Unions-Firms-Markets

Alan Greenspan: The Age of Turbulence

Alan Greenspan's memoir  The Age of Turbulence: Adventures in a New World was officially released today and I've just begun to digest it.

In the introduction we get a first (though not surprising) glimpse at Greenspan's contextual/functional view of unions:

Keynesian interventionism was still overwhelmingly the dominant paradigm in the mid 70s, though it was already on the cusp of decline. The consensus with the Economic Policy Committee was that letting the market set prices and wages was inadequate and unreliable and needed to be supplemented by "income policies." These differed from country to country, but generally set guidelines for wage negotiations between unions, which were very much more widespread and powerful than today, and management. Income policies fell short of all-out wage and price controls in that they were ostensibly voluntary. The guidelines, however, were generally backed up by the regulatory levers of government which were employed to "persuade" transgressors.

Given some thought this paragraph sheds light on the predicament of labor in 2007. The election of Ronald Reagan signaled a shift (though policy changes began before that) from Keynesian policies to more market based approaches. The "regulatory levers" would no longer work to actively persuade transgressors but to actively encourage them.

History Repeats History...

Shoemakers, Wal-Mart, and the Eternal Return of the Same

Recently I decided to revisit John R Commons classic study of the American Shoemakers which spans the years 1648-1895. I'm struck by the parallels between what workers faced during this period and the challenges confronting today's workers - outsourcing, globalization, cheap labor, deskilling, lowering of wages & Increasing working hours, periods of union strength and union weakness.

In summing up his study Commons suggests a theme which was present throughout all the battles waged by the shoemakers in thier various incarnations:

"The conflict is ultimately one between the interests of the consumer and the interests of the producer. Wherever the consumer as such is in control, he favors the marginal producer, for through him he wields the club that threatens the other producers"

Presently the menace of Wal-Mart is having a downward pressure on wages (and prices). The American consumer drives the success of Wal-Mart at the expense of producers (workers). In the early 1800s small shoe manufacturing shops could not compete in the new public markets with large manufacturers. Small shops either cut shoemakers wages drastically or went out of business.
At one point small shoe merchants attempted to do the "right" thing and together pledged to honor the established workmen's wages. Within 9 months this collapsed, the small manufacturer could no longer pass on the higher wage costs to the consumer in the form of higher prices.

Food retailers, many which had come to tolerate, if not accept, unionization face this same pressure from Wal-Mart today. Grccery at one point was highly unionized and was dominated by pattern bargaining: Whatever wage settlement was agreed to was implemented by all grcoers in the region allowing a portion of the costs to be shifted onto the customer. When a competitor comes to town firms can no longer afford to do this and the relationship between the union and the firm changes drastically (as seen by the recent Southern California Grocers Strike).

I'm not sure at this point what lessons can be drawn from the history of the Shoemakers. On one hand the conflicts and their outcomes seemed pre-determined by  forces outside the control of either the manufacturers or the workers - Forces which continue to play themselves out today as noted above. Yet, John Commons would not have accepted a world of pre-determined outcomes. In fact his project was the creation of institutions and public policy which would lessen the negative effects of markets. His vision was realized through the creation of programs such as Unemployment Insurance and the passing of the National Labor Relations Act.

One thing is for sure, the current "crisis" in labor is nothing new. If we follow the study of the Shoemakers we see long periods of union decline and then resurgence. These periods however seems less the result of the activities of workers and more the outcomes of economic forces largely outside of our control.

Notebooks

Notebook is a new category on this site and will be used as a means for me to document my thoughts and summaries of the literature I am reading. At some point I may start posting pieces from papers I am working on but we’ll see.

NOTEBOOK

My comments/thoughts distinguished in blue 

American Shoemakers, 1648-1895: A Sketch of Industrial Evolution

John R. Commons

The Quarterly Journal of Economics, Vol. 24, No. 1 (Nov., 1909), 39-84.

 

Introduction

 

Chronology of Shoemaker Organizations
1648 Boston
“Company of Shoemakers”

1789 Philadelphia
“Society of the Master Cordwainer”

1794 Philadelphia
“Federal Society of Journeymen Cordwainers”

1835 Philadelphia
“United Beneficial Society of Journeymen Cordwainers”

1868 “Knights of St Crispin”

1895 “Boot and Shoeworkers Union”

 

Each organization stands for a definite stage in industrial evolution from the primitive itinerant cobbler to the modern factory (p40)

Each represents an internal contention over the distribution of wealth provoked by external conditions of markets or products (p40)

Through this study we should be able to pick out how worker organizations changed structurally as modes of production and the economy evolved. I would suspect that these organizations not only differed in terms of governance and method but also (obviously) in the ideology used to rationalize them.

Section 1 The Company of Shoomakers Boston 1648

 The first American guild (Company of Shoomakers) was chartered in 1648 by the Colony of Massachusetts. The reason given:

“On account of the complaints of damage which the country sustains by occasion of bad wares”

The charter gave the guild the right to suppress inferior workmen, fine and penalize them.

Rationale was to protect quality of product – bad wares – the result would have been higher quality product and restricted entry into the labor market both would have raised wages.

 Two restrictions the colony placed on the guild:

1. Enhancing the price of shoes, boots or wages
2. Could not refuse to make shoes for inhabitants (customers) who brought in their own raw materials.

 

What do these rules tell us?

 

The itinerant shoemaker worked out of customer’s homes using the materials they “worked” up. By granting a charter to the guild, the colony conceded the right of shoemakers to work outside the customer’s home but still had to use material worked up by the customer.  Working out of a customers’ home was seen as disadvantageous by shoemakers so it was an important right which was won.

Keep in mind that at this time the individual shoemaker wore 3 hats (Master, Merchant, and Journeyman) in the future these would split to form 3 separate classes.

Merchant – controls type and quality of work and remuneration comes from ability to drive a bargain with the customer in adjusting price to quality.

Master – Controls the workplace, tools, and equipment. Also passes along orders to the journeyman. Remuneration comes from the management of capital and labor.

Journeyman – remunerated according skill and quality of work, speed of output, and regularity of employment.

These three functions were embodied in the shoemaker of 1648 whose primary self-interest was in eliminating work of bad quality or “bad wares.”

Commons breaks down the effect this has by looking at the results for each separate function the craftsman embodied.

 

The Merchant standpoint – exclusion of bad-wares solved the pricing problem associated with uncertain and uneven quality produced by itinerant shoemakers.

 

Master standpoint – exclusion of itinerant shoemaker transferred ownership pf the workshop and medium of wage payments from the consumer to the producer.

 

Journeyman standpoint – Eliminated “truck payment” of wages and gave piece wages for finished product.

The market faced by the craftsman at this time was a personal one and orders were given before the product was made. The bargaining power of the craftsman was limited because the customer was incapable of accurately judging the quality of goods compared to their ability to distinguish prices.

As a result, the focus at this time was on controlling the quality of product rather than a focus on prices and wages. This changes when the craftsman is split into the three functions above and prices and wages become the primary point of contentions.

 

Two things; one, the guild obviously arises to correct what we would call market failure. In the case of the shoemakers the market was unable, through the price mechanism, to drive out the “bad-wares.” Once the guild was formed quality controls were put in place and prices could accurately reflect quality. Since the craft and merchant functions are both embodied in the shoemaker the guild is as much a business association as it is a union.

Secondly, Commons tells us the economic logic behind the forming of the guild but he doesn’t explain how the guild is able to win its recognition from the state and society. Was this a time of economic boom or bust? Were there protests, riots, work stoppages, petitions? What was the turning point?