Nobel laureate and renowned economist Professor Joseph Stiglitz explained the social good of strong unions while visiting Australia in July. Monica Crouch shares some of his ideas.
Professor Stiglitz gave the inaugural Laurie Carmichael Lecture in Melbourne on 20 July, entitled ‘The Economic benefits of Trade Unions’.
Former ACTU Assistant Secretary Laurie Carmichael (1925-2018) was “a visionary, an intellectual, an organiser, a change-maker and a unionist through and through”, said Australian Council of Trade Unions Secretary Sally McManus.
In this proud tradition, Professor Stiglitz, former chief economist of the World Bank, laid out a vision for transformative change.
In the beginning
“Before unions, in the early days of the industrial revolution, GDP was going up, but wages went down and working conditions got worse,” Professor Stiglitz said. “If you’ve read Dickens, you know how bad conditions were in 19th century UK.
“And even as recently as the early part of the 20th century, working conditions were terrible in the United States. Workers were locked up in factories, and there was a fire – the Triangle Shirtwaist Factory Fire [25 March 1911] in which hundreds of people died. That provided impetus not only for unionisation, but also for social legislation.
“It has only been through the action of unions that workers’ conditions got better. The unions made a big difference as the US opened up – it led to a reversal of these terrible conditions that had prevailed since the beginning of the industrial revolution.
Constant struggle and collective action
“But it was a struggle, employers have always resisted,” Professor Stiglitz said. “They want to get labour for as low a price as possible. In the early days of the founding of America, the way we got cheap labour was slavery from Africa. And when [the ruling class] couldn’t get slaves, they created frameworks to keep wages as low as possible. It was only through collective action that workers were able to improve their wellbeing.
“The need for collective action is even greater in a modern economy. We have to have collective action to provide education, health, and infrastructure – and not only hard infrastructure, but the soft infrastructure related to the provision of childcare and aged care.
“The increased concentration of market power by corporations means it’s even more important to have a countervailing power. Unions have always pushed for legislation that protects workers, and without strong unions, new forms of abuse arise (for example, split shifts, abolition of penalty rates).
“If you don’t have unions advocating for the wellbeing of all people, you wind up with healthcare systems where things are so bad that life expectancy in the United States was in decline even before the pandemic. It’s not like we don’t have good doctors, or we don’t understand medical science, we just don’t have a system that delivers health to ordinary people.
How inequality hurts democracy“The inequality in our society – where the top 1 per cent gets 20 per cent or 25 per cent of the income – has been getting worse,” Professor Stiglitz said. “And inequality hurts our economy. It hurts our democracy. It divides our society.
“When people ask, ‘How could you have somebody like Trump?’, it becomes more understandable when you see the growth of inequality in the US, that those on the bottom have not gotten a pay raise in 65 years – over two generations.
“This growth of inequality leads to lower productivity. It leads to a less well-performing economy. We are paying a high price for this inequality. Short-term profit maximisation leads to higher labour turnover because workers get demoralised.
How unions help productivity
“This growth in inequality can be stymied through a better balance of power, and that means stronger unions,” Professor Stiglitz said.
“And unions play a role in increased productivity in another way. Unions give voice to workers who have the best information about what is going on in the workplace. By giving them a greater voice, companies can increase productivity.
“Massachusetts, in the US, where teachers’ unions are particularly influential, has the best-performing education system. I don’t think it’s an accident – it’s because the teachers’ unions are a strong advocate for investment in education and designing an education system that delivers.”
Countering complacency
“The success of unions has actually weakened unions,” Professor Stiglitz said. “In places where unions have been successful, people will say, ‘well, we have good working conditions, what do we need unions for?’
“It’s a little bit like what happened in banking in the US. In the early 1980s, under Ronald Reagan, the Republicans said, ‘we haven’t had a banking crisis for 50 years, so what do we need banking regulations for?’ The reason we haven’t had a financial crisis for 50 years is because we had financial regulations. Then came the global financial crisis.
“When we have institutions that are working, we take them for granted – and then we say, ‘well, what do we need them for?’ But it it’s precisely because we have those institutions that we have those higher living standards.
Big vision for the future
“Things have been going bad for a long time, and you’re not going to remedy them in one or two years,” Professor Stiglitz said. “So, you need a vision of what you should demand of your new government.”
Better bargaining laws: “The bargaining process needs to be changed. We need sector-wide bargaining – it’s an important way of increasing negotiating power. If it didn’t have any effect on bargaining power, employers would say, ‘Okay, go ahead’. But the fact they’ve put up such resistance, and not only in Australia and New Zealand, but in Europe, is evidence. It’s interesting that some of these neoliberals, people who supposedly don’t believe in regulation, have wound up believing in regulations against workers. If they believe free markets work, why don’t they let workers and firms bargain freely?”
Corporate governance laws: “It’s important for workers to have seats on the board of directors. Having the voice of workers – that is, unions – on the board of directors, ought to be part of good corporate governance.
“It also seems strange to me that workers’ pension [superannuation] funds don’t have a voice in how the companies they’ve invested in behave. Over the long term, companies that behave better have higher returns.
Governance of the Reserve Bank: “The Treasury in Australia has announced a review of the Reserve Bank of Australia (RBA). The question is, who is sitting there making these judgements? Some countries have recognised that a lot of people from the financial sector on their central bank is not representative. Sweden, for instance, always has a representative of workers on their central bank.”
No to neoliberalism: “Under neoliberalism [also known as ‘trickle-down economics’] there was supposedly perfect competition: no firm had any power, no worker had any power, the word ‘power’ was never even used in economics.
“Now we’ve had 40 years of neoliberalism in many countries. I think we can say with a fair degree of confidence that the experiment has failed. Growth was lower in the 40 years of neoliberalism than it was before. And what growth occurred was not shared, it all went to the people at the top, and that’s how we wind up with growing inequality, and the first generation that will be worse off than its parents.
“We need a new economic framework, one in which there is a better balance, a greater role for collective action and an important part of that collective action has to be through unions.”