Trade unions in a civilized market economy

Abstract

Listen

Translate article

The article tries to answer an old question of economic theory and institutional economics: How do trade unions fit into a market economy? Are they a constitutive element of the market order or: are they a source of irritation and disruption? Key words: trade unions, economic theory, market economy, market, collective bargaining, Germany (JEL: J51, J53, J83) Trade unions and their compatibility with the liberal market order is a highly controversial issue in economic theories. Within the mainstream of market - from Adam Smith to Friedrich August von Hayek - the trade unions rarely found acceptance. However, if we look at the whole array of liberal economists we find a broad spectrum of answers - reaching from disruptive factor to functional prerequisite of the market order. We can identify three different assessments of trade unions (according to Goetz Briefs 1965): 1) Trade union as a disturbing or just irrelevant factor (classical liberalism). 2) Trade union as an auxiliary organ (e.g. Adolf Weber). 3) Trade union as a functional institution of the liberal market order (Sidney Webb & Beatrice Webb; Lujo Brentano). 1. Classical Liberalism Although Adam Smith is regarded as the Godfather of classical at the time when he wrote his Wealth of Nations the term liberalism was not yet in use. Smith spoke of or rational economic order. Only a short remark on trade unions can be found in the bulky book. In Chapter 8 of the first book he states: What are the common wages of labour, depends everywhere upon the contract usually made between those two parties whose interests are by no means the same. The workmen desire to get as much, the masters to give as little, as possible. The former are disposed to combine in order to raise, the latter in order to lower, the wages of labour (Smith, 1904,1.8.11). This is, by the way, a short and most precise formulation of the paradigmatic conflict of interests between employers and wage-earners. Smith states that the masters have a clear overweight in all aspects of market operation (first: they can easier combine because of their fewer numbers; second: contrary to workmen, they are prevented from legal persecution when combining; third: in case of a dispute, they can hold out much longer). But though, in disputes with their workmen, masters must generally have the advantage, there is, however, a certain rate, below which it seems impossible to reduce, for any considerable time, the ordinary wages even of the lowest species of labour (1.8.14). A man must always live by his work, and his wages must at least be sufficient to maintain him (1.8.15) . . . and additionally his breed. The need of subsistence is the lowest level of wages. Smith regarded any other commodity. The demand for men, he expounded, like that for any other commodity, necessarily regulates the production of men (1.8.39). David Ricardo is the presumed creator of the iron law of wages, formulated on the basis of Malthus's theory of population. He proposed that wages tend, in the long run, toward the minimum wage necessary to sustain the life of the worker. He called existence minimum the natural wage and consequently considered trade unions' endeavours as useless. Nevertheless, he opposed the prohibition of trade unions. Due to his liberal opinion he challenged the parliamentary passing of the Combinations Acts of 1799 and 1800. He thought: Why should trade unions be forbidden if they cannot influence economic laws? One of the first of liberal economists who theoretically found it possible that trade unions could increase wages was John Stuart Mill. He thought that they could do so in particular trades whenever they were capable to restrain market competition. Above all, he defended the rights of skilled workers to protect their jobs by trade union organization and industrial action. …