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Fees determined by markets or politics?

by trpliquidation
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The quest for social justce

In our more or less free societies we regularly see confirmations of an idea well defended by Friedrich Hayek and by Anthony de Jasay. The idea is that rewards determined by politics, that is, by coercive authorities under the threat of punishment, are not only less efficient but also more conflictual than when determined solely by impersonal markets.

In a recent example, the International Longshoremen Association (ILA), a government-protected union (as they are all protected by labor laws and government agencies), called a strike. Its leader, Harold Daggett, cavalierly threatened 200 million consumers. Of his members’ many employers (container carriers and terminal operators), he said: “We’re going to show these greedy bastards that you can’t survive without us!” On their side, the greedy longshoremen are not proletarians: they earn between almost $100,000 and more than $250,000 a year, much more than the average salary in the US (about $60,000). In 2020, 665 longshoremen at the Port of New York and New Jersey fell into the $250,000-plus category. As a union apparatchik, Daggett himself earns more than $900,000 a year; his son, who works for the same unions, earns more than $700,000. ILA has temporarily settled the strike for a wage increase of more than 60%, but still wants to stop automation. This is happening in a context where America’s most productive port (Charleston) is ranked 53rd in the world. (To see “A port strike shows the stranglehold the Union has on trade,” The EconomistOctober 2, 2024; “A dockworkers strike would close ports from Maine to Texas and cripple the U.S. economy,” Wall Street JournalSeptember 30, 2024; And “The profane 78-year-old leads the dock workers’ strike,” Wall Street JournalOctober 2, 2024).

Similar phenomena can be observed in all countries where governments or their trade union representatives have a direct influence on wages. It extends to public sector unions, which have their hands directly in the public purse. Consider unions representing workers on the London Underground, the subway system run by a local government authority in the British capital. The secretary general of one of the unions said the wage offer to its members “didn’t meet what [they] earn” (“London underground workers go on strike over pay,” Financial timesOctober 16, 2024). In France, employees of government public transport organizations regularly go on strike for more money and benefits; the strikes are respectfully referred to as ‘social movements’ (social movements).

An individual naturally thinks that his value “to society” is not well enough recognized by his fellow human beings and especially by his fellow citizens. The phenomenon is analogous to the way an individual unfamiliar with economics thinks that the price he pays for what he buys is too high, while the price he receives for his labor services is too low. The complaint takes many forms: I am not rewarded fairly based on my needs, my talents, or what I deserve based on this or that criterion; I don’t get the respect I’m due. Before members rejected the latest offer from Boeing, which is in deep financial trouble and has to cut 10% of its workforce, the International Association of Machinists and Aerospace Workers said.Boeing workers vote on ending strike in a critical week for Plane Maker,” Financial timesOctober 20, 2024; Also “Boeing factory workers reject latest contract offer“, October 24, 2024):

Employees will ultimately decide whether this specific proposal is sufficient to meet their very legitimate needs and goal of achieving respect and fairness at Boeing.

In a free society, where wages and other benefits are determined in the marketplace, this temptation is countered by the fact that the determination is not made by an organization. It seems that an employee’s bosses will make it, but it is an illusion: the employee is free to move to another employer or become self-employed; if he doesn’t, it’s because he suspects he can’t win anymore (with constant risk). There is no identifiable authority that underestimates his value. The reward is determined impersonally.

This mechanism does not work if politics determines the reward. An organization – a democratic assembly or a strongman – can by law determine or dictate the value of your services. The process is commonly referred to as ‘social justice’ depending on certain criteria. When it supports wealthier individuals, the process is called “industrial policy” or something similar. Since everyone thinks they deserve more, the game is to defend your claims more forcefully so that they are politically enforced. The individuals who win are those who are better organized and more politically powerful. Meanwhile, the game has changed from impersonal to personal, from voluntary exchange to government procurement, from a positive-sum game to a zero-sum game and ultimately a negative-sum game.

Perhaps one can convince oneself that the market is more efficient and fairer than politics with the following thought experiment. Imagine a perfectly democratic system where salaried professions would be divided into a certain number of categories and an online referendum would be held regularly (every year or every year, every month or every day) to determine what reward in each category should be would gain the upper hand. Would you prefer this system to free market agreements?

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The quest for social justice

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