Kaus the Heretic

Mickey Kaus looks at the fulminating over the suspension of the Davis-Bacon Act that will apply to the Katrina rebuilding efforts and makes the subversive argument that maybe liberalism (the modern American variety as opposed to the classical kind) can and should exist without unions. He has an interesting quote from Robert Reich, who said "the jury is still out on whether the traditional union is necessary for the new workplace." (Apparently this is a "famous" quip. I am fairly certain that nothing that Robert Reich has ever said or will say could be considered famous except by hopelessly uncurable liberal policy wonks.)

Well, I'm not sure as to what the makeup of the jury is. Maybe the jury is out among the little old ladies that you find on juries, but one very important group has made its verdict. The group - investors. The verdict - guilty. Or more specifically, 'unions are guilty of not being necessary for the new workplace.' In my profession, investment management, it is axiomatic that unionized workforces are an inferior situation from an investment perspective, all else being equal. In the private sector today, to put it more bluntly, unions repel capital. This is the self-inflicted cancer that has been killing and will continue to kill private sector unions. Quite simply, you can't survive in the modern global economy by being a repellant to capital. The industries that they have brought low - autos, steel, airlines - have largely been abandoned by the investor class. Only when such an industry is at rock bottom will capital entertain their prospects, such as we've seen in steel with Wilbur Ross's ISG and presumably now with Kerkorian's run at GM. Sure there are counter-examples that the union camp will throw out, like Southwest Airlines. "Southwest, which is the most successful US airline and a model for the industry all over the world, is a union shop," is something they might throw out. (Forget the deliciousness of that construct "most successful US airline" which, to me, is something akin to "safest Chinese coal mine.") Well yes, Southwest is a union shop, but this fact is mostly irrelevant because they have such a radically different business model than the industry in general that the union vs. non-union status of their workforce is a side issue - they are successful for other reasons. You will simply not find a union shop that outperforms, pari passu, a non-union shop on a meaningful scale.

As more Americans put their savings into mutual funds or direct ownership of stocks rather than into bank accounts, this country has less and less of a stake in private sector unions. And, as Kaus rightly points out, the growing gap between the performance of the private sector and the public sentor is bound to be increasingly pondered by Americans, which represents a danger to unionism's current strength, the government. If unionism is to reinvigorate itself it has to look hard at the old adversarial model of labor vs. management that it is stuck in. The democratization and increased mobility of capital has lumped management in with labor - investors can simply withdraw capital support and redirect it to other management teams operating in the exact same business. Unions ought to be thinking about their approach to capital rather than their approach to management. Early signs, exemplified by the unions usurping of capital allocation decisions such as at CALPERS, show that they are not learning the right lessons.