Sunday, September 09, 2007

Labor Unions and economic efficiency

Mainstream economics argues that unions are bad for the economy because they impede economic efficiency, but what does this mean? If you dig down into the reasoning of mainstream economics you find two basic ideas about what a optimally running economy should be like: first, that resources are used efficiently so that the most stuff is produced that can be in the best way possible, and second, that the resulting goods are distributed in the fairest way they can be based on the amount of work a person puts in, the demand for that sort of labor, and the basic value of that type of labor itself.

Economists will tell you that economics is a positive science, meaning that it's value free, that values don't figure into standards of what's right and what isn't, but if that's the case then why champion economic efficiency at all? I mean, if we're truly looking at this in a value free way then why exactly is economic inefficiency bad? Why is producing the most goods in the most efficient way possible a good goal? There has to be an underlying value judgment that makes people desire economic efficiency and a sort of just kind of distribution of goods. That judgment isn't hard to find: it's the utilitarian principle of the greatest good for the greatest number, which was put into economics by the philosophy John Stuart Mill, who wrote extensively on the subject, in the 19th century. Now fairness is a strange word.

Another thing that economists will say when talking about the optimal kind of distribution of wealth is that fairness doesn't necessarily mean equality, that a fair distribution of wealth could in fact be very unequal, unequal but fair nonetheless. This is sort of a dodge, intended to ward off suggestions that we should just institute a perfectly equal economy by fiat, without any consideration of the practical issues involved. What the argument that fairness could mean severe inequality, or that it theoretically could mean a lot of equality, misses is the basic concept of what fairness is.

Fairness in distribution is a type of normative value, meaning that it isn't scientifically derived from absolute principles (like economists seem to think their whole subject is), but a normative value much different than blanket judgments like "Every one should be equal" or "An elite should control everything". Fairness is more complex than that. If I have an obligation to you and for some reason I have to break it, what would a fair reason be and what would an unfair reason be? Like I promised to help you move. An unfair reason would be that I just wanted to sleep and didn't want to exert myself. A fair reason would be something like an emergency came up that I had to address and that would mean that there would be no way I could do that and also help you move.

What I'm getting at is that the practice of fairness, the fairness of who gets what how and when, is based on a complex set of principles that are always interacting with each other. It's not just "this is fair" or "that's fair" but that in this situation this particular action is fair, and in that particular situation this particular action is not fair, not fair to either yourself or to others.

So in economics if we want a fair economy there are two parts: first, there are the basic sorts of transactions between people, between people and businesses, that can either be fundamentally fair or unfair and then there are the factors of skill, work, need on the part of the employer, all the basic things that economists say will guarantee fair wages and fair distribution of goods if they're allowed to work themselves out in a free market that puts no restraints on these things.

Is it fair to be compensated for your skills? Yes. Is it fair to have a decent wage for a decent amount of work? Yes. Now who says those principles have anything to do with the economy as it's currently set up?

That's the rub, that's the problem. Here you have an idealized notion of what fairness as applied to work, pay, and consumption but there's no guarantee that it corresponds at all to the reality on the ground. Economists say that the only impediments to this sort of fairness working itself out are regulations by government on what companies can do, and action by unions about how much companies can pay their employees, but what if that's not the whole story? What if there are structural factors in the nature of Capitalism itself that tend to get in the way of fairness, things that don't have to do with the government at all? If repealing government regulations, according to the economists, is a way to ensure fairness, then couldn't positive action, in the form of either unions acting to stick up for workers or in the form of different sorts of government regulations, also contribute to economic efficiency and the fairness that's considered to flow from that?

In this scenario unions would actually contribute to the health of the economy, at least as it figures into a fair distribution of goods, instead of impeding it by ensuring that work gets fairly compensated and that justice is done regarding other areas of work, like safety, that also may suffer from institutional impediments to optimality----which is another way of saying that work place safety in a free unregulated market goes down the tubes because the employers hold almost all of the cards, with workers only having the option of just not choosing to work there as their way to influence things.

Unions help to ensure fairness in the economy, and an extensively unionized economy would be substantially fairer, in a nuanced and non-simplistic way, than one without large union presence.


Renegade Eye said...

I agree with your post.

I think when anti-socialists use the term equality, it's a straw man argument.

There is a difference between a 1 to 10 ratio of pay as opposed to your boss, with a 1 to 1,000.

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