Against Trade Unionism

There was a big strike in Gurgaon – and one of the eminent opinions on it is in serious error. I was about to start writing when the doorbell called me away. It was the housemaid. And my only thought was this:

If anyone cares about “workers,” they should care about these women. They have no unions. Their wages are market-determined under highly competitive conditions. And they can be fired at will. With 60 years of unionism and industrial unrest behind us, this is a fitting moment to finally arrive at the correct judgement of what economic conditions are in the best interest of ALL workers, those who own and sell labour services.

Responding to the strike, our business papers have demonstrated divergent attitudes. Mint concludes that the profit motive guides unionists – I would have preferred the word “blackmail”: see The Strike-Treat System by WH Hutt. They also write about the fading political strength of these unions; how many are just local thugs. I am looking at the maid, busy with the jhaaru.

However, the Economic Times, while trying to justify unionism as something in the “common good,” has exhibited an ignorance of Say’s Law of Markets. Their specious argument runs as follows:

Rationality at the level of an individual enterprise might suggest that lower wages yield higher profit margins. But once you factor in the fact that one enterprise’s workers are other enterprises’ consumers, the enterprise-level rationality becomes irrational at the level of the economy. The greater the workers’ collective income, the greater the demand for the economy’s produce, growth and profits. The more time away from work workers have, the better for businesses such as books, newspapers, music, movies, sports and TV.

This is something like the famous “Candlemakers’ Petition” of Frederic Bastiat: an attempt to show that if some group is given some privileges, they will buy more of the output of other groups. Farmers could make the same arguments – and probably do. Sarkaari baboons insist that their undeserved salary hikes boost market demand. We are fortunate our housemaids don’t say such things when asking for a much-deserved raise from a cantankerous employer.

The Law of Markets says that “the sale of X gives rise to the demand for all non-X.” The implication is that our interests differ when we are competing, from when we are not. If we want to raise the demand for our products, the only way is to allow a completely free market for all those we do NOT compete with. Of course, other businessmen, knowing this law, will demand similar conditions in our industry too. And this would really be in the true interests of the “commonwealth.”

The vital implication of Say’s Law is that all monopolies and restrictions are bad. They raise the prices of some essentials – like labour. When people spend more on these they have less left over for other goodies on the market. We all lose.

Thus, Say’s Law tells us exactly the opposite of what ET is saying. It tells us that the best economic conditions are those when all goods and services, including labour, are competitively sold – and are therefore cheap.

Those who wish to understand the Law of Markets, which “macroeconomics” knows nothing about, are advised to read WH Hutt’s Towards a Rehabilitation of Say’s Law. This rehab was necessary because the Keynesians had obliterated this law from all official learning. The Mises Institute has thoughtfully provided the world with a copy of this important book online.

The late Professor Hutt has also written some important books against trade unionism. In an essay on immigration, which reduces wages, he argued that this would benefit the commonwealth. He was a great classical liberal, and students would be well advised to study all his works. We must rehabilitate Hutt before we can rehabilitate Say.

The crucial point Professor Hutt keeps driving home is that unionism can never benefit ALL workers. Ask me. The maid is still at work. Unionism has never benefited her. Indeed, the very opposite is true: Unionism has harmed such unorganized, individual workers. They have reduced employment opportunities for all workers outside their “combination.” The true interests of all workers – and especially of workers as consumers – lie in a completely free market for labour services; and free trade.

Let us now proceed to legal issues. Of crucial importance to our conception of the “rule of law” is what constitutes the legitimate use of force. Now, unions are legally authorized to use force to press for their demands. This began gradually in Britain – where all bad ideas also began – as Professor Hutt recounts; but it was slow in the 19th century, the age of Gladstonian liberalism and the reign of Queen Victoria. It was shortly after both had passed away that the British liberals made their greatest error – by passing the Trades Disputes Act of 1906. Bruno Leoni quotes an eminent Law Lord of England describing this legislation as a “violent operation on the body politic.” Thereafter, liberalism declined in Britain. The Labour Party rose. And Britain has been destroyed. Let us learn from this well-meaning, but poorly considered, attempt to improve the lives of workers.

Like the rest of us, workers need competitive markets. And free trade – so they can succeed as consumers. After all, the work itself is disutility. It is when the wages are spent that satisfaction is achieved. So our thinking on this subject is wrong on many fronts.

Finally, it all boils down to our general misconception of “rights.” No one has a “right to a fair wage” as no one has an “obligation” to pay any such wage. The demagogue who propagates such wild delusions should be considered a rogue and a threat to public peace. In reality, the worker who has signed a labour contract has an “obligation” to perform his duties, while his employer has the “right” to demand this work.

The strike in Gurgaon was over the sacking of 16 indisciplined workers. They rioted. The police fired. One guy was killed. Another strike is being planned. They want a reinstatement of the sacked workers. They will never allow NEW workers to be hired. This is the restriction on the market they are legally privileged to enforce. It hurts all other workers, those outside the union. It hurts the commonwealth. It should be illegal to do such things.

Once again, Adam Smith’s words on “the system of natural liberty” are worth mulling over:

Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.

Good man, Adam Smith. He had the true interests of the poorest in mind, like the maid.

Oops! Disaster! The maid and the maalkin just had a tiff. She quit!

Liberty!