Salocin

Industrial Action

I'm moderately right-of-centre when it comes to industrial action. My more socially-minded friends have frequently impressed upon me the need for unions as a counterweight to exploitative business practices, but unions are - often by their very nature - a horrible distortion to market forces that apply the brakes to adaptive progress and hold back the development and adjustment of nations in ways that everyone has to pay for.

While there have been examples of terrible exployer abuse in the past, my belief is that abuse of employer power is no longer the raison d'etre of most unions. Moreover, unions themselves, while claiming to champion the poor downtrodden worker, are structurally anti-employment. They are also often short-sighted when it comes to negotiating solutions to problems.

By increasing the cost of employment, reducing the ability of companies to renegotiate contracts, and removing the flexibility required to shrink (and lay people off) when times are hard, unions make it impossible for companies to weather storms. As a consequence, a strong union results in an economic argument to not hire more people, because you won't be able to get rid of them if the work they do is no longer required. So you don't hire people in the first place, you don't grow unless you're absolutely certain that that growth will be permanent, you never take growth-oriented risks, you hire fewer people than you otherwise would, and employment as a whole is damaged. I have seen this first hand. The irony is that unions often claim to want "a greater share of the business upside", but when times are hard, they expect the business to shield them completely from the storm outside, and they have no real understanding (or they don't care) of the cost this imposes upon a business. I have seen businesses fold as a consequence of this - the first example that springs to mind is Sabena.

Take the French Truckers, for example. 700 of them are currently driving to Paris to complain about increased oil prices impacting their fuel costs. While that is undoubtedly true, and it is also true that in France, four fifths of the fuel price is tax, the last thing they want is for a complete economic impact analysis of the subsidies and taxes received by the trucking industry.

The truckers get to use the road infrastructure without paying for it. In any country, this infrastructure was one of the most expensive to build and remains expensive to maintain. Trucks do more damage to roads than any other vehicle. The trucking industry basically free-rides, using state assets without paying for maintenance, construction or upkeep. That comes from the overall pot of taxes into which all companies and individuals pay - a proportion of your daily pay packet is a structural subsidy to the trucking industry. This is true in almost every country.

Trucks pollute more than any other vehicle. They consume lots of petrol, they splurge smelly toxic gases all over the place, they cause congestion for everyone else, they are often involved in terrible crashes because the hours spent at the wheel cause drivers to fall asleep, and they are the loudest, most obnoxious vehicles in built-up areas. They don't have to pay for any of those costs to society either. We stomach their externalities, we breathe their fumes, we schedule an extra hour for a trip, and if we ever figure out a way to extract toxic fumes from the atmosphere, it isn't going to be financed by the trucking industry, it's going to be paid for, once again, by everyone.

To claim that they pay these costs through fuel taxes is also misleading because I pay fuel taxes too, at the same rate they do, and I'm no truck driver. What's more, the fuel tax revenues are currently essential to governments in Europe because they plug holes in budgets elsewhere, which will only get worse as economies struggle to keep growing as the US dollar falls and falls, thus causing Europe to pay for recent US excesses through a net transfer of wealth and loss of competitive advantage as US exports come to dominate through exchange rate effects. The US administration keeps making noises about a strong dollar, but do nothing to strengthen it, because it's actually really convenient to have this transfer of wealth occur, and by the time it all comes back to bite them in the ass, the current administration will have moved out of the White House.

The crux of the subsidy/protection problem is the sliding scale between allowing a painful realignment, and protecting everyone in failing industries at the cost of our greater national competitive position. As competitive advantage shifts, entire industries die off, others sprout up, frictional unemployment rises for some time, and a lot of people complain bitterly as historically profitable enterprises become unsustainable, causing them pain in the process. This is because, for example, as fuel prices rise, it becomes more economical to use the train, and if lots of freight goes by train instead of trucks, then the trucking industry shrinks - that's painful if you're a marginally profitable trucker.

But does it mean we should prop it up with tax rebates and wealth transfers? Only if we think this change is temporary. If the oil price is going to come crashing back down, then this new state of affairs is temporary. If, however, the oil price is expected to stay higher than the historical average forever, then we have to respect the structural shift for what it is, and let the change occur. That means - for example - letting the new economics of the situation shrink the trucking industry. I don't want my tax dollars sustaining people in jobs that have a net negative financial impact on the economy, and that's what "propping up" means in this context.

Yes, it's heartless, but having a heart will still not make 1+1 equal three. When you allow these changes to happen, you strengthen the economy as a whole, you increase efficiency and competitiveness, redeploy labour towards net-value-added tasks, and grow as a nation, providing more internal wealth in the medium and long term for such things as health provision, which are unambiguously necessary (if sometimes also terribly inefficient).

In particular, at the moment, when we are getting hammered by the US because of the exchange rate, we should encourage this redeployment of resources. It will cause us to become competitive far faster than we would were we merely to weather the storm through subsidies, and find outselves as uncompetitive when exchange rates realign as we were before. This is an opportunity to - by weathering some pain - develop faster than we usually do, by providing incentives to entrepreneurs, and by helping large businesses realign themselves. Runners that train at high altitude, discover upon returning to sea level that their systems have learned to cope with less oxygen, and that this puts them at an advantage; Industry that can learn to cope in tough times, will outperform when exchange rates return to normal.

This is not to say that we shouldn't help industries through the transition. Redundancy pay, retraining and increased investment in jobcentres and employment programs are all ways to spend government money to encourage increased competitiveness while alleviating the societal pain that the change causes. This isn't a heartless strategy, it's a way of evolving so as to not become a dinosaur. Evolution is not painless, and since "change is the only constant", we need to endure that pain continuously. The reward is that we end up not being extinct.

Posted by nlvp at November 25, 2004 07:16 PM