Dock Shutdown! Who Should Pay?
by Fred E. Foldvary, Senior Editor
The work stoppage at 29 U.S. West Coast ports has cost the American economy over $2 billion per day, according to the president of the Federal Reserve Bank of San Francisco. Crops have spoiled because they could not be unloaded, and factories and stores could not be stocked with supplies. Firms have shut down and workers have lost wages. Only the landlords have not suffered much, as they keep collecting rent even while firms lose profits and workers are unpaid.
Full-time longshoremen earn about $80,000, with the most experienced foremen getting $167,000. The main issue is not higher wages, but the question of who will work with the new technology that will come on board in the near future. New sensors and scanner will let the goods move more quickly. The International Longshore and Warehouse Union would like its union workers, now numbering 10,500, to do the work, while the Pacific Maritime Association, which represents shippers, would rather control who does the work.
The US president has the power to intervene in a strike or lockout that causes severe economic damage. Under the Taft-Hartley Act, the president can block the shutdown for 80 days. The US economy was already struggling with the financial scandals. The damage from the stoppage escalates, as firms that lose business and workers that are not paid then do not buy goods, and the fall in demand spreads throughout the economy, possibly plunging it into another recession. President Bush should have stopped the lockout when it began, after the dockworkers started applying every little rule, which slowed the work.
In effect, the work slowdown and refusal to extend the old contract amounts to a combined strike and lockout. As in many strikes and lockouts, the damage to the economy far exceeds any gains to either side in a new contract. The PMA and ILWU are imposing a negative external effect on the rest of the American economy, and indeed the global economy. Why should other workers and enterprise owners have to suffer from someone else's dispute?
The economy is being taxed by this labor conflict. Is this fair to a worker who gets laid off? In a competitive free-market economy, nobody has a right to a job or to wages, as competition and the dynamic march of technology results in the creative destruction of inefficient firms and workers, replaced by innovative and more efficient producers. But a strike-lockout is not normal competition. A union gets much of its power to strike from the monopoly granted to it by the federal government. Workers in the industry must belong to the union, and the company must hire only union workers. This monopoly power is a subsidy from the state. Such a subsidy can and perhaps should come at a price, namely of compensating others for strike-lockout damages.
If the union and the companies had to compensate others for lost income, they would not strike in the first place. They would go to arbitration or mediation to resolve the dispute. The companies could be given tax breaks for the costs of moving to new technology. It would be cheaper to grant the union workers job security than suffer the greater costs of a work stoppage.
Unfortunately, the US government has sat around while the economic damage has escalated. The government failed to act or to swiftly come up with creative win-win solutions. Perhaps the chiefs of state feared the loss of union votes. Whatever the reason, the government has a responsibility to act, because this economic insanity was caused by government intervention in the first place, the intervention of protecting a union's monopoly power.
We should not put all the blame on unions, however. Unions seek strike power because the members feel insecure in their jobs and wages. Jobs and wages are insecure because the economy is stifled and made more turbulent by taxes on wages and capital. The ultimate remedy for the labor question is for the government to stop taking the bread from the mouth of the worker and from the hand of the investor. If wages were untaxed, then workers would not feel so deprived, and if enterprise profits were untaxed, there would be more employment.
Eliminating taxes on labor and capital, and getting public revenue from land rent instead, would also smooth out if not eliminate the business cycle, as it would extirpate the real-estate cycle that is the mainspring of the business cycle. Workers would no longer seek job security, since the market demand for labor would be so strong, it would be the employers who would be insecure.
So ultimately, the voters in a democracy are hurting themselves. They impose on themselves a triple tax: once when they pay taxes on income and purchases, again because of the inefficiency and waste caused by taxes, and thirdly when strikes cause economic damage. Really, those of us who do seek and advocate rational public finance should be compensated by those who favor today's inefficient and destructive tax system, but the sky will fall before this is realized.
-- Fred Foldvary
Copyright 2002 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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