Just Capitalism; Not all attacks on business are crazy. Here is the sane version.
THIS SERIES has described ways to address inequality: Increase tax progressivity; invest more in education; reform health care. But there's pressure to reach beyond that: to tackle inequality where it apparently originates, meaning the workplace. This pressure can be dangerous. Companies are not instruments of social policy; their first duty is to make money by serving customers, and they can provide for their workers only so long as they do that. Nevertheless, two sorts of corporate reform are warranted. It should be easier for labor unions to organize. And it should be harder for top executives to pay themselves outlandish sums.</br></br>Union membership has fallen from 20 percent of the workforce in 1980 to 13 percent in 2005, and part of this decline is inevitable. It reflects attrition in the manufacturing industries that are most easily organized. It reflects the rise of sophisticated human resource departments that provide workers with training, savings plans and grievance procedures -- usurping some of unions' traditional functions. And it reflects the deregulation of domestic industries such as trucking and airlines, plus tougher foreign competition. These forces spur businesses to innovate, but they also constrain their ability to make wage concessions to unions. In competitive markets, companies will pay workers what it takes to prevent them from being lured away by rivals -- and not more.</br></br>Yet the decline of organized labor also reflects a legal climate that is neither inevitable nor desirable. The way labor law is enforced now, employers can block attempts to establish unions by intimidating workers; a supervisor can summon an employee to daily meetings to discuss the dangers of unions or ban discussion of a union during work hours. If these tactics are not enough, employers can fire union organizers; although this is supposed to be illegal, the penalties are too feeble to serve as a deterrent. Meanwhile, a series of decisions from the National Labor Relations Board has narrowed the definition of workers who are eligible for union membership. Two months ago, for example, the three board members appointed by President Bush outvoted the two appointed by President Bill Clinton in ruling that relatively junior workers can be defined as "supervisors," thus restricting their right to join a union.</br></br>A fairer legal climate might reduce inequality slightly. According to David Card of the University of California at Berkeley, de-unionization explains about 15 percent of the increase in wage inequality among men over the past quarter-century. But the larger gain from reforming labor law would be political. Freedom of association is a core democratic right, and polls suggest that between 30 and 50 percent of nonunion workers would choose union representation if they had a chance to vote for it. The suppression of freedom of association is wrong in itself, and it fosters the suspicion that the rules of the economy are rigged against workers. Setting aside the debate over how much union membership can improve wages or benefits, the option of union membership is crucial to the legitimacy of capitalism.</br></br>The same goes for rules on executive compensation. Since 1970, the pay of chief executives has jumped from less than 30 times the average wage to almost 300 times that level. This helps explain why the richest 1 percent of Americans pocketed 21.6 percent of all the gains in national income between 1996 and 2001, according to Ian Dew- Becker of the National Bureau of Economic Research and Robert J. Gordon of Northwestern University. As with the decline of labor unions, some of the rise in executive compensation reflects market forces and is inevitable. Yet similar market forces are at work in other advanced nations, where executive pay has grown more modestly. In 2003, the ratio of U.S. chief executives' pay to that of manufacturing workers was more than double the norm in 13 other rich countries.