In our free societies, we constantly see confirmation of the idea defended by Friedrich Hayek and Anthony the Jasay. The idea is that wages determined by politics, that is, enforced by authorities under the threat of punishment, are not only less efficient but also more conflictual than if determined solely by impersonal markets.
In a recent example, the International Longshoremen Association (ILA), a union protected by the government (as all are by labor laws and government agencies), called a strike. Its leader, Harold Daggett, arrogantly threatened 200 million consumers. To many employers of his members (container carriers and terminal operators), he said: “We will show these greedy bastards that you cannot live without us!” For their part, longshoremen are greedy workers: they earn between $100,000 and $250,000 a year, more than the average US wage (about $60,000). In 2020, 665 dock workers in the Port of New York and New Jersey were in the $250,000-plus bracket. As a union apparatchik, Daggett himself earns more than $900,000 a year; his son, who works for the same unions, earns more than $700,000. The ILA has temporarily settled the strike for a salary increase of more than 60 percent but still wants to stop the operation of the machines. This is the case where the most productive port in America (Charleston) is ranked 53rd in the world. (See “Port Strike Shows Stranglehold One Union Has on Trade,” The EconomistOctober 2, 2024; “Dockworkers Walkout Will Shut Down Ports From Maine To Texas And Hurt The US Economy,” The Wall Street JournalSeptember 30, 2024; and “The 78-Year-Old Dirty Dockers’ Strike,” The Wall Street JournalOctober 2, 2024).
Similar situations can be seen in all countries where governments or their union representatives have a direct influence on wages. It also extends to public sector unions, which have direct access to the public treasury. Consider the unions representing workers on the London Underground, the underground rail system run by a local government association in the UK capital. The secretary-general of one of the unions said that the proposal for a salary for its members “is very lacking.” [they] they deserve” (“London’s Undercover Workers Will Hit Payback,” Financial TimesOctober 16, 2024). In France, public transport workers are constantly on strike to get more money and benefits; strikes are respectfully called “civil unions” (social movements).
One naturally thinks that one’s value in “community” is not sufficiently recognized by one’s own people and especially by one’s own citizens. This practice is similar to the way a person who is not familiar with economics thinks that the prices he pays for what he buys are too high while the price he receives for his labor services is too low. Complaints take many forms: I am not paid fairly according to my needs, my talents, or what I deserve according to this or that process; I don’t get the respect I’m owed. Before its members rejected the latest offer from Boeing, in deep financial trouble and cutting 10% of its workforce, the International Association of Machinists and Aerospace Workers announced (“Boeing Workers To Vote on Ending Strike in Critical Week for Plane Maker, ” Financial TimesOctober 20, 2024; and “Boeing Factory Workers Reject Latest Contract Offer,” October 24, 2024):
Employees will ultimately decide whether this proposal is sufficient to meet their legitimate needs and the goal of achieving respect and fairness at Boeing.
In a free society, where wages and other benefits are determined by markets, this temptation contradicts the fact that determination is not made by the organization. The management of the employee may appear to be successful, but it is an illusion: the employee is free to move to another employer or to be self-employed; if he doesn’t, it’s because he suspects he won’t be able to gain more (always at risk). No authority in sight undermines his worth. Salary is determined by himself.
This process does not work if politics determines the salary. An organization—be it a democratic assembly or some powerful man—can dictate or dictate the price of your services. The process is often called “social justice” according to some criteria or another. If it favors the wealthy, the process is called “industrial policy” or something similar. Because everyone thinks they deserve more, the game involves putting your demands through force to be politically enforced. The people who won are the ones who are better organized and stronger in politics. Meanwhile, the game has changed from impersonal to personal, from voluntary exchange to government mandates, from positive-sum to zero-sum and finally negative-sum.
Perhaps one can convince oneself that the market is more efficient and fair than politics by testing the following hypothesis. Imagine a complete democratic system where paid jobs will be divided into a certain number of categories and an online poll will be held regularly (every quinquennium or yearly or monthly or daily) to determine the salary that will appear in each category. Would you prefer this system to free market deals?
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Seeking social justice
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