Cartelization and the State Against Workers

Anyone who has ever been masochistic enough to visit the Being Liberal Facebook page or the Yahoo! Answers politics section has undoubtedly been exposed to the profound and scathing critique that “libertarianism is just anarchy for rich people.” (Probably the only more pervasive one-line dismantlings of a philosophy are “Libertarians are just Republicans who want to smoke pot” and “Move to Somalia!”) Admittedly, there are more than a handful of libertarians who worship the members of the capitalist class as if they were all Dagny Taggarts or Hank Reardens. But there also exist libertarians who position themselves as allies of the working class and emphasize that a free market would work to the benefit of laborers.

Brad Spangler calls attention to “the role of the state in artificially concentrating capital in the hands of state-allied big business—giving statist plutocrats far more bargaining power in the labor market than is their natural due.” He refers to the current market for labor as one of oligopsony, a condition in which there are only a few buyers: “[T]he government-induced cartelization of industry creates oligopsony conditions in the labor market. It does this by artificially reducing the number of buyers of labor (businesses), thereby granting the existing ones an unnatural degree of bargaining power.”

The consequence of this Spangler calls wage slavery. When there are only a few buyers in the market for a good or service, there is little competition to bid up prices, so a government-created oligopsony in the market for labor means suppressed wages. In this view, the minimum wage and other such labor regulations are merely Bismarckian concessions, meant to placate the working class without paying them their due compensation. It is certainly not hard to imagine a government that has no real concern for the well-being of working people but that will appease them with breadcrumbs if it means securing their rule.

To understand what features of today’s economy are attributable to oligopsony, it would be helpful to look at the effects of monopsony, which seems to differ only in degree. People often talk of monopsony in the market for labor in the context of a company town, a remote locale in which all stores and housing are owned by the town’s sole employer, usually a mining company. Perhaps we should look at company towns as a possible example of an uncompetitive number of buyers of labor. The single employer in a company town similarly underpays workers, it is argued, and—despite the fact that company towns have been all but extinct for nearly a century—proponents of the minimum wage argue that such legislation is necessary to combat monopsony prices.

According to a recent blogpost by Alex Tabarrok, however, workers in the company towns of yore were not paid disproportionately low wages in relation to other workers of the time as is often postulated. Because company mining towns were often in parts of the country that most would not consider an ideal place to settle and the company needed to entice workers to move to such a place, “on an hourly basis wages in mining were higher than in manufacturing.” But what about the prices of goods at the company stores? Surely they were marked up to squeeze every penny from the workers, right? Tabarrok answers that when “comparing identical baskets, prices at company stores were not higher than at similar independent stores.”

Company towns had little choice but to pay wages comparable to those elsewhere in the country because although they “were isolated geographically … they weren’t isolated from the national labor market.” But if the town’s sole employer has to compete for labor against employers elsewhere, is this monopsony at all? The wages in remote mining towns of the nineteenth century do not seem to offer us any insight into what effect “government-induced cartelization of industry” has on wages.

Unlike in the company town, employees cannot as easily relocate if their wages are insufficient because they will find the same companies paying the same wages across the country. The buyers of unskilled labor do not vary drastically from one American state to the next. But it is conceivable that this artificially low number of buyers in the market for labor is not low enough to make the market uncompetitive. If we imagine a competitive market X1 with y buyers in the market for labor, we would expect a market X2 with 2y buyers, ceteris paribus, to be competitive as well. Perhaps today’s market, which Spangler calls oligopsony is a market like X1 and without government interference would be like X2, and no increase in the number of those who buy labor would make the market substantially more competitive and thereby substantially increase wages.

It would be interesting to see research on how much competition is enough competition on the demand side of labor markets. But even if it turns out that today’s artificially cartelized markets do not suppress wages, it is still no challenge to rattle off ways in which the State is the enemy of working people. Occupational licensing laws keep industrious people from participating in the division of labor. And let us not forget the long history of states intervening to disrupt organized labor before finally settling with coöpting the more compliant unions. Taxation itself cuts an inexcusable chunk from a worker’s pay. Free-market antistatism is for everyone, not just for the rich.

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