Freeman

IT JUST AIN'T SO

Business Scandals Show Inherent Worker-Management Conflict?

Cases of Looting by Top Executives Are Exceptional and Prosecutable

DECEMBER 01, 2002 by GEORGE C. LEEF

As predictable as late-summer crabgrass, statists have taken advantage of the recent business fiascoes to argue that capitalism is not good for workers.

In the September 2 New York Times, Steven Greenhouse’s “Update on Capitalism: What Do You Mean ‘Us,’ Boss?” argues that workers are questioning whether they have a common interest with the managers and owners of the firms that employ them. Greenhouse writes, “[W]orkers, with their stock options and 401(k) plans loaded with company stock, saw themselves as allied with management, not opposed to it. Pointing to the dot-com phenomenon, management theorists talked of a New Economy paradigm in which workers would link arms with executives because they were just as eager as their bosses to maximize company profits and stock prices.”

During the go-go 1990s workers bought the capitalist line and “hardly seemed to worry about the need for workplace protections.” They yawned and turned aside labor unions. Greenhouse writes that American unions “made little headway as they sought to lure workers by promising basic protections coveted in decades past, like health coverage and defined-benefit pensions.” To many workers, Greenhouse writes, “the collective approach seemed anachronistic because they were confident that management would protect them or they could protect themselves.”

Ah, but Enron, WorldCom, and so on have now shown us the light! Thousands of workers have been terminated, and their holdings of company stock are virtually worthless. Now workers are coming to see that they were just exploitable pawns all along. Greenhouse cites a recent poll finding that 66 percent of workers say that they trust their employers very little and informs us that unnamed “labor experts” say that the numbers “suggest that the nation may have reached a watershed in which workers conclude that they need collective protections to safeguard them from predatory executives and economic downturns.” All that is music to the ears of the leaders of the dwindling AFL-CIO and politicians who show their “concern” by introducing legislation that will give us those “collective protections.”

The timing of the article, published on Labor Day, was hardly coincidental. Workers of the world, unite!

Before we get too carried away with this thesis that workers and owners/managers are antagonists and that the world of the free market is just too dangerous, let’s make a few observations.

First, businesses fail all the time. Enron gets lots of publicity from hand-wringing politicians, union officials, and writers in search of a story, but it’s no different from the failures of furniture stores, ethnic restaurants, golf resorts, and other enterprises. If consumers don’t like the product enough to give the business a stream of revenues sufficient to cover its costs, it will eventually go bankrupt. Enron’s management tried to pull a lot of stunts to hide the fact that its costs greatly exceeded its revenues, but they’re entirely irrelevant to the fundamental economic truth here. There is no “protection” against loss of employment in a free society, in which consumers are free to spend their money where they want and not to spend it where they don’t. Unions can’t protect jobs because they can’t dictate how people spend their money. As evidence, look at the shrinkage in the ranks of the United Steelworkers. (Government, of course, can force taxpayers to subsidize inefficient flops like Amtrak, but every time it does so, it wastes resources and reduces our freedom.) The risk that consumers won’t buy what you have to sell is unavoidable as long as you want to remain in the market economy.

Saving as a Precaution

That risk, however, can be guarded against. People save as a precaution against the possibility of unemployment, and would no doubt save more if it weren’t for the promise of government unemployment benefits and Social Security. Furthermore, finding new work isn’t terribly hard for most workers. There are businesses designed to help people save and invest money, and to help them find employment. A few thousand pink slips at Enron and WorldCom is not a national crisis.

Second, where are there any grounds for concluding that the interests of workers do not coincide with the interests of the owners and managers? True, in the case of Enron, Tyco, and perhaps some others, there is a strong element of looting by the top executives. But those are exceptional—and prosecutable—cases. How do they prove anything about the general relationship between labor and management? They don’t.

Businesses have to compete for workers, and when they find good ones, they don’t want to lose them. Workers, whether factory hands or top executives, are paid based on what they add to profits and the potential loss of profits should they decide to leave for a better offer. Good old self-interest works for the benefit of both owners and employees. Success is good for both, and failure is bad for both. Headline-grabbing business failures don’t disprove that.

Third, Greenhouse and the union advocates readily advance the notion that workers can’t protect themselves and must be given some kind of collective security package. That doesn’t follow either. With regard to retirement planning, workers do not have to rely on the stock of the company they happen to work for. In fact, very few do. Although the part of their retirement plans that was invested in Enron stock has been wiped out, most of the Enron employees diversified into other stocks. People do not need unions or politicians to tell them that diversification is wise; nor do we need them to tell us how best to invest our money.

What about health care? Ideally, health insurance and health care would be divorced from the employment relationship. (That employers usually provide health insurance as a benefit is just an accident of history, dating back to the circumvention of wage and price controls during World War II.) Workers properly would shop around for the health insurance that was best for them, just as they shop for the best auto insurance. They do not need any “collective protection” here either, and trying to impose it would undoubtedly make almost everyone worse off by forcing a collective choice that few would negotiate for themselves.

Just as old-time cure-all elixir hucksters depended on the gullibility of people to make sales, so do the modern-day hucksters of labor unions and political solutions to the real and imagined crises of modern life depend on the gullibility of people to peddle their coercive, collectivist elixirs. A few highly publicized business crashes have made many workers nervous, but they ought to turn a deaf ear to those who hawk security at the price of freedom.

ASSOCIATED ISSUE

December 2002

ABOUT

GEORGE C. LEEF

George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.

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