dear mr. newman:
smart man! great website! this is my second attempt to comminicate this screed since the fuse to my appartment went out when i was about 90% done and i lost everything. also it is a bit overcomplicated and verbose and perhaps unanswerable, but please bear with me.

what bothers me about this post, its explanatory lacuna, is the claim that unionization, by increasing wages, causes increased capital intensity in production, thereby increased productivity rates, thereby justifying increased wages and increasing ecomony wide wealth. these relationships can not be nearly so linear as all that. for an increased capital intensity to labor ratio in a given industry which raises productivity rates in that industry releases labor from that industry into the overall labor supply pool, which must be reemployed in other sectors. but this increase in the labor supply pool will alter the capital to labor ratio calculation in other sectors as to the most cost effective method of production in those other sectors.

in other words, increased capital to labor ratios in some sectors may result in decreased capital to labor ratios being optimal in other sectors. in particular, since raising productivity in industrial sectors through capital improvement is relatively easy, being more a problem of engineering than one of economics, productivity rates can and do increase in a fairly regular and robust way in the manufacturing sectors, resulting in the shrinking of the size of the manufactoring sectors relative to the economy as a whole, both in terms of employment and in terms of measured output, since with increased productivity manufacturing output will be deflated due to the relative price effect.

employment will thus be transfered from industrial manufacturing sectors to what is termed the "service" sector- for lack of a better understanding of its complection and implications.
traditionally, the "service" sector was considered
inherently less productive and thus its rise was blamed for the decline in overall productivity rate improvements since the 1960's, but it seems to me that part of what we are seeing today in the u.s.a. with stagnant or declining rates of employment and robust rates of measured productivity improvement is due to the increasingly widespread apllication of the new dataprocessing/telecommunications technology to the "service" sector, resulting in large productivity improvements as in e.g. increased office output through word processing, e-mail, etc., improved inventory control and faster ordering, and improved long distance business contacts through greatly increase search capacity, improved transport routing and greater financial liquidity.

These developments in turn have large effects on the organization of business models. ( it seems to me that the predominant success of walmart is not just due to the application of advanced inventory control and market pricing power/economies of scale but also probably from largely having absorbed the wholesale/distribution function into its corporate
operations.

is this called horizontal or vertical integration?) i bring up these matters not from the standard neo-classical marginalist market exchange point of view, but rather form the claasical sraffan perspective, which emphasizes the need for coordination and equilibrium between
interdependent industrial sectors as well as the mutual dependency between the sphere of production and the sphere of distribution and circulation (i.e. the distribution of income in terms of the real consummable surplus product between capital and labor) in the determination of total output and productivity. (inspite of the fashionable "post-"'s that currently circulate, industry, in the sense of the application of increased technical efficiencies in energy resources and machine technology to the production of added value, remains the prime motor of growth in real material wealth.)

In particular, there is the theorem in sraffa, that, given two economies with identical real capital endowments and identical real total outputs, the economy that distributes the larger share of the total consumable surplus product (i.e. the share of the total real product that is not comsumed in the course of producing that total product, including the minimal cost of reproducing the life of the labor force) to capital over labor will have a "negative wicksell price effect", which means that, measured in terms of monetary prices the value of the total product and the ratio of the value of capital to the value of the total product will be greater in the former case than in the latter case, even though the real material production and product are stipulated to be identical.

this makes sense in terms of market exchange, as well, since, given identical sets of capital, if one set produces a 20% return and the other a 10% return, the market would correspondingly value the one over the other, whereas wages and prices, though not a mathematical identity since excess capital can go to luxury consumption, are are preponderantly the obverse of each other, so that low wages would correspond to an increase monetary value, price, of the total output. hence a less productive economy with a greater degree of income inequality would at some point outperform a more productive economy with greater equality in income distribution, when measured in nominal monetary values.

However, the former case would be the one that is headed for a generalized crises of capital overaccumulation and underconsumption. neoclassical economists are fond of assuring us that in the long run (when we famously are all dead) productivity increases will be redistributed
economy-wide thus resulting in a higher overall standard of living ( rather than being captured e.g. as quasi-monopoly rents, which is prevented by the miraculous mythology of perfectly competitve markets). but they do not seem to offer any precise specification of the pathways by which this is to occur (other than lower comsumer prices, which accords with their starting point of the maximalization of utility preference function under "consumer sovereignty").

if the organization of the labor force into unions (which the more rightwing economists oppose as a
"restaint of trade", violating the doctines of methodological and competitve individualism) is to be a source of salutary (re-)distribution of income, productivity gains and a spur, as well, to further productivity gains, then the pathways by which this is to occur need to be specified, within an economy-wide intersectoral perspective.

One last empirical point: it is precisely low wage
workers, who putatively need it the most, that are most difficult to organize due to a) minimal labor market bargaining power, b) very limited marginal benefits to be gained from unionization, c) high turnover/low employment stability and d) the small scale and dispersed nature of work sites.

Hi John-- I reformatted your piece to make it more readable. I stated that this stuff is not as linear as all that- note the "it's not as simple as that in all situations, since different employer strategies and industrial environments create varying outcomes." The studies linked to deal with some of the complexities.

But what's important for people to understand are the principles and processes that contradict the simplistic conservative critiques of unions using Econ 101 style models.

Nathan:
I hope you find the time to answer this question, maybe you already have in another post. Anyway, how do you see unions being able to compete in this "globalized" economy? Where a country like China, essentially paying their workers 30 cents an hour; but also benefiting from transnational corporations engaging in a massive technological and knowledge transfer; allowing the Chinese economy to benefit from increased productivity gains and extremely cheap labor costs. The U.S simply can't compete against this, as we are seeing.

Steve-- I plan at some point to do a whole series on trade and the economy. The shortest answer is that the remaining advantages to developed nations are its pools of existing capital and infrastructure along with an education population-- so it can compete by concentrating on high-skill, high-wage industries. Unions are not only compatible with that, they are almost required to make them work in a broad-based way that forces employers to keep investing in the training and "public goods" that make them work.

Nathan -
One of your old pals from CWA here - great site, great information - keep up the good work.

I just wanted to point out to you - since you have links below to articles about union organizing drives - that CWA is currently helping about 1100 passenger and fleet service workers at Piedmont Airlines - one of US Airways' commuter carriers - to organize. I urge everyone visiting this site to keep them in mind, and if you pass through US Airways commuter system, especially in Charlotte, NC, or DCA, Erie, Akron, Bangor and a host of smaller stations mostly in the Midwest and Southeast - to give them the thumbs up and a friendly "union yes." The actual election should start fairly soon by telephone ballot, and should be over sometime before Thanksgiving.

Nick

Nathan, you wrote:
"The shortest answer is that the remaining advantages to developed nations are its pools of existing capital and infrastructure along with an education population-- so it can compete by concentrating on high-skill, high-wage industries"
This is my point about China, it's almost there already(with the help of US transnationals).
Where I live a china maker is thinking of closing its US production facilities. Why? Because the Chinese are becoming extremely sophisticated in their production capabilities. This company is thinking of just importing these goods from China. Also, as I'm sure you know, the US has a policy of trying to remain 2 generations ahead of the Chinese in chip production. This has already closed to only a half generation ahead(again thanks to US transnationals). I don't see how we can compete against this.

The other short answer is to require labor laws be strengthened internationally as part of the WTO. If Chinese workers are as productive as US workers, they should be paid as well-- instead of having their wages stay flat as has been true in recent years. If workers there have more money they will buy more products globally-- and whatever the productivity of China, it's hard to replicate all the niche skills that have accumulated throughout the US. What is needed is more workers who need goods that those skills provide.

It may indeed be true that Chinese export industries are experiencing rapid growth because 1) as a matter of policy, the CCP deliberately keeps wages low in its export industries and 2) the People's Bank steadfastly refuses to adjust the dollar-yuan peg upward. But it is also true that Chinese wages are disproportionately low because such a huge chunk of China's export revenues go toward supporting the dollar, mainly in the form of T-bill purchases. Fine, incorporate some kind of productivity growth-wage growth scheme into the WTO (this accords nicely with abstract principles of economic justice for
the direct producers wherever they may be), but
be willing to swallow the consequences on this
side of the Pacific, which are far from rosy.

Such a productivity growth-wage growth scheme would require a massive retooling of the Chinese economy toward internal demand, and subsequently
China's central bank would almost altogether stop investing in dollar-denominated liquid assets.
(Unless the U.S. cowed China with whispers of how
NMD does away with mutually-assured destruction, or with threats of blockading China's oil imports
through the Strait of Malacca, or somesuch gesture). The dollar would go into freefall, the U.S. would lose its "seignorage privileges" that have artificially levitated the American standard of living these last 30 years (including the working class' standard of living), and it would undergo the kind of wrenching structural adjustment that it routinely foists on weaker states but has never had to undergo itself.

Steve, you said: "This is my point about China, it's almost there already(with the help of US transnationals).
Where I live a china maker is thinking of closing its US production facilities. Why? Because the Chinese are becoming extremely sophisticated in their production capabilities. This company is thinking of just importing these goods from China. Also, as I'm sure you know, the US has a policy of trying to remain 2 generations ahead of the Chinese in chip production. This has already closed to only a half generation ahead(again thanks to US transnationals). I don't see how we can compete against this."

There is one factor that you are stongly missing in that analysis. You keep mentioning the benefits to China of technology transfer from multi-nationals but you fail to consider this:

When multinationals are involved, the only benefits that accrue to China are in the form of wages and tech transfer since the profit on both sides of the pond have been captured by the multinationals. The U.S. elite gets to double dip, while workers on both sides get shafted.

Multinationals and so on would be much less happy about China and free trade if they couldn't capture the profits on both sides.

As the above commentators have pointed out, the "only answer is increasing productivity and innovation" is not sufficient. Just as technology can be transferred, so productivity gains from advanced manufacturing techniques are as fungible as capital. A less productive workforce with sufficiently lower wages (and benefits and other indirect costs, such as environmental and regulatory costs) can still be more profitable than a higher wage workforce that is more "productive." This is not theory but observable fact. US companies and multinationals, allowed free access to US markets, have moved their operations offshore and found it more profitable. The trend continues.

Countries like China game the exchange rates and provide grossly ununderpriced labor markets by eliminating the need for companies to pay taxes (bribes and payments to the party will suffice) or pay for workers retirements, health, and other social costs. These are examples of the failure of multilateral or "global" trade agreements. The problems we face could be solved in the long-term as China becomes more developed (if the US economy and middle class can hold out that long), but nothing prevents the multinationals from moving their operations to the next low-wage country. The short- to medium-term solution (and perhaps the only solution) is the replacement of GATT, FTAA, NAFTA, and their ilk with a system of calibrated bilateral agreements. Such a system could encourage countries to adhere to ILO standards, may provide a role for the WTO yet, and is practically the only way these migratory manufacturers will be forced to assume some of the external costs (such as environmental degradation) of their operations.

Lorenzo: The issue isn't so simple as the state-less TNC's pitted against the workers of the world. Yes, Chinese workers in export industries
(mostly but not exclusively light assembly) suffer from a trans-Pacific "development" regime predicated upon their super-exploitation. Yes, U.S. workers in sunset industries suffer from the offshoring of textile, furniture, toy, etc. production to China, as well as the way in which the existing yuan-dollar exchange rate expedites this.

But, in a subtle sense, the US-China relationship is an imperial one (and one willingly embraced by the top dogs of the CCP, for that matter). The disproportionate investments of China's central bank in dollarized assets means that China's savings are underwriting U.S. profligacy. A corollary which follows is that the relationship between the US working class and the Chinese working class is imperial, as well -- although this is not a policy the US working class has consciously designed or freely chosen. To the extent that the US warfare-welfare state is still churning along, and to the extent that the US working class reaps short-term benefits from this
(benefits not in accord with its long-term objective interests, of course), it is being propped up by the super-exploitation of Chinese workers in the export sectors. I make this point not out of some pre-existing commitment to the tenets of dependency or some other "Third Worldist" theory, but based on the empirical facts of the moment. The paucity of Chinese central government funding of initiatives friendly to the welfare of the Chinese working class -- health, education, pensions, training, etc. -- is partly a result of the CCP's turn toward neo-liberalism, and partly a result of cadre corruption, but also partly a result of such
a huge chunk of export revenues being plowed back into US T-Bills.

Gordon: Putting US-China trade relations on a bilateral footing would exacerbate the problem. Freed of multilateral constraints, the US would use all sorts of threats and bluffs to make sure that China remained within the dollar bloc, so that US TNC's could continue to offshore production in China but the US would not suffer the negative consequences of running up a huge
balance of payments deficit. Wall Street, Fortune
500, and cadre capitalists in the CCP would be the big winners, and Chinese workers and unemployed rural migrants, and peasants would be the big losers.

"I make this point not out of some pre-existing commitment to the tenets of dependency or some other "Third Worldist" theory, but based on the empirical facts of the moment. The paucity of Chinese central government funding of initiatives friendly to the welfare of the Chinese working class -- health, education, pensions, training, etc. -- is partly a result of the CCP's turn toward neo-liberalism, and partly a result of cadre corruption, but also partly a result of such
a huge chunk of export revenues being plowed back into US T-Bills."

Well yes, but you've missed my meaning.

My meaning is that the winners and losers from trade on both sides is a picture very different than all usual models of International Trade Theory would predict, because none of them take into account foreign ownership. This, it is usually *NOT* U.S. multinational firms that are losers from trade because they can own both sides of the capital, while labour on either side is subject to loses from trade. Get it? Only one side really bears the cost of structural adjustment is my point.

What a great article, and so well written, too. I'm doing a paper on the importance of unions to the past, present, and future of the U.S. economy and your site really helped me. Thanks so much.

Nathan, who is to blame in a situation were a company or companies are retrenching workers because the revenue generated on the international market has decrease dramatically, reason being that the local currency in the country of operation is getting stronger by the day against the US$ dollar ? is it the companies or the unions who are trying to avoid the situation of further unemployment?