The Really Big Money? Not the Kochs
Harry Reid surely must have meant the unions when he complained about buying elections.
March 6, 2014 7:09 p.m. ET
Harry Reid is under a lot of job-retention stress these days, so Americans might forgive him the occasional word fumble. When he recently took to the Senate floor to berate the billionaire brothers Charles and David Koch for spending "unlimited money" to "rig the system" and "buy elections," the majority leader clearly meant to be condemning unions.
It's an extraordinary thing, in a political age obsessed with campaign money, that nobody scrutinizes the biggest, baddest, "darkest" spenders of all: organized labor. The IRS is muzzling nonprofits; Democrats are "outing" corporate donors; Jane Mayer is probably working on part 89 of her New Yorker series on the "covert" Kochs. Yet the unions glide blissfully, unmolestedly along. This lack of oversight has led to a union world that today acts with a level of campaign-finance impunity that no other political giver—conservative outfits, corporate donors, individuals, trade groups—could even fathom.
Senate Majority Leader Harry Reid in the Capitol Building, Jan. 25. Associated Press
Mr. Reid was quite agitated on the Senate floor about "unlimited money," by which he must have been referring to the $4.4 billion that unions had spent on politics from 2005 to 2011 alone, according to this newspaper. The Center for Responsive Politics' list of top all-time donors from 1989 to 2014 ranks Koch Industries No. 59. Above Koch were 18 unions, which collectively spent $620,873,623 more than Koch Industries ($18 million). Even factoring in undisclosed personal donations by the Koch brothers, they are a rounding error in union spending.
Mr. Reid was similarly heated over the tie-up between outside groups and politicians, by which he surely meant the unions who today openly operate as an arm of the Democratic Party. The press may despise the Kochs, but even it isn't stupid enough to claim they are owned by the GOP. Most outside conservatives groups, including the Koch-supported Americans for Prosperity, back candidates and positions that challenge the Republican line. And in any event, every conservative 501(c)(4) is so terrified of the hay the media and regulators would make over even a hint of coordination with the GOP, they keep a scrupulous distance.
Unions, as 501(c)(5) organizations, are technically held to the same standards against coordination with political parties. Yet no Democrat or union official today even troubles to maintain that fiction. Hundreds upon hundreds of the delegates to the 2012 Democratic convention were union members. They were in the same room as party officials, plotting campaign strategies. The question therefore is how much of that $4.4 billion in union spending was at the disposal of the Democratic Party—potentially in violation of a bajillion campaign-finance rules?
As for Mr. Reid's complaint that some "rig the system to benefit themselves," that was undoubtedly a reference to the overt, transactional nature of union money. Nobody doubts the Kochs and many corporations support candidates who they hope will push for free-market principles. Though imagine the political outcry if David or Charles Koch openly conditioned dollars for a politician on policies to benefit Koch Industries?
In the past months alone, unions demanded an exemption to a tax under ObamaCare; the administration gave it. They demanded an end to plans to "fast track" trade deals; Mr. Reid killed it. They wanted more money for union job training; President Obama put it in his budget. Everybody understands—the press matter-of-fact reports it—that these policy giveaways are to ensure unions open their coffers to help Mr. Reid keep the Senate in November. The quid pro quo is even more explicit and self-serving at the state level, where public-sector unions elect politicians who promise to pay them more. If the CEO of Exxon tried this, the Justice Department would come knocking. The unions do it daily.
Democrats hope to make a campaign theme out of conservative "dark" money, something else Mr. Reid knows about. In addition to other spending, unions have been aggressively funneling money into their own "dark" groups. One of these is the heavyweight 501(c)(4) Patriot Majority USA. Patriot Majority doesn't disclose its donors, though a Huffington Post investigation found it had been "fueled" in 2012 by $2.3 million in union donations. Amusingly, Patriot Majority used its undisclosed money on a campaign to expose the Koch brothers' "front" groups. Oh, and Patriot Majority is run by Craig Varoga, a former aide and close ally of . . . Harry Reid.
The unions have had a special interest in funding attacks on conservative groups, since it has led to the IRS's regulatory muzzling of 501(c)(4) speech. Under the new rule, conservative 501(c)(4)s are restricted in candidate support; unions can do what they want. Conservative groups are stymied in get-out-the-vote campaigns; unions can continue theirs. Conservative outfits must count up volunteer hours; not unions.
So now, in addition to a system in which organized labor spends "unlimited money" to "rig the system to benefit themselves" and "buy elections," (to quote Mr. Reid), Mr. Obama's IRS has made sure to shut up anyone who might compete with unions or complain about them.
Supporters of campaign-finance rules never want to acknowledge that their maze of regulations serve primarily as a tool for savvy politicians to manipulate and silence opponents. For proof, they need only listen to Mr. Reid—who is pretty savvy, and who didn't misspeak after all.
Write to kim@wsj.com
and the demise of opportunity continues unabated...
Presented with little comment aside to note that when 'work is punished' the demise of 'opportunity' will continue...
The painful reality in America: for increasingly more it is now more lucrative - in the form of actual disposable income - to sit, do nothing, and collect various welfare entitlements, than to work.
And that trend appears to be accelerating as more and more men drop out of the workforce...
and the demise of opportunity continues unabated...
... "life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement" regardless of social class or circumstances of birth (or amount of stock ownership).
THIS DEALS WITH THE ISSUE OF MONOPOLY UNIONS:
THIS DEALS WITH THE ISSUE OF MONOPOLY UNIONS:
Labor Unions and Freedom of Association
Mandatory union membership and mandatory dues imposed on those who do not want to join are again at issue. On the heels of contentious “right to work” disputes in several states, the Supreme Court has recently heard arguments challenging an Illinois mandate requiring home health care workers to pay representation fees to a union they did not want. That case, Harris v. Quinn, has the potential to even challenge the Court’s 1977 Aboud precedent upholding mandatory union dues for public sector workers. Such a result would be a victory for liberty.
Unions and their allies in Harris v. Quinn reiterate the claim, accepted in Aboud, that “union security” rules are needed to prevent workers from unfairly opting out of paying for union services. But that claim, which portrays the issue as defending the property, contract, and freedom of association rights of unions (to be paid for services rendered to workers they represent), intentionally misrepresents the core issue, which is the liberty of workers and employers.
“Union security” rules are clear violations of the liberty of workers’ and employers’ freedom to not be forced to associate with certain groups against their will, a freedom unions ironically steamroll in the name of freedom of association, asserted only for themselves, despite its inconsistency with freedom of association for all. Consequently, unions must find a legitimate sounding way of defending the coercion involved. That is where the free-rider argument comes in, which frames the issue as protecting legitimate rights, rather than the illegitimate use of government-granted coercive powers to impose employment terms violating government’s primary role: protecting individual rights.
Labor laws have made unions exclusive representatives for groups of workers. Therefore, unions assert that every worker must be forced to pay for his or her representation, or he or she will be able to “free ride” on those services. That is, workers’ rights must be abrogated to prevent non-members’ unethical behavior.
But free-riding on unions is not the fundamental problem. Mandatory exclusive representation in the form of monopoly unions imposed to the detriment of those who disagree (pro-union legislation exempted unions from antitrust laws) is the fundamental problem.
Given majority approval in a union certification election, current labor law interpretation requires all affected workers to submit to union representation and pay the union’s price for it. Those terms are imposed not only on workers who voted for the union, but for those who supported another union, those who preferred remaining union-free, and those who did not vote (including those hired after the union is certified, who never get an effective chance to vote). Workers (or the agents they select voluntarily) and employers are prohibited from negotiating their own arrangements, including labor-management cooperation not controlled by the union and “yellow-dog” agreements requiring abstention from union involvement (which, before labor laws eliminated such rights, the Supreme Court called “part of the constitutional rights of personal liberty and private property”).
The supposed “free-riding” workers are those who would refuse union representation, but are not allowed to. They are harmed by the imposition, revealed by their unwillingness to pay the “price” for those services. They are not free-riding on the union. They are “forced riders,” required to abide by, and pay for, violations of their rights and interests, to benefit unions. That violation of workers’ (and employers’) rights, not their attempts to escape the harm unwanted representation imposes on them, is the central issue.
Despite union rhetoric, they don’t really want to solve the “free rider” problem they hang their argument on, because it is easily fixable. But unions stop at nothing to prevent the solution. All a fix would require is ending mandatory exclusive union representation. If workers were allowed to choose representation by different unions or other agents or to negotiate for themselves, the problem would disappear. Each union would only negotiate for its voluntary members, eliminating so-called free riders. But unions have fought with tooth, nail, and their members’ wallets to impose and maintain exclusive representation, knowingly harming all dissenters and thereby creating the “free rider” problem. And their recent behavior, as in Michigan, reveals how far they will go to maintain that power to circumvent competition in the labor markets they control, now largely in the public sector.
Despite unions’ deceptive arguments for their government-granted exclusive, abusive powers in terms of freedom of association, real, general freedom of association does not invalidate the potential of workers forming unions. Scholars who are part of the Austrian School have been at the forefront of making that clear.
As Walter Block put it in “Labor Relations, Unions, and Collective Bargaining: A Political Economic Analysis,” “unionism ... admits of a voluntary and a coercive aspect. The philosophy of free enterprise is fully consistent with voluntary unionism, but is diametrically opposed to coercive unionism.” Voluntary unions are consistent with liberty because “if it is proper for one worker to quit his job, then all workers, together, have every right to do so, en masse.” And in his “The Yellow Dog Contract: Bring It Back!” he addressed this issue directly:
Are unions per se illegitimate? No. If all they do is threaten mass quits unless their demands are met, they should not be banned by law. But as a matter of fact, not a one of them limits itself in this manner. Instead, in addition, they threaten the person and property not only of the owner, but also of any workers who attempt to take up the wages and working conditions spurned by the union. They also favor labor legislation that compels the owner to deal with the union, when he wishes to ignore these workers and hire the “scabs” instead.
Ludwig von Mises, in his 1966 magnum opus, Human Action, also made the distinction between voluntary and coercive unions clear:
The issue is not the right to form associations. It is whether or not any association of private citizens should be granted the privilege of resorting with impunity to violent action. ... The problem is not the right to strike, but the right — by intimidation or violence — to force other people to strike, and the further right to prevent anybody from working in a shop in which a union has called a strike.
Requiring union representation and endowing those unions with monopoly powers violates the liberty and freedom of association of dissenting workers, employers, non-union workers, and consumers. Undoing that abuse would fix every union free-riding and forced-riding problem. And it would be easy to do. As Murray Rothbard put it, in his 1973 For a New Liberty, “All that is needed, both for libertarian principle and for a healthy economy, is to remove and abolish these special privileges.” That is why Harris v. Quinn, which offers the Court another chance to see through the “free-rider” smokescreen to the central issue, presents an opportunity for a reform that would benefit the vast majority of Americans.
Note: The views expressed in Daily Articles on Mises.org are not necessarily those of the Mises Institute.
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Gary M. Galles is a professor of economics at Pepperdine University. He is the author of The Apostle of Peace: The Radical Mind of Leonard Read. Send him mail. See Gary Galles's article archives.
HOW TO DEFINE ENTREPRENEURSHip IAND ENTREPRENEURS:
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James Buchanan’s work on the economics of public choice has been called “politics without romance,” because it looks beneath the glossy exterior of government and reveals the underlying reality of political behavior. Unfortunately, the “romantic” view of politics is shared by supporters of all types of political power, who seem to don rose-colored hazmat suits in order to promote their particular candidates, parties, or ideologies. As I’ve mentioned elsewhere, from the perspective of economics, politics looks less like romance and more like an abusive marriage.
HOW TO DEFINE ENTREPRENEURSHip IAND ENTREPRENEURS:
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Entrepreneurship without Romance
James Buchanan’s work on the economics of public choice has been called “politics without romance,” because it looks beneath the glossy exterior of government and reveals the underlying reality of political behavior. Unfortunately, the “romantic” view of politics is shared by supporters of all types of political power, who seem to don rose-colored hazmat suits in order to promote their particular candidates, parties, or ideologies. As I’ve mentioned elsewhere, from the perspective of economics, politics looks less like romance and more like an abusive marriage.
Entrepreneurship also attracts a kind of mistaken romanticism, although in a different way than politics. A couple of weeks ago, Isaac Morehouse wrote an insightful post on the Praxis blog warning that we should take care to avoid glamorizing creativity too much. His point is that creative success, especially in entrepreneurship, can derive from relatively straightforward decision making. Creativity is often simply an attempt to solve a problem while avoiding harm to oneself, as opposed to the flashy, dramatic, and heroic struggle against the odds we sometimes imagine it to be.
In other words, we often place undue emphasis on the personal magnetism and economic “heroism” of entrepreneurs. Yet despite being the “driving force of the market,” entrepreneurship is often quite mundane. Taking a romantic view can be misleading if we end up thinking in terms of only the most dramatic cases of disruptive innovation or personal entrepreneurial charisma (or lack thereof!), and less on the pervasive and vital role of entrepreneurial calculation and judgment.
The blame for excessively romantic views of the entrepreneur can probably be placed on Schumpeter. His theory remains the most well-known in economics, despite the many criticisms that have been leveled against it, and his approach lends itself easily to exaggeration. For him, entrepreneurs are economic revolutionaries, and their success is closely linked to their personalities, which are placed at the forefront of the analysis (especially via Schumpeter’s lavish prose). The notion of creative destruction, for instance, sets the stage for the entrepreneur-as-epic-hero, and glosses over Schumpeter’s more technical exposition of entrepreneurship, which in some ways is a rather boringexercise in equilibrium theory.
Similar ideas were also suggested by Wieser, who strongly influenced Schumpeter. In his book Social Economics, Wieser describes entrepreneurs as “Great personalities… bold technical innovators, organizers with a keen knowledge of human nature, far-sighted bankers, reckless speculators, the world-conquering directors of the trusts” (1927, p. 327). There are some entrepreneurs who fit this description, and, in a way, it’s natural for economists and teachers to focus on the most obvious examples of revolutionary economic change. Nevertheless, we shouldn’t lose sight of the myriad forms of entrepreneurship that drive the economy, many of which only become visible when we stop thinking of entrepreneurs as personalities and instead focus on the entrepreneurial function. We are surrounded by innumerable forms of entrepreneurship, yet because they are mundane we tend to take them for granted.
Contrast the Schumpeterian view with the alertness theory of Israel Kirzner. If Schumpeter is overly dramatic, perhaps Kirzner is not dramatic enough. By using the lure of pure profit opportunities as a fundamental explanation of why entrepreneurship happens, Kirzner actually removes the acting entrepreneur from the economic picture. His approach downplays practical entrepreneurial decision-making, instead focusing on the equilibrating tendencies of spontaneous alertness. But many of the concrete actions and judgments that we associate with entrepreneurship are absent from this view of the economic process. While I don’t wish to downplay Professor Kirzner’s many contributions, I do believe some objections are to the alertness theory are worth seriously considering.
Alertness is truly an example of “entrepreneurship without romance,” but in a sense it’s missing an entrepreneur of any kind at all. That is, Kirzner’s theory has been criticized on the grounds that alertness is just a kind of good luck. If this is true, then there isn’t much to be said about the distinct traits of entrepreneurs. To be sure, Kirzner has clearly stated that explaining the characteristics of successful entrepreneurs was never his goal. Nevertheless, it’s important to know how the character of the entrepreneur relates to his or her ability to use judgment and economic calculation, and how these factors come together in the entrepreneurial market process.
The key is to find a middle ground between the Schumpeterian and Kirznerian views, one that captures any necessary fundamentals of the entrepreneur’s character, while never losing sight of the particular economic actions involved in entrepreneurship. One economist who maintained this balance was Mises (another, I would argue, isFrank Fetter). For those interested, I highly recommend Joe Salerno’s illuminating paper on the entrepreneur in the Austrian tradition, “The Entrepreneur: Real and Imagined.”
Mises stressed the leadership role of entrepreneurs, although not really in the sense of personal magnetism. Instead, he focused on the ability to take control of the factors of production, combining them in original ways in order to satisfy the needs of consumers. Successful entrepreneurs have better foresight than other members of society, and are more willing to bear the uncertainties of the market; in this sense they are pioneers. For Mises, the entrepreneur’s incentive is monetary profit, a more realistic motivation than that of Schumpeter’s entrepreneur, who is driven by a ceaseless urge to create for the sake of creating, or Kirzner’s, who is attracted to profit without looking for it.
In my opinion, it is vital to stress the real-world relevance of entrepreneurial theory. This means avoiding too much emphasis on (a) on contingent personal characteristics and (2) abstract or mechanical problems (such as whether entrepreneurship is equilibrating or disequilibrating). If we avoid these pitfalls, we can find common ground that explains both the economic meaning of entrepreneurship and what entrepreneurs actually do.
