Unions Turbocharging the Market Economy

Todays economic environment is the result of a long history of human development. Too often this history is forgotten or ignored when dealing with modern day problems. This can lead to short sighted solutions that make the problems worse. Industrial relations are a case in point.

We often hear the plaintiff cry of rogue unions, union leaders out of control, unions holding back economic efficiency or variants of the same. Unfortunately, these comments usually come from those with vested interests in fostering the demise of the trade union movement. These interests can be political e.g. creating fear of unions in order to garner votes, economic e.g. inefficient industries trying to maintain their profitability at the expense of wages and working conditions or social e.g. those who believe in a totalitarian social structure find the independence and influence of the union a threat to their re-ordering of society.

Trade Unions rose to prominence with the advent of the Industrial Revolution. This was in response to the chaotic conditions existing during the early formation of the modern market economy. Let’s not forget that the market economy is a fragile structure that can easily not deliver the economic benefits it promises. The fundamental premises upon which it is built must be carefully nurtured. The two most important being the level playing field (equal opportunity for all) and a cohesive social structure.

Trade Unions, historically, have performed a vitally important role in this nurturing process albeit sometimes as an unintended consequence, and have led the way in the development of appropriate societal structures that has allowed the market economy to soar in the past 50 years.

Traditionally unions were and still are mostly involved in improving wages and working conditions. These two areas are where the union movement has contributed its most positive effect on the emergence of the market economy.

It is a common viewpoint amongst market economists that an economy trending towards greater wealth inequality is a sign of danger (in Aussie parlance – there’s something crook in Tallarook). High wealth inequality has several undesirable side effects.

Firstly, the propensity to consume of high wealth individuals is much lower than those with low wealth. Which means that consumption expenditure in general will take a hit in an expanding wealth inequality economy. Not good news if your economy is struggling or in recession. Secondly the more wealth inequality the greater the pressure on the concept of equal opportunity due to the inevitable concentration of wealth. Not good news for all those aspiring capitalists wishing to access capital to make their contribution to the economic success story. Thirdly as the gulf of economic inequality widens so too does the bonds that bind a society together start to loosen. First steps towards social and economic upheaval. Not good news for anyone rich or poor.

Unions by struggling for a greater slice of the pie for their members have made an invaluable contribution towards moderating any dangerous trends towards wealth inequality. Whilst there will always be debate about what the right level of wealth inequality should be, there is no question that great care needs to be made to ensure that economic efficiency is not stifled by a widening wealth gap.

The capitalist market economy works best when there are several checks and balances to ensure inefficiencies are dealt with and production maximised for satisfying human expectations. Along with democratic government, independent judiciary and an independent press a strong Trade Union movement is an essential element of these checks and balances. Uniquely, the influence of unions ebbs and flows depending on how well the other checks and balances are performing.

In Australia union membership of total employment has dropped from 51% to just 14% over the past 40 years. This would not be unexpected given the changing nature of the political and social landscape during this period. Governments have increasingly realised that the big picture goals of both government and unions are very similar.

As a consequence, during this time governments of both political persuasions have implemented and accepted the legitimacy of many traditional union foci such as workers safety, enforcement of minimum standards of financial renumeration and working conditions amongst others.

Unions like all human organisations whether political, economic, social or religious attract their fair share of bullies, demagogues and other nasty types in leadership positions. These people, like similarly minded politicians, can make life difficult for everyone in the economic circle including their own members.

But at the end of the day a union is composed of ordinary people who want to be treated with respect, paid fairly for their work and work in a safe environment. They do not want to be involved in conflict situations as a result of industrial action. It would be too glib to suggest that union members are manipulated into taking action. Whilst “rogue” union leaders can exacerbate an already volatile situation, there has to be an already existing situation for them to exploit.

Unions, in Australia, are similar to governments in levels of accountability and formation. They are fully democratic, and elections are conducted, like governments, under the auspices of the Australian Electoral Commission. Their financial affairs are made public and open to general public scrutiny.

There is an old saying Where there is smoke there is fire. When we look at the “intransigence” of trade unions it would do well to look at the detail. Perhaps more resources and effort could go into finding out why those workers are feeling disgruntled and address those concerns. This does not necessarily mean “giving in to union demands” but it does mean getting rid of the ideological approach and treating the workers with genuine emphatic respect.

There is another old saying Don’t throw out the baby with the bath water. Our very successful market driven economic system is too precious to put in danger by indulging in union bashing.