Friday, May 06, 2005

Pigs At The Trough

Amit alerts us to India's lamentable pandering of labor unions.

Labor unions have done much, over the decades, to advance worker rights. For this, they've secured an honorable place in history. Regrettably, they've now lapsed into a suicidal greed which discredits their noble antecedents.

It's not just in India where labor union greed is destroying value. In Europe, labor unions have created a structural low-growth, high unemployment economy. From America, read yesterday's headline: S&P Cuts GM, Ford Ratings to 'Junk' Status -- courtesy their unions.

In the past few years, multiple US airlines have gone bankrupt. Again, courtesy the unions.

Conceptually, collective bargaining is about capital and labor agreeing on the size of the value pie, then negotiating respective shares consistent with the size and market-driven prices for their contributions. This is the best way for equitably sharing an ever-increasing pie.

In practice, in some economic sectors (e.g., airlines, automobiles, public sector), unions have such a stranglehold that market-driven pricing goes out of the window. Consequently, the union gets carte-blanche, and the higher it grabs for itself, the lesser return the capital gets (in case of US automakers, this leads to lower stock prices and junk debt; in case of Indian public sector, this leads to a transfer of wealth from taxpayers to union members).

In the end, this is equivalent to racing one's car closer and closer to the cliff; sure, there is temporary thrill, but in the end, there's nothing but void.

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