Free Riders Face a Rocky Road

"I hope you're enjoying your day off," a neighbor told me some years ago. "You wouldn't have this holiday ifit wasn't for the union. Maybe you ought to thank them for the free ride you office people get while the fac tory workers pay dues and do your fighting for you." As a salaried employee of a major corporation, I've been taunted by this argument a number of times. It's es sentially the "free rider" argument. The point of this argument is that a union obtains pay increases and benefit improvements for everybody in the organization, and not just those covered in the bargaining unit. In fairness, I would have to admit that this is true. The items covered in my employer's union contracts have routinely been distributed to Mr. Barger is a corporate public relations represen tative and writer in Toledo, Ohio. Melvin D. Barger FREE RIDERS FACE A ROCKY ROAD nonunion employees almost imme diately after the signing of union contracts. Over the years, we've re ceived cost-of-living adjustments, pension improvements, salary in creases, extra holidays, and even dental and eye care programs. These changes were obviously related to similar changes in union agree ments, so it would be ridiculous and false to insist that there was no tie in.

I sometimes worried about the way spiraling costs were hurting our business. And it bothered me in late 1974 when the union negotiated hefty wage and benefit increases even while hundreds of employees were laid off. Like other free riders, how ever, I went along with the process, and accepted the new benefits as an additional "right." As far as I know, not a single free rider protested be205 206 THE FREEMAN April cause of a system that enabled peo ple to demand and get wage in creases even when the market for their services was sliding. A Changed Climate Today the climate has changed dramatically-changed both for union members and for other em ployees who have gone along for the ride. Unemployment has been soar ing, from an 8 percent rate in Sep tember, 1981 to a 10.8 percent rate only 14 months later. Basic indus tries such as autos, steel and con struction are in deep trouble, and this is causing ripple effects of distress throughout the nation. White-collar workers, the so-called free riders, have been caught in this storm along with unionized employees. In the September 1981 to September 1982 period, unemployment among white collar workers rose from 4.1 percent to 4.8 percent, and the climb appar ently is continuing.

In this deteriorating economic cli mate, the unions have become a fa vorite target. They are blamed for shoddy work practices which have made American goods less competi tive in the market, they are blamed for refusing to make wage conces sions which would lower manufac turing costs, and they are blamed for supporting legislation which raises taxes or handcuffs business. The unions deserve this critical attention, and it's probably causing some members to question whether unions have served their best inter ests. But let's not believe that we can dispose of our problem simply by putting a union label on it. We free riders also deserve some ofthe blame, if only because we shrugged at ideas and practices which helped create the serious problems we now face. If we're traveling on a rocky road to day, it's because we once thought it was a smooth highway into the future. Both union members and free rid ers have made certain assumptions, or held certain beliefs, which are turning out to be liabilities for the nation as a whole. Here are three of these ideas which need re-examina tion and overhauling: 1) That compulsory union mem bership serves the interests of all workers; 2) That wage and other cost in creases can be "passed through" in definitely in the form ofhigher prices; 3) That companies, with their seemingly large resources, are the basic providers of jobs and security.

None of these ideas stands up very well when it is thoroughly explored and tested. Yet both union members and other company employees in the United States have acted as if these three beliefs were true. As a result of these false beliefs, there has been a tendency to ignore market signals which clearly were pointing to trou ble ahead.

1983 FREE RIDERS FACE A ROCKY ROAD 207 Here, in my opinion, are some of the things we free riders should have given more consideration to, in the years when we thought we were traveling on a smooth highway. Compulsory Union Membership For one thing, we should have worried about the longterm and general effects of compulsory union membership. The public has fretted about the "greed" of the large unions and, occasionally, the weakness of management in coping with union demands. In fact, however, the sys tem has been tilted politically to give unions unusual powers in the bar gaining process. It is useless to blame unions for abusing this power. It is pointless to insist that management should have shown more firmness in bargaining sessions. Given the real ities of compulsory union member ship, we have come out about where we should have expected to be. The public seems to be ambiva lent about unions. On the one hand, there is a belief that unions were once very necessary and performed a use ful service in bringing general im provements to working conditions and in raising pay levels. But now unions are seen as "having too much power" and there's a belief that they ought to be reined in or made to be have in a more responsible manner.

There is amazement at some current union actions, such as the strike by Chrysler's Canadian workers at a time when the company's future is very shaky. Why do unions, or their members, sometimes behave in ways that seem to go against the public interest and may also destroy their own jobs? (We free riders are espe cially alarmed when unions launch strikes which threaten our jobs as well as the jobs of striking workers!) But by authorizing compulsory union membership, the public (through its elected representatives) also authorized what it now deplores as abuses of power. Without compul sory membership, there are checks and balances which would serve as natural restraints or adjustments in relations between companies and their work forces. If there is no com pulsion, for example, some members could refuse to pay union dues or they could resign from the union if they disagreed with its actions. Other workers could be brought in to re place the workers who had struck.

And there could also be vigorous prosecution when the union uses vi olence to enforce its demands, as unions have done in hundreds of cases. Admittedly, most of these actions to restrain unions have been dis credited or held up to ridicule. But that's only because unions were so successful, in the past, in winning support for practices which would frighten us if everybody adopted them. The nonunion, salaried em ployees of a company do not have 208 THE FREEMAN April the same "right to strike" that is conferred on union organizations. Yet many of those salaried employees the free riders-think it is reason able and proper that unionized em ployees should have this privilege. I've also talked with many sala ried' nonunion employees who do not understand the implications of the unions' right to strike. They feel that a strike is just the normal use of one's right to quit a job. But if striking workers were merely quitting their jobs, most companies would respond simply by hiring new workers and starting up again. The real power of the strike is the unions' power to keep companies from exercising this al ternative. Unions do this by using either the law or violence to enforce their strikes.

Over the years, unions have used the strike weapon to bludgeon most of the major U.S. industries into compliance with union demands. We free riders, as well as unionized em ployees, have been included in the process. And many of us, while voic ing disapproval of high-handed union actions at the bargaining table, may have secretly enjoyed what was going on. "I hope they get what they're going after," one of my fellow em ployees told me, just after the union's demands became known. "The com pany will have to give us the same benefits!" But while this was going on, few people paused to ask what the cumulative effects of these periodic contract agreements might be. We can now look back and realize that excessive costs have destroyed one market after another for U.S. pro ducers. We now feel that unions should have shown more "social re sponsibility" or foresight. But most of us probably believed that in creases in wages and benefits could always be "passed through" in in creased costs.

The Myth of "Passing Through" We free riders got into trouble be cause we believed, along with the union, that large industrial compa nies could always "pass through" in creased costs to the customer. This was widely believed about the U.S. automobile industry, and some crit ics even felt that bargaining negoti ations were simply pro forma ses sions which unions and management conducted at the customer's ex pense. This was believed possible because U.S. auto manufacturers had little strong competition in Ameri can markets until the 1960s, when both European and Japanese pro ducers began to move into the U.S. market in force. In fact, however:, there is almost no way increased costs can be "passed through" indefinitely, or even for the short term, without harming one's position in the market. Even when U.S. manufacturers dominated the market, increases in automobile 1983 FREE RIDERS FACE A ROCKY ROAD 209 production costs resulted in higher prices which forced some buyers to abandon or postpone their pur chases. Or, if they purchased auto mobiles at higher prices, they passed up the purchase of something else on their lists of preferences. In any case, higher costs and prices always led to reduced sales and production for somebody, although it happened so slowly and was spread over such a large market that few people no ticed it or could trace the process.

It's possible that economics pro fessors and antibusiness writers helped perpetuate belief in this myth. Major U.S. industries, they argued, were "oligopolies" which gave com panies the power to adjust prices markedly without paying any pen alty in reduced sales. Business lead ers and marketing executives who said this wasn't true were merely being "self-serving" in order to max imize their own profits and take a larger share of the pie. Meanwhile, by demanding a larger share of the pie for themselves, unions were per forming a useful social function. Free riders, also, believed that costs could be "passed through" in a painless manner, and few of us re alized what the cumulative effects of this false belief would be. U.S. man ufacturers held a dominant position in world markets until about 1965, and then a tremendous slippage started to occur because of price competition. In market after market, we had become the high-cost producers, and jobs were lost in steel, in autos, in textiles, in shoes-in virtually every manufacturing industry.

When plants were closed, free rid ers lost their jobs along with union members. There were rising com plaints in northern industrial states about losing jobs to "cheap labor in the South" or "cheap foreign labor" in Taiwan, Mexico or Japan. But the competition from low-cost producers elsewhere was not the real cause of our problem, although it did help dramatize the cost inefficiencies of many American industries. Even more dramatically, it proved that even the largest manufacturers and so-called "oligopolies"· do not have much power when it comes to "pass ing through" cost increases. Now, it is true that mature indus trial states like Ohio and Michigan have a tendency to become high-cost areas over long periods of time. It was inevitable that other areas in the United States and in foreign countries would someday challenge us in our markets. But we made it much easier for them to succeed in this challenge when we accepted the idea that major U.S. industries had the power to bypass price competition.

Who Provides the Job? A third false belief we free riders accepted is that companies, with their 210 THE FREEMAN April seemingly large resources, are the basic providers of jobs and security. This seemed to be true because many people, both union and nonunion, spend their lives with strong com panies which always offered good pay and benefits. In these arrange ments, the company is viewed as the employer and the jobs are a form of property. We are now learning that no com pany has a fixed number of jobs which it can offer to any group of employees, union or nonunion. Em ployees may like· to think that they have lifetime employment, but this is a false belief because the company itself is mortal and cannot really control the length of its own life span. Good management and bril liant planning may make one com pany more successful than another, but every company is subject to market changes and unpredictable events which can wipe it out almost overnight.

We have been getting a lesson in this reality. Who would have be lieved, some years ago, that great industrial firms like Chrysler Cor poration and International Har vester would move to the edge of bankruptcy, dislodging thousands of people who once thought they had lifetime employment with these companies? Who would have be lieved that General Motors Corpo ration would have more than 150,000 people on indefinite lay-off by 1982 or that more than 500,000 jobs in auto manufacturing and auto-re lated industries would be lost with little likelihood of restoration? All of this has happened, and the process has been repeated in most major industries. The CustomerIs in Charge What this should teach us is that no company is really the basic pro vider of jobs and security. Every company, no matter how vast its re sources, is really performing a bro kering service between customers and the resources needed to supply customers with products and ser vices. Jobs come into existence when there is a market need for them, and pass out of existence when the mar ket need for them disappears. Job levels also can be reduced when companies change the combination of resources needed; for example, when a highly automated plant re places a less efficient one that re quired a larger work force.

In the current recession, some business analysts are telling us that millions ofjobs have disappeared and might never come back again. What really happened is that customers who formerly provided the jobs have changed their preferences for var ious reasons. And just as companies do not have the power or willingness to provide lifetime employment, nei ther can customers continue to schedule their purchases so as not to EtiSfltpt 6wpersenalempl6yment ,lans. This may bring anguish, Rot only to employees of a C6mpany, but also to share~ldeFs, plant commu nities,s\tppHers and many others who depen.d Oft the cemPftny. It is a fact 6f life, h0Wever, th.at the cus tomer is the :real ,",vider e£the job, an~ we ignore that fact at Qur own peril. The,. .. tie Such Thing _ • F.... Ride Perhaps some of our friends who constantly tell us there is no "free lunch" should also say that there is no such thing as a "free ride." We do live in a very complex society in which many forces are delicately balanced and related to one another.

Almost everything we do or think is , bound to affect somebody in some way. More to the point, everything we do or think in our commercial activities will eventually affect our pocketbooks in some way. As a free rider, I now think it was wrong to pretend that I was a spec tator or innocent bystander during the years when our own 'basic indus tries were being sapped of the vital ity and cost-efficiency which once brought them leadership in world markets. I should have realized, more keenly than I did, that false beliefs and unsound practices would lead to trouble for all of us. And while I have been critical of unions in this article, I do not really blame them {>or the tre\lhles we are in, as some of my fellow free riders do. Industrial unions are simply f{)rms of the pressure groups we have throughout seeiety. Many of the people who critj(~iIe iRdustrial unions \)elong tG pressure greu,s .r their own which are seekh\g special leg islated advantage at the expense of the rest of us.

The ReatM.... What our troubles should be tell ing us is that we ought to look at ideas and practices in the early stages, and do something about them before they've run their course and produced so much damage. We should really be studying trends and ideas by asking where each is likely to lead. Take, for example, the time when my neighbor taunted me about re ceiving the extra holiday which came as a result of the new union contract. If I had been thinking with any clarity, I might have replied thusly: "Yes, it is always nice to have a day off. But the union did not really 'give' me this day off. It had to come out of our business in some way, and what it really means is that the company has been forced to pay me for not working. But the company is really only a broker between customers and resources, so the truth is that our customers had to pay me for not working. Today's vacation is really a small amount and it's not likely to 212 THE FREEMAN affect their decision to use our prod ucts in the future. But I am con cerned because we've been piling lots of things onto the customers. I hope the customers do not eventually rebel and put the union and free riders like myself out of our jobs."

But that would have been too much of a statement for a warm holiday morning when everything seemed to be going so well. And I'm also afraid my neighbor would have replied with a popular two-syllable expletive. In Let the Market Decide his view, I was a free rider, ap.d that was that. He was right-but he should have noted that almost everybody in the country has to go along with what ever ride is being offered. That's why we should all pay more attention than we do to the driving. We now know that the road can be come just as rocky for free riders as it does for the people behind the wheel. , IDEAS ON LIBERTY INSTEAD of making a union the exclusive bargaining representative for all employees in a firm when it has been selected by only some, the law should see that those who object to the union retain their basic right, as free men, to fend for themselves. When men are forced in the first place to join unions, forced in the second place to go along with all plans and programs conceived by their leaders, and forced in the third place to keep their peace if they wish to keep their jobs (and maybe their health) it is not at all surprising to find a good many trade-union leaders less than responsive to or honest with their membership ....

Power acquired by force and subject to no continuing functional check is bound to corrupt. Corporate managements are kept in line by the right of stockholders to move their equities when they are dissatisfied and by the right of consumers and other purchasers to take their patron age elsewhere without let or hindrance when price or quality are poor. If the house of labor is to be clean, the same general principles must be applied there, with the workingmen of the nation in the position of stockholders and consumers. It is as absurd to expect good clean union ism in conditions of extensive compulsory unionism, as it would be to expect good government in a society where the divine right of kings or the dictatorship of the proletariat was the central political principle. SYLVESTER PETRO, "Can Labor Clean Its Own House?" (1958) DISTRESSINGSYMPTOMS often induce people to go to a physician. Quite often, these symptoms indicate that a patient is afflicted with some in ternal disorder. The symptoms may range from headaches to dizziness to fever to a vast assortment of aches and pains. It is not unusual for a physician to prescribe something aimed at relieving the distressing symptoms, even when he may go be yond that. Indeed, many of us take home remedies to relieve symptom atic discomforts before or instead of seeing a physician. Despite the com plaints of some purists in the medi cal profession or among scientists that this is treating symptoms rather Dr. Carson has written and taught extensively, spe cializing in American intellectual history. He is the author of several books and is working at present on A Basic History of the United States to be published by Western Goals, Inc.