Originally Published: March 26, 2014 6 a.m.
You know that thing that labor unions do that some people hate so much? That is supposed to be so contrary to the free market? It is collective bargaining. When it's practiced between a union and a big employer, it's so they can negotiate on an agreed range of wages and benefits. Collective bargaining happens on your behalf all the time without your even knowing it, and you love the results. In fact it's a common and natural part of the economy, and you benefit from it often.
On Feb. 12, I wrote about how, though the free-market is great at balancing things like supply and demand, it does nothing to balance leverage. If you're a patient paying out of pocket for hospital care you have virtually no leverage to bargain with. The same situation happens in all sorts of other transactions where one party, usually the little guy, has little or no leverage. On the other hand, when a big insurer bargains with a big hospital chain on what they'll agree to pay for various procedures, they're both big players bargaining on more equal terms, and actually the market works better. A price that is a better balance between value and cost is found.
That big insurer is collectively bargaining on behalf of all the people it insurers, and if you are one of those insured, you benefit from the lower prices.
Do you like using your AARP card? You can get discounts on groceries and movies and hotels and hundreds of other things. AARP has collectively bargained on behalf of you and the rest of its members with all those retailers to leverage a better price out of them. When the City of Prescott shops around for the best investments to put its rainy day fund into it is collectively shopping on behalf of taxpayers. When our local Chamber of Commerce tries to get the city or the county to choose a particular policy, they are bargaining on behalf of their members. When pension funds, because of the huge amounts they have to invest, bargain with investment banks for the best return, they are collectively bargaining on behalf of everyone whose pension depends on those funds. In fact, it's hard to find a leverage vacuum - a situation where a few big players dictate price to the many individuals who have no leverage - in which the market doesn't fill that vacuum with some form of collective bargaining. It even happens often on things that seem to get dictated to us, like mobile phone rates. Big corporations that get phones for thousands of their employees don't pay retail; they negotiate a discount.
One of the few areas of the economy where collective bargaining is made an issue of and is blocked is wages. It's the ultimate David and Goliath situation, the one place collective bargaining would have the biggest impact and be the most help to the people who most need it. In "right to work" states like ours, it's the one big area where the normal free-market tool of collective bargaining is interfered with.
In corresponding with David Cay Johnston I brought this up. He is a Pulitzer Prize winner and best-selling author of "Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super-Rich - and Cheat Everybody Else," and other works. He in turn pointed out that Adam Smith was similarly critical of laws that blocked workers from bargaining collectively. Smith was the 18th-century philosophical father of free-market thinking.
Smith says that when there is a "liberal reward of labor," it benefits not just the employees but the country as a whole. In the tug of war over compensation he says, "It is not difficult to foresee which of the two parties must have the advantage and force the other into a compliance. The masters, being fewer in number, can combine much more easily." He continues, "The law, besides, authorizes, or at least does not prohibit, their combinations." Smith sharply drives his criticism home as he summarizes, "We have no acts of parliament against combining to lower the price of work, but many against combining to raise it."
So there's nothing new under the sun, including laws set against employees being able to collectively bargain, even when there is a huge imbalance in bargaining power, even when, for almost any other group of bargainers, the free-market would be allowed to do what it normally does and find a way to collectively bargain, create a more balanced situation, and arrive at an agreement that is not just better for the bargainers, but for the economy overall.
I've said before that the free market is the best system there is and has amazing strengths even though it also has its weaknesses. Collective bargaining is one of its brilliant pieces. Too bad the free-market advocates don't practice what they preach and let it work.
Tom Cantlon is a local business owner and writer and can be reached at email@example.com.