Barry R Weingast Barry R. Weingast Stanford University (with Margaret Levi Tania Melo Frances Zlotnick ) Treasury Seminar 21 April, 2015 p , 0 5 1
Open access to organizations. Necessary condition for both economic and political Necessary condition for both economic and political competition. ▪ Market economy Market economy ▪ Democracy Developing countries Limited access 2
NWW.09 date open access to business corporations: In the 1840s & 50s. General incorporation laws.. Yet open access to labor organization much later: Why did open access to labor organizations take so long? Why so much violence associated with labor ▪ Especially state suppression of labor organization? ▪ State took a blind eye to violence against labor by firms St t t k bli d t i l i t l b b fi ▪ Government often collaborating with firms. 3
The traditional wisdom: Labor-business conflict as a zero- or negative-sum Labor-business conflict as a zero- or negative-sum struggle over rents. The traditional approach assumes (usually implicitly) The traditional approach assumes (usually implicitly) that violence stopped because: ▪ Law recognized labor organization ▪ Governmental behavior changed: ▪ Stopped collaborating with firms to suppress unions; ▪ Punished either side for violating the rules Punished either side for violating the rules. 4
The problem is far deeper. The traditional view is partially correct The traditional view is partially correct. It fails to understand the problem of violence: ▪ The causes of violence prior to the 1930s regulatory changes; The causes of violence prior to the 1930s regulatory changes; ▪ Why regulatory changes stopped the violence. It fails to understand the potential for mutual gain p g (e.g., Freeman and Medoff 1984 and Mares 2005). 5
We claim that violence resulted from an inability to solve commitment problems. Traditional view misses the existential threat to business Traditional view misses the existential threat to business ▪ We are so used to the peaceful equilibrium that most scholars implicitly assume that it was the natural solution once the new laws t took effect. k ff t ▪ This assumption ignores the problem of how unions and labor organization threatened business and society. ▪ Would labor advocate socialism and demand major changes in the economic system? ▪ Would labor demand a share of managerial power, as some unions advocated (e g (e.g., IWW)? IWW)? ▪ Similarly: ▪ Business could not commit to eschew violence ▪ Government could not commit to being a neutral arbiter (instead of siding with firms). 6
▪ Mares hypothesis: ▪ Workers invest in skills in exchange for worker protection during down turns down turns. ▪ All are forms of commitment problems. ▪ Once labor organization became legal: ▪ Once labor organization became legal: ▪ Membership would swell, ▪ Labor would become powerful. p ▪ Once labor’s numbers and power grew, it could not be undone. ▪ Implications: Prior to the New Deal: ▪ Stakes were very high ▪ Hence violence: Both sides fought because high stakes. 7
Our thesis: Part of the success of the 1935 NRLA ▪ It solved the commitment problems. It solved the commitment problems Yes, per traditional wisdom, ▪ Legislation solved the existential problems for unions ▪ Hence lowered stakes for Unions ▪ Hence lowered stakes for Unions. But also greatly lowered the stakes for firms. ▪ Largely unrecognized. Transformed government into a more neutral arbiter Transformed government into a more neutral arbiter. We argue that the political stalemate prior to 1930 hindered labor-firm cooperation. Proceed as follows: Prior to 1930, the law favored business over labor Labors tactics Implications and conclusions. 8
Q: Why did the law side with firms against labor? Q Wh did th l id ith fi i t l b ? Absence of labor legislation implied: Law on the side of employers Strikes and walkouts ▪ Labor: temporary absences. ▪ Firms: permanent disruption of employment, ▪ hence legal to hire new employees hence legal to hire new employees ▪ (seen by unions as strikebreakers). ▪ “The expectation of returning to work at the conclusion of a strike was j jeopardized by the legal and popularly sanctioned right of employers di d b th l l d l l ti d i ht f l to hire and fire at will.” (Gitelman 1973:9) 9
Absence of labor legislation implied: Ab f l b l i l ti i li d Few restrictions on business’s employment practices: Fi Firms ▪ Used armed men against strikers; ▪ Hired replacements for strikers; ▪ Hired replacements for strikers; ▪ Fired labor organizers; ▪ Fired workers for joining unions; j g ; ▪ Refused to listen to workers’ complaints or grievances’ ▪ Suppressed worker free speech ▪ Widely used spies and agent provacateurs. All limited labor-firm cooperation in situations with mutual gain mutual gain. 10
Law sided with firms: Police powers in United States designed to protect life Police powers in United States designed to protect life and property. Antitrust laws used against Unions Antitrust laws used against Unions Injunctions against strikes very common. 11
We now think of organized labor as focused on wages conditions hours fringes health issues wages, conditions, hours, fringes, health issues. Unions generally eschew: ▪ Attempts to extract firm capital Attempts to extract firm capital. ▪ Demand participation in firm management. ▪ Attempts to use their political power to create socialism. These limits are part of the post-NLRA equilibrium ▪ Cannot be taken as given. ▪ Did not hold in the pre-New Deal environment. 12
Pre-NLRA labor environment very different from post-NLRA. Nothing limited demands of labor Nothing limited demands of labor. ▪ IWW advocated worker control over firm management. ▪ Many other unions sought various degrees of direct input to firm management. ▪ Although much violence by firms some by labor (often fringe ▪ Although much violence by firms, some by labor (often fringe groups). Implies high risk for firms. ▪ No credible commitments by labor, if organized, not to N dibl it t b l b if i d t t use its power or to support political officials to pass anti- business legislation. ▪ Firm capital and hence the market system potentially at Fi it l d h th k t t t ti ll t risk. ▪ Unionized workforce could lead to major national strikes. ▪ Threaten political order if combined with union advocacy of socialism. 13
Business had a united interest in suppressing labor organization. ▪ Limit labor’s economic power ▪ Limit labor s economic power ▪ Limit labor’s political power. Goldfield (1989) argues: ( ) g ▪ Growing radicalization and the potential for growing militancy and disorder was a major reason for the passage of the NLRA. ▪ “To many in 1935, it did indeed seem that a specter was haunting the To many in 1935, it did indeed seem that a specter was haunting the United States” [1276] ▪ “New Deal labor legislation was a result of interaction between labor movement growth and activity, the increasing strength and influence of radical organizations, particularly the Communist party, liberal di l i ti ti l l th C i t t lib l reformers with both immediate and historical corporate ties, and government officials (or state managers) with primary concern for preserving social stability and assuring the continued electoral success p g y g of the Roosevelt ‐ led Democratic party.” [1268 ‐ 69ea] ▪ Katznelson (2013) agrees. 14
Three commitment problems plagued solving labor violence labor violence. Labor could not commit to moderation ▪ Violence Violence ▪ Radical demands from politics. Firms could not commit not to use violence against g labor Government could not commit to be a neutral arbiter. We take for granted that all three commitment problems have been solved. 15
Changes in the 1930s: Great Depression; Great Depression; ▪ Threat of radical labor ▪ Including labor violence ▪ Labor Demands for Socialism Democrats take power ▪ Pro-labor ▪ Yet could not ignore business. 16
Three-way political exchange Labor gains: ▪ Right to exist, ▪ To collective bargaining. ▪ Some monopoly power. S p y p Business gains: ▪ Protection of their assets; ▪ Moderate political demands by labor ▪ No socialism. Government becomes a neutral arbiter of the rules Government becomes a neutral arbiter of the rules ▪ Punish both labor or firms for using violence. ▪ Democratic Party gains politically: ▪ New Labor Constituency N L b C tit ▪ Many businesses support legislation because it prevents much worse. 17
NLRB: Power to define the scope of the bargaining unit. g g This authority meaningfully limited union activity. It put the NLRB in the center of the quickly growing intra ‐ It put the NLRB in the center of the quickly growing intra ‐ labor fight between craft and industrial organizing. Gave the Board: Gave the Board: The right to oversee and certify the election of representatives. t ti The right to prevent unfair labor practices. 18
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