism, what can be described as political controls. I think it is fair to say that rules handed down by companies or unions regulating social relationships and liberties on the job involve political decisions and powers. For that matter, when any agency in the market place becomes so powerful as to exercise discretionary control over the volume of employment, perhaps we should grant that it possesses what we should ordinanily call governing power or political power. These similarities and distinctions are, of course, immensely more subtle than this brief note suggests.

²⁷ As an appendix to these suggestions on public policy, I should like to make an observation on a relevant issue of political theory. It will be objected that the growth of government control over organized labour means the end of the “free labour movement.” In the opinion of many, this is a catastrophe. I should like to suggest, however, that when an organization takes on political functions, as unions have done, our concern is with establishing responsibility in the exercise of that political power rather than in maintaining freedom from responsibility, which is what some advocates of a “free labour movement” mean. We frequently speak of a free country or a free government. What we mean is that government is held in check, not that its officials are free to do as they wish. Likewise, we have every reason to speak of a genuinely free labour movement if we establish its responsibility to the public when it exercises public functions.