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."