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Sunday, June 24, 2012

BARGAINING - Paul L. Poirot

Foundation of Economic Education

Bargaining means trying to negotiate a contract or to arrange a trade on terms satisfactory to both the buyer and the seller. That’s why it takes two to make a bargain, and only two—a buyer and a seller, higgling over terms. If it’s true bargaining, there is no interference by anyone else and no threat or suggestion of coercion or violence in any form.

  Anyone who has been caught in a Christmas shopping rush or who has witnessed the operations in a public market on a busy day may question the idea that only two persons can take part in the bargaining procedure. At the time, it always seems as though several persons are involved. But this is merely an example of competition at work. The competing sellers offer their different lots of goods and services and the competing buyers bid for ownership of these various things. The presence of more than one potential buyer or seller widens the range for bargaining. But the actual bargaining is carried on between one buyer and one seller at a time, each of whom is free to accept or to reject the other fellow’s best offer. The whole concept of bargaining presumes that there will be alternatives from which to choose—alternatives offered by competition as well as the alternative of rejecting all offers.

  The satisfaction from bargaining, whether it leads to a trade or not, lies in the feeling of each party that he has obtained the best deal possible without resort to force or fraud. Competition helps each person decide what is best. Since competition and bargaining are so closely related, the two ideas may well be merged within the term “competitive bargaining”—competition between persons who recognize the rights of individuals to use what they have as a means of bargaining for what they want. Mankind has never discovered a basis for human relationships, other than competitive bargaining, which so encourages a person’s own self-interest to operate to the benefit of others.

  When a person voluntarily offers his goods or services for exchange, and when another person voluntarily agrees to the terms of the offer, exchange will take place. Both parties find satisfaction. It’s not a question of one’s gaining at the other’s expense. The exchange works to their mutual benefit. Both gain. How much will each gain? Leave that to the judgment of those who practice competitive bargaining and who are directly involved in any specific transaction.

  Trade occurs when both parties agree as to the price—when both see an advantage in trading. The terms of such trade are not anyone else’s business— at least, not within the framework of truly competitive bargaining. There is no third party; even the government is supposed to keep its hands off except where someone tries to substitute violence for free choice in the market. Any other test of fairness for prices or wages is an abandonment of the private enterprise system.

  The Right of Refusal

  One of the important features of truly competitive bargaining is that a person has the right of refusal. He doesn’t have to trade at another person’s price. A man may keep what he has if he isn’t satisfied with the other fellow’s best offer. Such a refusal to trade is quite a common thing in any market place. It is typical of the competitive system. It is a vital part of the bargaining procedure. It is as fair and just as the day is long. But a refusal to buy or to accept the terms offered certainly is no excuse for violent retaliation against the rightful owner or against any other person who might be willing to accept the owner’s terms of trade.

  A person may choose to quit a job if the wage or other conditions of employment are not satisfactory, just as a shopper returns a can of peaches to the shelf if the price is too high for her. Yet the housewife, by that act, does not pretend to have acquired a claim of ownership to the peaches. The next shopper who wants them may claim them at the price agreeable to the seller. An unhampered market will function in exactly that same fashion with respect to opportunities for employment.

  Competitive bargaining has brought many benefits to the creative and highly productive men and women of America, just as all men and women can gain if they are willing to assume the responsibility of being free. But freedom to bargain is being forfeited by Americans who do not perceive that such freedom is based upon respect for the rights of others. The advantages of bargaining and trade are not to be found in the kind of collective action which calls for the suppression of individual freedom of choice. The only alternative to bargaining is compulsion. To exercise compulsion is to govern. In the final analysis, the alternative to competitive bargaining is government control—the government in command of all property and all lives—individuality surrendered to the state—compulsory collectivism.

  Bargaining Representatives

  Any employer or any employee who feels that he is personally unqualified to gauge the conditions of the market owes it to himself to seek the services of a qualified bargaining representative. And a qualified bargaining representative will be one who understands that his job is to find the right wages—those which just clear the market without bringing compulsion against a single person.

  Bargaining has indeed helped to provide many of the material blessings available to American consumers today. And some of this bargaining has been of a “collective” nature in the sense that one party to the bargain has spoken in behalf of a number of cooperative individuals whose common and unanimous interest is in a specific action not designed to hurt someone else. However, much of what has passed for bargaining in America has not been bargaining at all, but a kind of compulsory collectivism which prefers coercion to voluntary agreement.

  Bargaining is not facilitated by a powerful membership organization of competitors, whether they be competing for wages or for profits or for anything else which is scarce enough to have market value. It is a highly risky thing to delegate one’s own right to bargain to any representative who pretends that such organizational control of competition is either necessary or desirable. A bargainer is one who cooperates with those who are willing; for that purpose, he needs no power of compulsion. He doesn’t need coercive control of competitors. Such controls are the tools of persons who will use force if bargaining doesn’t go to suit them. Those who are still free to bargain, and who like it that way, will think carefully before placing in the hands of others those personal rights and responsibilities which might be perverted into weapons of coercion.

  The Value of a Service

  Much of the dissension about wages arises from a failure to distinguish between the worth of an individual as such, and the value, for purposes of exchange, of the services offered by the individual. Among free men, the worth of an individual is not a matter to be determined in an economic sense. Certainly that problem is beyond the scope of this study, for we are not discussing the buying or selling of human beings. The purpose of bargaining, in this respect, is to arrive at the market value or exchange price of specific services voluntarily offered by individuals. A man offers to sell eight hours of his day in order that he may better utilize the balance of his day according to his own choice.

  According to the expressions of preference in a free market, a higher exchange price may be offered for the services of one person than for another’s services. There is great variation in the productive capacity of different individuals. This is as true among so-called hourly workers as it is among managerial workers. The efficiency of the capitalistic system stems from its tendency to concentrate the management of productive operations under the direction of the most capable managers. So it happens that a good manager may serve to coordinate the productive services of a large number of employees.

  The control of capital also tends to be concentrated in the hands of the best managers. The owners of property—and to a large extent, they are simply those workers who have spent less than they earned—sometimes find it desirable to pool their property so as to attract the managerial services of an expert. Stockholders thus hire corporation management—agree to pay a manager for his services to them.

  In order to best serve the interests of stockholders, the manager must be capable of coordinating the services of many individual employees in a way that is sufficiently satisfactory to each employee to attract that employee from alternative opportunities for the use of his services. So it is that a good manager serves a group of property owners as well as a group of employees, all in the interest of better service to customers. He serves to the extent that he is able to improve the productivity of all the property and all the labor which has voluntarily sought his management.

  The Workers Reserve

  It is frequently argued that an employee is at a bargaining disadvantage when he seeks a favorable employment contract because he has less of a reserve to draw upon than does an employer. It is said that the employee needs bread for his family’s supper, whereas the employer needs nothing more urgent than a new yacht. The effect of such dramatization is to draw attention from the subject of the employer-employee relationship. The employee wants the use of tools and managerial services, and the employer wants the workman’s services so that together they may create something useful in exchange for bread, yachts, or whatever else either of them may choose to buy with his part of the product.

  It is true that some employees have little except their weekly wages as a buffer against bill collectors. And if the loss of a week’s wages is that serious to a man, it may be a sign that he isn’t a good enough manager or, for some other reason, prefers not to try to make a living by working at a business of his own. Thus, he is in this sense dependent upon job opportunities created by others. But in a competitive society, a person is not bound to continue working for others, nor is he bound to depend upon any one employer for an opportunity to work. Some employees, of course, prefer not to change jobs; free men have that choice. Unless competition has been strangled by coercive intervention, employers will be competing against one another for the productive services of employees. This competition between employers for an employee’s productive capacity is the thing that constitutes the employee’s reserve, just as the reserve value of capital depends upon the competition for the use of that capital.

  In this connection, it may be interesting to speculate for a moment as to just how an employee’s reserve compares in dollar value with a reserve fund of capital. For instance, let us assume that a young employee might reasonably expect to find regular employment for a period of forty years at an average weekly wage of $100. For a nonworking person to draw a comparable income from a trust fund—assuming that it earns interest at the rate of three per cent and that the principal also is to be used up over the period of forty years—an original capital investment of $120,000 would be required. A person’s capacity for productive work is truly a valuable reserve, equal in worth to the inheritance, from quite a “rich uncle.” A young man has quite a stake in maintaining the kind of a competitive society in which such reserves are recognized as being private property.

  The fact is that a man who is willing and able to work does have a kind of reserve—in a sense, a better reserve than is available to the man who has nothing except money or capital. Robinson Crusoe could have salvaged the ship’s silver, but as a nonworking capitalist, he would have starved. According to the story, he saved his life by digging into his reserve capacity to work.

  Employer and Employee

  This same principle applies in our own kind of a complex society where each of us depends more or less upon exchange for his livelihood. If a man owns a million dollars, yet refuses to offer it in trade, he may go hungry, just as an employee may be faced with hunger if he refuses to turn his services to productive use. The market does not automatically guarantee subsistence to those who stop producing and trading while waiting for a better opportunity to present itself. An employee who chooses not to work may properly complain that he has no other means of support, but he ought to confine his complaint to the person who is solely responsible for his sad plight—himself. No one else has any right to make him work, nor any moral obligation to support him in his voluntary idleness.

  The employee who wants to sit until an employer comes forth with a more attractive job offer may say that he doesn’t have the reserve to enforce his demand, but what he means is that he doesn’t have control over other employees who are willing to accept the jobs which are offered. To describe such circumstances as a lack of reserve is just another way of saying that competition exists.

  Labor Government

  . . . The compulsory industry-wide union can pretty well guarantee a manager that no competitor will be able to achieve superior labor efficiency. It is possible to believe that in some instances company management works closely with labor union management to tighten the grip of their joint industry-wide monopoly. The consequence is that whole industries—all competing employers and all competing employees—can be called out on strike by one man who has a closed-shop grip on all manpower authorized for employment in “his” industry. Consumers can thus be squeezed between the alternatives of paying more or of doing without the products of an entire industry. Competition gives way to compulsion. No employer is allowed to continue productive operations; the union won’t let him hire employees. Nor can any employee stay on his job at the old wage, or bargain individually for a wage that might satisfy him; he, too, is compelled to strike until the demands of a single union official are met. That a union official may sometimes impose his will upon the consuming public without actually calling a strike does not modify the basic fact that such imposition constitutes monopoly power.

  In one other manner, also, the power of the government has been granted to the officialdom of organized labor. Taxpayers are obliged to provide unemployment benefits for those who have been forced into idleness by the tactics of exclusion which labor unions practice. This is monopoly power in its most terrible form.

  Perhaps the truth is that governmental planning and compulsion, as a substitute for the market, is in itself the evil which wrecks lives and makes for bad relationships within a society. If so, then it is wrong to give any person, or group, or so-called class, the right to plan and govern the social relationships of individuals.

  To blame union organizers for usurping power and for exercising the authority which has been granted to them by law, is to miss the important point. The fact is that the power of compulsion cannot be thus exercised until it has first been delegated by our individual selves to the agency of government.

  The self-interest of those who work and of those who have saved and accumulated capital is not detrimental to peaceful progress within society; rather, the thing to be feared and guarded against is the reckless abandonment of self-interest to a supposed class interest with the power to govern. And, if such power has developed and is being used to oppress other persons and groups within a society, the solution would seem to involve the displacement of such coercive power, not with a new “class” of governors, but with a new reliance upon freedom. The lifting of restraints and restrictions upon personal choice—the freeing of the market so that each may bargain with what is properly his own—is the only assurance of justice to every individual.

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