Thursday, May 12, 2005

Organized labor is dead, long live organized labor!

What do today’s failing firms, such as GM, Ford, UAL and Delta have in common? Mainly, they’ve been unable to adapt to changing market conditions, unlike their more nimble rivals (Toyota in autos, Southwest in air travel).

This brings me to another shared trait: these firms are bastions of union power. While no one can deny that they’ve been badly managed for a very long time, organized labor has also played a big role in their demise. It forced the firms them to employ too many workers, stick to obsolete and rigid work practices, concede excessive long-term benefits in the good times and made it very difficult to close unprofitable operations (plants, routes, etc.). Last but not least, management and labor spend so much time bickering about issues like pensions that the firms’ main business is neglected.

Needless to say, their successful rivals are mainly non-unionized or face pliant Japanese-style labor organizations.

When these ships sink, as they surely will (at least in their present form), organized labor’s long decline will be nearly complete. Sure, it’ll hang on for a while in the economy’s non-competitive corners, such as government, but in the private sector it’ll be basically extinct.

Like the medieval guilds that preceded them, unions were well-suited to a certain environment: growing, regulated economies where production was increasingly carried out in workplaces with rigidly defined repetitive processes. Obviously, this no longer describes our world, where repetitive labor is increasingly automated, changing tastes and conditions require flexibility and competition is ever-increasing.

As always, most workers do have an interest in banding together to negotiate better terms for themselves, so the question now is not whether unions will be replaced but what will substitute them.

My guess is that a new type of labor organization will come along, one that provides services to the individual worker, rather than the firm or industry unions we know today. These new unions will provide many things that neither the market nor the government do well, such as training, job search assistance, unemployment insurance, career change services, legal advice, infant care, etc. Firms will be left alone to do what they will, but they’ll have to meet minimum standards and comply with contractual obligations with regard to workers. Otherwise, they’ll face strong legal action and the new unions will be able to pressure firms by withholding qualified labor.

These new organizations will provide benefits to society as a whole. They’ll make it easier to retrain and reemploy workers displaced by changing tastes and international competition, thus reducing resistance to socially beneficial policies such as free trade. In addition, they could help workers take advantage of existing but underused benefits, such as tax-free retirement accounts. They could even play a positive role in matters such as corporate governance and health care (giving their members better bargaining power vis a vis providers).

Well, only time will tell. But at least my utopian future unions sound like a an attractive alternative to the Teamsters and their like.