Thursday, January 1, 2009

The real fantasy is labor union virtuousity. They are in it for themselves and themselves only...

In a previous post about ratings agencies and the subprime crisis. I made a few points regarding this post written by Eric Martin at Obsidian Wings. One comment that was, I address a post where the author criticizes the GOP view of capitalism:

In each case, the faith based, categorical, oversimplified outlook has replaced empiricism, pragmatism and a nuanced appreciation of capitalism's strenghts and weaknesses.

I know it wouldn't apply to my views on free markets so I didn't really see the need to take Eric to task for it. However, I will use this statement to take his co-blogger publius to task for his faith-based, over-simplified, fundamentalist and poorly-reasoned defenses of both labor unions and the grossly misnamed Employee Free Choice Act (his posts are here, here and here).
His attacks on anyone who disagrees with him as acting in bad faith are amusing enough (and his shots at Richard Epstein's views on constitutional law are rather amusing). His belief that his need for the EFCA revolve around numerous AFL-CIO talking points and the pulp fiction imagery of corporations acting as banana republics. The current election system may be imperfect but these apocalyptic warnings (and, in some cases, misleading statistics) are not supported by any sort of analysis or, frankly, evidence (unless you trust organized labor to provide objective data). I have little to no interest responding at length about these weaknesses in his arguments. There is a deeper, more fundamental error in overall view on labor unions:

Alleged union coercion is basically a fantasy as well given the incentives unions have to remain in employees' good graces.

This is patently false. First of, all the facts don't support this claim. Second, it completely ignores the rules of interest group politics by conflating a political faction to something more altruistic and virtuous. Last, to make such a statement requires abandoning everything we ought to know about human nature and greed. To reinforce this last example, I will draw upon lessons I've learned about the subprime mortgage business.

According to the most recent annual report issued by the NLRB (here), there were approximately 22,000 complaints of unfair labor practices for the year ending September 30, 2007. Of that amount, approximately 6,000 (or 27%) were filed by against labor unions alleging unfair labor practices. Of that 6,000, approximately 83% (5,000 complaints) were filed by individuals, mostly alleging illegal restraint or coercion by members of labor unions. In addition, the Center for Union Facts provides data from the Bureau of National Affairs that four unions, the SEIU, the Teamsters, the UFCW and the Steelworkers, during a 6-year period, racked up an impressive 15,000 or so separate allegations of violating labor law. A Cato Institute Study from 1998 has background on violence in organized labor's history of violence as well. Lawbreaking amongst union officials or by those doing their bidding is not an isolated event by any stretch of the imagination. It never has been.

Organized labor is an interest group (a political faction), and according to the laws of interest groups as artfully written by my co-blogger Mark, that seeks "nothing more or less than the advancement or protection of their leaders and member's preferred outcome". If unionization is the goal, then the interest group will do whatever it can to achieve that objective by all means necessary. Altruism has nothing to do with it. It is greed and power that motivate organized labor just as it does any other interest group that has the possibility to petition the government and successfully further their own agenda into law (i.e. The Wagner Act).

Organized labor is an especially interesting situation because here is a political faction that once wielded a HUGE amount of political clout and has since diminshed in its significance over the past few decades for many reasons (the NLRB election process not being one of them). Private sector labor union membership has dropped to approximately 7.5% of the workforce. A once powerful force finds iteslf limping in the 21st Century. Efforts to organize on a ground-up basis, despite winning a majority of elections (NLRB data has it around 55%) aren't producing a satisfactory number of new members to increase ranks. Corporate campaigns against WalMart and other companies who are successful at blocking organizing are proving futile as well. Like any interest group, organized labor wants that power back.

If one were to believe publius' arguments, one would believe that EFCA is an anti-corruption measure that would eliminate any and all possibility of employer tampering. Nevermind the fact that existing labor law already has in-place a great many remedies and definitions of unfair labor practices that do protect labor unions for these sorts of things. Also, if I read NLRB v Gissel correctly, a card check majority may be sufficient in order to certify a labor union in the event that employers tamper with the election process. In my opinion, if there is a purported unfairness in the system (and reasonable minds can disagree), it does not seem to be from a lack of regulation, but rather a lack of enforcement. The place to start a debate and discussion should be with respect to amending or reforming existing legislation. publius' exaggerations notwithstanding, he provides no real evidence that amending current labor law will not mitigate the problems he claim exist with the election process.

The EFCA removes this oversight system almost entirely by removing the ability of employers and the NLRB (at the employers request) to verify that the card check majority truly represents the interests of the workers. The current system provides workers with an environment to vote its true intentions. In the event employers illegally attempt to influence the election, unions have courses of action they can take to stop those activities. Albeit imperfectly, the current system gives both sides a check against possible wrongdoing or corruption on the other. To change the existing system to the rules under EFCA will remove oversight and regulation and not increase it, a rather bizarre conclusion for liberals to reach given that their solution to almost any problem that offends them is more regulation and not less. As far as the organizing process goes, the pitcher gets to call the balls and the strikes, not a neutral umpire.

In a post-EFCA world, organized labor, knowing that employers will have virtually no say in the organizing process simply need a majority of signed cards (to suggest elections will be held by employees is about as ridiculous as suggesting that the Earth is 6,000 years old). They gain the power to force employers to collectively bargain. They gain union dues to the tunes of tens of millions of dollars or more. They gain power and prominence amongst the competing factions within the Democratic Party. There will be very little incentive to attempt to align their interest with workers because there will be no risk that a worker who signs a union card will vote against the same union in a secret ballot. All that is required is a signature that a little "persuasion" can accomplish. The message from the union organizers at the top will be clear: "get those signatures by all means necessary".

This is the sort of situation that is ripe for instances of control fraud, and we can observe this action through the lessons we have learned from the subprime mortgage crisis (especially William Black's post at Cato Unbound). On this subject, Black writes:

Internal audit is the “anti-canary” in the corporate “mines”; by the time it is suborned every other unit is corrupted. The CEO cannot send out a memo urging accounting fraud, but he can safely send the same message through his bonus plan. He does not have to order, or be aware of, the specific frauds—the employees will do whatever is needed to “earn” their top bonus. The CEO simply communicates—by inaction—that he does not care how they meet the target.

"Hit your numbers by all means necessary" was in effect the message in the subprime mortgage industry (Chain of Blame is an excellent for insight into the subprime mortgage business and I recommend it). The message from the top was clear. The account executives, originators, brokers, etc. knew what they had to do to get those numbers. Internal controls within companies like Countrywide were virtually non-existent and rendered toothless. Angelo Mozilo can denounce fraud all he wants but it does not necessarily follow that the incentive system that is put into place (mainly by him and/or senior management) without the lack of control will not be a system where its participants will find engage in questionable or fraudulent acts in order to meet those objectives.

With motivating factors like greed, power and money, there is no logical reason that organized labor will, in principle, follow a different path. Labor union officials will want to see their ranks swell by leaps and bounds as fast as possible. They will encourage that as a goal for all organizers and organizers will use whatever tactics are at their disposal to make those goals become a reality. In the absence of any sort of referee to keep the playing field somewhat level, acts of fraud and coercion are to be expected at no small level. The laws of human nature and interest group politics suggest this to be the case. With little to no real oversight to verify wrongdoing on the part of union organizers, I would expect quite a bit of wrongdoing (Kipesquire agrees).

The Employee Free Choice Act is not about restoring the middle class, the "Great Compression" or some liberal ideologue's fantasy of the just society. The law is about organized labor and only organized labor. It is about further undercutting the concept ofa level playing field by removing the ability of employers to seek secret election ballots, which give the employees a way to express their true intentions. Labor unions don't want fairness. They want union shops, union members and, of course, union dues.

It's that simple. They want their power back and require a legal regime heavily tilted in the favor to do it. To hell with the consequences.