Labor and Oligarchs

In the 1960’s the auto industry was part of an oligopoly that included the UAW. Before imports, they could raise prices and pass on some of the profits to union workers in the form of higher wages. Now they longer can do that.

Today more industries are controlled by oligarchs that do not include unions. These oligarchs are not buying off the unions because world competition does not allow it. If Apple raised its prices on their smart phones to pay their workers more they would lose business to Samsung in South Korea.

By “crushing” oligopolies the consumer would have more choices because of competition and labor would have higher wages because there would be more companies seeking to hire good workers.

The problem of competing against foreign labor would still exist, however it would be somewhat offset by technology, shipping costs, etc. It would also force shareholders at the domestic companies to put the squeeze on wages paid to their board members and senior executives in order to remain competitive.

Today the “Captains of Industry” are paid egregious salaries to maintain the companies monopolistic position in their respective industry. After enforcing anti-trust laws they will once again be paid to deliver the products and services the consumer wants and to run an efficient operation.

Oligopolies Income Disparity & jobs

The principal federal statutory provision governing mergers is Section 7 of the Clayton Act, which provides:

No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or tend to create a monopoly.

There are more consequences to oligopolies gaining control over industries than a rise in prices to the consumer. These include less innovation and reduction of quality, fewer jobs, wider income disparity, and greater concentration of political power. This is all caused by the erosion of free markets. The economy will not get on track until these issues are addressed. It is the role of government to be the referee of free markets to assure everyone is playing by the rules. No one can imagine an NFL football game without competent referees and this is where we are in many industries and multinational companies.

Less innovation and quality reduction: The history of the American auto industry is a good example of this. In the sixties and much of the seventies the “big three” and the U.A.W. were king. There was no foreign  competition and and these four entities ruled the auto industry. This oligopoly conspired as described by Adam Smith in 1775 in the book Wealth of Nations.

‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.’

The industry became lethargic and lost its edge. The end result was that it needed to be bailed out in 2008. Quality decreased as did motivation. The foreign auto makers saw an opening and took it.

The stewards of the oligopoly are no longer looking out for the interest of the consumer; but rather looking to keep the oligopoly in control of the market.

Fewer Jobs: As our industries become less competitive, we will have fewer jobs. It is generally agreed that small business creates jobs.

“Small business creates most of the jobs.”, Paul Ryan, Republican Congressman, Fox News Sunday, 8/7/11

This being the case, every time an oligopoly is allowed to exist jobs are squeezed out of our economy. Larger corporations find it easier to export jobs oversees, an an oligopoly can afford to let its service slip to the consumer because there are fewer competitors and job seekers have fewer options as to where to work.

Too Big to Regulate

Capitalism is broken, needs fixing or must be further regulated to protect the market from oligopolies. This is related to inequality of income. If we desire to fix inequality, we must fix capitalism.

“The central problem, then as now, was that very large corporations could easily undermine regulatory and antitrust strategies. The Nobel laureate George J. Stigler demonstrated how regulation was commonly “designed and operated primarily for” the benefit of the industries involved. And numerous conservatives, including Simons, concluded that large corporate players could thwart antitrust “break-them-up” efforts — a view Friedman came to share.

Simons did not shrink from the obvious conclusion: “Every industry should be either effectively competitive or socialized.” If other remedies were unworkable, “The state should face the necessity of actually taking over, owning, and managing directly” all “industries in which it is impossible to maintain effectively competitive conditions.”” Wall Street is Too Big to Regulate,  GAR ALPEROVITZ, New York Times, July 22, 2012

The United States was founded on the principle that everyone is born with the right to life, liberty and the pursuit of happiness. Early on our forefathers decided the best economic model to reach these pursuits was capitalism. Free markets was chosen to best attain the nations economic objectives. Capitalism is here to serve society. Society is not here to serve capitalism

Our early leaders recognized in order for capitalism to work markets must be free. Free markets meant the individual must have a wide variety of choices as to whom he could buy goods and services. Many providers  forced them to provide the best products at the lowest prices possible or they would go out of business.
Early settlers were less concerned about government over-regulating markets then about devious suppliers trying to control markets. Today when a conservative complains about the destruction of free markets he is condemning the government saying it is over-regulating the markets and not allowing them to operate effectively. The damage caused by regulations pales to the damage caused by markets taken over by oligopolies and oligarchs.
With the consolidation of market control comes the consolidation of income. This is at the heart of today’s unequal distribution of income. If a small group of companies are in control of a market, they can set prices and set the quality of the products produced. They also have more control over the cost of labor in the idustry.
A corporations principle objective is to maximize the wealth of its shareholders. In a competitive marketplace, with many buyers and sellers, this is accomplished by selling the best products at the lowest price possible. In a tightly controlled market, this is accomplished by tightening the control of the market and making it hard for the consumer and suppliers,  including labor,.to go to a competitor.

The oligopolies are tightening their grip further by buying influence in Washington with huge campaign contributions. We are now seeing the results of the so-called Super PACS. We have one billionaire financing a major portion of Gingrich’s campaign. Romney’s campaign is being financed by huge contributions from Goldman Sachs and other Wall Street firms. The news media is reporting that Obama will be spending a billion dollars on his reelection campaign. One man one vote is being replaced by one dollar one vote.

This must change and here is how.

1. Prohibit corporations and unions from financing political campaigns by amending the constitution 
2. Enforce anti-trust laws against oligopolies and monopolies!
3. Bring our deficit under control and amend tax code!

The question is do we citizens have the will to do it.

What To Do With Labor

The functions of a union in a “free market” economy is a difficult thing to rationalize. In such an economy there is suppose to be many producers serving many consumers with the result that the consumer gets the best products at the lowest prices possible. If a producer does not compete he fails.

The theory is on solid footing in a free market; however, it breaks down if the market instead is controlled by an oligopoly or monopoly. In this instance, the producer no longer cares as much about the wants and needs of the consumer. He will produce the cheapest product possible and charge the highest price because the consumer has no choice.

In the perfect world, labor will deliver their product, their labor, to the producer under the guidance of a free market system. The problem is we do not have a free market when it comes to labor. Usually one union represents labor at one company and often within one industry. Therefore, labor has the opportunity to “extort” wages and benefits that are potentially much higher than a free market would allow. In a global economy this results in goods coming from a foreign country to be cheaper than what is produced within the United States.

No one has come up with a solution to this problem, including myself. Perhaps we need to treat labor in the same manner as utilities. We have accepted the fact that our electricity providers in this country need to be of such a size that it does not permit more than one company to be able to provide electricity to large regions of the country. Further, the cost to be a provider of electricity is so costly that it limits who can enter the business. As a result, we have deemed them to be a utility and must be regulated so their influence and power is not abused.

Is this what we must do with labor?