Chickens and Potatoes

In ancient times, folks conducted transactions via the barter system. If a vegetable farmer wanted a couple of chickens for soup, he found a chicken farmer and traded something he had--a bushel of potatoes--for the chickens. This generally worked but was cumbersome. Going shopping with bushels of potatoes could lead to back strain.

Hence man invented a "medium of exchange"-- money. The chicken farmer would establish a price for his chickens. The vegetable farmer sold his potatoes at market for a price and could then buy the chickens with easily-carried money. (Some money was not so easily carried, but it was still better than potato bushels.)

The money represented value: chickens, potatoes, birdhouses, whatever. It was a medium of exchange with no significant intrinsic value. In addition to produce, it came to represent skilled labor. People would build something and be paid for their efforts. Companies were formed to produce merchandise which would be sold at market. The tradesmen and laborers who manufactured the goods were paid commensurate with their contribution to the value of the product.

Enter the profit system. Manufacturing facilities had overhead: building, tools, raw materials, etc. Also, administrative personnel who didn't actually build things were needed to manage finances and marketing. Thus, and this is a key point, the workers had to be paid less than the true value of their work in order to provide for this overhead. The difference was profit which went to pay for the means to manufacture. The compensation for the workers was determined by the value of his or her contribution to that product, less a profit margin. A limiting factor was the price placed on the company's product to make it competitive in the marketplace compared to competitors.

Union collective bargaining is an anachronism. At the dawn of the industrial revolution, unions were needed to counteract abuses by greedy robber-barons. Today, that is no longer the case in this enlightened society. The union practice of continually negotiating for higher pay for the same work ignores the real world of industry.

To increase wages without a corresponding increase in the value of the worker's contribution is economically unrealistic. It leads inevitably to a loss of jobs to automation and plain old belt-tightening. As a result, we have permanently lost jobs to foreign competitors who pay lower wages. The relationship should be obvious. Due to a great extent to union militancy, we have priced ourselves out of many manufacturing venues. (How many U.S. manufacturers of consumer electronic equipment are there?)

A gross distortion of the labor market exists in the area of government employment. In industry, the bargaining process with the unions is often constrained by the economic realities of the marketplace. When the Big Three automakers had the field essentially to themselves, the UAW was able to negotiate extremely generous wages and benefits for their members. When foreign competition became a significant factor, things got sticky. To their credit, the UAW recognized the problem to some extent and moderated their demands and even gave back some compensation. Not all unions did the same.  (I remember a strike at a local packing plant--I think it was Patrick Cudahy--that went on for a very long time. Finally the company closed the plant and left. I recall a striker being interviewed and exulting, "We won!" But the jobs were all gone.)

Government has no constraints of profit necessity or marketplace competition. Consequently, the tendency is to acquiesce to union demands, reasonable and unreasonable. We see consequences of that today in our state government and its huge deficit. (Labor costs are not the only factor in the deficit, but they are a major one.) Collective bargaining involving government is an anachronistic misnomer. There was no real bargaining involved. At least until the state went broke.

Governor Scott Walker's proposal to terminate union collective bargaining, with some pragmatic exceptions, is simply a recognition of reality. Even though wages are technically still bargainable, severe constraints are being proposed such that little actual bargaining would be possible. Predictably, there is a huge outcry of gored oxen and the Gov. is being portrayed as some kind of heartless ogre.

Unions in general have become obsolete, constituting a self-perpetuating drain on workers' income through union dues to pay for their substantial administrative expenses. In the present highly competitive foreign-dominated marketplace, they are more the problem than the solution. Compensation should be determined by the real value of a worker's contribution to his employer's business, not his seniority or the strength of his union. Public employee unions are particularly unconstructive and unrealistic. In this instance, Gov. Walker is right on the mark.