Labor's European Model
MARCH 16, 2009
First came the huge stimulus, then the huger budget, then the Obama universal health-care plan. But Big Labor, cheering each, was really waiting for this: The "card check" bill introduced last week and considered the missing link in the revival of unions in America.
The so-called Employee Free Choice Act would let unions organize a worksite once 50% of employees sign a card saying they support a union. No secret-ballot election would be allowed. Supporters claim this is necessary because workers are intimidated by companies to cast a vote against the union in secret, but are only too happy to express their true feelings to a union steward. Right.
The bill also gives the government power to influence wages and benefits under its binding arbitration provision. The exact terms of a first contract between an employer and a new union would be set by a state-appointed mediator if parties fail to reach a deal by a state-appointed deadline. Unions would have every incentive to make maximum demands, knowing that an arbitrator would more often than not split the difference.
We think workers have every right to form a union, and companies that get them often deserve their fate. (See: auto and steel makers, failure of.) But the goal of "card check" is to use federal power to tilt the playing field in favor of union organizers. Union rolls hit a peak of 32.5% of the labor force in 1952, then fell fast. As of last year, 12.4% of American workers belonged to a union. The share of unionized government employees has held steady for decades, but a mere 7.6% of the private workforce chooses to join a union. Unable to reverse the trend in the marketplace, unions have focused on electing Democrats who will rewrite national labor law.
And now they see their big chance. The House is almost certain to pass "card check," so the real battle is in the Senate. Six Senators who previously backed the measure, including Democrats from right-to-work states like Arkansas and Louisiana, are expressing new skepticism. But Big Labor's lobbying has only begun, and business needs to be wary of false compromises.
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The larger union economic model here is Europe, where organized labor first led the charge to build welfare states. Then it concentrated on fighting back attempts to roll back costly entitlements and regulations once the bill of chronic debt, stagnant growth and stubbornly high unemployment came due. Margaret Thatcher defeated them in Britain, but successive German, Italian and French leaders have failed.
American political traditions are different, and Ronald Reagan stopped an earlier slide toward Europe. But complacency is misplaced. The Democratic Party sketched out plans for a Continental-like welfare model before Barack Obama burst into the White House.
In the last session of Congress, Democrats tried to: Raise the notice period required for certain layoffs at private companies to 90 days, extend health benefits for laid-off workers for up to a decade, and increase penalties for noncompliance (the expanded WARN Act); reclassify certain managers as employees who can be unionized, forcibly in non-right-to-work states (the Respect Act); facilitate class action suits for alleged gender-based pay discrimination (Paycheck Fairness Act); and much more. None passed, but now they might.
In the Obama revolution, unions are the vanguard force. Contrary to promises of moderation, the Administration has so far sided firmly with the union left. On the day after the Inauguration, the Department of Labor stopped the implementation of new union financial disclosure rules that provide greater transparency about union finances. A fortnight on the job, President Obama issued four executive orders, on federal contracting and political spending, demanded by Big Labor. Mr. Obama this month endorsed card check and vowed that it "will pass."
In Euro-terms, a "social market economy" offers state-provided health care, generous unemployment benefits, long holidays, various job protections and a prominent role for unions. Sounds good, you might say. But consider that the Europeans have spent the past two decades struggling to wean themselves off entitlements that are a huge drain on the overall economy. These welfare states leech off the productive parts of the economy through onerous taxes, debt and regulations.
Everyone ends up paying. Consider just one measure: the tax wedge, the share of labor costs that never reaches an employee's wallet but goes straight to state coffers. In Belgium, Germany and France, the tax wedge is around 50%; in America, it was 30% in 2007. (See the nearby table.) Not coincidentally, salaries and job opportunities are better here, especially for the least-skilled. The Obama budget, universal health care and now the union-revival effort known as the Employee Free Choice Act would steer America toward the Continent. That's good for the unions, but not for the public good.
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The late economist Mancur Olson explained the phenomenon. Starting with "The Logic of Collective Action" (1965), he showed how democracies are vulnerable to proliferating parochial interests that use government to claim an ever larger share of private wealth. Slow but clear decline follows once narrow interests take the wider polity hostage. Look at France -- or California.
"[Economic] success doesn't depend on natural resources and location as much as on the degree of stupidity of the policies and institutions of the country," Olson wrote. The 2009 debate over Big Labor's agenda is about whether we want to continue to be a dynamic, entrepreneurial nation, or slip into unionized decline.
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