Capitalism, Unions and the Social Contract

 The recent popular uprisings in the Middle East and in Wisconsin share a common theme.  In every case, a significant portion of the populace became fed up with their government and its policies, so they took to the streets in (mostly) peaceful demonstrations.

For a government to remain in power, most of the people must perceive that it operates fairly and in their best interests most of the time.  Dictatorships, like those in the Middle East, may be able to oppress their citizens for awhile, but eventually the people will explode into revolution.  That has happened throughout history.  In just the past few months, massive citizen protests and demonstrations in Tunisia and Egypt have toppled the governments in those nations.  In Libya, the conflict has escalated to a full-fledged civil war.  Several other nations in that region are experiencing political upheaval.  The tyrants of the world are all nervously looking over their shoulders.

Here in the US, workers in Wisconsin rose up in protest when the governor tried to take away their right to organize a union to negotiate their wages and benefits.  The right to organize and form unions and engage in collective bargaining was established by the Wagner Act (also called the National Labor Relations Act[1]) in 1935.  There are a few loopholes in the Wagner Act, though.  It does not cover several classes of workers, including government, railroad and airline employees.  (Lobbyists were busy even back then.)   It should be emphasized that the law does not prohibit the formation of unions in the excluded groups, but it does not guarantee them the right to organize under the protection of the Wagner Act.  Governor Walker took advantage of this to force a law through the Republican-controlled Wisconsin state legislature stripping collective bargaining rights from unions of government workers.

In all of the above cases, both here and abroad, there was a general perception that the social contract had been broken.  Governments engage in an implicit contract with their citizens:  The citizens agree to comply with the laws established by their government to maintain social order.  But that social order can only persist as long as the people believe they are being treated fairly.

The plight of people in totalitarian Middle Eastern countries like Tunisia, Egypt and Libya was terrible.  The heads of their governments stole billions from the people and stifled any dissent with their powerful police and military.  Protestors were arrested and never seen again.  As we have seen, eventually some event occurs that becomes the final straw, and the eruption that follows can eject the oppressor and send him fleeing.

To understand the Wisconsin situation, let’s review a little economic theory.  In a capitalist society like ours, business owners and their workers play an ongoing zero sum game.  The owners want to maximize profits, and that means they need to hold down costs.  Labor is a major cost in many businesses.  Of course, the workers want to maximize their compensation…wages and benefits.  It’s a constant tug-of-war.

Before the emergence of labor unions, individual workers had very little leverage in negotiating their wages.  Rarely is a worker in a position where leaving his job would jeopardize his employer’s business.  But changing jobs can be a major upset to the worker, possibly forcing him to sell his home and move, withdraw children from schools, terminate the family’s social networks, etc.  It’s an unequal contest, and the worker was usually at the mercy of his/her employer.

Unions changed all that.  When the entire workforce of a business threatens to leave en masse, the business will suffer as much as the workers.  The dictatorship that the owners had previously enjoyed was suddenly replaced with the necessity of negotiation and debate with union leaders.  Business owners initially opposed this, sometimes with violence, hiring goons to attack union organizers.  But with the Wagner Act, the unions were protected from reprisals, and workers began to get a larger share of the economic pie.

Let’s look a little closer at this pie and how it is divided.  A successful business makes a profit.  Those profits can be plowed back into the business, shared amongst the owners, or shared with the employees.  Who decides the division?  The owners, of course.  What obligation do they owe to the workers to share their profits?  Absolutely none.  The only reason they will voluntarily reward employees is to encourage them to work harder so that the business will make more profits.  But with many jobs, it is hard to assess an employee’s contribution to the company’s bottom line, or how that employee could improve his performance to enhance the bottom line.  Without unions, rewards for employees would be few and far between.

The union, through collective bargaining, forces the business owner to share those profits by threatening to strike.  Unions help to maintain the social contract, as workers feel they are getting their fair share of the economic pie.

As noted earlier, the law pushed through in Wisconsin only affects public employee unions.  How do they differ from private unions?   Governments do not make a profit, but they still have an interest in minimizing their costs of operation, including labor.  The taxes to run the government come from individuals and businesses.  If government costs go up, taxes surely must follow.  But in Wisconsin, the unions agreed to substantial rollbacks in wages and benefits, giving the governor virtually everything he had demanded.  So why did he persist in pushing for this law to effectively destroy the union?

The answer is…politics.  There is another agenda at work here.  Labor unions are big contributors to the Democratic Party.  Any reduction in union strength will lessen those contributions, giving Republicans an even greater advantage in campaign funding.  Restrictions on union organizing and promotion have been steadily tightened by Republican administrations since Reagan.  Coupled with the massive outsourcing of jobs to low wage countries, the result has been a steady decline in union membership and political power.  The goal of this Republican strategy is to kill labor unions…and with it, much of the political power of the Democratic Party.

If that happens, the dream of Karl Rove and his band to create a permanent Republican hegemony might be realized.  That would not be a healthy outcome for the nation, and it would certainly cause the continuation of the decline of the middle class wage earners in America.

Unions are virtually the only weapon the working man has to counter the overwhelming power of corporations…both in the workplace and in the halls of government.  If the unions are killed, it seems almost certain that the social contract will not be maintained, and there will be more events like those in Madison, as working people all across the nation begin to realize that they have been sold a bill of goods by the corporate elites.

Maybe that’s what it will take to wake us up.

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