Better Capitalism Will Reduce The Need For Unions

One fascinating aspect of American business history is the pendulum-like swings in the attitudes of companies toward their employees, especially those who belong to (or wish they belonged to) unions. Every few decades or so, the pendulum seems to swing between hostility and collaboration, and the government tends to follow by increasing or decreasing regulations on the treatment of workers.

The history of unions in America

For instance, during the Gilded Age of the late 19^th century, corporate owners had almost total freedom in their dealings with labor. Some spread the idea that most workers were lazy and didn’t deserve higher wages — an idea that justified strong resistance to unionization, by force if necessary. When the pendulum swung during the Progressive Era, reformers pushed the government to impose new rules that gave workers a better quality of life and a fairer chance at upward mobility. Unions began to gain more members and influence.

As historian Heather Cox Richardson put it, “Prevailing opinion in the U.S. has seesawed between these two ideologies ever since.” She notes that from the end of World War I through the Roaring 20s, big business led a backlash against progressive regulations and a renewed trend toward laissez-faire capitalism. But with the Great Depression and FDR’s New Deal, most of America was again receptive to stricter business regulations and an improved social safety net for workers.

The country became even more pro-union during the great post-World War II boom that lasted into the early 1970s. As Nicholas Kristof notes, “That was a magical period in American economic history, in which the economic pie grew rapidly and was also divided more fairly. Shareholders benefited, but so did workers, including African Americans at the bottom of the economic ladder.” Despite some corruption scandals and disruptive strikes during those decades, unions helped millions of workers join a broad and thriving middle class. As Kristof concludes: “Unions are as imperfect as capitalism itself, and just as essential.”

The pendulum swung hard again in the early 1980s, when the Reagan administration promoted tax cuts, deregulation, and weaker protections for unions. As Richardson notes, “Those forty years, from 1981 to 2021, hollowed out the middle class as about $50 trillion moved from the bottom 90% of Americans to the top 1%.” Private-sector union membership plunged from 29% in 1970 to about 6% today, contributing toward more extreme inequality. Kristof adds that “As unions declined over the past half-century, workers… were paid poorly, they lost health care and retirement benefits, and they lost control over their schedules. They were robbed of dignity and sometimes of wages as well. Deaths of despair from drugs, alcohol and suicide surged among blue-collar workers.”

MORE FOR YOU
‘American Primeval’ Dethroned In Netflix’s Top 10 List By A New Show
New Amazon Ransomware Attack—‘Recovery Impossible’ Without Payment
Bitcoin Price Surges After Leak Reveals Imminent Trump Game-Changer—$100 Trillion Predicted

The prevailing corporate mindset in this era was “shareholder primacy” — the idea that management should focus on maximizing short-term profits and the stock price, and therefore offering unions anything better than market-standard wages and benefits was wasteful. In response, the prevailing union mindset was fiercely adversarial: us versus them. In the face of management hostility, why should labor care about any employer’s needs and priorities? Labor leaders won union elections by promising to drive hard bargains, threatening strikes despite any pleas from management about the challenges or hard times a company faced.

Companies focusing on workers

But now, slowly but surely, we see the pendulum starting to swing again. A new generation of corporate leaders increasingly recognize the downsides of shareholder primacy and the benefits of multi-stakeholder capitalism. Some companies are moving away from treating workers as replaceable widgets — as pure cost centers — and increasingly see them as the key to improving productivity and innovation, which are now the key drivers of long-term profit. Some notable examples in recent years include Delta Airlines, Home Depot, Costco, Best Buy, and JP Morgan Chase.

One of my favorite examples is C.H.I Overhead Doors, a small Midwestern manufacturer of garage doors. The private equity giant KKR acquired it in 2015 and spent the next two years trying to win the trust and engagement of employees. KKR announced a stock ownership program that could give everyone a big payoff if results improved. They offered better training and began consulting workers on strategic decisions. They promised more trust and respect, in contrast to the old-school mindset of the previous owners.

For a long time, C.H.I. employees didn’t believe any of these promises. But KKR kept at it, such as by polling everyone about how to improve the plant’s work environment and investing real money to implement the top suggestions (air conditioning and a better cafeteria). Over time, employee trust and engagement finally rose, and C.H.I was able to adopt the Japanese system of continuous improvement (kaizen). Workers became bolder about making suggestions and were rewarded for them. One major triumph was a new sequence for making and delivering garage doors, which cut the time from order to delivery so dramatically that no competitor could keep up, driving a significant boost to market share.

Trust is key to a long term solution

If a private equity firm (stereotyped as ruthless corporate raiders) can overcome employee skepticism and adversarial thinking, so can any company. The first move has to come from management to prove good intent. Talking the talk is easy, but only actions can establish an unwritten agreement, separate from any official union contract: if employees help increase the value of the enterprise, they are entitled to a significant share of the incremental new value. To help align everyone’s interests, management can adopt mechanisms such as restricted stock grants. PayPal used this to great effect.

In response, unions need to accept that they will be better off if they work with management to make the company more successful — to make the pie bigger before lobbying for a bigger slice. They can refocus their approach from adversarial to collaborative, such as by offering new ideas to improve results. Unions can even offer to take a bigger role in strategic planning, to signal that they seek a voice in where the company is going, rather than merely waiting to execute directions from above.

As we saw during the recent Boeing strike, not every labor conflict is primarily about wages and benefits. Boeing employees were furious that the C-suite had ignored their safety warnings until they escalated into fatal crashes. Had management trusted those with the clearest view of potential safety problems, hundreds of lives might have been saved — along with billions of dollars in penalties and lost revenue.

I’m not naïve enough to think that every company is ready to embrace this pendulum swing. Last year the Economic Policy Institute found that more than 60 million non-union workers wished they had union representation, and the NLRB received more requests for union elections than they have in years. In response to this surge in labor organizing, EPI recognized that some companies, like Microsoft, New Flyer, and Ben & Jerry’s, were receptive to more positive labor relations. However, “Others have taken the opposite tack—to the extreme. Led by Elon Musk’s SpaceX, and joined by Amazon, Trader Joe’s, and Starbucks, these companies are engaged in a legal battle trying to have the NLRB declared unconstitutional…. Amazon, Trader Joe’s, and Starbucks have stalled the bargaining process—an all-too-typical move by corporations when workers first organize.”

Nevertheless, I can imagine a future without unions — not because they’ve been crushed out of existence but because they will eventually become unnecessary. As more and more companies discover the enormous value of treating workers as partners rather than as cost centers, workers will increasingly reject the “us or them" mindset as counterproductive. We’ll see far fewer ugly strikes, more win-win collaborations, and more value for all stakeholders. And in that golden future, perhaps the pendulum will finally stop swinging.