We give you the repeal of Wagner, of the anti-yellow dog provisions of Norris-LaGuardia, of legal protections against punitive firing of union organizers, and of all the workplace safety, overtime, and fair practices legislation. You give us the repea…

What are the common wages of labour, depends every where upon the contract usually made between those two parties, whose interests are by no means the same. The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labour.
I.8.11

It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorises, or at least does not prohibit their combinations,*10 while it prohibits those of the workmen.*11 We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long-run the workman may be as necessary to his master as his master is to him, but the necessity is not so immediate.

Paragraphs 1.8.11 and 1.8.12

And your point about the interests of the company being at odds with the interests of management is also a good one. One of the arguments Luigi Zingales has made is that basing management’s authority entirely in its alleged representation of shareholders actually enables them to screw over not only workers but shareholders, by expropriating the equity resulting from human capital which is not represented in ownership, and thereby gutting long-term productivity.

Jeremy: Your point about the coloring of contract by feudal culture is well-taken. A literalist fixation on contracts, stripped of all the “draperies of human decency” (or whatever Burke said) would be a step forward from the present cultural holdovers from the age of status. If the contract were seen as the sole source of all management’s authority, and it was deprived of the aura of sanctity dating from master-servant days, workers would probably be able to use the contract as a weapon more effectively than the bosses could.

John Medaille: Nice to see you over here. Being comparatively well-versed in Catholic theology, you might know something about a doctrine I vaguely recall hearing about, “covert something-or-other,” which says that a person who is stolen from has a right to take matters into his own hands and take back the value of what was stolen, when he is denied any other form of justice. It seems like it would have a bearing on this general topic.

But no matter, so long as there is a distinction between ownership and use, there will be chronic labor problems with no obvious solutions. Further, there will be tremendous agency problems between owners and managers, managers and workers, and workers and owners. The best that can be done in such a situation is to balance, insofar as possible, the power relationships between the parties. Normally, and especially for the last 40 years, those relationships have favored first the owners over the workers and more recently the managers over either.

I don’t think it’s entirely flippant to quote Jefferson’s quip about the Earth belonging to the living.

I think it’s entirely appropriate. And what I take from your post, Kevin, is the need to get away from this rather outmoded but persistent understanding of the meaning of a labor contract that just perpetuates cryptofeudalist values. That’s tantamount to letting the dead rule us with their organizational prerogatives. It is those unequal expectations just below the surface of popular consciousness that are far more damaging than how the contract itself is written.

Personally, I find it worrisome that upper executives have a relatively easy time ignoring the wishes and interests of shareholders, especially when the firm is large and the stock is widely distributed. It’s rare to see a board take a strong stand against upper management - so rare that is always headline news when it happens. Empowering share holders to be able to act like the actual owners of a firm would be a major improvement of corporate governance.

As to this:

“Duty of Loyalty, which provides inter alia that until such time as you and your fellow workers tender your respective resignations you may not “bad mouth” the Corporation”

Sometimes loyalty to a corporation necessitates criticising it in harsh terms.

A separate issue is technology that a corporation owns. There may be technical secrets that a company does not want shared. I’ve signed Non Disclosure Agreements and I’ve never violated them. Still, I can think of many, many actions that a group of workers could take against a corporation, and such actions would not be the kind of things that a company could protect itself against with agreements. For instance, workers could agree among themselves that when they go out to lunch at lunch time, they will, afterwards, go home and not come back for the rest of the day. Depending on the firm, this could deliver quite a sharp shock, and it certainly sends a loud message to the management. At that point the management has the choice of either firing everyone or giving into worker’s demands in exchange for a promise of no future walk outs. Depending on the industry and the situation of the firm, there are situations where the management would do quite a lot to avoid unexpected walk outs.

I don’t know if my response is anything worth looking forward to, given my near incoherence at this hour of the night. The best answer I can come up with is tentative.

First, I think it’s possible to have a certain amount of slippage at each step in your process, even when all the t’s are crossed and alll the i’s dotted, so that you end up at a point where the lines of connection to the original founding authorities are attenuated to the point of meaninglessness. If management today solemnly claims its authority as stewards of shareholders, even though shareholders exercise no meaningful control and management in fact acts as de facto residual claimant in using the corporation primarily as its own means of support, I think it’s fair to describe the corporation (as I did in the post linked in the comment above) as a mass of unowned capital controlled by a self-perpetuating oligarchy, using shareholder power only as a legitimating ideology in the same way Soviet industrial management justified its authority with respect to workers’ power.

The tension is heightened by management’s appeal to “shareholder equity” and “customer service” to justify its own policies, while commanding workers to engage in practices directly in opposition to the interests of both shareholders and customers, and in fact serving the primary purpose of lining management’s own pockets.

And getting back to the specific issue of open-mouth sabotage, a contract to keep secrets is arguably repugnant when the subject matter is fraudulent or tortious actions by management. I’m not saying this makes up the majority of the subject matter suitable for open-mouth sabotage; but there’s enough of it going on in most corporations, and it’s damaging enough, that an asymmetric war based only on whistleblowing of this kind would probably be devastating to a majority of corporate employers.

At some point, the real basis of authority in the will of the original founders has become so attenuated, compared to the customers’ present-day right to know how their sausage is made, that the latter becomes an overriding interest.

I don’t think it’s entirely flippant to quote Jefferson’s quip about the Earth belonging to the living. Regardless of whether directors and management are selected in accordance with all the bylaws of the corporation, which were duly established by the rightful authority of long-dead persons, the fact remains that an oligarchy is *today* exercising authority which–although exercised in the name of shareholders–is in fact accountable to no living person, and exercised completely in the interests of those who have it.

Second, as you suggest, your hypothetical scenario doesn’t as far as I know describe the origins of many actual corporations surviving today. It does describe the origins of the kind of early joint-stock corporations at issue in the Dartmouth College case, where the shareholder really was something analogous to a modern partner. But modern corporation law almost entirely destroyed this model of corporate formation. The following is an excerpt from Ch. 3 of my org theory ms:

“The result, by the early twentieth century, was a common legal understanding in which ‘the modern stockholder is a negligible factor in… management,’ and in which a sharp distinction was made between the status of ‘investor’ and ‘proprietor.’ The shift was encouraged by the rise of public securities markets. Until the 1890s, public issues of stock were rare and public trading (outside of railroad stock) almost unheard of. In an environment in which the issuance of stock was still largely private and associated with the formation of joint-stock companies, it was more plausible to regard investment in a corporation as equivalent to buying into a partnership. The creation of public equity markets, in which shares were commonly acquired by those with no direct role in the formation or governance of the firm, and bought on an anonymous market rather than issued directly to the shareholder by the firm, made the cultural holdover far less tenable. It became virtually impossible to maintain with a straight face the earlier ‘trust fund’ doctrine of Dartmouth and other decisions, in which the shareholder was a partner with absolute property rights in the governance of the corporation. By the turn of the century, the board of directors was clearly coming to be seen as the agent, not of shareholders, but of the corporation as a separate entity.”

Dear Kevin,

This was a superb post in countless ways. I have already sent a copy of it to a leftist friend of mine who am trying to win over to a pure anti-state left-libertarian-type position.

However, while I sympathize with the conclusion you arrived atin the above-quoted comment regarding “open mouth sabatage,” I would like to push back with respect to your argument for getting there in this case.

Specifically, I don’t see why some one person should have to be the allodial owner of a given tangible object, for that object to count as owned.

Let’s suppose I am the legitimate unitary owner of object X (i.e., there is no co-owners, it is unencumbered with easements, covenant restricts, leases, or liens). Let us further suppose that a group of people (1-200) get together for a common purpose and form an association, Massive Assed Company, Inc. (the “Corporation”) which their respective rights and obligations inter se to be governed by Articles of Incorporation and By-Laws (collectively, the “Organizational Documents”). These Organizational Documents confer upon various parties either by name or the functional office or status which they occupy the rights and obligations to do certain things with such property as may thereafter be transferred to the Corporation as a entity (whether by deed or by bill of sale). When you add up all of the respective rights and obligations, all of the various rights and obligations that would appertain to unitary ownership by some one person are fully accounted for (use, possession, exclusion, and transfer, liability for any use thereof which would constitute trespass, nuisance, or what have you with respect to the property of others, etc.). Because of this fact, this is not one of those Flying Dutchman type situations where the Corporation itself can become this sort of free-floating actor incapable even in theory of being leashed and controlled by its putative “owners.”

Let’s suppose further that the duly-constituted Board of Directors thereafter appoints officers, who subsequently hire you and several others as a employees pursuant to a written contract of employment which includes among its terms a Duty of Loyalty, which provides inter alia that until such time as you and your fellow workers tender your respective resignations you may not “bad mouth” the Corporation, on penalty of forfeiting your respective claims to such wages as you may already earned but not yet been paid.

Suppose further, that I transfer object X to Massive Assed Co., Inc., and all of the rest of the assets of the Corporation are likewise the product of free transfers to the Corporation as an entitey from their prior, unitary owners.

If you do not like how much you are getting paid, is it really your contention that you can continue to both use the assets of the Corporation and receive wages therefrom while practicing “open-mouth sabatage”? In what sense is it the case that “nobody in the management hierarchy of such an entity has any legitimate basis for their authority”? Isn’t the free consent of all of the 1-200 original associates (plus their successors and assigns) to the Organizational Documents which provide for the delegation of authority with respect to the use of the Corporation’s assets a sufficient basis for “authority” to enter into employment contracts?

To be perfectly clear, I’m not saying that the situation which I have set forth above even resembles the sorts of situation faced by employees of most collosal corporations today (for reasons you have ably set forth in your work). My only point here is to try to defend in principle the idea that duly-formed organizations can under appropriate conditions be the owner of various goods (which the constituent rights and obligations carved up by agreement), can enter into valid and binding contracts with those outside the organization, and can both sue and be sued as such. In other words, I don’t think it’s advisable to categorically reject the juridical personhood of organizations and institutions just because you quite-rightly both despise the established order and are firmly committed to the realization of a petty bourgeousie utopia of small-scale farmers, craftsman, artisals, shopkeeps, and cooperative assocations thereof.

Cheers,
Araglin

Nell: Thanks very much.

Jackson: Good point about the effect of professional culture. I suspect something like that helps to promote regulatory capture, as both regulators and regulated are staffed by the same kinds of men in suits who are familiar with the same kind of institutional culture Paul Goodman described. Likewise, the tendency of cooperatives to take on the same organizational style as capitalist enterprises in the same industry when they get beyond a certain size: they hire professional managers who don’t know any other way of doing things.

I’m sure there’s something in most employee manuals in these parts to the effect that it’s company policy for us to respect confidentiality, and that we’re expected to do it. But as far as I’m concerned, they can expect in one hand and shit in the other and see which one fills up first. If I felt obligated to obey everything that was stated as a company policy, it would pretty well negate every point I made about the workplace as contested terrain.

Now, if I were working for a business that was actually owned and managed by a flesh and blood individual, or a partnership of such individuals, I’d probably feel obligated to honor the terms of any employment contract. But when it comes to the typical American large corporation, I feel no such obligation because nobody in the management hierarchy of such an entity has any legitimate basis for their authority, for reasons that are discussed in this post: “Public” vs. “Private” Sector

“If these people get disproportional gains, after all, you’d expect a proliferation of them and for that supply to drive their wages down. Or are other mechanisms preventing them from being trained and recruited in adequate numbers to drive their wages down? …I’m inclined to agree that the supply is small and fixed ”

Personally, the whole “leadership” thing seems a little melodramatic. From what I’ve seen, people are quite fluid about what roles they’ll take on. These are personal transformations that I witnessed:

1.) In 2005, a young man is working as a designer at a web design firm that is owned by his older sister and her husband. The husband is known as controlling and angry. The young man’s work is considered mediorce. The company itself churns out websites using out-of-date technologies from the 1990s. The young man then gets a chance to work at a new firm, so he quits and goes to the new job. The new place is chaotic and badly run, but the chaos gives the young man the chance to experiment with new ideas that he has been reading about. A year later his brother-in-law dies of a heart attack. His sister asks the young man to return to the old firm. The young man returns to the old firm on the condition that the firm update the way it does things. The management soon realizes the young man has become a great designer. The young man becomes art director and, essentially, a member of management.

2.) In 2007 a young woman is in a miserable relationship and depressed. She needs a job but is unmotivated to get one. She is offered a job as an office assisstant with a non-profit, but doesn’t pursue it. Then her boyfriend dumps her. She then takes the job at the non-profit. She is now remarkably different than she was just a month before. With great energy and focus, she organizes the office, re-organizes the non-profit’s website, and becomes the main writer for that web site. She undertakes to organize the efforts of everyone who is contributing any kind of work, volunteer or paid, to the non-profit. She informally becomes the most effective manager on the team.

I don’t know how much value anecdotes like this have, but I think such incidents as this influence our opinions about what the overall supply of leadership is. My sense is that there is a lot of leadership potential out there, and most of it is kept supressed by existing structures of authority.

“the trend will still be that economy-wide gains will still go disproportionately to this leadership class.”

If this is inevitable, why hasn’t the trend to inequality manifested in the same ways in other advanced economices, such as Japan and Germany? They have nothing like American levels of income inequality.

I haven’t looked at this issue in 9 or 10 years, but I know that as recently as the late 90s, labor in Germany was taking nearly 100% of all productivity gains (in the form of increased wages), meaning that the percent of national income going to labor was increasing, and the percent of income going to capital was decreasing.

I recall, in the fall of 2002 there was a large anti-IMF and anti-trade demonstration in Washington, DC. After which the CEO of Deutche Bank had an editorial in the New York Times, in which he argued that income inequality was always a domestic issue, and could never be blamed on trade. Do you take issue with his assertion that income inequality is always a domestic issue?

I’m inclined to agree that the supply is small and fixed — that’s why I think Carson’s proposal would make large companies impossible, and why I view the New Deal labor rules as an attempt to make large companies practical at a time when large companies were considered the be-all and end-all of national greatness. But it seems to me that there is room for an alternative view that something (what?) is artificially keeping the supply of capable corporate leaders low and so keeping their share of the pie over-large.

If the effect of Carson’s proposal is that large companies become unmanageable and are forced to become groups of smaller companies contracting with one another, that would probably be a net win for labor (and probably for management, though most would never notice or admit it). Arguably it’s the way the economy has been going anyway. In a world of sub-150-person companies, would there be a union movement? Or would a need for a union simply be a sign that a company was ill-managed and ready to die?

(Note — Personally, I try only to work in places where the managers are friends of mine and where I can hold a meaningful fraction of the stock; I think that makes me part of the evil reactionary management class on whom this is all meant to hate, so my comments should be disregarded as such.)

So a line of thought inspired by this and the Scott Adams Turtle post from a member of the managerial class.

The hardest thing for an organization, and the thing most necessary for it’s continuity, is to develop and maintain good first line leadership. This is especially important when it reaches the level where everyone no longer knows everyone else (it is commonly thought that this level is around 150 people).

In a world where all know that they hold the monkey wrench, and both the legal and cultural restrictions to use it have gone away, the power of this first line leadership becomes amplified beyond the point of ensuring continuity to the becoming essential for organizational survival. The person that can keep the wrenches on the nuts and out of the gears becomes immensely valuable.

So I postulate that although you will probably see some severe beat downs up and down the line, especially at the very top (either literally or figuratively or both), when the dust settles, the trend will still be that economy-wide gains will still go disproportionately to this leadership class. And even more to people who have the ability to be a leader of leaders.

(note: I don’t pretend to have the ability to succeed in the management class in such a regime; I would have to go back to working for a living, but I think I would do ok.)

Jeremy: Thanks. It only gradually dawned on me just how unbalanced a moral filter most people were using to evaluate the respective utility-maximizing behaviors of capital and labor. If you go to most mainstream libertarian venues and complain about your boss trying to squeeze out more work for the same amount of pay, the response you get usually ranges from a terse “So if you don’t like it, go somewhere else” to “What do you expect–he’s in business to make a profit, isn’t he, you little whiner?” On the other hand if you complain about how lazy or demanding your employees are, you’re a lot more likely to get commiseration about how hard it is to get good help these days, and how anyone who doesn’t fill up every second of paid work time with the maximum possible level of exertion is the moral equivalent of a thief.

At Libertarian Underground, Paul Birch explicitly compared workers who tried to get the maximum pay for the minimum work to robbers; I can pretty well guess how he’d react if anyone made the same comparison to a capitalist enterprise (like an oil company) engaged in price gouging.

Chris: Thanks to you, too. The main drawback with such strategies is that so many people are still in the habit of waiting for some authority figure to come along and save them–itself a cultural holdover from the decades in the mid-20th century where a “union” was some institution sanctioned by the NLRB, with professional stewards and all, rather than something workers in a workplace did for themselves.

Absent right-to-work laws, in unionized workplaces labor and management would be free to negotiate union shop clauses, or not, as they agreed.

1. What do you believe is the legal content of a “right-to-work” statute, and

2. Should scab hiring, in your view, be illegal?