A friend of mine posted a complaint on Facebook about the apparent demise of Hostess Bakeries: that the union acted against its members’ best interests by being greedy and spiteful, calling a strike, and bringing about the end of the company. I sent him a link to a “make your own Twinkies at home” page to console him on his loss.
But his implicit argument was worrying: that a labor union would act clearly against its immediate best interests; that by voting for the strike, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union would clearly find themselves in a much worse position without jobs. He thought they (and the economy as a whole) would clearly be better off if the union had gone to work under the contract being offered, no matter what its terms might be. I don't think my friend is alone in that way of thinking; there seems to be a lot of people who have aired the same opinion on social media over the past week. In general, they feel that a greedy union overplayed its hand by holding out for a better deal, and ended up with a complete loss as a result..
That kind of thinking, though, reveals a dangerous idea has germinated in these people's minds; an idea that is contrary to fact and makes it difficult to understand let alone solve some of the problems this country faces.
One obvious problem with this kind of thinking is that it runs contrary to a key assumption of economic science: the rational market participant. Unions, like all other economic players, should behave rationally in trying to further the best interests of their membership. You could argue (and perhaps these people would say they do) that this particular union is irrational, even if most other unions are rational and still believe in classical economics. But I have a feeling most people who express their anger at the BCTWGM leadership are not allowing themselves an escape hatch in this way. They simply think the union is stupid and greedy, and that as a result it is harming its membership, the business, and the american economy in general.
What's interesting is that they either can not or will not consider the contrary assumption: that the union logically concluded that it would be worse off if its members continued working.
Which is, of course, exactly what happened: the union made a perfectly rational business decision. Hostess has a huge unfunded liability to its pension plans. If the company is liquidated, the union's pension plans stand to get something from the breakup value of the business and, for any shortfall, can invoke the government's pension guaranty to make up the gap. If the union agrees to work under a new contract, on the other hand, it will wipe away some or all of that debt. Were the company to fail again (and it clearly has a track record of repeated failure over the past decade), they could end up without jobs and without a pension. Their decision to accept no jobs but a pension came as a result of rational thinking. If any of us thought that going to work on Monday meant we were giving up a legal claim to a billion (yes, billion in this case) dollars, we would have thought long and hard before taking that deal. And a lot of us, if not all of us, would consider the billion dollar price tag for going to work on Monday way too high.
So that brings us back to my friend: he did not say "for my convenience of eating Twinkies, I wish they had made a bad decision". Instead, he judged that they had made an illogical decision because of the stereotypes around unions (bad) and businesses (noble) and because it was too much effort, perhaps, to understand the real situation.
If a manufacturer asked its supplier to take a lower price for a raw material but the supplier said it could not afford to sell it at that lower price, most people would understand. And If that manufacturer went out of business as a result, few would blame the supplier: clearly the manufacturer was losing money on its goods, and trying to pass along the losses to suppliers is not reasonable. The manufacturer would have no one to blame but itself.
And yet, when the supplier provides labor as opposed to a part or a raw material, suddenly the assumption is that the supplier should be willing to accept any price for the good of the business. All other suppliers are treated with respect and deference, but labor suppliers are treated with skepticism and, frequently, contempt.
This Hostess conversation is but a small part of the debate that raged up to the election and continues now as the government tries to deal with the fiscal cliff. Even though Obama won re-election, republicans often seem to be winning the battle for the vocabulary of the discussion. In the world of the GOP (and its past-candidate, Mitt Romney), the debate is framed as follows: Businesses are active, engaged, logical decision making economic entities: the makers. But workers are inactive, illogical, “takers” of economic benefits. The workers at Hostess tried to take too much and killed the business as a result.
Consider some typical news stories about Hostess:
nbcnews.com: the company announced that it would be forced to liquidate if enough workers did not return to restore normal operations ...
Washington Post: Hostess said it was forced to opt for liquidation after the union went on strike Nov. 9. The union, representing about 5,000 Hostess workers, walked out after Drain imposed contract concessions opposed by 92 percent of the union’s members.
NY Times: According to Mr. Rayburn, what sent the company into bankruptcy was both the refusal of one of its largest unions, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, to accept far-reaching concessions and a strike that the union began on Nov. 9, crippling two-thirds of the company’s 33 bakeries.
The NY Times does mention something slightly pro-union in the last paragraph of the story, another 8 paragraphs down from the rather pro-business discussion up front. But in general, the problem is described as workers being on strike, not the business being no longer able to afford to hire workers.
This kind of pro-business tilt is so common, I think, that it’s hard for most people to see the forest for the trees. They do not see the balance between suppliers and consumers of labor as a question of supply and demand, with a market price set in the middle. Instead, they see workers only as reacting in an emotional way to an offer from management. Somewhat like how sexists and racists portray their victims as being less intelligent and less rational, this -ism portrays workers as not being at the same level as business leaders. And because of that, our discussions not only about Hostess but about taxes and spending in general end up one sided.
To illustrate how one-sided the conversation has become, I will borrow, metaphorically, a technique used by cold war spies to more easily spot things: they looked at the negatives from reconnaissance photos instead of the positive prints. By seeing things in reverse, it was often easier to find something they would otherwise miss. So, likewise, I will flip the conversation on the economy to the reverse:
The problem with the economy in this country is that, while there are plenty of jobs to be had (Facebook alone has 1.9 million job openings listed as of now on its job board), the heavy disincentives of government policy and taxation are discouraging labor providers from entering new markets. Economic theory is clear: the only two reliable ways to increase supply are to lower the costs of providing it and increase the prices paid for it. The best thing for the government to do is to actively incentivize labor. It can lower the tax rates charged on labor providers and increase the incentives for them to invest in R&D. By moving from disincentives to meaningful incentives, labor resources will begin to flow back into the economy, finally allowing businesses to acquire the resources they need at an affordable price. This will return our economy to the growth rate we all want to see.
That's logical, isn't it? It’s correct, too, to suggest that lowering the burden on labor will produce increases in how much labor is supplied. Fox News’ John Stossel found that there were plenty of entry-level jobs to be had in the immediate vicinity of a NYC jobs center. His particular argument, of course, is that the government was making it too easy for people to avoid taking hard labor jobs with minimum-wage pay. But there is an equally valid argument that the high government burdens on labor in NY discourage people from taking these lower-paying jobs. Which viewpoint you prefer is driven by politics, not science. The truth may lie somewhere between these two extremes. When you acknowledge that there is a middle ground, you end up with a far different conversation about why people are not taking these entry level jobs.
And that brings us to the crux of the current political debate. So long as the terms of the debate revolve only around why businesses aren’t creating more jobs and we're not asking why people are unable to take the ones that are open, the debate has been lost for workers. When businesses are assumed to be the only rational entities that can grow the economy by responding to incentives, workers are marginalized as if they are merely waiting for job manna from heaven. As a result, the debate becomes a struggle over establishing the point of diminishing returns for business incentives. What money is left over when that point is found is just table scraps; scraps that will be fought over beween competing demands for helping workers to cushion the blows of the recession and the goals of reducing the deficit.
In reality, workers do make logical choices and act rationally in the economy just like businesses do. To deny that is, like in the case of the Hostess workers, factually wrong and often just a tactic to marginalize one side of the debate. But because workers do behave rationally, we must consider a more complex, but fair set of questions: what is the right way to balance the burdens of the government between the labor suppliers and consumers in the economy? Does making the tax rates more or less progressive than they are now get us to the right balance? Where are the right places for the government to provide incentives? Should we provide incentives for business R&D or incentives for worker skills upgrades? It all comes down to how best to optimize policy so the suppliers of labor — workers — and the consumers of labor — business — will reach an optimal economic equilibrium.
That kind conversation will be one that respects the contributions of both business and labor to making our country prosperous. Questions about tax rates for labor and business are of course fair to ask and may well have answers that skew towards business. The republicans could even be closer to the right mixture of policy than the democrats. But. so long as we have a conversation that starts from the viewpoint that only business income is imbued with virtue, we will always end up with a government that makes business the economic favorite. So long as we keep those simplistic bad assumptions, we will never find a decent solution.
The media and politicians have accepted a mindset that causes them not to ask the right questions, let alone find the right answers. There needs to be a recognition that each and every one of us -- as business leaders or workers -- engages in the economy out of a general goal of maximizing the benefits we receive. A fair and honest discussion recognizes and respects that both sides are engaged in fundamentally the same thing, commerce, and respond to incentives in the same ways. But at the moment, there is very little respect for workers.
In the 1960s, Memphis african-american sanitation workers fought and won a historic battle against racial discrimination and the perception that they were less worthy than their white co-workers: they won that battle, in part, by marching through the streets of Memphis with signs that read “I am a man.” It would be sad and ironic if, in this day and age, workers who want to assert their economic equality will need to march through the streets with signs that say “I am a business”.
Footnotes:
1: DIY Twinkies: http://www.instructables.com/...
2: Regarding John Stossel: anyone who makes the argument that taking a $7/hour job is always better than holding out to find a $20/hour job is financially illiterate. Trivial case: you can either take a $7/hour job today and lock yourself into that pay rate, or take a $20/hour job tomorrow. Which do you do? Knowing how long to hold out is unfortunately the same as being able to predict the future, and people struggle to do their best to answer that question. Stossel's argument really comes down to this: he thinks it is better to force people to take lower paying jobs sooner than to allow them some chance to wait for a higher paying job later. But, for the health of the economy, it is far more important to ensure that people are employed where they are most productive; allowing some grace period for people to find that optimal point is better for the economy as a whole. That you can argue for some limit on the grace period does not imply the right answer is 0.
3: Investment in worker R&D would be things like more grants for students, lower interest rates for student loans, better funding for public colleges, vocational education classes in secondary schools, etc.
4: Regarding the Memphis sanitation strike: unfortunately, while the workers won their battle, as a nation we suffered a great loss: the assassination of Martin Luther King on the balcony of that Memphis motel.