General Motors: An Autopsy

As the world watches General Motors, once the “bluest” of blue chips, enter bankruptcy court to seek protection from its creditors, pundits roll out explanations for its demise. Missing from almost all of the discussions is monopoly power — the root cause of GM’s troubles. What is in play here is not the monopoly power of what was once the largest corporation in the U. S. — for GM never had such market dominance — but rather the monopoly power granted by law to its workers through its union, the United Automobile Workers. It is this that has brought GM to its knees.

With the passage of the National Labor Relations Act in 1935, U.S. labor unions were granted exemption from anti-trust legislation, thus effectively achieving monopoly status in the labor market. Notwithstanding this legislation, over the ensuing years U.S. workers have understood the dangers inherent in this arrangement and routinely rejected union efforts to organize in most industries. As a result, union membership has declined in the U. S. with the notable exception of public service-employee unions. Those industries where union membership maintained dominance have experienced continuing disintegration evidenced by an inability to compete effectively.

It is part of human nature to seek security from change. Citizens, companies, and other interested groups have regularly sought market, pricing, and/or job protections through the intercession of the one institution that can, through the use of legal force, protect those interests: the government. Such protectionism is simply legalized theft in the form of the transference of wealth from one group (taxpayers, consumers, etc.) to another, more favored one (in this case, organized labor).

The consequences of such protectionism make for a baleful tale. For example, in an ever-frustrated effort to protect agricultural interests, we have witnessed the destruction of crops and the slaughter of “excess” animals; providers of utility services have prospered at the expense of their customers in a marketplace where prices are fixed and competition is prohibited; and educators, at taxpayer expense, have evolved into mere workers insulated by their unions from accountability for the corrosive effects of their poor instructional methods. The list is endless, and the victims are not just consumers forced to pay higher prices and accept poorer service, but, ultimately, the protection-seekers themselves who suffer as the protected enterprise shrivels and becomes less and less vital. In a relatively free market, more competitive enterprises will, over time, replace these high-cost dinosaurs; in a less free market, relative economic activity will atrophy and overall standards of living will decline.


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