The long-running Selected Papers series features notable work by University of Chicago faculty and other business leaders. This essay is an edited excerpt; the original was presented at a luncheon in 1963.
It has been widely observed that congressional approval of compulsory arbitration in the railroad industry marks a breakdown of private bargaining, and may well lead to compulsory arbitration for a wide range of vital industries.
This is a tragic half-truth.
The misunderstanding of what has taken place on the railroads and in other cases of intense government intervention may well lead to a drastic and, I believe, undesirable shift toward compulsion in our system of industrial relations. But this will not reflect a breakdown of private bargaining.
There has been no real private bargaining on the railroads for decades. What has failed is government-dominated bargaining. Ironically, when this much-government system finally failed completely, the answer was more government—in the form of compulsory arbitration—rather than less. And the irony is the more striking since free and more-nearly-private bargaining is, by and large, working well.
My purpose here is to convince you that a free and private system of industrial relations is far superior to a government-dominated one; and that this alternative is really available, despite the many and serious steps taken in the other direction during the past few years. To do so, I know, I must face up directly to the questions raised for the community by strikes, especially strikes involving large numbers of people or strategically placed workers. I must present a way of dealing with major labor disputes that you judge to be a workable, practical way. No doubt government has important responsibilities that will tax its capacities in this area, but its role must not be the dominant one toward which it now seems headed.
It has been said that job security now outweighs wages in importance as an issue for collective bargaining. Certainly, all the well-publicized recent disputes—railroad, newspaper, longshore—revolve around the issue of jobs—or perhaps more accurately, around the jobs that used to be there but may now be on the way out. So like it or not, we will have to struggle in labor relations with all the stresses and strains that inevitably accompany important changes in the structure of jobs. No one should be surprised if these stresses occasionally break into the open.
So much emphasis has been placed in recent years on the public interest in labor peace that other important goals in labor relations—goals in which there is also a private stake and a public interest—have been almost totally obscured. Let us take a look at the role of conflict in attaining these goals. In doing so, we need not get in the position of advocating strikes, of condoning the purely destructive conflict that you see occasionally, or of denigrating in any way the importance of knowing how to resolve differences without strikes. Much has been learned in this area over the past three decades, and many interesting and novel experiments are now under way. All these are to be applauded and encouraged, but not to the point where we become Pollyannaish about labor relationships.
First of all, we must acknowledge that conflict, of which the strike is but one example, is a widely used method for producing generally desirable results for our society. We have organized our economy on the basis of freedom to enter new businesses, to innovate, to engage in competition for markets. Let there be many companies in the field and let them fight with each other so that the consumer gets better products and lower prices. Some people get hurt by these processes; I need not tell you that they can on occasion be rough. But, by and large, they are productive.
We must recognize that some strikes are simply part of the price we pay for free collective bargaining.
By the same token, in the field of industrial relations, the possibility of challenge and response, from a base of some power on both sides, can be constructive. It provides an opportunity for people who have different backgrounds and orientations to bring out and represent their interests forcefully. Such representation can be productive, but it cannot take place if we do not allow for the possibility of a clash in views and the likelihood of an occasional explosion.
Second, we must all realize, whether as members of “the public” or in our private capacities, that we have a tremendous stake and a great interest in the vitality of private parties and private processes. If you have a management that is moribund and is not doing anything, or if you have a union that is lazy and is not representing its workers adequately, you really do not have a healthy situation at all. We want, instead, companies and unions who are alert, energetic, driving—who are analyzing their interests and representing them vigorously.
A good case in point is the railroads, where the government-dominated system of collective bargaining, at least until very recently, has fairly well sapped the vitality of the processes involved and has left the situation much worse than it otherwise might be. When it takes six years to settle a simple grievance, you surely have a bad situation.
Third, in this effort to suggest that the public has a stake in strikes other than only to get them settled, I offer you the great importance of having private parties be responsible, feel responsible, and take responsibility for the results of their efforts. Whatever settlement is reached—good, bad, or indifferent—somehow it must be their own settlement. It is the settlement of the people who have worked it out, not somebody else’s doing.
Finally, we must recognize that some strikes are simply part of the price we pay for free collective bargaining. If you tell people they are not allowed to strike or, in the case of management, take a strike, they are simply not free to pursue their interests as they see those interests. It is just one of the costs that goes with the gain of having a free system.
Now, of course, the greater the costs of labor-management conflict, the less happy we are to pay them. This point, then, is of great importance: the price we are paying for free bargaining in this country is an exceedingly small one, and we should not be reluctant to pay it.
Now, perhaps you will say that the recent longshore strike, in which a Taft-Hartley Act injunction was used, is a case against me. That may be, but I think it is worth noting that the president sought and got an injunction against such a strike on the grounds that, if the strike were permitted to occur, it would create a national emergency. But after the injunction expired, a strike did run for over one month, and what did people talk about? All I read about in the Wall Street Journal was the bananas: you are not going to get bananas; they are doubling in price. Just for fun, one morning in New York after the strike had been on some weeks, I ordered bananas with my shredded wheat to see if they would come. The waiter didn’t even give me an argument; he brought the bananas. This is not to deny the genuine economic hardship and public inconvenience that can be caused by a prolonged strike on the docks or in some other industries. But the allegations of hardship need the closest scrutiny, and the true costs must be balanced against the price of intervention.
My point is that the public has vital interests in allowing people freedom to strike—or take a strike—if they want to, and if these interests are disregarded, the system of industrial relations is going to change very drastically.
Furthermore, in taking this position, at least in this day and age, we are really not taking such a terrible risk, because the volume and the impact of strikes are not nearly so great as alleged. Most goods and services turn out to have fairly close substitutes, which, indeed, is one reason for prompt settlement of most disputes. Or, alternatively, inventories may provide a considerable hedge against the impact of a strike. There are problems, of course, but they are far overrated, and the health and safety aspects are usually not present.
The present course of national policy has seemed, at least until very recently, to be: intervene early; intervene with preconceptions of what the right answer is; and intervene frequently, over a wide scale, with high officials. And now the picture is further complicated by the fact that Congress, albeit reluctantly, is in the act.
I do not think that is a considered policy but is just what has happened. That is in a sense the effective policy we have, and it has been born out of all sorts of frustrations, out of all sorts of problems arising from the structure and issues of collective bargaining.
This process also demands solutions. If you are going to take the intervention route, you have to provide the answer. If parties feel they are not getting what they want through bargaining, they are certainly going to find out what the government’s answer is and try to use that leverage as much as possible. This can ruin private bargaining because it forces each party to hold back any concessions that might normally be made. Anything you concede will be held against you in the next, higher round of discussions.
It is very important for the high-level people to virtually refuse to get involved.
This course has in it a very, very great potential for failure. We are going to run into situations, right along the line, where all these procedures are going to be indulged in, and where one party or the other—management in some cases, union in others—will say: “With all due respect to you, Mr. President, or to your Board, I just don’t agree with you, and I’m standing on my position.”
When that happens—and it already has on at least one occasion—the gauntlet is down. That is a terrible situation for the president to be in. As President Kennedy said, in effect, in a television interview last spring, commenting on the steel-price conflict, “Well, what could I do? After all this had happened, there I was and I had been defied. I had to pull out all the stops.”
The question one needs to ask is: Was it wise to get in that position in the first place? I ask this with respect not only to steel but to a whole range of cases. The potential for failure not only is great; it is absolutely certain that the high authority is going to be defied by the strong-minded groups we have in this country. And the results of failure of this kind of an approach drive you inevitably further into all sorts of relatively drastic types of solutions that are not process oriented but result oriented. The big one that is always mentioned—everybody falls for it, I think—is compulsory arbitration. And now, as a friend of mine put it in discussing the railroads, “Here we is, damned if we ain’t.”
The implications of the present course are serious. We have gone quite a long way, and we ought to ask ourselves: Isn’t it time for a fresh look? There are, of course, all sorts of places where blame can be put. But our problem, at least as I see it, is to say: “Where do we go from here? How do we rearrange things so that we can have a reasonable process of bargaining, and so that we don’t get our high public officials involved in these impossible situations?”
Let me throw out a few ideas in the full realization that it is much easier to be critical than to be constructive.
First of all, as an administrative proposition, it seems very important somehow for the government to change its stance, to make a more considered assessment of the possible impact of strikes, and to help the public make such an assessment. Educate the public about what is really going on.
Second, it is very important for the high-level people to virtually refuse to get involved, and to say, “I’ve had it and I’m just not going to spend so much time on labor disputes anymore.” Let the top officials disengage themselves and try to get the problem pushed into an area where there are professional people who are supposed to spend all of their time doing this kind of thing.
My third point rests on a common analysis of the impact of major strikes. Perhaps we can use an approach that has not been tried much but that would seem to offer real potential for protecting the public interest. We could have limited, continued operation, but still let most of the strike go on, an approach built on the possibility of partial operation of struck facilities. To be sure, there are all sorts of political difficulties, but the difficulties are worth facing up to.
Finally, just to show you that I haven’t lost my mind completely, let me assure you that I believe it is very important to encourage a wide variety of mediation approaches, private approaches. Private approaches have been producing and will produce good results.
Together, some of these things can help any administration give the public assurance that the government is doing something. It is trying to help get things settled; it is protecting the public interest in at least partial operation. Perhaps, if accompanied by sane and careful statements about the impact of a strike, these measures will diminish the pressure from the public somewhat and allow some of these less spectacular procedures to operate.
The cornerstones of my position are an assessment that the strike situation in this country does not present us with a crisis and that private processes can work well, but that private processes are doomed unless we develop more tolerance for at least a minimum level of conflict. To be sure, there are costs as well as gains. But, for my part, freedom and the vitality of private parties and private processes are worth the cost.
George P. Shultz was dean of Chicago Booth from 1962 to 1969, as well as former US secretary of state under President Ronald Reagan.
Chicago Booth’s Chad Syverson talks about what’s happened to US productivity.
How Low Productivity Cost You $25,000
New methods of measuring racism and sexism find a larger, systemic impact.
We’ve Been Underestimating Discrimination
Luigi Zingales and Tyler Cowen debate the price of tech giants’ dominance.
Should We Care If Google Is a Monopoly?Your Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.