Tuesday, July 8, 2014

William Hutt: The Theory of Collective Bargaining

William harold hutt.jpg
William Harold Hutt
William Hutt, an Englishman who taught in South Africa and Dallas Texas, was one of the most profound thinkers in free market economics. Sadly, even in his lifetime, particular on the origins and impacts of labor unions. Despite his long, lettered academic tenure, Hutt acknowledged the neglect of his research, a bitter irony defined by witnessing the irrelevancy of his research, while most academics fell into neglect after their deaths.

Not because of the errors of his research, but political forces in universities are strongly allied with liberal, statist, and coercive elements, particularly the labor movement, which have automatically (albeit unfairly) discredited his findings.

In his seminal work, The Theory of Collective Bargaining, Hutt advanced the argument that in a free market, everyone who wants work will find it, and every employer who seeks workers will get them. Labor shortages do not have to occur, provided that government and other special interest forces (like labor unions) do not intervene.
In his inquiry, Hutt wanted to know: does labor face a disadvantage in wage negotiations, and do unions mitigate this disadvantage? Throughout his essay, Hutt concludes "No."

Frederic Bastiat
First, Hutt points out the historical trends of 19th economists, many of whom abandoned the notion that labor union efforts are futile, since the immediate results of labor actions did produce concrete results for particular unions. Many economists defend unions at that point, convinced of their efficacy on behalf of employees who would benefit, not at the expense of other employees, but at the expense of the employer.

Yet classical liberal economist Frederic Bastiat's concerns about unseen effects cannot be ignored, and Hutt's analysis behind collective bargaining identifies long-term consequences as a burden to the laborer. Refusing to reject the wage-fund theory, which argues that labor combinations and force cannot change the available capital to the number of employees.

Then Hutt posits another controversy: the interest of unionists is antithetical to workers. He also debunks throughout the subsistence theory of wages: employers will take every step to bring down wages to the lowest level possible.

Hutt documented this "revelation" methodically instead of emotionally. Those who support unions advocated for their creation, so bias alone challenges the reliability of these groups. "Scientific Socialist" William Thompson, a protégé of Robert Owen, condemned labor unions as elite and exclusionary, resorting to force instead of legal constraints, hurting other industrious workers in the process. Quite a rebuke against labor unions, and one coming from a socialist.
The Economics of the Colour Bar
In Economics of the Colour Bar,
Hutt uncovered the racist leanings of labor unions in South Africa,
which formed to prevent African laborers.
Contrary to union apologists, Hutt exposes the intense elitism which shuns or disdains non-union labor, and for Hutt, an academic at the University of Cape Town, South African, he witnessed first hand how trade unions deliberately (and essentially) discriminated against Africans to exclude them from the work force. Other works on the subject of trade unions identified the racist undercurrents which fomented these associations.

Hutt continues to hammer the point that labor combinations do benefit one class of workers, at the expense of others. No matter how loudly unions plead "An injury to one is an injury to all", the actions of one union to bolster their wages and benefits negatively impact other workers, particularly non-members. With this argument the author brings up another salient point, that classical liberal economists in the past reluctantly acknowledged (or ignored) the negative consequences of collective bargaining. Strong free-market adherents were intimidated by union power, and the timidity of discussion created a paucity of understanding on collective bargaining.

He  then refers to the economic fallacy long entertained by economists, that laborers have a disadvantage in the market place, a theory first advanced (though not yet questioned) by Wealth of Nations author Adam Smith. Crediting the Scottish Enlightenment economist's considerable influence in economics, Hutt then criticizes this foundational yet flawed reasoning, that employers can force wages to the lowest level, working in collusion with other businessmen, and because of the greater wealth of the employer, they could outlast labor disputes, whereas employees with relatively lesser capital could not do without a job and would accede to the demands of the employer.
Adam Smith

Despite the theories advanced in Smith's work, Hutt found little evidence that capitalists and employers routinely colluded to bring down wages. Free markets create competition not just for consumers, but employees as well, and one sees a pattern of employers as competitors by necessity. Whether tacit or overt, employers did conspire out of protection from the labor unions. Regarding the financial advantage of employers vs. employees, Hutt documents the immediate privations which managers faced for workers. Without proper employment, employers lose time and profit would. Relating anecdotal and academic information, Hutt articulates the frustrations of employers having to engage employees at the wages which the workers themselves wanted.

Already, Hutt makes the more compelling argument that employees, not employers, had the advantage. Noteworthy also in a number of his arguments are the vague terms which union supporters have employed, making articulate criticism difficult. The sophistry of modern academia has contributed to this confusion, certainly.

Prior economists failed to note that just as laborers lose potential wages when they don't work, so too do employers, entrepreneurs, and capitalists lose profit when they do not produce. Wages, incomes, and profit affect everyone, not just the employee who may or may not lose a job.

Following references to arcane or long-neglected academics, Hutt introduces a telling argument redefining the behavior of unions: coercive devices. He even compares them to monopolies, in that they attempt to control or limit the availability of a commodity: labor.

Social coercion occurs based on market forces, and private coercion enters when specific groups, such as labor unions, impede trade.

From a train strike in Denmark (c. 1992)
Strikes may benefit one groups of employees, but they exploit other workers
and harm all consumers in the end
Granted, labor actions benefit one group at the expense of another, but no matter what the outcome in labor actions, the consumer is the ultimate loser. Businesses and managers will pass on the costs of rising wage rates to production or find other minds for maintaining the profitably of their enterprises. Labor unions do not hope themselves without hurting other works, business, and the consumers.

Still, two errors have persisted in political economy, according to Hutt:

1. Forcing wage increases through labor actions helps all workers

2.  Labor and Capital are opposing elements (as opposed to co-operational factors)

Popular economic treatments tend to ignore that wage increases can occur through employment-shifting (promotions), and explorations on political economy ignore that large business interests tend to work with labor unions on a tacit basis, promoting policies which permitting a monopoly on labor and capital, all of which distorts the market place and frustrates commerce.

The forced rising of wages not only hurts consumers, but particularly harms the working class, who bear the undue cost of living increases, many of which relating to the products which they create and purchase. Contrary to labor union pretenses to protect workers' interests, their activities benefit a connected political class within unions and corporations, at the expense of the workers, even the members themselves.

Unions can provided camaraderie
and support (without the violence)

Concluding his essay on collective bargaining, Hutt charges that labor unions are the wrong mechanism for increasing labor wages for employees, but rather than discrediting employee associations altogether, the author offers that unions should fight for better working conditions - hours, workplace safety-- issues which a market system cannot reform or balance out.  In other commentaries, Hutt argues that unions offer worker training, camaraderie, and solidarity in other matters. Regarding their role in securing better wages, however, Hutt provides at length that labor unions are inimical to those interests, destructive to market forces, which provide the best equilibrium for optimal employment and payment.


  1. We'll be contacting your grocery worker's union about your anti-union screeds. Should make for good, wholesome fun for you, scab.

  2. Way ahead of you. They already know how I feel about a number of issues regarding unions. Thanks -- and once again, I am honored that you refer to me as a sign of healing. Truth has that effect!