Medieval Guilds, The New Deal and The Real Cost of Today’s Unions

My father-in-law was a union meat packer back in the 50s when working conditions were truly deplorable and wages were far below what we would consider “liveable.”  From his stories I came to understand that unions could serve a vital need for laborers.

But today’s headlines involving unions – whether it’s the “Right to Work” debate or the teachers’ strike in Chicago or the resistance to Boeing’s efforts to start up a new plant in South Carolina – all strike me as “way off course!”  So I did a little research.

Unions’ origins are rooted in the guild system of Europe going way back to the Middle Ages. Guilds were made up of experienced and confirmed experts in their craft.  It was about rising to a level of mastery in one’s trade – progressing from “apprentice” to “journeyman” to “master craftsman.”[1]  Although Guilds served a purpose for their members and for consumers, they also “became intimately involved in regulating and protecting their members’ interests,” and “Guilds came to control the distribution and sale of food, cloth, and other staple goods, and so often gained a powerful monopoly.”[2]

Likewise, today’s unions can wield a great deal of power – recall Boeing vs. the machinists’ union right-to-work case[3] – and they are often more concerned with continued pay raises, ever-expanding benefits and job security than they are with maintaining expertise in their “craft” or competitiveness in the marketplace.

Understanding Today’s Unions

The state of modern unions can be traced back to the early days of the 1930s “New Deal.”  Beginning in the ‘30s up to the end of WWII, union membership rose dramatically to a peak level of 34% of the workforce.[4]  Why the incredible sudden rise in popularity?  Franklin D. Roosevelt’s administration believed the federal government needed to organize and control labor.  Under his term the National Industrial Recovery Act (NIRA) was created in 1933. NIRA was the government’s attempt to regulate labor and competition.

Shortly thereafter, in 1935, the Supreme Court declared NIRA unconstitutional.[5]  One of the suggested reasons was that the Act promoted economically harmful monopolies.  But on its heels an even greater monstrosity was created: the National Labor Relations Act (NLRA). The NLRA actually replaced the voluntarism of NIRA with mandates and new stronger enforcement mechanisms.

Under the New Deal, free competition was viewed as a destructive force that needed to be “both controlled and channeled through institutions that practice ‘fair competition’ under the watchful, mediating power of the government.”[6]  (As if Government knew best and there was a special breed of “Federal masterminds” qualified to rule over the “common masses.”)[7]

“Fair competition” became the standard bearer over “free competition.”  Corporations were to charge “fair prices” rather than competitive prices and they were to pay “fair wages” rather than competitive wages.[8]  Does this word “fair” sound familiar in today’s rhetoric coming from the White House?

Our Founders knew better than to give this kind of power to decide what is “fair” to the new Federal Government they were forming.  They knew about the corruption of power; they had just freed themselves from centralized tyranny.

The progressive ideology of increased government involvement created a playing field that is anything but level.  The social ethic proposed by this system is everyone working for the public good.  However, the end result has been much more self-serving, with unions aligning themselves with the politicians they help get re-elected.  We call this “Washington Inc.,” and it is not True Capitalism.

Where’s the Fairness?

As an entrepreneur who has built his own business, I have to ask the question, “Fair for Whom?”  I have no job guarantee, no tenure, no automatic annual built-in pay increase, and no pension other than the money I can scrape up to invest in my IRA after taxes and payroll liabilities.  For the last 5 years I’ve had to lower my prices just to stay afloat.  All Government has done for my business during this period is increase the burden of more time consuming and costly regulations.

As part of the private sector I’m left competing in a marketplace made uncompetitive by a government that continues to tax and spend our nation into historic deficits, while they trade favors for the union vote.  As of June 2012, state and local governments compensated employees an average of $41.10 per hour as compared to an average of $28.80 in the private sector.[9]   There is no way I can pay my employees wages and benefits like that and compete for bids in my market.

I find it interesting that there is only one arena where unions continue to hold steady at 37% of the work force.[10]  Which sector is this?  Government (public) employees – an arena where there is no competition and no drive for profitability!

Even a progressive like FDR believed that federal employees should not be unionized.  He understood that government agencies employing only union workers created a monopoly with no concern about competitiveness, efficiency or “keeping it honest.”[11]

Where Will It End?

Last summer San Bernardino became the third California city in a month to declare bankruptcy.  Facing a budget shortfall of $46 million and annual deficits over the next 5 years, they opted for Chapter 9 bankruptcy protection.[12]

California Governor Jerry Brown said he believes the public employee pension system is unsustainable and that it continues to gobble up larger shares of the state and local budgets, compelling offsetting reductions in other vital services.[13]  Many believe we are seeing just the tip of the iceberg, with many more defaults to follow.

Meanwhile, Gov. Scott Walker’s stand in Wisconsin showed us that tremendous budget shortfalls can be turned around quickly without massive layoffs.  In the spring of 2011 Wisconsin faced a $3.6 billion budget shortfall, largely because of excesses in public employee unions’ collective bargaining agreements.[14] Currently Wisconsin is projected to have a budget surplus by June 2013.[15]

I Want My Change Back!

The Economics of the New Deal have proven to be unfair to the private sector and unsustainable for our cities and states. It’s time for the Government to get out of collusion with unions and out of the business of regulating what is “fair” and  “competitive.”  Furthermore, unions need to be competitive in the free marketplace.  If unions’ highest goal was excellence in their trade I believe their products and services would be valuable, and they would welcome evaluation and improvement.

Workers should have the right to choose whether joining a union makes sense for them instead of being pressured to join.  States should have the right and freedom to choose whether unions or unionized companies make sense for them instead of having to fight both the unions and pressure from the National Labor Relations Board.

We need leaders who dare to face economic realities and are committed to live within balanced budgets.