Editor's Note: Next week we're planning a special edition of this missive in which Doug will answer questions from readers. If there's anything you would like to ask him – about investing, the economy, where we're headed, his personal philosophy, or anything at all – send us an email to email@example.com. We can't guarantee your particular question will be answered, but we will present them to Doug. The deadline for questions is Sunday, March 6. We look forward to seeing what nuggets you come up with.
L: Doug, last week we talked about turmoil arising from the clash between labor unions clinging to wages from the fat years and bankrupt governments facing lean-year budgets. You saw that as a sign of more imminent chaos – a warning worth giving – but we didn't really get into the subject of labor unions themselves. Knowing your philosophical bent, I'd bet your views on them might surprise many people…
Doug: My take is that there's nothing inherently wrong with unions, as long as they are voluntary associations of people – they're just associations working in certain trades or in certain places. It's natural. Sure, why not?
But there are problems with the way unions exist in reality today, particularly when membership is made mandatory. That's a violation of the human right to work. When you can't work unless you join the union, and union membership is limited – often to people with political connections, or family relations with union officials – it's clear that the union is not a defender of the little guy, but a kind of protection racket. It's a fraud.
That doesn't just harm the individual worker who may wish to enter a unionized field; it has broad economic consequences. When only union members can work, the union can set wages at whatever level they want. That makes the product or service in question more expensive for everyone in society. In other words, unions don't help the average working man – they only help those who can get into the unions. They hurt everybody else: non-union workers, employers, and consumers at large. And it gives union bosses extraordinary power.
L: Always a dangerous thing. As a matter of principle, whenever unions get politicians to write their wishes into law, what they do ceases to be collective bargaining and becomes naked coercion. And of course the politicians pander to the big unions; unions are big blocks of voters. How could it be otherwise?
But Doug, you're the capitalist's capitalist, the world's most unabashed defender of wealth accumulation – aren't you supposed to hate labor unions? Don't you risk being kicked out of the cigar club for The Evil Exploiters of the Masses?
Doug: First off, there's no way I'm giving up my cigars – especially those from Cuba. But how could I object to voluntary associations of people? If unions were more like the Lions Club or Rotary Club – both of which simply encourage people to get together and act in unison – I'd have no beef with any of them. But the fact of the matter is that labor unions, guilds, and so forth are not truly voluntary associations. And that's entirely apart from the corruption that the union movement is riddled with – not just in the U.S., but everywhere in the world.
The good news, however, is that coercive unions are on the way out. They're anachronisms. They're leftovers from the time when people were like interchangeable parts in the giant factories they worked in. People were so replaceable that one person was little better or worse than another – because they were basically biological robots. In the early industrial era, labor was in over-supply, society was poor, and conditions were harsh everywhere. It's understandable why workers felt they had to band together for self-protection. But the industrial era is gone. The assembly line with thousands of workers is totally outmoded. In the global information age, trying to extort high wages for manual labor is pointless. Soon robots will be doing almost everything, then nanomachines will replace the robots. People will only be doing work that requires thought, judgment, and individuality. Those aren't things that can be unionized.
L: I've long thought that Big Labor was a rational market response to Big Business, a lot of which relied on rote behaviors back then. If you were just one little guy on the assembly line and your supervisor didn't like you, what chance did you stand without the backing and solidarity of your fellow laborers? Unfortunately, huge industrial concerns were highly vulnerable to sabotage – it's hard, for example, to police thousands of miles of railroad tracks. I believe that weakness in the soft underbelly of tight-fisted business owners proved too tempting a target for many workers. And that sort of thuggery prompted management to hire thugs as well, to intimidate workers. I can't really say who started it, but tit for tat brutalized the whole dialogue – and both sides scrambled to secure politicians in a sort of labor-relations arms race. "Labor" and "management" have been at odds – sometimes violent odds – ever since. It's no surprise to me that Marx and Engels, products of the early industrial era, saw everything in terms of class conflict.
Absent government coercion to be used as a weapon by one side or the other, organized labor and management would have worked out their differences in a very different way. If one union bargained collectively for a high wage for their members, another union could bargain for a lower wage for their members and get the jobs. Or the company could decide to hire non-union employees and take on the extra burden of dealing with each employee individually. It would be a normal market process that would discover the right price for reliable labor at any given time and place.
As with so many things, it's the state and its coercive power that's the problem, not the unions. Nor management.
Doug: Exactly. It was also a time in history when society was changing from an agricultural base to an industrial one, so of course there was turmoil. Just like today.
Suppose some Mexicans or Salvadorans living in Detroit got together today and formed a union for Hispanic people and offered to build cars for half the wages the current unions are getting. They could even allow non-Hispanics to join the union – to try to defuse the inevitable accusation of racism – but the deal would be that you join to get steady work in exchange for willingness to work cheap. Would the mouthpieces of Big Labor stand up to defend them? I doubt it.
And as for Big Business, the fact is that a lot of it got that way through collusion with the state. They get special favors, such as regulatory barriers that impede the competition. This has allowed businesses to become unnaturally large. In a true free-market society you could only get big by making a product the consumers love. In a fascist society you get big through political favors.
Everyone is constantly trying to improve their lot in life – which is wonderful. The problem is when you add institutionalized coercion – the state – to the picture. Coercion leads to conflict, and conflict raises costs and destroys wealth. But even if the economic effect of coercion was neutral, it would still be unethical. And unnecessary. That's the bottom line. Big Business and Big Labor are both unnatural. And they're both corrupt, because they're creatures of the state.
L: Agreed: Big Business is no more pure than Big Labor. I remember researching some early industrialists back in college, after reading Ayn Rand's books, hoping to find heroic captains of industry in history. Instead, I found that no sooner had Robert Fulton invented the steamboat than he applied to the government for a steamboat monopoly. And the first transcontinental railroad in America was not built by a Nat Taggart, but by a bunch of political hacks who went bankrupt within three years. (But the guy who was the historical model for Nat Taggart did exist: his name was James Jerome Hill, and he and his Great Northern Railroad overcame stiff political opposition to become the second transcontinental railroad – and this time, at a profit.)
Doug: Too bad no one pointed you at Robert Fulsom's The Myth of the Robber Barons then. But the takeaway point for this conversation is that labor unions are dead men walking. They're dinosaurs.
The figures show that in spite of the millions of jobs that have been exported from the U.S. to China over the last few decades – which was largely caused by the success of U.S. labor unions at artificially raising wages and benefits – U.S. production has stayed about level. You go to most car factories these days, and they're not full of workers; they are full of machines. Labor itself is disappearing, as computer-controlled machines grow more and more capable of doing physical work better and cheaper than humans can. Work, in the future, will be something you do with your mind. People are going to have to adapt to that, or suffer the consequences. Labor unions are absolutely on their way out.
But, if it's any consolation to those who love labor unions, Big Business is on its way out too. With the technologies we already see developing, most manufacturing will be done on the individual level. You can already order cargo containers with everything you need to set up almost any sort of factory you want; you don't need giant factories anymore. And as nanotechnology advances, manufacturing will simply be a function of telling your software assistant what you want made and feeding your machines the raw materials. In the near future, "3D fax" machines will enable you to build almost any physical object, layer by layer, right in your own garage. It will be a bit as described in A.E. Van Vogt's sci-fi classic, The Weapon Shops of Isher. You won't have to hope Walmart has something you need; your 3D fax will make exactly what you want, right now.
More broadly, small, swift, new competitors are going to devour the big old dinosaurs, like a school of piranhas – and any new business that gets too big and bureaucratic, as well. The whole world is in the early stages of downsizing.
L: I've thought about that – about the evolution of labor and business in the information age. Isn't it possible that just as businesses are forced to become smaller, leaner, and faster, labor unions could evolve to provide value to intellectual workers? "Programmers of the world, unite!"
Doug: No, I don't think that makes any sense, any more than the laughable old Soviet idea of writers' and artists' unions. You can't regiment and standardize creativity. And there is no such thing as "job security," which was always a stupid and parasitic notion. Your job is secure as long as you're productive and creative – and your company is profitable. Unique products provide job security to those creative enough to make them – great art, for example, can't be produced by a piecework assembler on an assembly line.
L: But there are writers' and artists' unions. It seems to me that the Hollywood TV writers' union delayed the fall TV season a while back, by going on strike.
Doug: That's true, although I don't know how they would fairly compensate a Shakespeare and a hack if they were both union members with the same seniority… On the other hand, big broadcast TV is disappearing too, for the same reasons we've been discussing. When some kid with a webcam in Egypt, Libya, or even Belarus, can produce a live documentary that's more riveting and costs nothing compared to professional TV news coverage, you know that the business model of major news networks is on its way out. Anyway, kids today don't watch TV, where you just absorb what you're fed. They watch a million channels on YouTube, and get what they individually want and need on millions of websites. Broadcast, network, TV – with its arrogant executives, and feather-bedding union workers – is on its way out.
It's funny how perception always lags reality. Even as people were moaning and wringing their hands about children wasting endless hours in front of the TV, it turns out that kids today spend vastly more time interacting on their computers.
The world is changing. Trying to use the coercive power of the state to maintain the status quo is a doomed effort. It's like trying to carry water in your hands for an entire marathon.
L: I heard that during the last Super Bowl, the Doritos commercial made for a pittance by some guy tied for first place as the most popular ad.
Doug: Yes, there are a lot of rice bowls that are going to be broken over the next decade. The good news is that the post-industrial world will be one of true marvels. Bringing production down to the individual level, at very low cost, will create the most prosperous society the world has ever seen. The same forces are advancing medicine, and that will make our descendants the healthiest and most long-lived people the world has ever seen. And the individual nature of value creation should make it the freest culture the world has ever seen. That's why I'm an optimist; I'm looking forward to a true renaissance, a golden age. The Greater Depression is just going to be a period of readjustment on the way up.
L: Not coincidentally, that golden age should see the return of a gold standard, as well… But first we'll have to go through a bloodbath.
Doug: I'm afraid so. The old world order will have to be washed away, and it won't want to go quietly. But it will go, one way or another. As the tyrants in the Middle East are showing, you can only resist history for so long. Incidentally, I believe everything there will be for the best, as long as the U.S. government doesn't invade yet another Muslim country.
L: Investment implications?
Doug: I can't emphasize enough the sort of things I've been saying all along, and that we mentioned again last week: rig for stormy weather. But, more specifically, these changes are why we created Casey's Extraordinary Technology. Granted, it's in my interest to drum up subscriptions, but I still think it's the best source of ideas in this area. As the trends develop, CET is where we'll be going in to detail on how best to profit from them.
L: Fair enough. Thanks for the thoughts, Doug… I'll have to take some more time to think about them.
Doug: My pleasure. Until next week.
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