"One of the eternal conflicts out of which life is made up is that between the efforts of every man to get the most he can for his services, and that of society, disguised under the name of capital, to get his services for the least possible return.
Combination on the one side is patent and powerful. Combination on the other is the necessary and desirable counterpart, if the battle is to be carried on in a fair and equal way. "
Justice Oliver Wendell Holmes – 1896
During my industrial and consulting career, I used to have a term that reflected Oliver Wendell Holmes famous judgement. The term, expressing a principle, was the iron law of wages. I often used it in my workshops on negotiation relating to terms and conditions bargaining, and before that in my career as a manager in personnel and industrial relations, now more cynically renamed Human Resources management.
The iron law of wages is that it is an employer’s objective to pay the least amount possible to attract, retain and motivate workers, from unskilled labour to professionals, and that it is a trade union’s objective to secure the highest amount possible for their members.
The iron law embraces all aspects of remuneration, from basic wages or salary (or fee) to all others terms and conditions, including pensions, bonuses, sick pay, overtime premium rates, allowances, holiday pay, subsidise canteens, hours of work, etc. (Brutally realistically, it also embraces the cost of maintaining a safe operating environment and indeed, any form of legal compliance that costs the employer money.)
The reaction of workshop participants tended to be sharply divided when presented with the iron law. Some said that many employers paid over the market rate, and were motivated by altruistic considerations, or concepts of equity and justice. Others derided this view and said that, if such employers had ever existed, they were now long gone, and the iron law was the dominant remuneration policy benchmark.
History shows that such employers did exist, but were always in a minority. Other employers paid over the market rate because of a hard-nosed commercial policy of being the best, being seen to be the best, and thus attracting the best. This, of course, is still the iron law in operation.
Others paid more than the market rate because of the strength of trade union power in their company or industry, and suffered competitively as a result. Those still in this category are now to be seen desperately trying to get out of this situation, and in some case are engaged in union-busting activities. (British Airways?)
THE MARKET AND MARKET FORCES
The iron law can also be described as the naked reality of the market – what some economists, most employers, and some politicians are fond of describing as market forces, which they regard in a quasi-mystical sense as a law of nature - the hidden, beneficial force that must be obeyed, which left to its own devices, produces the maximum good for the maximum number of people, and ultimately enriches all. The concept is central to capitalism.
There has always, however, been a worm in the apple of market forces, or rather two worms. The first is that the process operates without malice and without pity, and can enhance or destroy, and when its destructive force operates, it does not distinguish between employer and employed, and it can lay waste to lives, communities, entire generations and even nations. The second is that low skilled or unskilled workers rarely benefit from market forces – the opposite usually applies.
It is little consolation to the business man or woman when their entire life’s work is wiped out, and their fortune vanishes, that it was the work of the market. Equally, the individual worker, labourer or professional, does not regard the market with equanimity when his or her job and income vanish, or when, still in work, the return for their work diminishes.
Consequently, the first thing a prudent business does is to try and limit its exposure to the downside of the market. A range of options, legal and illegal, present themselves to the business attempting this damage limitation, from insuring against loss to cartels, monopolies and price and wage fixing.
While extolling the virtues of the market and free, untrammelled competition, the businessman quietly does everything to limit and reduce effective competition, moving speedily to industry and trade associations, both open and clandestine. Business, especially big business, fulminates against interfering with market forces in the same way as organised religion fulminates against greed for material wealth – business attempts to limit the operation of the market as it affects them, while the church is happy to enrich itself from the contributions of the faithful who can ill-afford them.
Market forces and moderation are always a virtue for the other guy but not for us. The panic-stricken squeals of the bankers in 2008 when the market actually began to operate were a great hymn of horror and a plea to be absolved from the full force of the market.
THE LABOUR MARKET
Until the 19th century that aspect of the market called the labour market operated mainly to the advantage of employers, who were often landowners. The laws of supply and demand certainly operated in procurement of materials and goods and services, but a greater equality existed between purchaser and supplier, albeit one affected by the relative size and scale of operation of their respective companies or landholdings, and their market share. But in the labour market, different dynamics were at work.
Highly skilled professionals, individually or in partnership, could rely on the relative scarcity of their skills to command a reasonable rate. The ancient craft guilds operated their own form of monopolies, and enjoyed the dual bargaining advantages of skill scarcity and combination. But for the low skilled or unskilled, the situation was grossly unequal.
They had to live, and faced destitution and starvation if they were unable either to produce their own food and gather their own fuel, or find paid employment; they could rely not rely on the scarcity of their labour – they were in abundant supply – nor could they call upon any form of organisation to support their bargaining position.
The mores – and the organised religion – of their society regarded this inequality as ordained by a higher power, and any challenge to it as unacceptable, and in some cases even criminal or blasphemous. In Scotland, the churches would attempt to alleviate the impact of this inequality on the poor, and in the absence of any state provision, this was welcome and indeed vital, but ministers of religion, with significant and honourable exceptions, preached resignation to, and acceptance of the established order, and allied themselves with the employers or landowners in any dispute or attempt to change things.
The poor faced the choices they had always had throughout history – fight, pray or dig. They could either join the criminal classes and prey on their fellow man or join the army or the navy and kill their fellow man, join the clergy and live on the gifts or tithes of their fellow man – or they could work the land, either for themselves or for a landowner.
But the flight from the land to the cities and progressive industrialisation changed everything. Some justice might have been expected from the more enlightened landowners, but the development of the factory and the relentless progress of the machine age created even greater inequalities, and this time, it was not only the unskilled who suffered – mechanisation removed the power of many of the traditional crafts and their guilds and associations.
And so the trade union emerged as a force, in spite of bloodshed, brutal suppression and flagrant misuse of the law. And in the latter part of that century, Oliver Wendell Holmes’ words heralded the beginnings of proper legal recognition of the rights of working people and their representatives – the trades unions.
“Combination on the one side is patent and powerful. Combination on the other is the necessary and desirable counterpart, if the battle is to be carried on in a fair and equal way. "
I fear I must now commit to a Part Three to cover the present relevance of all of this – more later this week.