Reflections On A Trade Union Scandal

There is much to think about in the ugly corruption by the Legislative party leader of the Communist Party of India (Marxist) from Tamil Nadu, C Govindsamy.

Govindsamy took 25 lakhs from the mill-owners of Tirupur (all very big exporters, by the way) to “settle a wage dispute”. Read the news report here.

Note that theirs is the “party of the working classes”.

They are the champions of “collective bargaining”.

They go around “unionizing” workers.

They have passed all the legislation on hiring labour.

Their unions are legally allowed to use force to press for their demands – as in the case of strikes.

But that is their “theory”.

In practice they are corrupt to the core.

The first thing to note is the low quality of “party cadres” of the CPI(M).

Yet, the newspaper report says, “the cadre feels there is a need for a reorientation course on party’s ideology for all functionaries.”

If that is the case, let us explore the liberal stand on trade unions. Perhaps CPI(M) cadres will learn something.

There are three basic facts that go against trade unionism. The first is that they can never raise the wages of ALL workers. This is apparent in India: we have had trade unionism for long, but they have raised the wages of just a small privileged minority of workers. This fact is a source of strength to the liberal position on trade unions. Recall that the Swatantra Party of Rajagopalachari and Minoo Masani never had a trade union wing.

The second fact is that workers are NOT homogeneous: there is never a “demand for labour”; there is always a demand for a particular kind of labour.

The third fact is that there is competition between workers of any particular kind: they too compete, and their interests do not coincide.

Thus, wage contracts should be based on “personal bargaining”, with each worker signing his own contract on his own terms. Once employed, he competes for the next promotion.

This liberal view is based on the harmony between labour and capital.

The more the capital, the higher the productivity, and the higher the productivity, the higher the wages.

There is no “conflict” or “class war” between the owners of capital and workers. The idea that capitalists expropriate the “surplus value of labour” is not just false; it is libel. Teaching such nonsense to working people destroys industrial relations, promotes disharmony, and ultimately damages the economic environment – to the detriment of workers: look what happened to West Bengal after decades of “militant” trade unionism.

Finally, let us look at Say’s Law of Markets from the point of view of the poorest, non-unionized worker. From his point of view both as a consumer as well as a producer, all monopolies and monopsonies are bad.

(Trade unions are monopoly sellers of labour in certain industries.)

All monopolies and monopsonies raise prices and thereby lower the quantity sold of the good they control.

(Thus, trade unions LOWER the quantity of labour employed.)

When the quantity of the good sold in the market falls, then Say’s Law indicates that the demand for all non-competing goods falls as well.

If the poor non-unionized worker is producing something that does not compete with what the union is producing, he faces a fall in demand. He sells less.

Now, let us look at the poor non-unionized worker as a consumer. When monopolies and monopsonies raise prices, he consumes less, he buys less, he loses again.

I conclude with two quotes from the late Professor WH Hutt, whose works on trade unionism, Keynesianism and Say’s Law are most illuminating. This is from an obscure work on immigration, in which he writes of some special implications of Say’s Law of Markets. Read it carefully and reflect on it:

“Given any population of working age, and in the absence of monopsonistic exploitation, the aggregate flow of REAL WAGES will be maximized, and inequality in the distribution of the wages flow will be minimized, when every wage-earner is offered and accepts the lowest wage-rate necessary to acquire his services.”

He then states this proposition in another way, which is easier to understand:

“The aggregate flow of REAL INCOME will be maximized when entrepreneurs acquire all productive services needed (those of men and assets) at least cost.”

If you look at the matter from the viewpoint of the poorest non-unionized worker, you will discover that he will sell more as well as buy more under these conditions of competitive price-setting.

Indeed, Professor Hutt was talking about poor immigrants, who should be allowed to compete for unionized jobs in the West. If they are allowed to do so, every westerner will ultimately gain. Unionism is bad for the West too.

(To understand Say's Law better, read my recent article on the subject here, which shows how India Inc. misunderstood this law and how India thereby lost.)