Countervailing Power

When I was growing up in Anderson, Indiana, both my parents were passionately anti-union. There was a reason: my father had a small auto-parts business, and frequent strikes in Anderson’s then-dominant automotive plants meant fewer customers. Furthermore, there was a considerable amount of what can only be described as union “thuggery” that occasionally erupted. So I grew up with a very dim view of unionization.

Let’s just say I’ve developed a more nuanced perspective.

What my parents and I failed to recognize “back in the day” was that it’s not good when either unions or management holds vastly superior power. The ideal is balance, or what has been described by scholars as “countervailing power.”

The phrase “countervailing power” was coined in the 1952 book American Capitalism: The Concept of Countervailing Power by the economist and social thinker John Kenneth Galbraith. Galbraith argued that, in a modern technological society, most important markets would be dominated by a few large firms. Their market power and political influence could be checked, however, by countervailing power—both public, in the form of a strong regulatory state, and private, in the form of labor unions and consumer cooperatives. Arguing that measures to strengthen the bargaining power of unions and farmer groups were “among the most important legislative acts of the New Deal, all designed to give a group a marketing power it did not have before,” Galbraith asserted that “the support of countervailing power has become…perhaps the major peacetime function of the Federal Government.”

The equation of the New Deal with government-supported checks and balances in the market may seem surprising today, when many associate the New Deal with social insurance programs like Social Security or Keynesian deficit spending in downturns. But this view was the conventional wisdom (another phrase coined by Galbraith) of many New Dealers. For example, in 1940, the journalist John Chamberlain wrote: “The labor union, the consumers’ or producers’ cooperative, the ‘institute,’ the syndicate—these are the important things in a democracy. If their power is evenly spread, if there are economic checks and balances to parallel the political checks and balances, then society will be democratic.”

When there is no countervailing power–when those sitting on one side of the bargaining table are easily able to dominate or intimidate those on the other side– the result is inevitably negative. The longtime imbalance between management and workers in the auto industry has enriched  managers–obscenely– at the expense of those who make their companies profitable: CEO compensation for 2022 is reportedly  $29 million for GM’s Mary Barra, $21 million for Ford’s Jim Farley and $24.8 million for the CEO of Stellantis (and as the Free Press recently noted,  those weren’t even the highest payouts to an individual last year at the companies).

It’s not difficult to understand why union members– who had agreed to reduced wages and benefits in 2009 when the economy tanked and who still haven’t caught up– would be resentful.

In the more than half century since I left Anderson, the precipitous decline in the power and influence of organized labor has led to a number of unfortunate consequences. As the linked essay notes, one of those consequences has been an “upward shift of political power on the center-left to college-educated progressives,” and a politics that is more   technocratic and top-down. Another has been the captivity of the GOP  to the anti-labor agenda of the party’s libertarian donors.

Technocratic neoliberalism ignores the values and interests of the two core constituencies of the New Deal—the working class and rural Americans. Unrepresented in either party, these groups are drawn to outsider populists, including maverick old-school New Dealers like Sanders and right-wing demagogues like Trump.

I think the above paragraph oversimplifies the reason working and rural folks have flocked to Trump –it overlooks the extent to which his appeal is to a still-potent, still widespread racism. The racist element of his appeal been repeatedly documented.

But it’s also true that when people feel powerless or abandoned, racism that might otherwise be latent rises to the surface, so the observation isn’t entirely wrong.

The bottom line is that bargains made by unions composed of the laborers whose prospects are on the line–the people with “skin in the game”– are infinitely preferable to laws passed by well-meaning elected officials. The parties to any negotiation are privy to the issues particular to that workplace, and an agreement hammered out between employers and workers is unlikely to stoke the same level of resentment as a measure imposed by lawmakers.

The recent rise in union activity may be disruptive, but it’s long overdue.


The Real Welfare Queens

America’s most generous welfare system is one in which the rich get richer, and the rest of us pay the bills.

Both Axios and American Progress have reported on the taxes paid–or more accurately, avoided– by members of the Fortune 500. This was at a time when corporate profits were more than healthy, and in the view of many, a time when corporate greed has contributed to the inflation that is eroding wage gains.

The table at the link shows 2021 federal income tax expenses, pre-tax earnings, and effective corporate income tax rates for 19 companies in the Fortune 100. Four of them show a negative tax rate, or zero taxes owed that year and for some, entitlement to a refund.

I’ve pared down the following list to the name of the corporation, its pre-tax earnings after allowable deductions and credits, and the effective tax rate. There are many more companies that fall into this category, but this will give you a (bitter) taste… Inc.
$35.1 B

Exxon Mobil Corp.
$9.3 B

AT&T Inc.
$29.6 B

Microsoft Corp.
$33.7 B

JPMorgan Chase & Co.
$48.2 B

Verizon Communications
$27.2 B

Ford Motor Co.
$10 B

General Motors Co.
$9.4 B

Chevron Corp.
$9.5 B

Bank of America Corp.
$30.6 B

United Parcel Service
$14 B

FedEx Corp.
$4.7 B

MetLife Inc.
$4.8 B

Charter Communications Inc.
$6 B

Merck & Co. Inc.
$1.9 B

American International Group Inc.
$9.8 B

Dow Inc.
$1.5 B

Nike Inc.
$5.6 B

A recent Guardian analysis of top corporations’ earnings shows most of them are enjoying significant profit increases while they continue to pass higher costs on to customers. And despite record profits and minimal or even negative taxes generating big refunds, several of these companies–Amazon is notable–are frantically opposing the unionization of their workforces.

If you wonder why the gap between the rich and the rest continues to grow…

A recent article from Time Magazine traced the history and effect of unionization.

Unions became popular in the U.S. starting in the 1930s, with membership rising from just over 10% of the eligible working population in 1936 to about a third by the mid-1950s, according to 2021 research published in the Quarterly Journal of Economics. That remained the case until the mid-1980s, when they fell out of favor, thanks to a culture in which companies refocused on maximizing shareholder value and minimizing worker benefits, as well as a court-backed emphasis on the value of private property and private profit. “Those years turned out to be basically a blip in what otherwise has been not only a very contentious, but many times a very violent interaction between workers and employers in this country,” Devault says of the mid-20th century.

During unions’ heyday in the U.S., however, the income gap between the richest and poorest Americans shrunk considerably. “The only time that the bottom tenth of the population and the top tenth of the population have come closer together has been during those years, when unions were operating in the largest corporations in this country,” Devault says. As unionization declined in the 1970s and 80s, that income gap grew once more. Today, it is at an all-time high since tracking began over 50 years ago, based on Census Bureau data. Research shows that as much as $50 trillion has migrated into the coffers of the top 1% of income earners in the U.S., an upward redistribution of wealth that has squeezed out the middle class.

Business schools are finally recognizing that shareholders aren’t the only stakeholders who matter to the success of a business enterprise. Employee morale is ultimately as important to the bottom line as tax avoidance. For that matter, a prosperous middle class consisting of people with disposable income is critical to sustained business success.

America’s tax system is an abomination. You need not be anti-capitalist to insist that the rich pay their fair share to the country that provides them with the wherewithal to make those fortunes.

I’d be willing to bet that the “captains of industry” who manage those tax-avoiding businesses don’t resent paying the dues charged by fancy country clubs; they know it takes money to maintain glitzy clubhouses and immaculate golf courses. It also takes money to maintain the roads and bridges over which manufacturers ship their goods. It takes money to pay the police and firefighters who provide businesses with security and public safety, and it takes money to compensate the judges and other personnel who administer the legal system all businesses depend upon.


During one of the 2016 Presidential debates, Trump responded to Hillary Clinton’s charge that he’d played fast and loose with his taxes by sneering that his tax avoidance meant he was smart. Too many executives agree with that sentiment, and they are all wrong.

The truth is, they are the “welfare queens” that they like to disparage.


Thoughts For Labor Day

Labor Day would seem to be an appropriate time to consider the massive changes that have transformed the American workplace and diminished the bargaining power of workers–one major reason for the enormous gap between the rich and the rest. (It may also be an appropriate time to worry about the continuing replacement of human workers by automation.)

The changing face of the workplace–and especially the enormous growth of the “gig” economy– are barriers to organizing; the reality is that it is increasingly unlikely that unions will ever be the guarantors of fair employment practices that they once were.

If it is the case that most labor unions cannot be revived, the question becomes: how do we bring back workers’ power? How do we arrange the economic landscape so that workers can tell their employers to go take a hike if they offer insultingly low wages or dangerous working conditions? How do we level the playing field between employee and employer–especially large employers?

There is one answer, and it is audacious. We could empower workers (and solve a lot of other problems) by enacting a universal basic income. (Alfred Yang won’t be President, but he isn’t wrong.)

As an article in Forbes, of all unlikely places, pointed out, a universal basic income creates bargaining power by increasing all workers’ capacity to refuse a raw deal. The article points out that a UBI acts to increase workers’ “reserve price” — the minimum each worker must be paid before she is willing to accept a given job with particular working conditions.

A UBI is a more flexible means of improving the bargaining power of labor than either unionization or a minimum wage, because it allows workers to drive a harder bargain. It would also have the same effect on the economy as a higher minimum wage–it would increase both workers’ disposable income and economic demand.

A UBI appeals to both liberals and conservatives. Liberals champion it as a better approach than America’s inadequate and demeaning safety net programs; libertarians embrace it because it avoids legally-imposed, one-size-fits-all measures, allowing firms and individuals the freedom to negotiate the terms of their employment.

A Universal Basic Income would allow employees to walk away from bad employers, unsafe work environments, or undesirable jobs. Most importantly, it would restore a balance of power in the workplace–and as one observer has written, employment would no longer be modeled after “a peasant and feudal lord dynamic.”

I did a good deal of research on the merits and problems of a UBI for my recent book, and although I’m not unrealistic enough to think America’s lawmakers are likely to pass anything remotely similar during my lifetime, I was persuaded by the data that the general approach is not only sound, but–thanks to automation– will be absolutely necessary sooner than most people think.

Labor Day isn’t just a good time for a cookout. It’s also a good time to consider how badly labor has been screwed by the GOP’s war on unions and by the changes to the nature of work itself –and a good time to consider how best to repair the damage.


How Widespread Is This?

Common Dreams has posted an extensive review–or perhaps “report” is a more accurate term–of philosopher Elizabeth Anderson’s new book, “Private Government.” It is an examination of work environments in which millions of Americans apparently find themselves stripped of rights to a degree that I found shocking.

I don’t usually quote material at length, but in this case I’ll make an exception: here are the first two paragraphs of the Common Dreams report.

Corporate dictatorships—which strip employees of fundamental constitutional rights, including free speech, and which increasingly rely on temp or contract employees who receive no benefits and have no job security—rule the lives of perhaps 80 percent of working Americans. These corporations, with little or no oversight, surveil and monitor their workforces. They conduct random drug testing, impose punishing quotas and targets, routinely engage in wage theft, injure workers and then refuse to make compensation, and ignore reports of sexual harassment, assault and rape. They use managerial harassment, psychological manipulation—including the pseudo-science of positive psychology—and intimidation to ensure obedience. They fire workers for expressing leftist political opinions on social media or at public events during their off-hours. They terminate those who file complaints or publicly voice criticism about working conditions. They thwart attempts to organize unions, callously dismiss older workers and impose “non-compete” contract clauses, meaning that if workers leave they are unable to use their skills and human capital to work for other employers in the same industry. Nearly half of all technical professions now require workers to sign non-compete clauses, and this practice has spread to low-wage jobs including those in hair salons and restaurants.

The lower the wages the more abusive the conditions. Workers in the food and hotel industries, agriculture, construction, domestic service, call centers, the garment industry, warehouses, retail sales, lawn service, prisons, and health and elder care suffer the most. Walmart, for example, which employs nearly 1 percent of the U.S. labor force (1.4 million workers), prohibits casual conversation, which it describes as “time theft.” The food industry giant Tyson prevents its workers from taking toilet breaks, causing many to urinate on themselves; as a result, some workers must wear diapers. The older, itinerant workers that Amazon often employsare subjected to grueling 12-hour shifts in which the company electronically monitors every action to make sure hourly quotas are met. Some Amazon workers walk for miles on concrete floors each shift and repeatedly get down on their hands and knees to perform their jobs. They frequently suffer crippling injuries. The company makes injured employees, whom it fires, sign releases saying the injuries are not work-related. Two-thirds of workers in low-wage industries are victims of wage theft, losing an amount estimated to be as high as $50 billion a year. From 4 million to 14 million American workers, under threat of wage cuts, plant shutdowns or dismissal, have been pressured by their employers to support pro-corporate political candidatesand causes.

There is much more, and I encourage you to click through and read the review in its entirety.

At risk of oversimplification, I attribute this horrific situation to the decimation of American labor unions. When I was a girl (back in the Ice Age), unions were not only powerful, they often dominated (and sometimes even terrorized) the management of targeted enterprises, and were subject to legitimate criticisms for overreach.

That was then.

Now, after years of concerted attacks, passage of “right to work” laws encouraging free riders, and the explosive growth of the gig economy, unions are virtually non-actors, and without them, most workers have no bargaining power. If Anderson is correct–if 80% of America’s labor force has been stripped of what we think of as fundamental rights and even human dignity–it’s time to rethink both employment law and the American social contract.


Twinkie, Twinkie, Little Star….

RIP the Twinkie, a nauseating bit of plastic and grease masquerading as an edible treat.

Troublemakers to the end, the Twinkie and Ding-Dong and their “gang” of faux-foods have become yet another contested story in the ferocious and largely fact-free political debate over economic policy. According to the Right, the demise of the Hostess company was brought about by those dastardly unions–at least, the one that refused to accept a second major cut in wages and benefits in order to keep the struggling company afloat. Liberal blogs, on the other hand, place most of the blame on the venture capital company that bought the operation out of its last bankruptcy, pointing out that nowhere in the management structure it put in place can anyone be found who actually ever baked anything.

Now, I have to agree with the liberals that asking for a second round of wage concessions after tripling the pay of the CEO was bad form, if nothing else. Especially since the company was in bankruptcy. But come on, people–there’s plenty of blame to go around whenever a business fails. In this case, let’s choose capitalism.

Markets work because they satisfy consumer demands for goods and services. Markets are inherently risky because consumers often change their preferences, and companies that are not sufficiently nimble at meeting those changed preferences lose market share. At the end of the day, that’s what happened here.

When I still practiced law, I remember another lawyer remarking that the risks of the market system were the reason for the bankruptcy laws; in order to have a system that incentivizes risk, you need a mechanism that allows people to start over when those risks don’t pan out.

The market for snack food has–thankfully–changed. We Americans may be fatter than ever, but we’re also guiltier than ever about eating processed foods that we (now) know are terrible for us. Changes in the food industry have given us choices, including stuff that actually tastes good, and we’ve gotten more selective. The natural foods movement is growing. People actually read the nutritional panels that our socialist government requires.

It was time.