Our housing issue is out now. Get a discounted subscription today!

The Twinkie Defense, or What Does “Uncompetitive” Mean?

(verokitschy / flickr)

Comrade Frase offered his thoughts on the Hostess collapse the other day, and while I have my differences with his take, that’s not what I want to talk about here. What fascinates me about the  the bakery workers’ strike are all the reactions to it, and what they reveal about the worldview underlying our free market in labor.

On Twitter a while ago, some neoliberal creep who works for Bloomberg News lamented that New York’s transit system would be so much better off if the workers’ pay levels weren’t so “uncompetitive.” Meanwhile, every time a Wal-Mart flak goes on TV to talk about the company’s labor problems, they’re always at pains to insist that their stores pay “competitive wages.” So goes the rhetoric of market competition: for Wal-Mart, competitiveness means wages that are high enough; for the MTA it  means wages that aren’t low enough.

Somewhere out there, there must be some wage level that’s just right — that the wisdom of the market deems really and truly competitive. But how would we know a competitive wage if we saw one?

Let’s ask Hostess. Earlier this month its bakery workers went on strike after rejecting management’s demand for a 30% cut in wages and benefits over five years. The vote against accepting the offer was 92%. Management warned that if they didn’t promptly return to work, the already bankrupt company would go into liquidation. They didn’t, and it did. Most of those workers will now lose their jobs.

Most of the subsequent commentary blamed the union, of course. Unions, after all, are uncompetitive.

But let’s ask for a moment what would have happened if Hostess had been a non-union company. Judging from the commentary, you would think that out there in the real world, 30% pay cuts are the norm and people just suck it up. In reality, nominal pay cuts are rare. This is a well-known phenomenon in economics: it’s called downward nominal wage rigidity. Companies rarely impose actual reductions in the dollar amounts of pay for existing workers. In the most reliable studies, using company payroll records, about 2%–3% of workers experience a pay cut each year. Data from national surveys are notoriously prone to measurement error, but after correcting for it, 4%-5% of workers are observed experiencing falling wages.

In 1999, the Yale economist Truman Bewley published a famous book called Why Wages Don’t Fall During a Recession, in which he took the revolutionary step, for an economist, of actually going out and interviewing people. It’s a fascinating book for many reasons, but the main thing Bewley was trying to learn was why, in flagrant defiance of economics textbooks, employers lay off workers in recessions, when the textbooks clearly state that they should simply cut their pay instead. He talked to hundreds of employers around Connecticut about how they decide on pay and staffing policies.

Bewley summarized what he found this way: “All employers thought cutting the pay of existing employees would cause problems. The main argument was that employee reactions would cost the firm more money than a pay cut would save, so that it would be profitable only if workers accepted it.”

But the richness of the author’s account comes from the generous quotations he provides, and on this subject in particular there was an amazing combination of vehemence and near-unanimity from the employers. All of the following are quotes from different interviewees: “I have never cut wages.” “I never froze or cut pay, and never will.” “[A pay cut] is out of the realm of consideration.” “Such a thing is just not done.” “I have never cut anyone’s pay.” “I know something real. Never cut wages.” Over and over, the employers talked about disastrous turnover, bad morale, little acts of sabotage that would sap profits and make their lives miserable.

“If I cut pay, people would leave out of rage, even though they have no place to go,” said the owner of a car dealership with thirty employees.

It took a lot of work for Bewley just to find any companies that had cut their workers’ pay. “At the end of most interviews, I asked whether the respondent knew of any firm that had recently cut pay, and few had heard of any,” he wrote. “All but a few accepted wage rigidity as a fact of life.” But after much searching, he did manage to track down 36 businesses that had cut pay in the past half-decade or so, and he was able to gather more detailed information for 16 of them. In 13 of the 16 cases, the pay cuts were 10% or less. Many of the cuts were explicitly temporary. Of the remaining three cases, at least one involved cuts in work hours to make up for the pay cut.

So let’s turn back to hapless Hostess. In a piece for Salon, Jake Blumgart quoted a bakery worker who had been at the company for fourteen years. “In 2005, before concessions I made $48,000, last year I made $34,000. . . . I would make $25,000 in five years if I took their offer. It will be hard to replace the job I had, but it will be easy to replace the job they were trying to give me.”

What we have here is a situation where a company offered a wage in the marketplace and couldn’t get any workers to accept it. Consequently, it went out of business. The word “competitive” gets thrown around a lot, often with the murkiest of meanings, but in this case there can be no doubt at all that a company, Hostess, was unable to pay a competitive wage. Ninety-two percent of its workers voted to walk out on their jobs rather than accept its wage, and they stayed out even after they were told it was the company’s final offer.

By all the canons of competitiveness, it was the company that was deluded. Hey, it’s a tough labor market out there. Hostess just couldn’t compete.

But the union got blamed instead, and that points to a fascinating aporia in neoliberalism. The competitiveness ideology keeps a double set of books. On the surface, it celebrates free individuals making voluntary agreements on a footing of formal equality. But look just a little deeper and it turns out to be a musty, medieval system of morality that venerates human hierarchy and inequality. If taken literally, an accusation of insufficient “competitiveness” would refer to a failure to buy or sell on the terms objectively demanded by the dispersed actors of the marketplace. But nine times out of ten, this literal meaning is just a facade for the real underlying meaning, which is all about policing the socially accepted rules concerning who is a worthy human being and who is not. Workers at an industrial bakery are losers. They need to take a pay cut — not so much to make the numbers add up (that’s a secondary consideration for all the commentators and columnists) but as a ritual affirmation of their debased social status. The refusal to take the cut was shocking and revolting — an act of lèse-majesté. It’s in that sense that the union was uncompetitive. The workers didn’t know their place.

Corey Robin has often cited the political scientist Karen Orren, whose book Belated Feudalism revealed the feudal underside of the nineteenth century “unregulated” capitalist labor market. Here’s Corey’s summary:

 According to Orren, long after the Bill of Rights was ratified and slavery abolished — well into the 20th century, in fact — the American workplace remained a feudal institution. Not metaphorically, but legally. Workers were governed by statutes originating in the common law of medieval England, with precedents extending as far back as the year 500. Like their counterparts in feudal Britain, judges exclusively administered these statutes, treating workers as the literal property of their employers. Not until 1937, when the Supreme Court upheld the Wagner Act, giving workers the right to organize unions, did the judiciary relinquish political control over the workplace to Congress.

Prior to the ’30s, Orren shows, American judges regularly applied the “law of master and servant” to quell the worker’s independent will. According to one jurist, that law recognized only ”the superiority and power” of the master, and the ”duty, subjection, and, as it were, allegiance” of the worker. . . . As soon as workers entered the workplace, they became the property of their employers. Judges enforced the 13th-century rule of ”quicquid acquietur servo acquietur domino” (whatever is acquired by the servant is acquired by the master), mandating that employees give to their employers whatever they may have earned off the job — as if the employee, and not his labor, belonged to the employer. If an outside party injured an employee so that he couldn’t perform his duties, the employer could sue that party for damages, “as if the injury had been to his chattel or machines or buildings.” But if the outside party injured the employer so that he could not provide employment, the employee could not likewise sue. Why? Because, claimed one jurist, the ”inferior hath no kind of property in the company, care, or assistance of the superior, as the superior is held to have in those of the inferior.”

”Belated Feudalism” set off multiple explosions when it appeared in 1991, inflicting serious damage on the received wisdom of Harvard political scientist Louis Hartz. In his 1955 classic ”The Liberal Tradition in America,” still taught on many college campuses, Hartz argued that the United States was born free: Americans never knew feudalism; their country — with its Horatio Alger ethos of individual mobility, private property, free labor, and the sacred rights of contract — was modern and liberal from the start. For decades, liberals embraced Hartz’s argument as an explanation for why there was no — and could never be any — radicalism in the United States. Leftists, for their part, also accepted his account, pointing to the labor movement’s failure to create socialism as evidence of liberalism’s hegemony.

But as Orren shows, American liberalism has never been the easy inheritance that Hartz and his complacent defenders assume. And the American labor movement may have achieved something far more difficult and profound than its leftist critics realize. Trade unions, Orren argues, made America liberal, laying slow but steady siege to an impregnable feudal fortress.

The hypocrisy of the competitiveness ideology is a revival of this old double-bottomed tradition: a society of equals on the outside, master-and-servant deep down. Let the neoliberals howl: this Friday at Wal-Marts around the country, workers will be storming an archipelago of little Bastilles.