What Makes Jobs Scarce? M. Rukeyser

MERRYLE STANLEY RUKEYSER IT IS fashionable these days to forecast that massive unemploy ment will persist long after busi ness volume recovers. This current forecasting vogue indicates that somewhere in the thicket of theory the savants lost their sense of di rection and forgot that the moral sanction behind the economic sys tem is the service of man. This dilemma can be traced to confusion as to the nature of work. The deviation from common sense stems from union propaganda early in the century - long before Labor's Magna Charta in the Wag ner Act of 1935 - to the effect that labor is not a commodity. The ker nel of superficial truth in the con cept was carried to absurd ex tremes. The uncritical conclusion was reached that the worker is ex empt from the workings of the market place. Even anti-Marxians thus fell into the booby trap of unwittingly accepting the Communist principle of divorcing a person's pay from his productivity. They thoughtless ly leaned toward the Marxist notion of paying each "according to his need" while expecting each to con tribute "according to his ability."

In testing the concept, Nicolai Lenin in the first days of the So viet Union found that egalitarian ism was deadly to productivity. Mr. Rukeyser is wen known as a business con sultant, lecturer and columnist. h7Q 580 THE FREEMAN October Accordingly, in the inauguration of the Five Year Plans, he recog nized differences in the value of work and paid differentials in com pensation. This led Will Rogers on a visit to observe that he liked Russia because there were no Com munists there. Wendell L. Willkie, in his One World written during World War II, found in a visit to the Soviet Union that managers were paid ten times as much as workers. Thwarting the Market The delusion nevertheless per sists over here that the worker is unaffected by the market place. This error is implemented in min imum wage laws making it illegal to employ. persons of low produc tivity at wages which they can earn. And the rigidities of the Wagner Act (many of which were continued 12 years later in the Taft Hartley Act) still interfere with re-employment. These inflexi bilities even render unacceptable the alleviative technique employed in the depressed 1930's of sharing the work through reduced hours.

The dictatorial fiat powers of unions don't spring exclusively from Congressional legislation, but also reflect the Judicial deter mination that unions are not sub ject to the antitrust statutes and administrative rulings by the Na tional Labor Relations Board. Behind the prevailing fallacy is the false assumption that gener osity toward workers comes out of the hide of management and own ners. This overlooks that the phys ical act of hiring is really an agen cy procedure, in which the employ er acts in behalf of the customer, who is the real user of labor. Man agement attempts to prejudge whether the customer will later ratify the judgment of the busi nessman as to what new costs will prove acceptable. The true interests of the labor force are served when reliance·· is placed on the expertise of manage ment in anticipating the future willingness andabili ty of the cus tomer to buy. Thus, it is self-de feating to use brute force to make management assent to an arrange ment deemed to be imprudent.

Government intervention in tilting the scales of power to unions too frequently turned collective bar gaining into collective bludgeon ing. It is regrettable that the un employed are the victims of thus ignoring signals from the open market. A more civilized goal would be collective consultation. Government, in creating Frank enstein's monster by legislation, has promoted manipulative folly in industrial relations instead of a process for harmonizing differ ences. On the contemporary scene the British Labor Government 1975 WHAT MAKES JOBS SCARCE? 581 pleads with the unions to hold wage increases to 10 per cent, despite much lower productivity expecta tions. And in Argentina Mrs. Peron finds it incumbent to reject the demands of militant unions for increments of 80 to 130 per cent. If mass affluence could actually be attained in this arbitrary fash ion, the economic milleni urn would indeed be at hand. It should be self-evident, however, that equat ing money gains with advances in material well-being constitutes opera boutte economics.

The aware know that giving em ployees more and better things in exchange for a week's work de pends on enlarging output per man-tool-hour. This in turn comes from better methods, reflecting creativity in the realm of science, invention, engineering and man agerial prowess. Improvement in heres in making two blades of grass grow where but one appear ed before. Such socially beneficial progress is fed by willingness of self-disciplined income recipients to divert a portion of their receipts from current consumption to sav ings, which can be invested in capi tal gODds (mechanized tools). InlJationary Actions When a governmental agency expands the money supply to meet wages elevated without regard to productivity, the resultant inflation creates mass frustration. In flation inefficiently distributes the labor supply, and the status quo thus developed can be maintained only by continuing further to in flate the currency. With his cus tomary felicity, Ludwig von Mises, in his classic on "wages, unemploy ment and inflation" (The Freeman, September 1975) pointed out: "Under the impact of progressing inflationary policy the union bu reaucracy acquired the habit of asking at regular intervals for wage raises, and business, after some sham resistance, yielded. As a result these rates were at the moment too high for the state of the market and would have brought a continuous amount of unemployment. But the ceaseless ly progressing unemployment very soon caught up with them."

It is sheer illusion to regard in flation as a permanent way of life, for in due course inflation brings its own demise by shattering public confidence in the monetary unit. Blue sky class warriors mistake shadows for reality, overlooking the fact that healthy employment develops when self-supporting specialized workers interchange among themselves the products of their hours of labor. The political manipulators fail to recognize that the open market is a flexible mech anism for adjusting balanced in come relationships needed to 582 THE FREEMAN October achieve sustainable prosperity. Under competition, industry, though privately owned, is poten tially an immensely complex social tool for achieving better living. In stead of surrendering to the hot heads, it is desirable in this com puter age to modernize primitive tools for collective bargaining. The dividends could be far reaching in better use of the work force. On the other hand, when management is forcibly maneuver ed into making irrational deci sions, the basis is laid for reduced volume of transactions and great er unemployment. The damage skyrockets when and if manage ment insiders themselves believe the myths, such as the canard that the big companies in highly con centrated industries are above the market and can dictate to custom ers.

Few non-public utilities are as concentrated as the automobile industry. But, if (as widely charged by academicians and their political sycophants) automobile manage ment can "administer prices" and dictate styles, why the disastrous collapse of sales volume and profits in 1974 and beyond? If the execu tives can call the shots, then their performance was indeed monu mentally stupid! The record shows that the manufacturers were un able to make higher price tags stick even though they reflected a partial cost increase. Customers revealed their independence by staying away from dealers' show rooms in droves, and resultant price-cutting was euphemistically described as cash rebates. Customers in Charge In the boom following World War II, domestic car makers over looked a market for smaller, less expensive vehicles. They were re minded that the customer is the boss when the buyer expressed his sovereignty by purchasing im ported compacts. This demonstra tion was repeated in the first half of 1975. Experience demonstrates that the power of business, big or little, is contingent on pleasing the customer. In a changing world, business survival depends on in novation. Side by side with creative research is the humili ty of the business executive which causes the executive to heed to his master's voice as expressed in customer plebiscites at the market place.

"Know Nothing" obstruction, however disguised in the language of propaganda, is antisocial and anti-humane. It is retrogressive and condemns the innocent to un wanted idleness. What is fatal is a defeatist view that the right to be wrong is foreordained and irrever sible. The true libertarians, who advo cate competition, should not shrink 1975 WHAT MAKES JOBS SCARCE? 583 from competing in the realm of ideas. As the bicentennial of the nation approaches, there are two major conflicting doctrines afloat as to how to achieve better Iiving. Distrusting the ability of the "common man" to nlake choices, the Communist police states dele gate to little commissars in big jobs the right to determine what should be produced and in what quantities. In contrast, the free market pur ports to give optimum opportunity to individuals to express prefer ences. Much of the futility in which the globe now finds itself springs from the fallacious notion that these two irreconcilable systems can be harmonized into a so-called "mixed economy," more accurately described as a "mixed-up economy."

The resultant effect of trying to mix oil and water has caused theo rists to predict that the unem ployed, like the poor, will always be with us. There is mental' con fusion behind such economic Puri tanism. For prosperity is no class issue, but springs from an equili brium conducive to making and exchanging goods and services on a basis which enables workers to live better, while the saver-inves tor-manager reaps rewards also from high productivity per man tool-hour. Frictions develop from illusory thinking about governmental man dates empowering private associations with the right to be obstruc tive .. By way of illustration, per sons of little vision advocate being nice to union bosses even if their demands seem to be unreasonable. This distracts management from its decisive role of determining the optimum labor payment at which goods will move. Wise union offi cials look to the businessman at the other side of the bargaining table for guidance on the matter.

Wage rates so high as to cause a buyers' strike are frustrating. The fundamentals are more honored during a recession than in time of boom when there is a reckless tendency to assume that anything goes. Management defaults when it merely passively submits to dic tated costs, hoping to pass them along to customers in higher prices. This creates pressures for a cheap money policy, which has in it the seeds of impermanence. Designed Unemployment: Potential Disaster Scientific analysis leads to the culprit breeding trouble. The fiat granted by government brings ri gidities which result in built-in unemployment, which is chronic in good times and socially disastrous in depressed interludes. After nearly four decades, the premises behind the Wagner Act have be come so deeply rooted in the na tional consciousness that impor584 THE FREEMAN October tant preliminary spade work is necessary before relief can be ex pected. As a loner, Senator John Tower of Texas has vainly intro duced resolutions through the years fora full dress Congressional in quiry into the desirability of mod ernizing labor-management legis lation.

As a prelude, it is desirable to build a foundation of better public understanding of the national eco nomic body, the functions of the various parts and their relation ship to one another. A new grasp of the benefits of freedom could pave the way for liberating the' open market from shackles. There is greater potential opportunity for change in times when all is not well. Important Differences Ideological improvement or free ing the intellectual atmosphere of pollution cannot be based on public relations techniques to circulate half-truths. In the Great Debate, whenever it comes, there must be courage to escape from the for mula of Plato, who taught that the public prefers beautiful lies to the ugly truth. A competitive system rests on a no-holds-barred recogni tion of human inequality in strength, talent, skill and motiva tion. Accordingly, it's a perversion for bleating hearts to want to achieve equalitarianism in an open market system. Any attempt to laugh away individual disparities is disruptive to a way of life which is powered by unequal rewards and incentives.

A competitive system can't be all things to all men. Those who object to income differences· are quarrel ing with the Lord of Creation, who failed to make us all identical in aptitudes and talents. It would do less harm if the misdirected vision aries, instead of hamstringing the enterprise system, would in their drive for equalitarianism frankly turn to the Marxist blueprint! Instead of kidding the unsophis ticated, it would be a step forward to concede that, where individual differences are substantial, even highly refined public relations can not guarantee universal happiness! ~ IDEAS ON LIBERTY Power Corrupts To EXPECT self-denial from men, when they have a majority in their favor and consequently power to gratify themselves, is to disbelieve all history and universal experience. JOHN ADAMS C. W. ANDERSON WHEN I see what is happening to the average, honest, responsible citizens of this country today, es pecially those in retirement or close to it, my blood begins to boil. And I am intolerant of those in positions of authority and thought leadership who have con vinced most of these people that the accelerating erosion of their earnings is due to some mystical alliance of forces that no one real ly understands.