Daniel Bell’s article “The Subversion of Collective Bargaining” in the March issue reflects the disillusionment with the labor movement expressed by an increasing number of pro-labor intellectuals. There is a disturbing number of adherents to the theory that collective bargaining has degenerated into a conspiracy between powerful corporations and powerful unions, at the expense of the public and even of less fortunate workers. I suspect that one of the reasons for this reaction is that these friends of labor originally expected too much from the movement. In the first flush of idealism, they looked upon labor unions as instruments capable of bringing about “the good life” for all our society. Peculiarly enough, I, who have practiced the art of collective bargaining for more than two decades, have never expected the collective bargaining process, or the labor movement alone, to bring about the millennium. It can, and does, contribute. But other forces play an equally important role in bringing about a better society.

Mr. Bell believes that powerful American corporations have raised prices inordinately and have accumulated extortionate profits. He indicts the auto and steel industries in particular on this score. General Motors, he says, is a prime malefactor and the steel industry an apt disciple of this industrial octopus. Quoting extensively from reports and studies of the Kefauver Committee, Mr. Bell cites evidence to show that these corporate giants can now finance their own expansion without recourse to the market and have reached spectacularly low “break even” points and high profit levels.

There is not much to quarrel with in this phase of Mr. Bell’s exposition, although—valuable as the Kefauver studies are—I would have preferred additional documentation from other sources and more discussion of the old and important question as to what can or should be done about the situation. In this connection I wish Mr. Bell had given more extensive consideration to the argument of corporate management that, both because of the nature of modern industry, with its heavy capital investment, and the cyclical character of our economy, corporations must necessarily strive for high returns in good years as a protection against lean ones.

Mr. Bell goes on, however, to indict the collective bargaining process. The effect of union pressure, he says, “has been to help install a mechanism whereby the large corporation is able to strengthen its price position in the market.” Collective bargaining has become the substitute for basing-point systems, price umbrellas, and informal collusion; as a result, any union which seeks higher wages for its members is converted, albeit unwillingly, into “a partner in a collusive enterprise which strong-arms the rest of the community.”

But the fact that the steel companies have, in the past, timed their price increases so as to direct the public wrath against the union rather than themselves hardly amounts to a showing that it is the union which has installed the mechanism by which the companies have been able to raise prices. There is no basis for assuming that another scapegoat would not be found—or the necessity for a scapegoat entirely dispensed with—if the union were not available. And, in any case, the appropriate remedy would seem to be adequate public consciousness of the facts, rather than the elimination of collective bargaining. And as to those facts concerning steel and auto price policies, Mr. Bell is quite clear—and quite correct—in disputing what he calls the “propaganda about the wage-price spiral.”

Precisely what would Mr. Bell have unions do on this score? Practically and legally, unions can do very little about business pricing policies, particularly in those sectors of the economy (like auto and steel) in which prices are established without too much reference, if any, to the demand situation. On numerous occasions the auto union vigorously protested the pricing policies of the automobile industry. The steel union, notably in the recent dispute, forthrightly took the position that it was willing to limit its wage and benefit improvements to those which could be granted without the industry’s increasing prices. What more could any union do under the circumstances?

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Mr. Bell cites the recent steel strike as the most glaring example of his theory that corporations “subvert” the collective bargaining process by using it to increase prices, making wage and other improvements won by the union an excuse for unwarranted expansion of profits. The reason he views the recent steel dispute as a particularly horrendous illustration of this practice is that in his opinion the union’s economic gains were so small as to nullify the pretense by either industry or union that any price adjustments were warranted. Finally, he charges that the steel industry has already proceeded to increase prices desite the fact that in the settlement “the industry was the economic victor.”

I am forced to say that I can scarcely recognize the steel settlement and its after-math from Mr. Bell’s description. Here I vigorously challenge him on the facts, as well as on his main thesis.

In describing the settlement (which was a 30-month settlement, extending from January 1960, to July 1, 1962) Mr. Bell says that in “straight wage terms, the steel workers will receive an increase of 8.2 cents an hour in December 1960, more than a year after the strike, and a second, 7.6 cents increase in October 1961.” This is a wholly distorted account. If the total economic settlement for steelworkers after a 116-day strike were indeed two wage increases amounting to 15.8 cents for a 30-month period, then Mr. Bell would be right in calling the industry the economic victor. It is simply not true, however, that the workers must wait until December 1960, more than a year after the strike, to receive substantial economic benefits.

Under the settlement agreement, effective January 1, 1960 (the strike was settled on January 4, 1960), the union achieved a major economic victory in persuading the industry to absorb and take over the complete cost of the then existing insurance program, which had been financed, on a 50-50 basis, by employer and employee contributions. If account is taken of the increased cost of the existing insurance package, as well as the new insurance benefits provided, the maintenance of the old 50-50 system would have meant a payroll deduction for the average steelworker of almost 9 cents per hour. Converting the program to a non-contributory one, this gave the average steel-worker immediate and substantial economic gain which, unlike a wage increase, was not taxable.

Even if the new insurance benefits and the increased cost of the old benefits are ignored, the average steelworker has his cash take-home pay increased, as of January 1, 1960, by the same amount as if he had received an 8.5 cents wage increase. With these factors, he received the equivalent of at least 10.5 cents. Mr. Bell also completely overlooks the fact that the pension program was substantially increased. While union and company estimates have differed on the amount, responsible actuaries have estimated the value of the pension improvements in steel at about 3 cents per hour.

Furthermore, Mr. Bell has not described the wage payments accurately. The wage increase payable in December 1960 is not 8.2 cents but 9.4 cents (because of impact on incentive payments of the wage increases). Similarly, the wage increase due in October 1961 is not 7.6 cents but rather 8.7 cents. These figures do not, I hasten to add, include the so-called indirect costs which the industry argues should be included in the computation, but are limited to the direct increase in wages paid to the employees.

In sum, then, the economic package won by the steelworkers is more than twice the amount computed by Mr. Bell—and I have not only used the most conservative estimate but I have also excluded any consideration of indirect costs arising from such items as vacations, holidays, shift premiums, etc.

True, the union mortgaged and modified its cost-of-living escalator, pledging it against possible increases in the cost to the companies of the insurance program. I have no apologies whatever for this very necessary collective-bargaining compromise. The quid pro quo for this concession, after all, was a wholly non-contributory insurance program, for which the union struck unsuccessfully in 1949.

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Now let us turn to the other side of Mr. Bell’s coin—steel prices. There have been no price increases whatever in steel products since the steel settlement. In fact, it should be said in all fairness to the steel industry that there have even been a few minor reductions in prices.

Now, I don’t know how long the present freeze on steel prices will continue; but I do think it is of major significance—and perhaps completely destructive of Mr. Bell’s entire thesis—that for several months already and for some months to come, the steel industry has applied a substantial increase in wages and economic benefits without increasing prices. I believe that the recent steel dispute proved that industry is finding it more and more difficult to make labor unions the scapegoat for exorbitant pricing policies. The strong stand taken by the Steelworkers Union against this, the similarly articulate position of the Auto Workers, the long-delayed force of public opinion, the increasing awareness of the press about the equities of the situation, the impact of government agencies like the Kefauver Committee, the force of competition—all of these, as illustrated by steel, have created a situation where a substantial increase has been granted to a union without a corresponding price adjustment. If these forces remain vigilant, perhaps there will be no price increases following the election in November.

And even if I am wrong, the appropriate remedy, it seems to me, is hardly that suggested by Mr. Bell. If powerful industries continue to use wage increases as a false justification for unwarranted price increases, the proper answer is not to abandon the goal of economic improvement through collective bargaining, but to correct the factors which genuinely lead to that result.

But a more fundamental thesis of Mr. Bell’s article than the “scapegoat” idea is that collective bargaining cannot really affect the level of wages. By simple, and undocumented, economic logic he postulates that union pressure can only affect the “structure of wages (i.e. the relative spread between industries—say, steel and textiles)” and cannot change the distribution of the total economic product between employers and workers. On this hypothesis, every union—except a wholly ineffectual one—is necessarily “a partner in a collusive enterprise which strong-arms the rest of the community.” And this would have to be as true of collective bargaining in its beginnings (when, according to Mr. Bell, it was “an instrumentality for economic and social justice”) as it is today. What follows from Mr. Bell’s argument, then, is not that collective bargaining has been subverted but that it was always subversive.

Such, indeed, is the conclusion of the conservative economists who share Mr. Bell’s postulate. As a matter of simple, classical, economic theory they demonstrated a generation ago that all collective bargaining on wages is socially harmful and can lead only to distortion of an economic structure which, if left undisturbed by monopolistic elements like unions, would produce the greatest good for the greatest number!

This is surely not the place, nor am I the one, to re-argue the question of whether laissez-faire economic theory is a meaningful description of the society in which we live. But I am surprised at Mr. Bell’s uncritical assertion, without even an attempt at proof, of one of its basic postulates. This assertion is the basic premise of his conclusion concerning collective bargaining. All the rest is window dressing.

On second thought, the rest is not window dressing. To the contrary, it proves the error of Mr. Bell’s theoretical postulate. It demonstrates in our economy price (and wage) levels are not inexorably determined by economic law. There are large areas in which prices (and wages) are administered. There is no iron law as to either, and social forces can affect both. I believe that collective bargaining has had, and certainly can have, an effect in increasing labor’s share of the total product, both directly and by inducing increases in productivity. I refuse to accept an unverified postulate that this result simply cannot occur. Nor do I understand, if Mr. Bell’s postulate is correct, why unions should turn from wage bargaining to applying economic pressure on corporations to reduce prices. The money supply, Mr. Bell tells us, would still determine the over-all price (and, by implication, wage) level and the only result would be an inverse effect on the structure of wages.¹

Nor do I believe that the wage increases which have taken place in the highly organized auto and steel industries with their powerful unions, have prejudiced the less organized and less powerful unions in other industries. On the contrary, it is my firm view—a view which is supported by respectable economic opinion—that the pressure of the rise of wages in steel and auto has helped to raise the wages of lower-paid groups. While the rippling effect in steel and auto has been exaggerated by these industries for their own purposes, there is, nevertheless, an element of truth in the claim that a settlement in these basic industries helps to provide the basis for wage movements in other industries.

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I am also very much perplexed by a concluding observation of Mr. Bell’s, which I find somewhat unrelated to his main thesis. In reviewing the traditional goals of collective bargaining—providing security; raising wages; eliminating job discrimination; providing for impartial arbitration, etc.—Mr. Bell seems to assume that these goals have been achieved. At best this assumption is only partially true. However, he then goes on to advocate—as though it were a new goal—the importance of achieving for the blue-collar worker the economic status of a white-collar worker—namely, an annual wage.

Now, I have reservations as to the extent to which the annual wage has really been achieved by the white-collar worker in major American industry. Beyond this, however, I am puzzled. How can so perspicacious a writer as Daniel Bell discuss the annual wage as an unrealized goal of the labor movement, without mentioning the great achievements of steel and other unions (like auto) in winning supplementary unemployment benefits (SUB) ? SUB, of course, is not a guaranteed annual wage. It is a method, developed in the collective bargaining process, of meeting the social need for which an annual wage is suggested. Under the SUB plans in steel, for example, an unemployed worker with two years seniority receives from the company for a period of 52 weeks beginning with his layoff, not the calendar year, an amount of money which, when added to unemployment compensation, equals 65 per cent of his take-home pay. In the 1958 recession alone, the steel industry paid out more than $50,000,000 in benefits under these plans. In the steel communities, every worker, every merchant, every family can testify to the value of these plans.

Now 65 per cent is not 100 per cent. But it is subject to negotiation in future collective bargaining. So are the negotiated pensions and insurance programs—programs which I think Mr. Bell has slighted, not only in his description of the steel settlement but in his whole estimation of the role of collective bargaining. The major achievements of collective bargaining since 1949 have been in these “fringe” areas. Largely due to the emphasis which the major unions have placed on these programs, a substantial portion of the American labor force, organized and unorganized, has some protection against the hazards of illness and age, protections provided by the employer as an incident to employment and which existed only to an insignificant degree when those unions began the “subversive” process of collective bargaining in this area little more than ten years ago. Much remains to be done; in the 1959 settlements in the can and aluminum industries, a new step was taken, the provision of hospital and surgical insurance for retired workers—which is still in the future in basic steel and most other industries.

One final thought. Before the steel strike, I, like Mr. Bell, was deeply disturbed about the future of collective bargaining in America. I was disturbed, not because I feared collective bargaining had lost its vitality, as Mr. Bell does, but because I detected an employer attitude which if carried to its logical conclusion—and if acquiesced in by the labor movement either because of weakness or lack of resolution—would destroy or emasculate collective bargaining. In a Sidney Hillman lecture at Madison, Wisconsin, in November 1958, I described by concern with this “hardening of attitudes” in management and voiced the fear that it spelled trouble on the American labor-management scene. Having been pessimistic on that occasion, I want to say that one dividend of the steel dispute has been to make me no longer so fearful. Although I know that all of the troubles ahead have not been solved, the tremendous courage and unparalleled unity of the steelworkers during the 116-day strike, have, in my opinion, contributed largely to dilating management’s arteries and reducing its high blood pressure. I have noticed the same improvement in other industries, where some settlements were concluded even before steel’s.

I feel impelled, therefore, to counsel Mr. Bell to cheer up. The collective bargaining process, which is so much a part of our national life, still contains that peculiarly wonderful American ability and vitality—qualities which will bring forth better programs to help lead us to the good society which we all seek.

—Arthur J. Goldberg

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Mr. Bell Replies

This reply must necessarily be brief and, on some of the facts, perhaps overly dogmatic, but I received Mr. Goldberg’s piece while abroad, and I do not have on hand either my article or some of the supporting data to reply more adequately. The questions can best be taken up seriatim.

1. I remember the time when the labor movement maintained it was an instrument for bringing about a better life for all sections of society. On that basis it laid claim to the support of sympathetic intellectuals and of “enlightened” public opinion. But if labor no longer has such high pretensions, why should it expect more public support than is given to, say, the American Automobile Association or to any other agency which serves as a pressure group for its constituents? It is strange that Mr. Goldberg should so readily write off labor’s role in creating a better life. It is especially disturbing in the light of my major contention—that in narrowing their concerns to bargaining, many unions have allowed the corporations to help impose a “hidden tax mechanism” on the consumers of the country.
2. I am surprised by Mr. Goldberg’s defensive demand for “additional documentation” on the pricing policies and break-even points of the corporations. As he knows, the unions supplied some of the documentation. In any event, the more recent reports by Otto Eckstein, for the Douglas Committee, demonstrate that steel prices had advanced beyond both the range of other industries and the allowable limits of the market, indicating once again the steel companies’ large degree of “market power.”
3. I didn’t say that unions were part of a conspiracy to raise prices; I have never considered any social process that simple. But, despite the evident pique of the companies, it is quite clear that both they and the unions know “the rules of the game”—how much each will ultimately get and the price each is prepared to pay. The fact remains that collective bargaining has become the occasion for price increases for which the union does serve as a scapegoat.
4. Mr. Goldberg, a careful advocate, has misread my article on a very explicit point. I did not say that the steel companies began to raise their prices after the strike settlement. The Wall Street Journal article which I quoted said that other companies and retailers were beginning to raise their prices, using the steel settlement as an excuse, and that furniture stores in steel areas were increasing their prices because the steelworkers knew anyway that prices always go up after wages do. Since the extraordinary production of steel plus the large stockpiling in the first quarter took care of a first and even second quarter demand, it was evident that the steel companies would not increase their prices immediately; nor would they want to create a political issue. But let us wait until the end of the year and see.
5. Despite the elaborate figuring on benefits won—and much of this is technical, for I discussed straight wage rates while Mr. Goldberg adds in incentive pay—one minor and one major fact remain. The minor one is increased welfare costs; from all past experience, they have rarely come as high as the initial estimates, so I shall reserve my judgment. But what is more important is the fact that the steel union in effect surrendered the cost-of-living escalator clause—the union’s basic defense against inflation during the last ten years. The consequences of this surrender are still to be assessed.
6. I can’t argue here the complicated problem of the effect of unions on wages. One of the reasons I maintain unions are not responsible for inflation is the fact that they do not generally affect the level of wages. If Mr. Goldberg is right in saying that unions do have such an effect, he should also be prepared to accept propaganda that the wage-price spiral is the cause of inflation—he can’t have it both ways. Suffice to say, almost every economist knows that the distributive shares—that is, the proportion going to wages as against other factors—has remained relatively unchanged in the last decades; Clark Kerr wrote a decisive paper on this years ago. Unions certainly have had enormous social impact on the grievance process, on technology, etc; but in the area of wages they have reflected market forces rather than determined them. But like Chanticleer the cock, the unions think that crowing makes the sun rise.
7. On my last important point, Mr. Goldberg, sadly, has misread me again. It was my fault, in part, in casually using the phrase “annual wage.” But a reading of the section would indicate plainly that I was not talking about unemployment benefits or supplements or the like, but about the fact that the blue-collar worker is paid by the piece or hour and about the immorality of such payment. Moreover, the fact he is so paid also allows the corporations to treat him as a commodity in the concrete sense of laying off a worker at odd hours during the day or week. Many auto workers, for example, work as many as twenty to thirty “short work weeks” (less than forty hours) a year. No clerical worker is laid off so casually, at 2:30 in the afternoon, say, two days a week. To pay a man by the week, month, or year is to abolish invidious status distinctions.

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All these, however, are debating points. What strikes me most strongly about Mr. Goldberg’s long letter is that it so largely neglects my major thesis—that through self-financing and through protected market power over prices, the corporations have a means of imposing a “hidden tax” on consumers, and are able to divert large sums of the national product to their sectors, while efforts to raise similar sums for public services are extremely difficult. It is much easier to appropriate billions for roads than for schools or housing because of the predominant social power of the auto and oil companies. The unions, I argued, have become part of an irresponsible social process, and despite some rhetorical statements about prices, have failed to confront the question among themselves. This is still the burden of my argument, and one which Mr. Goldberg has failed to meet.

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¹ Perhaps I read Mr. Bell wrongly. Perhaps he is not resting his argument on the simple logic of laissez-faire economics but means to say that the burden of increases in wages in some industries, such as steel and auto, have been shifted to the general public because of the price policies of the dominant corporations. This is a far different argument and the answer to it is the one I first suggested—that the remedy must be directed at the pricing policies rather than at collective bargaining. I know of no basis for assuming that the unions in these industries will depart from their present policy of seeking only those wage increases which can be justified without increasing prices. To the extent that others have been able to manipulate labor's actions for their own purpose, I believe the answer is not labor inaction but exposure of the manipulation.