Promise of American Life (again)

In The Promise of American Life (part I here), Croly seems to accept the moral basis for socialism, but soundly rejects the Marxist formulas. Maybe this is what is meant by American exceptionalism?

In Socialism: Utopian and Scientific, Engels makes demands for gradual state takeover of private property. "In any case, with trusts or without, the official representative of capitalist society -- the state -- will ultimately have to undertake the direction of production. This necessity for conversion into State property is felt first in the great institutions for intercourse and communication -- the post office, the telegraphs, the railways." This nationalization was expected to lead to the whithering of the state:

Whilst the capitalist mode of production more and more completely transforms the great majority of the population into proletarians, it creates the power which, under penalty of its own destruction, is forced to accomplish this revolution. Whilst it forces on more and more of the transformation of the vast means of production, already socialized, into State property, it shows itself the way to accomplishing this revolution. The proletariat seizes political power and turns the means of production into State property.

But, in doing this, it abolishes itself as proletariat, abolishes all class distinction and class antagonisms, abolishes also the State as State. [1]

Croly would have nothing to do with that; in his estimation, the men (Hill, Harriman, Morgan) who built the great industrial concerns contributed to the national efficiency. Rather than banishing them, Croly wanted to harness them (and maybe control the amount of money they made [2]). His methods of regulating therefore consist of removing impediments to them, including the Sherman Act, and replacing it with a system of commissions who would review their decisions and make them more transparent. To what end? National efficiency, of course (the man had an efficiency fetish). But Croly was unsatisfied with the idea of a commission, since efficiency would normally require responsibility to be placed with one man; but by favoring national commissions, at least it gives him a way to preserve private property even as he expands the scope of the national government. Sounds like ... ?

The constructive idea behind a policy of the recognition of semi-monopolistic corporations is of course the idea that they can be converted into economic agents which will make unequivocally for the national economic interest; and it is natural that in the beginning legislators should propose to accomplish this result by rigid and comprehensive official supervision. But such supervision, while it would eradicate many actual and possible abuses, would be just as likely to damage the efficiency which has been no less characteristic of these corporate operations. The only reason for recognizing the large corporations as desirable economic institutions is just their supposed economic efficiency; and if the means taken to regulate them impair that efficiency, the government is merely adopting in a roundabout way a policy of destruction. Now, hitherto, their efficiency has been partly the product of the unusual freedom they have enjoyed. Unquestionably they cannot continue to enjoy any similar freedom hereafter; but in restricting it, care should be taken not to destroy with the freedom the essential condition of the efficiency. The essential condition of efficiency is always concentration of responsibility; and the decisive objection to government by commission as an efficient solution of the corporation problem is the implied substitution of a system of divided for a system of concentrated responsibility.

This objection will seem fanciful and far fetched to the enthusiastic advocates of reform by commission. They like to believe that under a system of administrative regulation abuses can be extirpated without any diminution of the advantages hitherto enjoyed under private management; but if such proves to be the case, American regulative commissions will establish a wholly new record of official good management. Such commissions, responsible as they are to an insistent and uninformed public opinion and possessed as they inevitably become of the peculiar official point of view, inevitably drift or are driven to incessant vexatious and finally harmful interference. The efficient conduct of any complicated business, be it manufacturing, transportation, or political, always involves the constant sacrifice of an occasional or a local interest for the benefit of the economic operation of the whole organization. But it is just such sacrifices of local and occasional to a comprehensive interest which official commissions are not allowed by public opinion to approve. Under their control, rates will be made chiefly for the benefit of clamorous local interests, and little by little the economic organization of the country, so far as affected by the action of commission government, would become the increasing rigid victim of routine management. The flexibility and enterprise characteristic of our existing national economic organization would slowly disappear, and American industrial leaders would lose the initiative and energy which has contributed so much to the efficiency of the national economic system. Such a result would of course only take place gradually, but it would none the less be the eventual result of any complete adoption of such a method of supervision. The friends of commission government who expect to discipline the big corporations severely without injuring their efficiency are merely the victims of an error as old as the human will. They "want it both ways." They want to eat their cake and to have it. They want to obtain from a system of minute official regulation and divided responsibility the same economic results as have been obtained from a system of almost complete freedom and absolutely concentrated responsibility.

This section of the book reminded me of those sections of Gabriel Kolko's Triumph of Conservatism, in which he traces Teddy Roosevelt's preference for regulating behavior by the Good Ol' Boy method. TR, the renowned trust-buster, didn't really like to bust trusts, but preferred to try to persuade the less civilized among them (read: non-Harvard men) to change their ways. Those who didn't go along, such as J. P. Morgan and (IIRC) John D. Rockfeller, felt his wrath and it was upon their necks that Roosevelt's mythological Trust-Buster reputation was built. Perhaps it was no coincidence that Croly expressed admiration for Roosevelt (one chapter features a comparison between Roosevelt, William Jennings Bryan, and William Hearst as reformers, with TR as the hero), and later, after the publication of TPoAL, Roosevelt based his New Nationalism upon some of Croly's ideas.

And it was much the same when discussing unions. First, the Sherman Act should be repealed, and second, unions should be recognized with a deal that brings their activities in line with the national efficiency. The highest accomplishment to which a man can aspire in the Crolyist world was to place his talents at the service of the nation. You know, for the sake of efficiency.

The alternative [preferred] policy would consist in a combination of conciliation and aggressive warfare. The spokesman of a constructive national policy in respect to the organization of labor would address the unions in some such words as these: "Yes. You are perfectly right in demanding recognition, and in demanding that none but union labor be employed in industrial work. That demand will be granted but only on definite terms. You should not expect an employer to recognize a union which establishes conditions and rules of labor inimical to a desirable measure of individual economic distinction and independence Your recognition that is must depend upon conformity to another set of conditions imposed in the interest of efficiency and individual economic independence. In this respect you will be treated precisely as large corporations are treated. The state will recognize the kind of union which in contributing to the interest of its members contributes also to the general economic interest. On the other hand it will not only refuse to recognize a union whose rules and methods are inimical to the public economic interest, but it will aggressively and relentlessly fight such unions. Employment will be denied to laborers who belong to unions of that character. In trades where such unions are dominant, counter-unions will be organized and the members of these counter unions alone will have any chance of obtaining work In this way the organization of labor like the organization of capital may gradually be fitted into a nationalized economic system.

...

[T]he union should have the right to demand a minimum wage and a minimum working day. This minimum would vary of course in different trades in different branches of the same trade and in different parts of the country and it might vary also at different industrial seasons. It would be reached by collective bargaining between the organizations of the employer and those of the employee. The unions would be expected to make the best terms that they could and under the circumstances they ought to be able to make terms as good as trade conditions would allow. These agreements would be absolute within the limits contained in the bond. The employer should not have to keep on his pay roll any man who in his opinion was not worth the money, but if any man was employed he could not be obliged to work for less than for a certain sum. On the other hand, in return for such a privileged position, the unions would have to abandon a number of rules upon which they now insist. Collective bargaining should establish the minimum amount of work and pay, but the maximum of work and pay should be left to individual arrangement. An employer should be able give a peculiarly able or energetic laborer as much more than the minimum wage as in his opinion the man was worth and men might be permitted to work over time provided they were paid for the over time one and one half or two times as much as they were paid for an ordinary working hour. The agreement between the employers and the union should also provide for the terms upon which men would be admitted into the union. The employer, if he employed only union men should have a right to demand that the supply of labor should not be artificially restricted, and that he could depend upon procuring as much labor as the growth of his business might require. Finally, in all skilled trades there should obviously be some connection between the unions and the trade schools, and it might be in this respect that the union would enter into closest relations with the state. The state would have a manifest interest in making the instruction in these schools of the very best and in furnishing it free to as many apprentices as the trade agreement permitted.

Translation: The state must control industry, preferably monopolies, and then control the labor that works in those monopolies. If the unions won't go along, we'll start state unions (where have we seen this?). And the state won't countenance any shenanigans from you workers: you can bargain for a minimum wage and then shut up. This isn't for you, it's for the nation.

I am reminded of Chris Nyland's article, "Taylorism and the Mutual Gains Strategy" (Industrial Relations, Vol. 37, No. 4, Oct 1998), in which he describes Taylor's attempts to reconcile with various labor unions and convince them that efficiency was something they ought to embrace. The alliance between the Taylorists and unionists is attributed to (among others) Louis Brandeis: close associate of Croly, the coiner of the term "scientific management", and the leading spark for the Efficiency Movement. One of those unionists, Sidney Hillman of the Amalgamated Clothing Workers Union, entered into collaboration with members of the Wisconsin school of industrial relations [3], but disagreed with them over the scope of union-management negotiations. The Wisconsinists believed that the scope should be limited to wages and hours, but the unionists believed the scope should include more, including investment, plant layout, and promotions.

These dalliances between labor and the Taylorists continued right through the 1920s and the Depression, during which the Wagner Act was passed. In 1940, the creation of a bargaining agreement between GM and the UAW was influenced by the back and forth between unionists, Taylorists, and the Wisconsin school. According to Nyland,

In 1940, George Taylor [not Frederick Winslow] was appointed umpire of the newly signed UAW-GM contract. At the time, this development must have appeared a great opportunity to extend the mutual-gains model. Optimism that the model would be extended was common not ony within SAM, the AFL, and the CIO but also in wider industrial relations circles. For example, Sumner Slichter in 1941 devoted some two hundred pages of Union Policies and Industrial management to an examination of the history of union-management cooperative schemes for increasing production, quality improvement, and cost reduction. Slichter was aware that such schemes tended to have a high mortality rate and had been embraced by only a small number of employers. [...]

The hope that unionization of the automobile industry would assist the growth of the mutual gains model was, of course, not realized. As in the 1920s, it tended to be small, unionized enterprises experiencing difficult times that took up the mutual-gains option. As Leichtenstein [...] notes, while GM took much from the bargaining model that George Taylor had helped develop in the garment industry, the company was very selective as to the parts of the garment program it adopted. As a consequence, the company institutionalized a form of union-management closer to the model advocated by the Wisconsin school than that favored by [the Society for the Advancement of Management, or SAM, the name the Taylorist Society had chosen when it absorbed the Society of Industrial Engineers], and it was this model that was subsequently widely emulated through industry. Leichtenstein [...] has explained why this was so:

General Motors had a very different conception of how the grievance system and umpire machinery might function. the company, which had closely observed the way in which [George] Taylor handled disputes in the hosiery industry, wanted to avoid the freewheeling, all-inclusive style pioneered there. The largest corporation in the world had no need for the kind of economic tutelage so often meted out by those industrial relations "fixers" who had pioneered in the economically chaotic clothing trade.

In short, GM rejected "joint management" and instead institutionalized that amalgam of work practices, formalized grievance procedures, limited seniority, and constrained bargaining that subsequently became known as "New Deal Industrial Relations."

So Croly and his friend Brandeis got their way after all, at least with regard to unions. The Wagner Act, far from being the labor success it is frequently claimed, was a means of restricting labor's control over their work environment. Those aspects of work that today we call Taylorist should have been called the GM-Wisconsin model. As I argued in this article, it was GM's size and an accident of history rather than any special power of efficient management that led the world to adopt their accounting system, and so it is with their labor control system. In both cases, the adoption has been assisted by the federal government: in the first case by its adoption as the GAAP and the SEC, in the second by Wagner and the NLRB.

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[1] I guess I was wrong about the terminology of socialization and nationalization in this post, but the outcome is the same: fascists must have the state, Marxists seek to abolish it.

[2] At that time, they still naively believed that the Constitution had to be amended before you went off and assumed a power like taxing income. We have learned so much since then.

[3] Somewhere, I read that the ILGWU instituted the first Industrial Engineering program, but I don't recall where. I think Kevin Carson would suggest that the "mutual-gains strategy" will be effective right after the workers take ownership of the factory. But then it's a "worker-grains strategy," isn't it?

Wal-Mart and sustainability

UPDATE: In response to some thoughtful criticism I got from a container shipping industry executive, I edited a portion below. I had said that the state helped break transport unions, but in reality they are still a force in the industry. It would be more accurate that the state forced them to accept change.

I got interested in some of the responses on this post on Environmental Economics. If Wal-Mart had claimed altruistic motives for some of their policies, that would properly be called "greenwashing". However, they weren't. Tim Haab was basically pointing out a truism: Wal-Mart's interest in sustainable measures (including hawking CFLs, incorporating passive solar for lighting and active solar for electricity, and so on) is done for selfish reasons: to make money. Like any post involving Wal-Mart and sustainability, it became a lightning rod for people with definite policy agendas. Given that I am likely to either defend or attack Wal-Mart and sustainability, depending on the context, I have an opinion but no definite laundry list of policies I'd like to see enacted.

You could summarize the many variables and value judgements in truth table format with about 27 variations (3^3) and assign each to an ideology. The variables are Wal-Mart, sustainability, and planning/government, each of which people may label as good, bad, or benign/irrelevant. Wal-Mart good, sustainability irrelevant, government bad is the default position for the vulgar libertarian. Wal-Mart bad, sustainability good, planning good is the default position for the Progressive. W-M bad, sustainability irrelevant, gov't good is the default for the populist/conservative. W-M good, sustainability bad, gov't benign is the evangelical right (she drives an SUV and has 6 kids).

I think my entry in the table would be "Wal-Mart benign, sustainability good, planning/government bad". Wal-Mart doesn't "drive" the system the way both the Progressives and the vulgar libertarians say that it does. Rather, the system created Wal-Mart. Going by Chandler's Visible Hand, people responded 100 years ago to the first department stores (Marshall Field's) and then to the mail-order stores (Sears, Woolworth's) the same way they do to Wal-Mart today: by claiming they would eat away at local businesses. Well, if it wasn't Wal-Mart, it would be someone else.

So I tried to point this out and emphasize the fact that it is state capitalism that creates the unsustainability, of which Wal-Mart is just a delivery boy. Our system looks like a giant vacuum cleaner that hoovers up resources in the developing world and kicks them out back here; Wal-Mart is the least fancy exhaust portal. We the people continue to support policies which produce "efficient" systems for delivering products to us. Those systems are a combination of transportation, energy, and credit subsystems that interact with cultural values to both create the demand and impose costs on the use of alternatives.

For example, we have national energy policies that ensure the profitability of large electrical monopolies who generate from coal and natural gas. This will be defended as efficient because it is highly engineered to look that way from the standpoint of the producer and the consumer. However, from other standpoints, there are externalities that are not accounted for. Those externalities include both the pollution and the intangibles, including the isomorphism around the chosen system. This is still something I'm working out, but the isomorphism includes high voltage AC-based transmission and distribution (which increases the cost of using alternatives, like LEDs, or introducing alternative sources, like solar[1]), an emphasis on greater supply (rather than demand-based solutions such as increased insulation or more efficient motors), centralization (rather than distributed generation), and isolation (rather than integral with the users so that the externalities fall on them). When the design was established 100 years ago, AC was a brilliant improvement over DC, regulated monopolies were promoted as the only viable alternative for generating and distributing AC power, and the accumulated engineering successes within that political framework have been impressive. But nothing is so impressive as the socio-political engineering, including a nearly invincible cloaking device and a strong superstructure made of an alloy of the Edison Institute, politicians, populist regulation cheerleaders, discount rate receiving electricity-based industries (like electrical steel furnaces), coal miners unions, dividend receiving widows and pension funds, and soccer moms worried by the so-called de-regulation that is nothing of the kind. Given a different political framework, the counterfactual engineering successes would be just as impressive, but the overall social efficiency (including the external costs) could be much better.

We furthermore have policies that promote and protect the use of petroleum, including "free" taxpayer-supported road systems and the Carter Doctrine. We have policies that promote and subsidize long distance shipping of goods, including eminent domain and taxpayer support of railroads (mostly as a historical fact, not current policy, though the pension plans still receive special tax recognition and grade crossings are your problem, not the railroads') and container ships. The container shipping history is more recent and includes several very interesting factors. Not only did the state (including the federal government) help break [force] the longshore unions who opposed [to accept] the shift to container ships, but the cities, states, and federal government paid for the infrastructure, including the highway systems, harbor improvements, and dock facilities (cranes, rails, etc.). Today, taxpayers foot the operational costs, including infrastructure maintenance (harbors and roads) and cargo inspections (thanks to our interventionist foreign policies, the great transportation system that brings goods from the world is also a potential Trojan Horse for WMDs), but the investments are promoted as tax-yielding investments rather than the revenue consuming corporate welfare programs that they are.

All of this infrastructure, what W. W. Rostow would call social overhead capital, was put in place in the 60s and 70s, long before Wal-Mart became a force. And yet, having taken advantage of it, Wal-Mart is seen by some as the bad guy. Those who hold that view are mostly self-designated Progressives, the same people who favor central planning for efficient management of the economy. This is the main reason why the two groups -- those who see the infrastructure as the pinnacle of efficient engineering, Wal-Mart as benign, and sustainability as irrelevant, and those who see globalization as the evidence of Western greed, Wal-Mart as the embodiment of evil, and sustainability as the new religion -- talk past each other. One looks only at the engineering and sees none of the underlying political structure that brought it about (and perhaps even opposes any government interference with this "free market" system), and the other refuses to admit that their policy preferences are simply the most recent incarnation of the same policies that got us into this mess in the first place. They want another patch on the binding on the dressing on the bandage on the abrasion caused by the crutches they promoted for a fit patient in the first place.

And to top it all off, we have the same social engineers looking to solve the sustainability problem by imposing unsustainable, modern, Western values onto the undeveloped countries whose citizens are the victims of this system. For them, the real problem in the world is not Western-style consumerism, it's those other people who breed like flies because they're ignorant and poor. This obviously plays into biases some have against swarthy "others", but does not necessarily spring from those motives. And it seems to have escaped the attention of the planners that such lifestyles, having been practiced for millennia, are inherently sustainable.

But no, we're going to retrain them rather than us. First, as the story goes, we have to promote growth. In a recent post, Dani Rodrik says,

"What kind of a growth strategy should this [developing] country follow? A strategy that focuses on expanding employment opportunities in the rural areas where most of the poor live? Should it consist of expanding their capabilities, by investing directly in education and health? Or should it focus on wherever the economic activities that will provide sustainable sources of income growth into the future lie, even if these may be in mostly urban areas and likely to foster greater inequality in the short-run?"

He concludes the latter. But he isn't the first: Rostow explicitly proposed that strategy in his Stages of Growth: increase the efficiency of farming to free up and feed a substantial labor pool that can move to urban areas and work in heavy industry. You can do this by subsidizing cash crops (for export) instead of traditional crops (for consumption) and by providing social overhead capital (transportation). Diana Davis' history of the French colonization of Algeria in Resurrecting the Granary of Rome shows that they accomplished the former by several means: confiscate public lands used by nomadic herders, outlaw traditional farming methods (like using fire to clear scrub), and ban the payment of taxes with in-kind payment (force a switch to a cash economy). People who suddenly couldn't sustain themselves by traditional means and now needed to raise money to pay taxes migrated to the cities to look for jobs with French employers. Note how the preferred policies of modern social engineers are remarkably similar to the policies of colonial powers in an unenlightened age.

After claiming that "The joint stock company owes its existance [sic] to [increasing returns], not so much to state (or other) promotion," in response to which I pointed out the above, one of the commenters on the Env-Econ post, Reason, listed his favored set of policies to reduce population growth:

1. Increasing the duration of education which increases the costs of having children
2. Providing social security which reduces the benefits of having children
3. Better public health so that people can be confident their children will survive
4. Peace (same reason as above)

Having selected government policies to solve a problem, he found no opportunities for anarchism to solve the same, as if he had actually searched for any. I'm not going to defend outright anarchy in a world unused to anything but increasingly active states where force is the first resort, but I should think it obvious that smaller states are generally not pugnacious, so he was wrong about his fourth point not being addressed by anarchism. [2] More importantly, though, he failed to explain how 1, 2, and 3 were going to be funded in a pre-takeoff, sustainable society of the type found in the undeveloped world.

Such societies are marked by their traditional, subsistence farming practices, and their children are a necessary source of labor and the primary retirement pension for their parents. Trade is frequently made by in-kind payment. For example, Diana Davis notes the achaba property arrangement in which herders exchanged their labor for pasture rights in Algeria. In order to introduce education and social security systems to take away the parents' labor and pension incentives, there must first be a system of taxation and management. These emphasize the state rather than the community as a central cultural institution and establish the state as central collection and dispensation authority in addition to, or perhaps in place of, its role as night watchman. More importantly, however, it forces the people to abandon traditional methods of trade and agriculture and to switch to crops and methods or other uses of their labor which are easily traded for cash. That means that they must switch to crops or labor of value to people who have cash, i.e. the developed world. The cash crops must have an export value, or the labor must be in an export industry.

Now, just where do they think The Gap, Nike, and Wal-Mart get their labor, sweatshop or otherwise? This is exactly the point made by Ellenita Muetze Hellmer (about which I wrote here).

Given that the greatest advances in public health are typically made by applications of civil engineering rather than medical science, Reason's third point is the step which usually gets the state involved first in sewage projects, then in national transportation infrastructure (roads, rails, ports), and then in "other" engineering projects (oil field development, power facilities, civil defense, air bases, nuclear fuel processing). I know that's a very unconvincing linkage, but I predict that you could draw these direct lines if you only knew enough of the underlying history. After all, if you have the spontaneous creation of private engineering capability and a weak or decentralized state, those engineers won't go looking to develop a military capability because the politicians and bureaus won't exist or have the means to pay for it. Compare the early US -- where military facilities like Ft. McHenry were still conceived as defensive structures; the design and construction were ad hoc, Golden Carrot-type contracts (award a prize to the best designer); and community-based (the federal government granted money to local communities and provided the construction design) -- to modern US military-industrial arrangements where contractors conceptualize, design, build, and endlessly refine offensive weapons while the spin-offs are touted as beneficial to the public (the internet from DARPA, Tang from NASA, etc.). Or consider the military pedigree of modern quality control theory.

When people in the developing world are employed by consumer-oriented industries, what values are transmitted? The employees at Nike factories in Viet Nam first bought bicycles (sustainable) and then motorbikes and now look forward to moving up the consumer ladder to a car. In China, cars (especially with "foreigner" plates) are a highly desired commodity and the sustainable bicycle culture is all but dead. The developing world, with encouragement from the social engineers in the developed world, is building a sketchy replica of the type of economic system whose money they wish to attract. They believe they can attract that money by feeding the West's insatiable maw with container ships full of cargo. I called this (tongue-in-cheek) a Cargo Cult (which seemed to offend odograph, though I don't understand why). Unlike the actual Cargo Cults, it may succeed in attracting the money. For some people, for a while. However, it is not the road to sustainability and it is unlikely that 9 billion people will succeed in enjoying the lifestyle currently enjoyed in the West. The problem lies with us and our chosen means, not them and theirs. The solution lies with change in our society, not with them choosing our existing means.[3]

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[1] Yeah, I know: where would the LEDs and solar cells come from absent the system that provided the R&D resources to discover them? This is perhaps not as strong of a counterargument as you might think: Einstein theorized the photoelectric effect long before the R&D resources were available, and perhaps more would have gone into searching for practical applications it if the political support for large, central, coal-fired generation had not been as successful. No legal monopoly means higher cost and more awareness of the externalities because nobody could afford to build large, centralized systems. That in turn means more searching for alternatives. Also, it would be more feasible today to install a small solar or wind system (like many farmers had before the REA) because you would only be replacing or plugging into a decentralized subsystem.

[2] It is at least arguable that an unstable anarchy is potentially very violent - even David Friedman admits as much in noting that Saga Iceland collapsed in a series of blood feuds, albeit after 300 years of stability. But a stable anarchy can't raise the money or army to go looking for a fight.

[3] Yes, I'm also concerned about population issues. But I think that a less important problem compared to that of Western consumerism. I also think it foolish to believe that a proper list of policies and a certain amount of money is going to solve the former, or a sudden majority of libertarian politicians the latter. Solutions to both problems require wholesale changes in cultural attitudes and values; politics and economics only take you so far. Sometimes the state can lead cultural change, but not always. And not always for the better. Saying self-evident things like, "education of women is important to control population growth" doesn't mean much in Islamic or other traditionalist societies where women are relegated to second class status. I doubt you could fund or force anything which would work. Creating change in those climates requires something that operates on a more personal level than a United Nations program, something that flies under the states' radars, something that cannot be denounced by Imams.

Public employee unions

Why is it that public employee unions are virtually the only growth area for unions, and that they consistently send a majority of cash to Democratic candidates [1]? The answer to the first part runs completely counter to traditional explanations of unionism, the answer to the second runs counter to traditional explanations of public policy creation.

The traditional explanation of unionism is that the companies they work for and their owners/managers are only interested in profit. They therefore exploit their workers in various ways (underpay, exposure to unsafe conditions and chemicals, fire them just before they are eligible for pension, etc.). But the government is supposedly not motivated by profit. The government lavishes pay [2], benefits, and lifetime employment upon its employees.

The traditional explanation of policy creation is either that we elect a set of policies or that we elect people who promise to enact those policies. The politicians then enact legislation that is carried out by a selfless group of employees (public servants) dedicated to seeing out the public's desire. But then why would those same employees want to influence the outcome?

I propose that neither of the traditional explanations are very complete or useful. Taken together, it would seem that the public employee unions serve the purposes of their own members in a way that is contrary to the public interest. To the extent that they are successful at affecting the policies, the government is not acting in the interest of the electorate. However, I am implicitly defining the public interest as the state of affairs without public employee union lobbying, a not entirely fair assessment since they, too, are members of the public. But it does seem that public employees have more influence over policy because they have both direct and indirect influence: direct by choosing what to carry out and how strongly, indirect by buying representation.

Are we experiencing the same effect in governance that Berle and Means warned about with respect to corporations? Their warning was that public corporations were gaining control over more of the nation's wealth, that ownership was becoming too diffuse for any one or any small number of owners to influence the activities of the corporation, and therefore the management was gaining more control over the direction of the corporation and by extension the nation's wealth. With respect to the state, there appear to be three similar trends: the state's authority is constantly expanding, while the control we the owners have over the state is constantly diminishing, and the career public employees are therefore gaining more influence over the state, and by extension, over the lives of the rest of us.

This is not intended to argue that the same is true of all unions; many serve very useful purposes that are both in their own and the public interest.

This is old hat; why should anyone care?

Well, first, that I think it shows that bureaucrats do, on average or in the aggregate, act in their own self-interest and second, that this is not a good thing. They literally thwart the public will, as traditionally understood.

Ah, well, it's for our own good, I suppose. Just ask them.


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[1] Both assertions are easily proved with the Statistical Abstract and a glance through the relevant sections at OpenSecrets.org.

[2] No, not at the executive level, so don't compare Bill Gates to the POTUS.

The Social Question

Lately, I have been trying to figure out what makes socialism distinguishable from other mainstream political beliefs. I began with a question on how to define socialism, concluded that the distinctive definition is that no decisions are reserved exclusively for private individuals, and now I have moved on to the study of European politicians. Please consider the following passages from a socialist politician:

After the turn of the century, [it] was, socially speaking, one of the most backward cities in Europe.

Dazzling riches and loathsome poverty alternated sharply. In the center and in the inner districts you could really feel the pulse of this realm of fifty-two millions, with all the dubious magic of the national melting pot. [...]

Yet not only in the political and intellectual sense was [it] the center of the old [...] monarchy, but economically as well. The host of high of officers, government officials, artists, and scholars was confronted by an even greater army of workers, and side by side with aristocratic and commercial wealth dwelt dire poverty. Outside the palaces [...] loitered thousands of unemployed, and beneath this [...] dwelt the homeless in the gloom and mud of the canals.

In hardly any [...] city could the social question have been studied better than [here]. But make no mistake. This 'studying' cannot be done from lofty heights. No one who has not been seized in the jaws of this murderous viper can know its poison fangs. Otherwise nothing results but superficial chatter and false sentimentality. Both are harmful. The former because it can never penetrate to the core of the problem, the latter because it passes it by. I do not know which is more terrible: inattention to social misery such as we see every day among the majority of those who have been favored by fortune or who have risen by their own efforts, or else the snobbish, or at times tactless and obtrusive, condescension of certain women of fashion in skirts or in trousers, who ' feel for the people.' In any event, these gentry sin far more than their minds, devoid of all instinct, are capable of realizing. Consequently, and much to their own amazement, the result of their social 'efforts' is always nil, frequently, in fact, an indignant rebuff, though this, of course, is passed off as a proof of the people's ingratitude.

Such minds are most reluctant to realize that social endeavor has nothing in common with this sort of thing; that above all it can raise no claim to gratitude, since its function is not to distribute favors but to restore rights.

I was preserved from studying the social question in such a way. By drawing me within its sphere of suffering, it did not seem to invite me to 'study,' but to experience it in my own skin. It was none of its doing that the guinea pig came through the operation safe and sound.

Upon first reading that passage and others like it, I noted in the margin something to the effect that this was some of the most interesting prose Molly Ivins had ever written. I was not aware that she had ever been outside of Texas. Perhaps this was Austin? But no, this is Europe, and the author may have been somewhat effeminate, but he wasn't Molly.

The author continues, now sounding somewhat like Upton Sinclair:

Yet among these 'emigrants' [from the farm] we must count, not only those who go to America, but to an equal degree the young farmhand who resolves to leave his native village for the strange city. He, too, is prepared to face an uncertain fate. As a rule he arrives in the big city with a certain amount of money; he has no need to lose heart on the very first day if he has the ill fortune to find no work for any length of time. But it is worse if, after finding a job, he soon loses it. To find a new one, especially in winter, is often difficult if not impossible. Even so, the first weeks are tolerable. He receives an unemployment benefit from his union funds and manages as well as possible. But when his last cent is gone and the union, due to the long duration of his unemployment, discontinues its payments, great hardships begin. Now he walks the streets, hungry; often he pawns and sells his last possessions; his clothing becomes more and more wretched; and thus he sinks into external surroundings which, on top of his physical misfortune, also poison his soul. If he is evicted and if (as is so often the case) this occurs in winter, his misery is very great. At length he finds some sort of job again. But the old story is repeated. The same thing happens a second time, the third time perhaps it is even worse, and little by little he learns to bear the eternal insecurity with greater and greater indifference. At last the repetition becomes a habit.

And so this man, who was formerly so hard-working, grows lax in his whole view of life and gradually becomes the instrument of those who use him only for their own base advantage. He has so often been unemployed through no fault of his own that one time more or less ceases to matter, even when the aim is no longer to fight for economic rights, but to destroy political, social, or cultural values in general. He may not be exactly enthusiastic about strikes, but at any rate he has become indifferent.

With open eyes I was able to follow this process in a thousand examples. The more I witnessed it, the greater grew my revulsion for the big city which first avidly sucked men in and then so cruelly crushed them.

Why, that sounds exactly like the story of Jurgis, does it not? And the value-laden prose closely echoes Sinclair. He continues, paralleling the story of Jurgis' descent into alcoholism:

The consequence is that once the man obtains work he irresponsibly forgets all ideas of order and discipline, and begins to live luxuriously for the pleasures of the moment. This upsets even the small weekly budget, as even here any intelligent apportionment is lacking; in the beginning it suffices for five days instead of seven, later only for three, finally scarcely for one day, and in the end it is drunk up in the very first night. Often he has a wife and children at home. Sometimes they, too, are infected by this life, especially when the man is good to them on the whole and actually loves them in his own way. Then the weekly wage is used up by the whole family in two or three days; they eat and drink as long as the money holds out and the last days they go hungry. Then the wife drags herself out into the neighborhood, borrows a little, runs up little debts at the food store, and in this way strives to get through the hard last days of the week. At noon they all sit together before their meager and sometimes empty bowls, waiting for the next payday, speaking of it, making plans, and, in their hunger, dreaming of the happiness to come.

And so the little children, in their earliest beginnings, are made familiar with this misery.

It ends badly if the man goes his own way from the very beginning and the woman, for the children's sake, opposes him. Then there is fighting and quarreling, and, as the man grows estranged from his wife, he becomes more intimate with alcohol. He is drunk every Saturday, and, with her instinct of self-preservation for herself and her children, the woman has to fight to get even a few pennies out of him; and, to make matters worse, this usually occurs on his way from the factory to the barroom. When at length he comes home on Sunday or even Monday night, drunk and brutal, but always parted from his last cent, such scenes often occur that God have mercy!

I have seen this in hundreds of instances. At first I was repelled or even outraged, but later I understood the whole tragedy of this misery and its deeper causes. These people are the unfortunate victims of bad conditions! Even more dismal in those days were the housing conditions. The misery in which the [...] day laborer lived was frightful to behold. Even today it fills me with horror when I think of these wretched caverns, the lodging houses and tenements, sordid scenes of garbage, repulsive filth, and worse.

What was - and still is - bound to happen some day, when the stream of unleashed slaves pours forth from these miserable dens to avenge themselves on their thoughtless fellow men?

Clearly, this is the work of a man who understands the dehumanizing effect of poverty and modernity. From there, he notes that these problems are problems of social structure, not moral character, and begins to outline the social program needed to prevent them:

If I did not wish to despair of the men who constituted my environment at that time, I had to learn to distinguish between their external characters and lives and the foundations of their development [emphasis added]. Only then could all this be borne without losing heart. Then, from all the misery and despair, from all the filth and outward degeneration, it was no longer human beings that emerged, but the deplorable results of deplorable laws; and the hardship of my own life, no easier than the others, preserved me from capitulating in tearful sentimentality to the degenerate products of this process of development.

No, this is not the way to understand all these things!

Even then I saw that only a two-fold road could lead to the goal of improving these conditions:

The deepest sense of social responsibility for the creation of better foundations for our development, coupled with brutal determination on breaking down incurable tenors.

Just as Nature does not concentrate her greatest attention in preserving what exists, but in breeding offspring to carry on the species, likewise, in human life, it is less important artificially to alleviate existing evil, which, in view of human nature, is ninety-nine per cent impossible, than to ensure from the start healthier channels for a future development.

During my struggle for existence in [the city], it had become clear to me that social activity must never and on no account be directed toward philanthropic flim-flam, but rather toward the elimination of the basic deficiencies in the organization of our economic and cultural life that must - or at all events can - lead to the degeneration of the individual.

[...]

Since the [...] state had practically no social legislation or jurisprudence, its weakness in combating even malignant tumors was glaring.

So now we have come back from the Sinclairian description of the problem to the Ivins-esque solution. Clearly, the state is the instrument by which social ills should be addressed, and those ills should be attacked at their roots with vigor and sincerity, not "philanthropic flim-flam" or condescension.

But another institution suggests itself, too. The author notes that the working classes struggle for more concrete goals, but are opposed by the middle classes (bourgeoisie) at every step.

Since on innumerable occasions the bourgeoisie has in the clumsiest and most immoral way opposed demands which were justified from the universal human point of view, often without obtaining or even justifiably expecting any profit from such an attitude, even the most self-respecting worker was driven out of the trade-union organization into political activity.

Millions of workers, I am sure, started out as enemies of the Social Democratic Party in their innermost soul, but their resistance was overcome in a way which was sometimes utterly insane; that is, when the bourgeois parties adopted a hostile attitude toward every demand of a social character. Their simple, narrow-minded rejection of all attempts to better working conditions, to introduce safety devices on machines, to prohibit child labor and protect the woman [emphasis added], [...] contributed to drive the masses into the net of Social Democracy which gratefully snatched at every case of such a disgraceful attitude. Never can our political bourgeoisie make good its sins in this direction, for by resisting all attempts to do away with social abuses, they sowed hatred and seemed to justify even the assertions of the mortal enemies of the entire nation, to the effect that only the Social Democratic Party represented the interests of the working people.

[...]

As long as there are employers with little social understanding or a deficient sense of justice and propriety, it is not only the right but the duty of their employees, who certainly constitute a part of our nationality, to protect the interests of the general public against the greed and unreason of the individual [emphasis added]; for the preservation of loyalty and faith in the social group is just as much to the interest of a nation as the preservation of the people's health.

Both of these are seriously menaced by unworthy employers who do not feel themselves to be members of the national community as a whole. From the disastrous effects of their greed or ruthlessness grow profound evils for the future.

To eliminate the causes of such a development is to do a service to the nation and in no sense the opposite.

Let no one say that every individual is free to draw the consequences from an actual or supposed injustice; in other words, to leave his job. No ! This is shadow-boxing and must be regarded as an attempt to divert attention [emphasis added]. Either the elimination of bad, unsocial conditions serves the interest of the nation or it does not. If it does, the struggle against then must be carried on with weapons which offer the hope of success. The individual worker, however, is never in a position to defend himself against the power of the great industrialist, for in such matters it cannot be superior justice that conquers (if that were recognized, the whole struggle would stop from lack of cause)-no, what matters here is superior power. Otherwise the sense of justice alone would bring the struggle to a fair conclusion, or, more accurately speaking, the struggle could never arise.

No, if the unsocial or unworthy treatment of men calls for resistance, this struggle, as long as no legal judicial authorities have been created for the elimination of these evils, can only be decided by superior power. And this makes it obvious that the power of the employer concentrated in a single person can only be countered by the mass of employees banded into a single person, if the possibility of a victory is not to be renounced in advance.

Thus, trade-union organization can lead to a strengthening of the social idea in its practical effects on daily life, and thereby to an elimination of irritants which are constantly giving cause for dissatisfaction and complaints.

This author clearly understands that politics and economics are a struggle between workers and greedy, unreasonable individuals whose attempt to thwart the workers is an effort against society and the nation. The answer to bad working conditions is not the freedom to quit and look for employment elsewhere: the struggle must in fairness be won by the workers, and their only hope is to join together in order to face down the employer. The trade union is therefore among the best institutions for preserving a cohesive society in opposition to what he calls "Manchesterism", a pejorative coined by German socialist Ferdinand Lassalle in reference to the free trade policies promoted in England in the wake of Smith, Ricardo, and the struggle against the Corn Laws.

However, from this point forward, the author begins to differentiate between the Social Democratic Party as a purely political organ and the social ends to which its adherents aim.

[T]he trade-union movement had ceased to serve its former function. From year to year it had entered more and more into the sphere of Social Democratic politics and finally had no use except as a battering-ram in the class struggle. Its purpose was to cause the collapse of the whole arduously constructed economic edifice by persistent blows, thus, the more easily, after removing its economic foundations, to prepare the same lot for the edifice of state. Less and less attention was paid to defending the real needs of the working class, and finally political expediency made it seem undesirable to relieve the social or cultural miseries of the broad masses at all, for otherwise there was a risk that these masses, satisfied in their desires could no longer be used forever as docile shock troops.

The leaders of the class struggle looked on this development with such dark foreboding and dread that in the end they rejected any really beneficial social betterment out of hand, and actually attacked it with the greatest determination.

The author thus grapples with the same problem that had led to a split in the socialist movement in the period between the 19th and 20th centuries. As Kautsky and the supporters of Marx pushed for greater class cohesion and struggle, Eduard Bernstein noted the success of the Fabians and proposed to change the Marxist program from one of overthrow to one of perpetual reform. The response came from a group of radical Marxists who rejected such unscientific socialism, proposing that if the workers could be bought off with incremental and meaningless reforms that an elite vanguard should initiate and maintain a perpetual revolution for them. This of course was Lenin's response in What is to be Done?

We see the author above being largely in the camp of Bernstein, the Fabians, and the less radical reformers. He sees the trade unions and political reform as legitimate means for improving the lives of workers, and opposes the use of the workers as a "battering-ram" to be used to bring down the economic and state edifices. He perceives that the Social Democrats are using the workers as means rather than as end, and this puts him in opposition to them. It's a difficult position to be in because, in the normal understanding of politics as left vs. right, it puts him in opposition to the left, and therefore at danger of being labeled right.

In the next article in this series, I intend to discuss some of the author's socialist political programs.

Working Smart? Or Rather Neither, Really.

According to its jacket, Working Smart, by Slaughter and Parker, is a "Union Guide to Participation Programs and Reengineering". This book is only of value to dyed-in-the-wool union activists; there is little or nothing here for either workers and little for people interested in state-of-the-art manufacturing practices. I am careful to distinguish between unionists and workers, since their objectives are not always the same: crisis and antagonism pay for union activists, but nobody likes to work in that environment. The authors also seem to be careful to make the distinction: after all, it is not a "Workers' Guide". (I'm no fire-breathing anti-unionist, either)

Working Smart is a fun-house view of lean manufacturing. There is a rough 1:1 correspondence to the actual theory in much the same way as any good parody approaches its target. The phrase "management-by-stress" is frequently (but not always) used in place of "lean" or any number of other, related, or similar theories. This is a cheap rhetorical trick that mostly gets in the way of meaningful discourse. They use other such tricks, such as referring to the removal of wasteful motion as "speedup" as if improving an operation was in any way similar to increasing the speed of the assembly line, especially in an operation where the assembly line is intentionally run at a fixed rate (the takt time) dictated by consumer demand. Learning new skills is called "deskilling" because it creates generalists rather than specialists.

I would also point out that although there is little here for people interested in lean and related practices and theories, they do make a strong point about safety. Bill Waddell has pointed this problem out and noted that Toyota has a long ways to go to catch GM on the safety and repetitive motion injury measure, so it isn't as if the lean consulting community is unaware of the problem. Unfortunately, those points are mostly constrained to the automotive industry, so it isn't clear that the point carries beyond that industry. At the same time as Toyota grapples with that issue, it should be noted that most lean practitioners recognize injury as another form of waste. To that end, Womack et al describe in Lean Thinking the case of FNGP of Michigan, where productivity increased over 1000% (10-fold) at the same time their "OSHA reportable accidents and Workers' Compensation costs both declined by more than 92%." Health issues impact the bottom line. Indeed, some lean consultants have suggested that the GAAP accounting practices be scrapped and replaced with something that counts worker education and skill (human capital) as an asset to put some meaning to the oft-repeated catch-phrase, "Our workers are our greatest asset".

Most of Working Smart is illogical and contradictory.

• Sometimes they complain about uselessness and even evil of teamwork, other times they complain that management doesn't let them participate in interesting and challenging teamwork activities often enough. On one hand, they claim that everyone is taught about teamwork, but then complain that it is never applied after that initial phase because management has already determined work procedures. At other times, they say that participation in teams results in sharing work secrets with management at the peril of your own job. Which is it: management isn't interested in your opinion or management learns too much from your participation, teams never meet or they are used to extract information? Incidentally, the preference that management set the system up at the beginning with strict work rules is one of the essences of Taylorism, which is alternately denigrated and embraced, as I will discuss in detail below.
• Management is simultaneously stupid (with such gems as "Management is notorious for being unable to see past the end of its collective nose") and so incredibly devious that they can formulate fantastically convoluted mechanisms by which to cheat workers out of money, time, and health without anyone noticing their real goal - workforce domination for the fun of it. Or is it workforce elimination? A friend of mine summarized this kind of thinking by saying that some people believe that management would spend $1 to screw someone out of $0.10.
• NAFTA is evil because, as they say, "no one argues that American workers can compete with Mexican wage levels", but later, "U. S. workers are a bargain, compared to those other developed nations". So which is it: competition with Mexico works against US workers, or against Mexican workers?
• Monopoly is bad, except when you are talking about union workers, and then it is "taking labor out of competition". Competition, it seems, is bad between workers. Unless you're talking about nonunion or foreign workers, in which case see above.
  
• At one point, Parker and Slaughter tell a story about how workers are given training to do time & motion studies and then ridicule the use of such "experts", but at other times they themselves engage in social and psychological analysis (claiming, without support, that certain tests have cultural bias), critiques of management theory, critiques of design engineering, and critiques of quality control theory with even less apparent training then management gave them on time and motion studies.
  
• They ridicule the application of Deming's definition of quality by pointing out that the consistent McDonald's product would be quality (it is, if you understand the goal is to produce a reliably consistent product no matter where in the world it is, and millions of people seem to agree), but later they use the same definition to defend the Fiero ("[GM Plant managers] were celebrating what was then the highest weekly quality rating in GM's history - 138 out of 145"). Nobody, but nobody, ever believed the Fiero was a quality vehicle. After all, it had a Pontiac logo on it.
  
• Their heavily distorted "history" makes Howard Zinn look like a clear-eyed scientist in search of truth: apparently, the deregulation signed by Carter was Reagan's fault, they apparently have never heard that Davis-Bacon and Jim Crow laws were laws and not corporate policies, and government regulatory agencies like the CAB and ICC were not exactly unfriendly to the industries they regulated.
• They routinely assert that workers should stand up for their "rights" when they mean "privileges of seniority in a closed union shop".
• In the good old days of unionization (as they put it, from the end of WWII to the 1970s, or roughly the period in which Sloanism dominated), "Unions won the ability to set standard wages and benefits in unionized industries. In return, unions gave the employers the right to control the organization of work, to introduce technology, to change the product, and to accumulate capital through growing profits." Damn nice of them to give management something to do, and also damn nice of whichever God deposited a fully developed industry over whose output they could bargain. But elsewhere in the book, management is overstepping its bounds by setting up the organization of work without consulting teams, introducing technology to lay people off, changing the product to make it easier to manufacture, and (gasp) accumulating profits.
  

The most egregious error in the book is that the examples of "lean" enterprises are NUMMI, GM, Saturn, a Mazda plant funded by the State of Michigan, USPS, The Health Care System, universities, and some Baby Bells. Of all of those, the only one even close is NUMMI; the rest were probably chosen not because they were advanced lean practitioners, but because they were unionized. Bill Waddell refuses to have anything to do with publicly traded companies like GM and the Baby Bells because they have all adopted the Sloan/DuPont/Brown management principles by way of GAAP (another topic I will discuss in detail below). And let's be honest: citing the United States Postal Service or the byzantine private/public mess called the "health care system" as an example of lean management is just as nearly either ignorant or dishonest as one can be, almost as bad as citing Bill Clinton (a career politician), Robert Reich (a career academic and politician), Lee Iacocca (a political entrepreneur), and Lane Kirkland (a union boss) as "gurus of competitiveness" (as they call them) and citing Clinton's Council on Competitiveness and Paul Krugman as "reengineering gurus" who use "macho and violent" imagery (yeah, really - it's in there!).

One result of this error is that they talk repeatedly of how management uses lean processes and reengineering to make it easier to outsource and introduce automation, yet these are the diametric opposite of what Toyota does. Toyota is famously conservative about the introduction of technology. By outsourcing, Parker and Slaughter mean forcing single supplier systems to stock parts for Just-In-Time pull, but Toyota keeps dual suppliers and works with them to introduce real JIT methods into their operations. As a result, many Toyota First-Tier suppliers have expanded their business by supplying to Toyota's competitors, while GM, Ford, Delphi, and all the rest of the Sloanist, GAAP, Taylorist producers keep laying off, outsourcing, and automating their way to oblivion. Only about 12 pages out of 315 are occupied with Japanese companies, but Japan itself is not universally lean as they imply - Toyota stands out even there.

Taylorism

Slaughter and Parker exhibit a complete lack of understanding what Taylorism is, or what is wrong with it. They speak disparagingly of Taylorism by way of claiming that lean is "super-Taylorism". To them, the essence of Taylorism is the time study, the use of a stopwatch and experimentation to find the "one best way". To students of Taylor, however, Taylor's theory of Scientific Management only partly depended on the time study. If time study was the only thing ever advocated by Taylor, we would likely have never heard of him since it was merely an application of common sense and the most obvious tool to the problem of high volume manufacturing. Taylor placed much more emphasis on clear delineation between workers and management (managers think, workers do), and between different functions of management. The first is evidenced by this quote from Principles of Scientific Management:

Now one of the very first requirements for a man who is fit to handle pig iron as a regular occupation is that he shall be so stupid and so phlegmatic that he more nearly resembles in his mental make-up the ox than any other type.

Taylor's devotion to Division of Labor is due to his overweening application of the principle that he gleaned from Adam Smith's description in Wealth of Nations. After "scientifically" determining the exact division, though, Taylor permanently fixed the job classifications. He advocated departmentalization, rigid work rules, and rigid job descriptions.

But that is exactly what Slaughter and Parker advocate: rigid work rules, rigid work classifications, bureaucratization. They ridicule the training of workers as time study engineers, preferring instead Taylor's system of industrial engineers who have to petition the union for permission to do time studies. They deride workers who participate in team activities as "apple polishers", an implication of collusion with "the enemy" and another recurring rhetorical trick. They protest shopfloor communication and the blurring of distinctions between jobs (they point out that "A [desirable] relaxed attitude - 'I am just doing my job, I don't need to pay attention to anyone else's job' - makes the [lean] system inoperable"). They protest the blurring of job categories as "deskilling" as if learning to do more than one job requires less skill. They protest the blurring of the distinction between management and labor on the basis that team leaders should only participate in "management activities" and not in the actual work. When disputing the claims that management and labor have common goals, their adoption of class warfare rhetoric might make sense if they were distinguishing between owners and workers, but the modern, publicly traded corporation is run by hired management. The real distinction between that hired management and hired labor cannot be one of class; it is rather the arbitrary distinction given to it by Frederick Winslow Taylor.

[Aside: By maintaining strict classifications and rules and resisting team problem solving, workers are able to hide aspects of their job and thereby maintain a bargaining chip. Kaizen encourages them to reveal this secret knowledge, making it easier to document those secrets, eliminate custom work, and train new workers. This is interesting from a transaction cost economics POV, as it illustrates on one hand a principal-agent problem, and on the other hand the difficulty of making contracts in the presence of opportunistic behavior.]

Sloanism and GAAP

The second problem Slaughter and Parker run into is a result of their acculturation in the GM system, where the Taylorism is codified by Sloanism. Waddell and Bodek persuasively argue in Rebirth of American Industry that GM and companies based on its management principles will never fully grasp or be able to apply lean management theories because of the accounting rules they use. In Rebirth, the single most valuable point is that a company's accounting system sets their definition of profitability, and that everything else about the company flows from that definition. The Sloan system was largely based on DuPont's view of the operation and Brown's implementation of an accounting system based on DuPont's opinion.

To put it in perspective, it is valuable to compare the original Ford and the Toyoda family values to the GM values. Henry Ford and Kiichiro Toyoda both owned a manufacturing concern and made money by manufacturing things. DuPont owned a group of companies that manufactured things, but he had two options for making money: he could manufacture things or he could break the organization up and sell it off by piece. Therefore, he and Brown devised a system designed always to be ready to sell off.

In their system, multiple divisions were organized in the "M Form" corporation in which each division was independently evaluated as a cost center. They looked at it as "islands of cost awash in a sea of profit". Each division "sold" its product to other divisions (for example, Fisher "sold" bodies to the assembly plants). When you take in inventory, that's an asset; when you produce it and make it the next division's inventory, that's a profit; everything in between is a cost. Further, cost is divided into two categories: fixed and variable. The fixed cost is the cost of management and the plant operating costs. The variable cost is the labor. If a plant has high variable costs and little profit, it can and should be sold off in the Sloan/DuPont/Brown system. That system was ascendant in the 1950s, when GM was the mother of all corporations in the post-WWII era, and the structure was embodied in the Generally Accepted Accounting Practices (GAAP) which is today accepted by all publicly traded stock companies. In other words, if you don't follow those practices, you open yourself to civil and criminal procedures by shareholders suits, criminal prosecutors, the SEC, and the IRS.

So it should be no surprise that when union activists look at GM's application of lean theories they find a facade and little else. The accounting system in place in almost all public companies will force them to the same conclusion: eliminate labor because it is a cost, don't worry about inventory because it is an asset. GE took this to its logical limit: keep the name, sell off the manufacturing capability, put all of your effort into marketing and financing. The result today is that GMAC and GE Capital are the most profitable divisions of those companies. The MBAs in charge were baptized in the GAAP and Sloanist M-Form corporation theory; they eliminate variable costs (labor) by investing in specialized automation or by outsourcing it.

And Toyota is beating the crap out of them with people and relatively low-tech, general application machinery.

Quality Control

Slaughter and Parker also demonstrate a complete lack of comprehension of what is meant by quality. Their preferred definition is, "A degree or level of excellence". It is completely resistant to quantitative analysis. What degree? What level? At what price? If it has any degree or level, it meets their definition. Is the Mercedes 560 SEL a quality auto? The Honda CVCC? Although their prices are radically different, consumers would agree that each was a quality vehicle, but at different prices. Would the CVCC be considered quality at the Mercedes price? No.

They put that in opposition to the standard definitions from Crosby and Deming which both come to nearly the same thing: conformance to requirements or reduction in variation. Slaughter and Parker ridicule that because the specification may be bad. According to whom? The customer? Then the specification is bad and should be changed, which Crosby and Deming both note. That this aspect of both writers' theories is intentionally neglected by Slaughter and Parker is either indicative of their ignorance or a deliberate attempt to imply that Crosby and Deming were too stupid to realize what might happen if you made something perfectly which nobody wants to buy.

But if the specification is good, how do you know if you are delivering it? This is the critical question which is never, ever addressed in Working Smart, and in fact problems with that oversight surface several times. They cite an example from Crosby's Quality is Free in which the fictional managers take their drawings to an outside machine shop to see if the parts can be made there. When they can't, the managers realize their drawings are wrong, and that the only reason anything was getting out the door was that their in-house machinists were custom-fitting everything together. Rather than note the obvious problems, Slaughter and Parker marvel over the fact that Crosby's fictional managers realize that they don't control the design (recall that Slaughter and Parker imply that this is one of the few things that management should control, if even that). They think that the plant ought to congratulate the workers on their superior skill instead of fixing the problem.

For people inexperienced with actual manufacturing, it might help to illustrate why they are wrong, and not even just by a little. Say you have three parts in an assembly. In the design, the parts fit together perfectly. In practice, the parts don't fit together because of errors in the prints, wearing tools, wearing dies, change in heat treatment or painting, etc. After individual part fabrication, final assemblers put them together, but since they don't fit they have to be adjusted (at additional, unplanned time and cost). One assembler files A to fit, one B, and another C. They make the assemblies work, but filing B may seriously compromise the strength of the assembly and subject it to early failure (nobody thinks to measure this because the people concerned with designing, building, manufacturing, and marketing are all compartmentalized). Furthermore, repair parts will never fit into the assembly consistently because no two assemblies are alike, even if all of the repair parts are (which is, by now, to be doubted). The Working Smart point of view is that the filing is great and demonstrates the skill of the workers, though they inexplicably forget to question the skill of the design engineers as in other places in the book; they never address the additional costs; and they completely overlook the impact on product life and perceived value by consumers, which they otherwise always go out of their way to blame on management. Perhaps, as people who probably buy into the Broken Window Fallacy, they figure that if they put out defective units, consumers will have to buy more, thus helping the employment of union workers at plants where this is actually the business plan. This is a result of the GM assembly theory: make a lot of them real fast to keep the unit labor costs down, count the finished but defective products as inventory (assets), and then fix the problems afterwards. Then marvel at the way Toyota takes market share, blame the pension plan, sell off Delphi, lay off 10,000 more workers.

Norm Bodek tells in Rebirth about an experience he had on a GM line: an inspector was going through a stack of doors to see if they met spec. They had been batch produced into stock (the system preferred by Slaughter and Parker to increase slack time), and he asked how many would be out of spec after the one he was inspecting. "Oh, maybe a thousand or so," came the answer. He asked what would be done about the problem - would it be corrected? "I would notify the die press people to make the necessary adjustments on future doors to correct the problem; then the new doors stamped would meet the exact specifications." He asked about the doors already stamped. "They are normally not too bad, not that much out of sync. When they get to the assembly line the worst thing they might do is use a rubber hammer to make them fit properly into the car." Think about that the next time you buy a product that isn't "too bad, not that much out of sync." Hey, maybe the door doesn't shut right, so maybe you need to use a rubber hammer to adjust it. Still, at least the car has "a degree or level of excellence", even if that degree or level is not very high. While you're doing that, and marveling at the skill of the workers as Slaughter & Parker would have you do, also marvel at the toll on a worker's wrists as he does this a thousand times a day. No wonder they need breaks, huh? And just in case you think I'm just being flippant about that, I actually met a Harley-Davidson engineer back when Harley was coming back from the old every-sled-comes-with-its-own-oil-drip-rag days who told me he had only about 2 or 3 guys who could manually adjust shafts with a hammer, and they were all developing repetitive motion injuries.

But it isn't just Bodek that finds such bizarre notions of work and quality. Slaughter and Parker explain their preferred version of a good job when quoting a NUMMI employee who used to work at the GM plant at that location:

The best job [at the GM plant] used to be material handling. Because what did you do when you walked in the morning. [sic] The first thing you do ... is stop at the newspaper stand and pick up a paper, right? Then you get on your truck and you scout the line and you look for a place to stack material. And you put on eight hours, 16 hours, if you could put on 16 days of material you would do it -- because what's the next thing you do when you stack the line? You went to the satellite area, got a coffee, and you read your newspaper and you didn't have to do anything anymore.

What does this [NUMMI] plant do? Every 60 minutes we are stocking the line. The people who are in material handling now -- they are working eight hours a day.

Relaxation time is the goal of the Slaughter and Parker system, so inventory is preferred and overstaffing is the goal. They have completely bought into the Sloan/Taylor theories of management. I wouldn't count on getting much of a flow experience from working there. Slaughter and Parker relate this story as an example of how mean the NUMMI management was. The lesson you are to take from this is that the GM/UAW way of doing things was to stockpile WIP everywhere so people could get paid to read papers work in a low stress environment. Now, how was it fair that some people got this easy job and others didn't? Well, if you are either senior or connected in the union, it is your right. Those mean bastards that took over, they thought that maybe it was a good idea to only produce what was needed in order to eliminate waste, uncover defects before thousands of defective copies were made, to cut the amount of time required to deliver an order without requiring expediters and speedup and overtime, and to actually get eight hours of work from everyone for eight hours of pay. The horror, the horror.

But to return to our three workers and the three piece assembly, by measuring, we may find that there is a continuum rather than a simple binary distribution of "obviously defective" and "obviously usable". Over time, we may find that the arbitrary tolerance threshold between pass and fail is either too tight (we are going to unneeded expense to get within tolerance) or too loose (parts may be usable, but wear quickly and give our products a reputation as unreliable). The Working Smart way of dealing with this problem is ... well, they never address or even acknowledge the problem, an indication of how woefully uninformed the Working Smart authors are about quality control theory (though that doesn't stop them from criticizing it). They live in a world where a product either has quality or doesn't. Sometimes they imply that quality is designed in, or that workers fix the design flaws on the fly. Whichever it is, it is inexplicable and amorphous, like pornography for Potter Stewart. They apparently never realize that it cannot be both "designed in" and "fixed on the fly" simultaneously; the two are mutually exclusive. Yet that is how they would achieve quality if allowed to run things. Or fail to achieve it. But what would you expect when the principle critics of lean have been brought up in the culture of GM and the UAW?

Summary

There is a side point about downsizing and lean. Parker and Slaughter imply throughout the book that the goal of lean is to reduce the number of people required so they can be laid off, which of course is always the goal when applying the Sloanist principles implicit in GAAP. Had the authors looked for counterexamples, though, they might have made a case for a different management approach that workers reading their book might have found useful and interesting. But since their purpose is to introduce FUD, they were never going to look for or find counterexamples. It is possible, despite what you might think after having read this book, that a manufacturer might take the people freed up from the efficiency improvements in one production line and create another and expand output. They might even have to do so because the new efficiency may allow them to drop their prices and increase market share. Lean Thinking cites the example of a unionized bumper manufacturer subcontractor to Toyota in North America - oops, I can see why Parker and Slaughter wouldn't want to discuss that - that expanded their output and payroll dramatically. Toyota is expanding market share and employment while GM and Ford (the anti-lean) are shrinking - oops, let's not face that fact, either. Nowhere in the book do they talk with employees from Toyota's nonunion plants in North America. And what about Wiremold, Danaher, Pratt & Whitney, etc.? Examples abound of how they did more with fewer, and then used the workers freed up to expand business and in fact increase their pay. [Aside - My criticism of Womack, Jones, et al, is that they imply that everyone can have the same results, but if everyone applied it, everyone could not expand market share. Slaughter and Parker raise this point in exactly one sentence, from what I can remember.]

The result is that Working Smart is a one-sided, distorted, childish view of the theories underlying lean and related manufacturing techniques. By avoiding any mention of companies whose adoption of lean has improved the lives of workers, i.e. by choosing only those industries where lean has worked in spite of or perhaps to the detriment of the union hierarchy (the union hierarchy, not the laborers themselves), they cheat their readers out of the opportunity to learn about something they might like to experience. This is a book whose sole purpose is to undermine any attempts by a manager or management to introduce or sustain a culture of innovation or teamwork. It is argumentative (it even features a chapter in which they point out the inconsistencies between, say, Crosby and Deming as if any branch of organizational theory must be completely consistent), it encourages the worst of unionism (featherbedding, rigid work rules, and classifications to thwart management), and it encourages deliberate troublemaking for no other purpose than to make trouble and maintain an environment of conflict.

[Another aside - Kevin Carson sees it differently. I respect Kevin's take on this. I believe that lean is amoral: it can be used for good or bad, e.g. GM probably has found a system for eliminating more jobs. And we certainly have seen lots of people use the slogans without getting the message. But I also believe that it is potentially valuable, especially as lean is exactly the type of system Kirkpatrick Sale tries to describe as a means for producing goods locally from generalized machinery as discussed here and it is exactly what Amory Lovins and Paul Hawken see as the productive mechanism in Natural Capitalism, which I reviewed here.]

The purpose and benefit of unions

I have moved from being a non-exempt employee in a union shop to an exempt employee who works with unionized employees. Over that time, my thinking about unions has shifted to -- believe it or not -- one that is more friendly toward unions. More recently, I made my way through Oliver Williamson's The Economic Institutions of Capitalism, where I got an even wider perspective. Williamson discusses three facets of unions (Monopoly, Efficiency, Voice), among which efficiency (agency and governance) is the one which coalesced some recent thoughts I have had on the subject. I cover here four of those areas:

• Monopoly: The union restricts the availability of labor by keeping the company from going out to find competitive providers of labor. The resulting artificial scarcity is used to increase the price of labor. Also called rent-seeking.
  
• Power: The union provides additional bargaining power to the individual, balancing the unfair advantage held by the firm. This is the unions' rhetorical perspective, and one that Mark Graban seems to have bought into in this post considering his choice of one-sided support for the position. Bill Waddell's explanation of the situation in China is much more interesting and congruent with my own views on sweatshops.
• Governance: The union agreement is used to protect both the company and the individual, both of whom invest in specific assets. The company trains workers in its unique processes and neither desires early quits nor excessively harsh or arbitrary discipline by maverick supervisors, while the workers want protection from expropriation. CBA is a constitutional arrangement for a system where management and workers figure out the details for themselves. This is clearly the focus of Williamson's analysis.
• Agency: The union is a convenient way of aggregating opinion, developing consensus, and communicating with management more effectively. This is a transaction cost reduction.

One question raised in EIC was why Collective Bargaining Agreements (CBAs) are subject to frequent renegotiation.

1. One reason is the National Labor Relations Act (NLRA or Wagner), which allows decertification in only two circumstances: the first is if a contract is not in place, the second if a contract has gone on for more than three years. During decertification, a competing union could organize the workers, so it is in the interest of the existing union (though not necessarily the workers) to make contracts that last no more than three years.
2. Another possibility is that the parties are not privy to complete information about the future, consistent with Williamson's governance model. I agree with this, also, since most of the adjustments to our contracts serve to clarify language that resulted in a disagreement in the previous contract.
3. The truth probably includes those reasons and more. We might expect to see longer term contracts in stable industries (railroads), and shorter contracts in volatile industries (airlines) with built-in COLA adjustments.

In spite of these rather positive views, though, the unions themselves continue to push "us against them", class war mentality. The idea of union as a necessary evil to stand against corporate abuse is probably not valid today. To believe it, you have to believe that the government is the worst employer there is today since that is where unionization is concentrated and increasing. You also have to believe that management thinks they will get more out of miserable employees everywhere and always, and that no good innovations take place in the absence of government and unions. You only have to know about people like Robert Owen, Henry Ford, Eiji Toyoda, and J. J. Hill to know that's not true. In fact, in this story [hattip: CafeHayek] in the NYT about minimum wage activism, author Jon Gertner point out that the business owners "were not unsympathetic":

[T]he restaurateurs who took the stand, like Rob Day or Elizabeth Draiscol, who runs the popular Zia Diner in town, opened their books to show that their margins were thin, their costs high, their payrolls large. They cared about their employees (providing health care and benefits), trained unskilled workers who spoke little or no English, gave regular raises and paid starting salaries well above $5.15. They had built up their businesses through an extraordinary amount of hard work. Draiscol testified that her restaurant, for instance, had $2.17 million in annual revenue in the fiscal year of 2003. Though her assets were substantial - a restaurant can be valued at anywhere from 30 to 70 percent of its annual revenues, and Draiscol said that Zia had been appraised at 66 percent of revenues, or about $1.4 million - she earned a salary of $49,000 a year. [emphasis added - $49,000 a year is about $23/hour for a 40 hour/week job, or about $12/hour for the average small business operator. It does not account for capital appreciation of the business, though.]

Williamson also makes a strong case for his governance theory by looking at the order of unionization. In his efficiency explanation, unions serve to protect both the employees and employers in a bilateral relationship where each has a vested interest in maintaining firm-specific skills. He observes that the first successful unions were in those industries where workers developed specific skills, like railroads. Unionization occurred much more slowly in areas where workers have no specific skills (agriculture) where they can (relatively) easily find new employers and employers can easily find replacements. He points out that industrial unions have been successful only in post-Wagner environment, but that class-based unions would require much greater legislative interference to survive.

One last point that undermines the unions' class warfare, "us versus them", power-based mentality is that they frequently act in their own interest rather than that of the workers and thus reveal their true beliefs. Their anti-sweatshop activism is usually a cover for their anti-free trade, pro-minimum wage rent-seeking which works for unionized workers, but is somewhere between neutral and negative for the poor and working classes generally. Consider the recent evidence:

• Unions outsource strikers against Wal-Mart. In spite of all the outsourcing rhetoric, they seem to have found that it sometimes makes sense.

• ACORN (a non-union, living wage activism group) is opposed to unionization and minimum wage laws. Although ACORN is not a union, and is in fact anti-union within their own organization, I think this goes to show the wedge that arises between activists' stated goals and their actions when actually involved in bargaining. In their own arguments in California state court, minimum wages would adversely impact them. As summarized in the court's finding,"According to ACORN, this adverse impact will be manifested in two ways: first, ACORN will be forced to hire fewer workers; second, its workers, if paid the minimum wage, will be less empathetic with ACORN's low and moderate income constituency and will therefore be less effective advocates."

What union would ever admit to wanting lower wages to reinforce class solidarity among its workers? Not one that would likely get certified.

• Garment workers unions run sweatshops: "According to a 1999 report, the vast majority of garment shops in San Francisco, despite being mostly non-unionized, still manage to pay the city minimum of $8.15 an hour and comply with labor laws, while in New York unionized workers were making under $5.15 an hour and repeatedly subject to wage and hour violations." Yikes. This may be a case where the union locals have opportunistically used the union's reputation to exploit labor, and illustrates one reason why the national union needs to check up on the locals the same way McDonalds or any franchise needs to carefully craft franchise agreements.
  

• The 1997 UPS strike did not benefit employees as much as was claimed in the press at the time, and was probably only brought about in an effort by Teamster President Ron Carey to save himself from a widening scandal. At the time, based on the median wages that were published in the press and on their website, strike pay, and the wages lost while on strike, I calculated an 8 year payback based on 0 inflation, longer for all positive inflations. A major issue was the conversion of part-time to full-time jobs (the union wanted 10,000 jobs converted). Many part timers already had benefits, and UPS had a track record of converting part time positions to full time positions (13,000 over the 3 years prior to the settlement), so this was illusory. During the strike, UPS lost market share to FedEx and others (see note 5), slowing growth, and probably decreasing the number of full time and part time positions relative to what might have been. UPS actually offered a better retirement package before the strike, and withdrew it afterwards, but the Teamsters headquarters decided to strike without allowing the membership to vote on the package. The entire affair resulted from Teamster President Ron Carey's attempt to divert attention from an election scandal in which they were found to be illegally money-swapping with the 1996 Clinton-Gore campaign. The charges were initiated not by rabid Republicans, but by James Hoffa, who had lost the Teamster election, and confirmed by the election judges.

I am not cynical about unions per se. I believe that unions and management can work well together when the management is serious about their commitment to the customer, and when the union sees and shares their sincerity. After reading Oliver Willamson's treatment, I believe that bargaining agreements are useful to both workers and management to encourage the development of firm-specific skills that some workforces need. The representatives at the industrial and trade unions' national (ahem, excuse me) international headquarters don't share that same commitment or view: their customer is themselves, and they believe it serves their purpose to foment class warfare. For this reason, I believe Toyota and Honda are wise to avoid the UAW; Toyota in particular is able to get the best of both worlds because they have developed a reputation for dealing fairly with their employees. Local employees no longer believe such rhetoric, and that is why unions are declining today. Unfortunately, state interventions like the NLRA have locked us into the conventions popular in the 1930s.

Public employees unions? Different story. I think they are largely engaged in naked rent-seeking.

Begging for parody

After reading the Best Page in the Universe all day, now I see (via CSR-Asia.com) that workers at Disney Hong Kong are going to unionize. Over what?

"The main complaint of the staff is not low salary or staff benefits," he said. "It is more about Disney not respecting them."

How so?

• According to Lee, the staff are not allowed to use their cellphones inside the theme park, even during breaks.

• Female workers must wear a skirt and tights, whereas trousers are allowed in the US parks, he said.

• Also, staff complain they are prohibited from drinking water outside of breaks and the intervals between breaks and meals are too long.

• Employees have also complained that they are barred from dying their hair, growing it long or sporting a beard, Lee said.

  "I have to wait for four hours to drink water. We cannot even sip any water while working because Disney said we cannot let the guests see bottles of water. But is this more important than our health?" a Disney worker interviewed on Commercial Radio said.

• Staff also say there is an inadequate number of staff washrooms

I am showing great restraint, am I not?

Sweatshops & Pay

What is pay that is so poor it warrants protest from third parties?
What is a "living wage"?

In the last post, I cited these two definitions

• A manufacturing workplace that treats its workers inhumanely, paying low wages, imposing harsh and unsafe working conditions, and demanding levels of performance that are harmful to the workers. (www-personal.umich.edu/~alandear/glossary/s.html)
  
• a factory where workers do piecework for poor pay and are prevented from forming unions; common in the clothing industry (wordnet.princeton.edu/perl/webwn)

I have a few questions about those definitions:

• Is "low pay" pay which is lower than the national average (or median, or GDP per capita) in the country of the factory? If so, then are factories which pay at or above the national average not sweatshops, ever?
  
• Why compare to the national average? Is it because of local living expense?
  
• Why not to some international average? And specify an international living expense? Isn't that what activists mean when they protest that they want wages in all countries raised, in counterpoint to the observation that raising wages in any one country will drive multinationals to another country?
  
• The "living wage" is frequently substituted, but that doesn't help much (see below).
  
• If pay is by piece, and if some workers are able to make a "decent wage" because they are bigger, stronger, or faster, should we ban less able workers from that trade because we don't agree with the effective hourly wage they are making?

A note about average and median: median means that half of the people make more, and half make less. If you use median wages as your yardstick, half of the people will always make less than that, no matter how high you set minimum wages. Average means that you add the wages up and divide by the number of workers; this statistic can be skewed upward by a few large outliers. For example, say you have workers making (in pisets per yarblek) 100, 200, 300, 400, and 1000. The median is 300 (2 workers make more, 2 make less, and 1 makes 300 exactly), the average is 400 (the worker making 1000 skews it upward). If that last worker made much more, like 9000, the median would remain the same, but the average would go up to 2000. Only 1 worker makes more than the average in that case, so it could be extremely misleading. That is why the more conservative "median" is preferred to the "average" in such discussions.

According to the BLS, the median weekly income in the US for 2004 was $638. That works out to about $15.95/hour on a 40 hour week. Do we really need to raise everyone to that, no matter how much experience, skill, or other desirable qualities they possess? If so, where is the motivation to actually acquire difficult skills? Incentives matter.

The phrase "living wage" is bandied about, but this is a rhetorical flourish intended to imply that below this people must be dying. It therefore makes no sense to say that someone is surviving on a wage below a "living wage". The counterargument is usually that the below-living wage doesn't provide for their needs. What are "needs"? Needs, properly understood, are those things which cannot be done without. If people are living without the things without which they cannot live, then they must not be needs -- strong "wants" perhaps, but not needs.

What then is an acceptable compensation? This depends on place and time. $15.95/hour would have made you the King of New York 200 years ago, might barely pay your bills in Manhattan but would be quite nice in El Paso today, and would make you a wealthy man in Indonesia at any time. Your compensation -- which includes all of the things you receive, including benefits -- must be worth to you at least the value of the time you spent at the second best option. Your cost to the employer -- the compensation plus the cost of complying with other requirements like administrators, payroll tax, etc. -- must be worth to your employer at least what you add to the firm's value. Does that sound harsh? If the employer pays everyone more than they earn, he goes out of business. Eventually, everyone must be employed by someone who earns what they receive because all other employers seem to disappear. It's like ... magic. In between your minimum and the employer's maximum, there may be room for negotiation, and it is within those two constraints that successful negotiations must conclude.

Let's suppose that you have a job where the pay is such that there are approximately as many people as these kinds of jobs. The pool of people who consider those particular jobs is a well-defined, steady set of people. Now, double or triple the pay -- don't you suppose that there will be new people lining up for those jobs who never considered them before? So just guess what it means when workers are lined up for these jobs that don't pay a living wage -- what does that say about the relative pay and availability of alternatives? It says, to me, that this kind of job is paying enough to draw workers away from other possible means of earning a living. What does it mean when workers go on strike over overtime, not because management is cutting overtime wages, but because management is cutting back on overtime hours? (Via MarginalRevolution) It says, to me, that the workers believe their time is better spent working in the factory than in any other pursuit open to them.

The real problem in developing countries is that there aren't enough jobs to go around for the people there. I suspect that many of those countries are in the transitional period from an agricultural society where 50% or more are farmers, to one in which modern farming methods have freed up most of that workforce for other pursuits ... but they haven't developed "other pursuits" yet. What they need is capital, both physical and human. They need an environment in which capital will flow freely to its highest valued use, not one in which capital might suddenly be grabbed by politicians and declared to be for public use or national security.

Another note: you will frequently come across the claim that workers need to be able to afford the product they are building. Really? Does Boeing underpay their engineers? After all, not a single one of them could afford a 747 - and they are unionized! I doubt most Ferrari artisans could afford a new, top-of-the line Ferrari. What about mansions? This dictum is obviously silly, even as a universal goal. At best, I think you could say that garment workers should be able to afford some garments, though not necessarily the garments they happen to be making if they happen to be high end garments, and certainly not at the prices they will bring in the target market. Worker nudity is not a problem which I have ever heard anyone protest. And no, I don't know why anyone would pay $100 for a pair of Nikes -- but that price is driven by demand in a country where we can afford to pay it, so it makes no sense to point out that they aren't affordable in a country where everything else -- everything! -- costs less than it does here, sometimes by orders of magnitude.

The key measure here is purchasing power parity (PPP) to convert between host country currency and US currency instead of the all too common market rate. The PPP of the renminbi is three times the market exchange rate, meaning that exchanging $1 into renminbi at the market rate would yield about 3x the amount of goods as it would in the US.

Not only do activists rely on readers' ignorance of purchasing power parity to dramatize the plight of workers, but they also rely on the average reader's ignorance of apparel manufacturing processes. I found an article in which it was lamented that Nicaraguan workers were only making $0.66 in piece-rate-plus-benefits to sew a pair of jeans. That sounds bad, right? However, I have it on good authority that you should be able to sew a pair of jeans in between 11 and 17 minutes. That works out to between $2.33 and $3.60 per hour. Not so bad, now, eh? And given that Nicaragua's PPP is about 5x its market rate of exchange, this translates into about $11.65-$18 per hour. Now how bad does it sound?

Here are some definitions I came across for "living wage":

• A wage sufficient to meet the basic needs of a worker and their dependents (www.web.net/rain/glossary.htm).
• a wage sufficient for a worker and family to subsist comfortably (wordnet.princeton.edu/perl/webwn)
• Living wage refers to the hourly wage that one deems necessary for a person to achieve a basic standard of living. In the context of developed countries such as the United Kingdom or Switzerland, this standard is generally considered to require that a person working forty hours a week, with no additional income, should be able to afford housing, food, utilities, transport, health care and a certain amount of recreation. This concept differs from the minimum wage because the latter is set by law (en.wikipedia.org/wiki/Living_wage)

Note that a wage is different than piecework, so already we have a problem with these definitions and the sweatshop definitions above. Piecework is the rate paid per task or piece of work (per pair of pants, for example), as opposed to an hourly rate, or wage.

• Why must a factory pay enough for the worker and his/her dependents? Even the American middle class raises its families on two wage earners, but not all jobs can let all people lead middle class lives. If so, why would you want to become a supervisor when part-time clerk is mandated by law to pay just as well?
• How many dependents? Do we include spouse and children, or siblings and parents? Do we look at a worker's family and decide what to pay him/her? Incidentally, it's currently illegal to ask a potential employee if he is married or how many children he has. Do you figure out the worst case and then pay everyone according to that? If so, what effect do you think this will have on family and career planning? In the first case, we can predict that people will maximize the number of people they claim are dependents, maybe they even have more children if the wages provide for more than the child actually costs (not a bad assumption since actual third-world laborers manage to live despite what activists tell us). In the second case, I think we can safely predict that single men will lack ambition compared to their family-rearing co-workers, since they will, after all, be making just as much money, but will have a lot more disposable income. In any case, we can agree that mandating wages that allow a family to be supported leads to family planning by central authorities. Just as in China, we can foresee that this will mean increasing government involvement in personal decisions such as mandatory fertility controls. On the other hand, if activists simply want corporations to be responsible without government mandates, then they are effectively asking for corporations to involve themselves in workers' family planning decisions. Social planning busybodies such as Henry Ford and the author of this would be proud: "Our absurd way of regulating salaries, which concerns itself much too little with the question of the family and its sustenance, is one more reason that makes many an early marriage impossible."
  

According to the calculator at this website, a family of 2 parents and one child must make at least $29,244 to live above the povery line here. That includes $479/month in child care. That comes to $14. 06/hour on a 40 hour/week basis if only one person works, but in that case they wouldn't need the child care, so they really only need earn $11.29/hr. If both parents work, they only need make $7.03/hr each. So which is the living wage: $14.06, $11.29, or $7.03?

• What is "comfortably"? What if the worker and his family share a house with another family? Two families? Sharing housing is an age-old trick, employed by college students everywhere to save on expenses. Is there a specific minimum amount of floorspace they need? I heard about a man in California who sells complete houses that take up less than 100 square feet - how does that sound (thanks, Morning Edition)? Does the government or employer need to take housing into consideration when determining pay?
• Why 40 hours per week, especially when farmers work much more? In England circa 1832, Parliament formed the Sadler's Committee to consider the Ten Hours' Bill, and one Tory press editor exclaimed that his staff put in 15-17 hours per day to agitate for the bill (The Factory System of Early Nineteenth Century, W. H. Hutt, in Capitalism and the Historians, F. A. Hayek, ed.). Is 10 hours a day for 4 days okay? How about 14 for one and 13 for 2? Don't laugh -- that's how medical students, Emergency Room workers (including physicians), and lawyers work, except they may do it for a lot longer than 3-4 days.
• What kind of utilities? Water, obviously. Sewer, okay, though subsidizing central sewage systems supports the non-sustainable society that many activists loathe. Electricity, maybe, but same caveat about sustainability. Telephone? I don't think so; there are plenty of alternatives, and talking to people a long ways away is not a need, as I understand "need". Cable TV? No. Broadband? No. In the future, people are probably going to perceive cable and broadband as identical, and as ubiquitous and indispensable as the phone. Heat and cooling? How much? In other words, there is a trade-off between the thermostat and another sweater (as Jimmy Carter reminded us).
• How much recreation, especially when playing in the park is free? Also, I would have included enough for education before I included recreation.
  

These definitions, to me, appear silly. The authors are not serious because they appear to have never thought about the distinction between "needs" and "wants". A "need" is something required to sustain life. If it is something people don't have now but they continue to live, then it is not a need, no matter how much of an inconvenience it is not to have it. Water and several hundred or thousand calories per day are basic needs which sustained human life for thousands of years. Clothing and shelter are wants; they aren't required to sustain life, but they certainly extend it and make it more enjoyable. Electric appliances, communications devices, and recreations are all conveniences. Even if I agree that some basic amount of these is desirable, why should providing these become the business of the government and/or employers? How can you determine what recreational activities are or are not appropriate or worthwhile, especially in light of the fact that we both the government and corporations have limited resources?

Something that neither these authors nor Rothstein seem to have accounted for is the fact that all wage laws discriminate against a class of people. In his essay, Defending Sweatshops: Too Much Logic, Too Little Evidence, Rothstein refers to a SCOTUS case, Adkins, but systematically fails to note that Adkins was about a gender-specific minimum wage law. It mandated minimum wages for women for the purpose of getting women out of the workforce in order to make room for men. That isn't accidental: all such laws discriminate by outlawing certain types of contracts with politically disenfranchised, unpopular, or vulnerable classes of potential employees. There is a Baptist-Bootlegger connection between people who genuinely believe that they are acting in the interest of some oppressed group, and another group of people who stand to gain from the law, and the former provide the moral cover for the latter. Adkins was about a law that discriminated against women, Davis-Bacon and the original federal minimum wages laws were meant to discriminate against contractors who hired black employees, and the original justification for Social Security was to encourage older workers to retire (a mandatory retirement age was originally proposed) to make way for younger workers and thereby raise employment among younger men during the Depression. Since nobody would ever support such laws if their basis was really known, someone has to provide the moral cover for those laws.

It is no accident, then, that the biggest supporters of these living wage campaigns are unions. There is nothing as hypocritical as an American union that includes the term "International" in its formal name (IBT, IAMAW, etc.), since there is nothing American unions want more than to stop the competition from other workers, of whom foreigners are the easiest political target.

In a sense, a union behaves exactly as a corporate monopolist, albeit a considerably more politically correct monopolist. The union wants to stop competition from non-unionized workers so that it can hold some labor back from the market and extract a monopoly rent. Sounds bad, but it depends on your view. To union members, it sounds pretty good. An employer who freely negotiates reveals that negotiation with the union is a better alternative than not negotiating with them; if that is the case, all the union has done is negotiated a better share of the company's profits. Recall my comments about the negotiating room between an employee's minimum and the employer's maximum above. In the free negotiation case, the company reveals that it is better off, the union members are better off, and consumers are no worse off.

The use of laws, quotas, tarriffs, and blackmail to achieve the same ends is not the same thing. A union utilizing campus activists as moral cover, for example, is only engaging in naked self interest. The union members may be better off, but the companies and the foreign workers may both be made worse off, and consumers certainly are made worse off to the extent that price increases are passed along to them.

I thought I would end with a round-up of evidence from scholarly resources available to me (available to you, too, if you want to pony up the $5 for the NBER studies).

• As noted in this study by Powell and Skarbek, apparel workers in nearly every country except Bangladesh and Indonesia make more in the apparel industry, on average, than the average national wage.
  
• As noted in NBER Working Paper 9669, The Effects of Multinational Production on Wages and Working Conditions in Developing Countries, Brown, Deardorff, and Stern, it is possible to construct theories showing that the effect of foreign direct investment (FDI) on host country wages is either positive or negative, depending on your assumptions about technology, technology transfer, skill sets, and so on. However, the evidence is overwhelmingly positive. They survey smpirical studies and find (among other things)
• Affiliates of US multinationals pay a wage premium (above the local prevailing wage) of between 40% and 100%
• Footwear and apparel factory workers in Vietnam are in the top 20% by household expenditures
• In Nike plants, workers earned $670 compared with a local average of $134. The figures for Indonesia alone were $720 and $241
• Nike contract workers consistently earned wages that were above national minimums
• An International Youth Foundation study found that 72% of workers surveyed considered their wages fair, and 60% were able to accumulate savings
• Controlling for education and industrialization (efficiency of scale), Lipsey and Sojohlm found that multinationals raised local white and blue collar wages 22% and 12%, respectively
• Cooke and Noble found that FDI was positively associated with ratification of International Labor Organization standards
• The OECD found a positive correlation between FDI and right to strike, right to unionize, and protection of union members
• Rodrik found a positive correlation between FDI and Freedom House democracy index, but a negative correlation with a high index of child labor
• There is some evidence that factory work entices rural workers to come into the city, causing crowding and bringing down the average wage (because workers standing around hoping for work make less than the lowest paying farm job), but this is evidence of the high pay of foreign multinationals and the lack of enough work to go around
  
• This paper was extremely informative in its synopsis of the response of the Clinton Administration to activists in forming the Apparel Industry Partnership (AIP), the Fair Labor Association (FLA), and the subsequent response of campus activists to form the Workers Rights Consortium (WRC). The campus activists, probably correctly, understood that government agencies are subject to capture by the interested parties. The article also discusses the union support for the campus activists, and goes on to document the blackmail tactics used to coerce universities into joining the WRC. This led to dueling letter writing campaigns by the Academic Commission on International Trade (ACIT) and Scholars Against Sweatshop Labor (SASL).
  
• In another NBER paper, Moving Up or Moving Out? Anti-Sweatshop Activists and Labor Market Outcomes, Harrison and Scorse find that (A) activists had an impact on the minimum wage in Indonesia, and that subsequently (B) more foreign firms exited Indonesia. This is a very technical and specific study.
  
• Johann Norberg has an excellent first-hand observation of the effects of Nike in Viet Nam here and a speech on globalization here. Among other points:
  
• The average pay at a Nike factory close to Ho Chi Minh is $54 a month, almost three times the minimum wage for a state-owned enterprise.
• Ten years ago, when Nike was established in Vietnam, the workers had to walk to the factories, often for many miles. After three years on Nike wages, they could afford bicycles. Another three years later, they could afford scooters, so they all take the scooters to work (and if you go there, beware; they haven't really decided on which side of the road to drive). Today, the first workers can afford to buy a car.
• Sure, [Tsi-Chi] makes five times more than she did, she earns more than her husband, and she can now afford to build an extension to her house. But the most important thing, she says, is that she doesn't have to work outdoors on a farm any more [10-14 hours].
• the Nike job comes with a regular wage, with free or subsidised meals, free medical services and training and education. The most persistent demand Nike hears from the workers is for an expansion of the factories so that their relatives can be offered a job as well.
• A generation ago, [Tsi-Chi] would have had to put [her son] to work on the farm from an early age. But Tsi-Chi told me she wants to give him a good education, so that he can become a doctor. That's one of the most impressive developments since Vietnam's economy was opened up. In ten years 2.2 million children have gone from child labour to education.
  

Referring back to my definition of sweatshop, I believe that in the absence of coercion and fraudulent practice, "foreign direct investment" does not translate directly into "sweatshop", nor does "multinational" equal "race to the bottom". I think that activism has its place: in identifying, exposing, and discouraging those areas where coercion and misrepresentation is used as a routine business practice. However, when it comes to wages, activists ought to consider the damage they are causing. Perhaps a little Econ 101 in addition to Poli Sci 101? I know there's a little more math and logic required, and of course outcomes matter in Econ but not in Poli Sci, but aren't good outcomes preferable to good intentions?

sweatshop
sweatshop

Sweatshop Definitions

Should beautiful, single women be required to conceal their appearance?
Should wealthy, old, single men be required to hide their wealth?

In my previous post, I stated my frustration with the dearth of a good definition of "sweatshop". From what I can glean from the web, sweatshop seems to have the following definitions, based on the context, and depending greatly on the author:

• Any apparel or footwear factory
• Any apparel or footwear factory in a developing country, especially if they make products for export to the West
• Any apparel or footwear factory in a developing country that does contract work for a well-known person or company (Nike, Reebok, Gap, Kathie Lee Gifford)
• Any apparel or footwear factory in the US that hires immigrants, especially undocumented immigrants
  
• Any place of work that the author finds to be undesirable
• A manufacturing workplace that treats its workers inhumanely, paying low wages, imposing harsh and unsafe working conditions, and demanding levels of performance that are harmful to the workers. (www-personal.umich.edu/~alandear/glossary/s.html)
• factory where workers do piecework for poor pay and are prevented from forming unions; common in the clothing industry (wordnet.princeton.edu/perl/webwn)

Some of these are just plain silly on their faces, and the others are simply too vague. I don't accept the accusation that I am cherry-picking these definitions, just being obtuse, or denying the existence of actual sweatshops. I believe that people have overused the term to the point that they have watered it down and, as usual, have divided into two camps that talk past one-another in an attempt to score rhetorical points.

Here is what I am prepared to accept as a definition of a sweatshop worthy of protest:

• Any factory where the workers are legally prevented from quitting, striking, or organizing, and/or where the employers have perpetrated a fraud upon the workers by successfully misrepresenting the conditions of work.

If a country has laws that allow prisoners to be used as quasi-slave labor, I am uncomfortable with products from those factories. China reportedly has such factories, but I don't know how to determine which Chinese-made products are made at those and which are made at other types of factories. The US has prison-staffed factories, and while I am sympathetic to the idea of victim compensation, I am uncomfortable with factory prisons as I know them because of the potential rent-seeking that may go on.

Many foreign countries have laws that prevent union or other organization. I am as opposed to those as I am to laws which allow closed shop contracts or which require employers to recognize unions. In the US, closed shop contracts are illegal (Taft-Hartley), but there is a loophole which unions routinely exploit: you can't compel employees to join the union, but you can compel them to pay dues. You can't require them to pay for non-bargaining activities (Beck), but the burden is on the employees to get their money back from the Union. Everyone should be allowed to talk and to coordinate their activities with everyone else who agrees to do so, but should not be required to coordinate with someone they don't want.

I read about shops where women may be compelled to have sex as a condition of employment, but it isn't clear how common this is. If this was not an explicit part of the arrangement, I believe that this is a fraudulent arrangement perpetrated by the management. If it's one rogue manager, fire him, but if it's a pattern of behavior, then I agree that the place is worthy of protest. Likewise a factory where other side deals are made as a condition of employment, or where corporal punishment is used.

If the factory shows one face to the employee before they agree to work (which means quitting other jobs and leaving other commitments), and then another when they actually start working, that's fraud. If they make claims about safety or working conditions (1) that they know to be untrue and (2) that they make for the purpose of deceiving the employees, that is fraud. On the other hand, if the employees know about these things from other sources (friends and family), and agree to them anyhow, I don't see the problem with that. Many factories in developing countries probably keep up fronts for ill-informed, busybody activists, and the workers are probably well aware of the reality behind the facade, so I qualified "misrepresenting" with "successfully" in my definition.

Finally, I am assuming that we are talking about people who are capable of rational decision-making. That may or may not be the case for everyone. Caveats apply for the mentally handicapped and for children. However, the relevant difference between children and adults is not age, but maturity and understanding. Unfortunately, we don't have a good test for maturity, so we choose a bright line rule and say that everyone under 18 years of age is not an adult. We let children as young as 14 work in non-farm settings, though they still don't enjoy the other privileges and responsibilities of adulthood. We don't let anyone under 21 drink, but we do let them enlist, so these rules are not necessarily logical. I think it is perfectly reasonable for every culture to make their own decisions about the appropriate adulthood rule, since in many societies children are more self-reliant than they are in our own culture. Even in our own society, we make concessions to farming, where children learn work habits much younger because they actually participate in it. As cultures become more complex, it takes longer to learn all of the rules (anyone remember the comparison in The Gods Must Be Crazy?), and I think that we made a mistake by banning children from work. After all, it means that we sit them in warehouses schools where they learn nonsense instead of participating in meaningful apprenticeship programs such as they still have in Germany.

Kathleen suggests a good test for determining if a factory meets all of my requirements for not being a sweatshop: if they are willing to let you come in and visit or inspect, they are not a sweatshop. A sweatshop is likely to be an illegal operation, hiding from the public in more ways than one. The El Monte sweatshop discovered in 1995 was staffed by (mostly) girls who had immigrated illegally from Thailand and were kept in involuntary servitude to an organized crime ring which saw alien smuggling to be a profitable adjunct to drug smuggling.

The definitions of sweatshop that seem to be a little serious also seem to me to be vague. It used to be claimed that software companies treated their workers "inhumanely", forcing them to work long hours. Since the dot-com implosion, those same workers' biggest complaint is unemployment, which they increasingly blame on offshore software development from India. Guess what they call those factories full of professionials that trained in foreign universities? (Be sure to check out the "selected occupations" highlighted in Figure 1 on the link)

NFL linemen have a lifetime expectancy of about 55 years old, so it would seem that the NFL is a sweatshop if you use "demanding levels of performance that are harmful to the workers" as a criteria. The same is largely true of professional cyclists, yet I saw very few protestors along the route or the Tour de France.

Here is what I am not going to accept as a definition of a sweatshop (can we come up with another word?):

• A factory in a developing country where the employees know about the work conditions and pay and freely choose those over their other options despite the fact that, in comparison to the West, the pay is much lower and the conditions much worse than those to which we are accustomed.
  

There are thousands of factories and jobs that would be too dangerous, harsh, harmful, or low-paying for me, but that doesn't mean that everyone agrees or that nobody should work there. The real test is whether the employees find the tradeoff between the known unpleasantness or risk on one hand, and the known pay on the other, to be acceptable to them given their other options. Roofing is a dangerous and highly regulated job. Installing flooring is supposed to be really bad on your knees and shoulders. Where are the protestors?

And "poor pay"? This is probably the least well defined phrase on the internet. It's so bad that I'm going to leave it to another post.

I like my definition of "sweatshop" much better than anything I could find on the internet, but I might be biased. Most writers on the subject are so poorly informed that you cannot believe they are serious. Applying their vague formulations to the apparel industry is insulting to the people who actually enjoy working in the industry. People who write about this seem to forget that while pay in other countries is much lower than what they would accept, it is not as bad when you consider their cost of living, and almost always better than their other options. These activists think they are doing those workers a favor when in fact they are attempting to take away their only competitive advantage.

Those activists would put bags on the heads of beautiful women and chains around the wallets of old men and then send us all out to find a mate on the claim that this would "force" beautiful women to develop a personality and rich old men to develop a sense of youth. But what if rich old men just want beautiful women and women just want rich, old men? Nobody is going to be happy under the bag-and-chain scheme, but at least everyone will be equal in their misery.