During the late 19th century and early 20th, a confluence of circumstances transformed the United States into an industrial giant. Among these circumstances were a private-property, profit-oriented economy with a vast, internal free market. Soft coal from West Virginia and iron ore from Minnesota were sent to Pittsburgh to make steel and – with the railroad grid that interconnected the so-called Midwest – automobile assembly plants were opened in Detroit, with suppliers of components dispersed throughout the region.
Just as natural resources were drawn into the region, so too was labor: immigrants from Europe and African-Americans from the South. A new technique of manufacturing enabled these laborers, mostly unskilled or semi-skilled workers, to produce complex products. Joined with others on assembly lines, an individual worker had only to “turn a wrench” to play his or her role in a series of operations that resulted, at the end of the line, in a car or a truck or, for that matter, a refrigerator or a radio.
At the beginning of the transformation of the Midwest into an industrial powerhouse, many of the skilled workers of the day were organized into trade unions, the most prominent of which was the American Federation of Labor. They differentiated themselves from the unskilled and semi-skilled laborers who worked on assembly lines. For these skilled workers, unions represented a level of quality that justified a higher wage. If you hired carpenters, masons, plumbers, electricians, and so forth, through the union, you could be reasonably certain that you would be supplied with well-trained and highly-disciplined workers. For that matter, the skilled workers opposed government-regulation of the labor market, as why would workers need unions if they got the benefits of unions from the government.
All this changed during the Great Depression. The industrial unions, the most prominent of which was the Congress of Industrial Organizations, gained certain monopoly-like advantages through the Wagner Act, and merged with the trade unions to form the AFL-CIO. Wages and benefits for workers in unionized companies rose to an average of something like 20 percent higher than comparable workers in non-unionized companies.
Even with this high cost of labor, the continued abundant supplies of soft coal and iron ore, the amazing productivity of the region, and the destruction of much of the industrial capacity outside the United States during WWII maintained the competitiveness of the region. During the 1950s and ’60s, it seemed that American industrial giants such as U.S. Steel, American Motors and Firestone, couldn’t help but make money. The Harvard University economist John Kenneth Galbraith, in The New Industrial State, said that large corporations controlled the market, instead of being controlled by the market.
Even as The New Industrial State was being published, the first chinks in the armor of this industrial system were being revealed. The American steel industry was losing its international competitiveness, and Japanese and German automobiles were entering the U.S. market. During the 1970′s and ’80s, many industrial plants were closed and some of the largest corporations went bankrupt or were forced into acquisition by other firms. The government made various attempts to help, such as by “rescuing” Chrysler, setting quotas and negotiating voluntary export restraints on automobiles, and periodically jacking up tariffs on steel. But, in the end, the economic forces proved to be relentless; and, the AFL-CIO has turned its attention to organizing government workers.
{ 7 comments }
“During the late 19th century and early 20th, a confluence of circumstances transformed the United States into an industrial giant. Among these circumstances were a private-property, profit-oriented economy with a vast, internal free market.”
Let’s be clear here: The U.S. did not actually have a free market at this time. The 2nd half of the 19th century was a process of increased cartelization of industry and increased centralization of political power. That America ever had a free market is, in essence, a myth.
“Soft coal from West Virginia and iron ore from Minnesota were sent to Pittsburgh to make steel and – with the railroad grid that interconnected the so-called Midwest – automobile assembly plants were opened in Detroit, with suppliers of components dispersed throughout the region.”
It should be duly noted that these were highly protectionist industries, particularly the railroads in the 19th century. The steel industry has always been one of the chief protected industries.
“For these skilled workers, unions represented a level of quality that justified a higher wage. If you hired carpenters, masons, plumbers, electricians, and so forth, through the union, you could be reasonably certain that you would be supplied with well-trained and highly-disciplined workers. For that matter, the skilled workers opposed government-regulation of the labor market, as why would workers need unions if they got the benefits of unions from the government.”
Well this would seem to hint at the fact that the origin of unions wasn’t entirely negative, as it was a reaction to the cartelization of industry.
bp: What “cartels” are you referring to?
BP: When the term “free market” is used in a historical context, you can almost always assume it is being used in a relative sense. I.e., “America in the 19th century, relative to the rest of the world (or relative to modern times), had a free market.”
I would think that most all writers for Mises blog know that not only has America never had a free market, there has been almost no examples of a free market in history.
High union wages have caused a number of substitution effects that might not be immediately obvious. For instance, the high cost of building trades have spawned the home improvement store (DIY in england) industry. I can work as an amateur plumber or electrician at home knowing that no matter how slowly I do the job, I am money ahead of hiring a professional.
Part of this is due to taxes and regulation that raise the cost of trade professionals.
For instance, when we do things ourselves, we are saving the passing of money trough the payroll tax system twice–once when we earn the money, and again as the guy you hired has to pay taxes on his income.
Needless to say, it is sort of the opposite of the benefits we derive from specialization–but its axiomatic that high taxes lead to all sorts of market distortions and mal-investment of time and energy.
Another big-picture thing to note about unions in america is that once the rest of the industrialized world recovered from the destruction of WWII, they ate away at america’s semi-monopoly on industrial production and once these industries could no longer pass their wage costs to consumers, the industries failed, and their union workers lost their jobs.
Today, only those workers in government-granted monopolies, like govt workers and state teachers, can continue to command higher-than market wages.
Well, and those workers who’s employers receive govt bailouts.
WH Hutt noted that unions sometimes rightfully fight against government power (or other privileged unions) but that the downsides almost always outweigh this benefit. Brainpolice mentioned that unions were, in part, a reaction to cartelization.
Today’s public unions are sometimes a defence against the corporatism of the government. But only sometimes. Unions are in a synergistic relationship with government and see no reason to decrease its power if it can be made to serve their interest. Union control in schools has led to a reaction via legislation (i.e. NCLB) and cries for more nationalistic administrative powers. Of course, the effects of more bureacratic power then leads to more privileging and systemic chaos. This chaos then leads to more sympathy for unionism as a means to fight against the NCLB etc. This process is accompanied by further synergizing compromises.
Through all this see-sawing, government power is increased, centralized and captured by unions and bureaucrats simultaneously.
In the private market, potential teachers are the biggest initial victims of unions as they are priced out of employment artificially. In the government sphere, access to the tax and policy spigot ensures the growth of the system as a whole- which mitigates some of the disemployment effects (though state licensing, qualifications and regulations do squeeze the labor pool).
It is parents and children who pay the social costs of public bureaucraticism/unionism most immediately. Parents have less influence over their child’s education. So-called educators are not held accountable for their actions yet have jobs-for-life. If one follows Hazlitt’s rule then it becomes apparent how damaging the endeavor of public schooling is to the entire society.
Comments on this entry are closed.