In our more or less free society, we regularly see confirmation of ideas well defended by Friedrich Hayek and Anthony the Jazz. The idea is that rewards determined by politics, that is, by coercive authorities under threat of punishment, are not only less efficient but also more conflict-prone than if they were determined solely by impersonal markets. It is.
In a recent example, the International Longshoremen’s Association (ILA), a government-protected union (all protected by labor laws and government agencies), called for a strike. Its leader, Harold Daggett, arrogantly threatened 200 million consumers. Of his members’ many employers (container carriers and terminal operators), he said: “We’ll show you greedy bastards that you can’t live without us!” On the other hand, greedy longshoremen are not proletarians. Their annual salaries range from nearly $100,000 to more than $250,000, far exceeding the average salary in the United States (about $60,000). In 2020, 665 longshoremen at the Ports of New York and New Jersey fell into the $250,000 or more category. As a union member, Daggett himself makes more than $900,000 a year. Her son, who works in the same union, earns more than $700,000. The ILA temporarily resolved the strike by demanding a 60% increase in wages, but it still wants to stop automation. This comes in the context of America’s most productive port (Charleston) being ranked 53rd in the world. (look “Port strikes show one union dominates trade,” economistOctober 2, 2024. “Longshoremen’s strike will close ports from Maine to Texas and hurt the U.S. economy,” wall street journalSeptember 30, 2024. and “Disrespectful 78-year-old leads dockers’ strike,” wall street journalOctober 2, 2024).
A similar phenomenon is observed in all countries where the government or trade unions acting on its behalf directly influence wages. That extends to public sector unions that are directly involved with the national treasury. Consider the trade union that represents employees of London Underground, the British capital’s municipally run subway system. The general secretary of one union said that the pay offered to members “is not what[they]deserve.”London Underground workers go on strike over pay,” financial timesOctober 16, 2024). In France, government public transport workers regularly strike for more money and benefits. Strikes are respectfully called “social movements” (exercise sociology).
Individuals naturally think that their value “to society” is not fully recognized by their fellow citizens, especially by their fellow citizens. This phenomenon is similar to how a person who is not familiar with economics may think that the price he pays for the things he buys is too high, but the price he receives for his labor services is too low. Complaints can take many forms. I am not being compensated justly according to my needs, my talents, or what I deserve according to various criteria. You don’t get any respect for me. The International Union of Machinists and Aerospace Workers declared this before its members rejected the latest proposal from Boeing, which is in deep financial trouble and would cut 10% of its workforce.Boeing workers to vote to end strike in critical week for aircraft maker,” financial timesOctober 20, 2024. Also “Boeing factory workers reject latest contract offer,” October 24, 2024):
Employees will ultimately decide whether this specific proposal is sufficient to meet their legitimate needs and goals of achieving respect and fairness at Boeing.
In a free society, where wages and other benefits are determined by the market, this temptation is countered by the fact that the decisions are not made by an organization. It may seem like the employee’s boss is doing well, but that’s an illusion. Employees are free to move to another employer or become self-employed. They don’t because they doubt they can get more (always at risk). There is no particular authority that underestimates his value. Compensation is determined impersonally.
This mechanism does not work if politics determines compensation. An organization (a democratic parliament or an influential person) can determine the value of a service by law or arbitrarily. This process is usually called “social justice” according to some criteria. When supporting wealthier individuals, the process is called something like “industrial policy.” Everyone thinks they deserve more, so the game is to stake their case stronger and have it politically enforced. The one who wins is the more organized and politically powerful. During that time, the game changed from impersonal to personal, from voluntary exchange to government mandate, from positive-sum games to zero-sum, and finally to negative-sum.
Perhaps the following thought experiment will help you convince yourself that markets are more efficient and fair than politics. Imagine a completely democratic system. Reward-receiving occupations are divided into a set number of categories, and online referendums are held periodically (every five years, annually, monthly, or daily) to determine the preferred compensation in each category. Do you prefer this system to free market agreements?
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pursuit of social justice
