Trade Unions and Trusts

Henry R. Seager December 1 1907

Trade Unions and Trusts

Henry R. Seager December 1 1907

Sir Charles Moss, on whom the honor of knighthood has recently been conferred, is one of the links which binds old Canada to the new. His career has been one of unremitting public usefulness. After completing his public school training he was engaged for some years in business with his father, the late John Moss. In 1864 he commenced the study of law and was called to the bar five years later. His courteous and upright manner as well as the intense and quiet fervor with which he devoted himself to duty soon resulted in his elevation to the Bench. The law firm with which Sir Charles was connected has a rather interesting history. It has given four other judges to the Bench of Ontario, the late Chief Justice Harrison, the late Chief Justice Moss, Chief Justice Falconbridge and Mr. Justice Osier.

Once did Sir Charles aspire for honors in the Provincial Legislature but without success. There is no doubt but he would have been a strong and progressive legislator and would have achieved distinction as honorable as that of Sir Thomas Moss in the House of Commons. But nature seems to have destined him for the Bench. To his judicial duties he has added an active and personal interest in the Provincial University as Vice-Chancellor and one of the Board of Governors. He commands the affection and respect of all Canadians and cannot know how wide and deep is the public satisfaction over the recognition he has just received.

Trade Unions and Trusts

Henry R. Seager

in Political Science Quarterly

TO the student of economic phenomena who starts out with the preconceived notion that trade unions and trusts are phases of a general combination movement, the very different policies which democratic states have adopted towards them must appear surprising if not inexplicable. Confining our attention to English-speaking countries influenced by the traditions of English law we find that as regards trade unions the last one hundred years have witnessed a revolutionary change in the state’s attitude. Under the combination acts in force in England a century ago, combinations among wage-earners even for the most obvious purposes of mutual benefit, such as securing higher wages or shorter hours, were criminal, and those participating in them were liable to severe penalties. Though this statutory condemnation was withdrawn in 1824, the courts continued for some time to hold that combinations that led to strikes were conspiracies at common law and to punish them accordingly. The view that strikes were an unwarrantable interference with the business of the employer was, as is well known, also held by American courts in the early part of the last century.

Both in England and in the United States, however, public opinion was more tolerant of strikes than were the courts; and in both countries, partly through legislation and partly through changes in the judicial interpretation of the common law, the ordinary policies of trade unions have gradually been legalized. In England, since 1875, trade unions have been freed from the risk of being condemned as conspiracies while peaceably pursuing the ordinary purposes of organized labor by the express declaration of Parliament that nothing done in connection with a trade dispute by a combination shall be

deemed a conspiracy unless the same act performed by an individual be punishable as a crime.

In the United States there has been a similar liberalizing of the law in reference to combinations of labor. Strikes for ordinary purposes have long been distinguished from conspiracies by the courts; and the highest court in one of the states ( New York) has gone so far in one of its decisions as to uphold a strike which had for its purpose the prevention of the employment of workmen not members of the striking organization. If certain arguments advanced by the court in this case should come to be generally accepted, all of the special restraints which the law of conspiracy has imposed upon men acting in combination would be withdrawn, and trade unions would be even freer in the United States than they already are in the United Kingdom.

But the attitude of tolerance towards combinations of wage-earners that has displaced the older policy of condemnation and suppression in England and the United States is after all negative rather than positive. A11 indication of what it is likely to lead to with the further progress of the democratic spirit is furnished by what has already taken place in New Zealand and Australia. There, whenever courts of arbitration have been established to substitute reason and justice for superior strength and staying power as arbiters in labor disputes, the awards of these courts habitually give to members of labor organizations preference of employment. Only when organized labor has been fully employed is there an opportunity under these awards for the unorganized man, the scab, to gain employment. Thus in Australia and New Zealand the trade union is virtually accepted as an organ of the state itself, and its members are ac-

corded such privileges that the lot of the non-member is hard indeed.

In marked contrast with this attitude of the state towards the trade union, the combination on the side of labor, is its attitude in the United States towards the trust, the combination on the side of capital. Instead of accepting such combinations as the natural fruits of industrial progress or leaving it to the courts to adapt the common law of conspiracy to the novel situations to which these combinations give rise, most of the states and Congress itself have expressly condemned them in sweeping antitrust acts. As interpreted by the supreme court of the United States, the federal anti-trust act has been held to condemn reasonable as well as unreasonable combinations, and its limitation to commerce among the several states has alone prevented it from having a most serious influence on the industrial development of the country. In other English-speaking countries (excepting Canada) there has been no similar anti-trust movement. Trusts are not encouraged as are trade unions, but there has been no effort to legislate them out of existence. Nor is this to be explained, as some writers have asserted, by the absence of trusts in these countries. As Mr. Macrosty’s recent book has shown conclusively, the United Kingdom has its full share of capitalistic combinations. The failure of these to arouse any very general anti-trust sentiment in that country must be ascribed to the absence in England of those causes which have made American trusts a public danger.

In order to understand why such different treatment is accorded to trade unions and trusts in the United States it is only necessary to recall the benefits usually ascribed to the former and the evils commonly laid at the door of the latter. A review of these alleged benefits and evils will also serve as a useful test of the value of the analogy which is the guiding thread of this discussion.

The principal benefits credited to trade unions may be summarized in three propositions:

(1) They enable wage-earners to bargain on more nearly equal terms with their employers, and hence lead to fairer wage contracts.

(2) They tend to give greater stability to the relations between employers and employes by lessening strikes and lockouts, and thus make for industrial peace.

(3) They train their members in habits of self-restraint and self-government, and thus serve as useful schools of citizenship.

While far from denying the general truth of these propos. Lions in favor of labor organizations, I think it must be admitted that they are subject to important exception^. Organization on the side of labor, when its advantages become appreciated may easily be carried to a point which enables the union to have the upper hand in bargaining with the employer. -To use this advantage to. force the harassed employer to grant better terms than he would be willing or able to maintain in the long run is short-sighted; but trade unions sometimes are short-sighted, just as the employer who is in a position to sweat his employes is sometimes short-sighted in not paying living wages, and thus gradually driving away the labor supply on which his own long-run prosperity depends. Moreover, a situation which permits a strong union to take advantage of weak employers is hardly one that makes for industrial peace. On the contrary, the existence of the union with its shortsighted leaders is a constant incentive to industrial war. Only when the employers also become organized and bargaining on equal terms is again possible, are contracts likely to be made to which both sides will adhere with some degree of strictness. Finally, the value of trade unions as schools of citizenship depends largely on the sort of ideals that are accepted and inculcated by the leaders and on the sort of methods that are adopted for attaining trade-union ends. Each of the above propositions, then, while true in general, fails to cover the whole case. Intelligently directed trade unions, which are not carried

away by a sense of their ability to demand and secure wages at monopoly rates for the labor supply which they control, doubtless bargain with the typical modern employer, who is a large employer, on more equal terms than individual wage-earners. The wage contracts they secure for their members are fairer and therefore more enduring. But there are trade unions of a different type. For them liberty spells license; and the practices of which they have been guilty are as reprehensible if not quite so far-reaching as any charged against the trusts. They have at times completely abandoned all idea of dealing fairly with employers and have limited their exactions only to what the latter could be forced to concede. They have been guilty of violence and intimidation on a scale that makes the phrase “industrial war” an accurate characterization of the trade disputes to which they have been parties. Their leaders have been convicted of corruption and graft and yet have been upheld by the organization in a way that has reflected on the honesty and integrity of the rank and file. Finally, in place of the ideals of good workmanship, temperance, fidelity to contracts and self-control which are essential to good citizenship in a republic, they have inculcated fraud, disregard of agreements and violence.

Happily this characterization is true of no union at every stage of its development. It is also untrue of many unions, probably of most unions, at all stages of their development. It cannot be denied, however, that it accurately describes some unions at some stages of their development. It is these last that keep active the hostility of well-meaning employers to trade unions in general. They do harm out of all proportion to the direct range of their influence; and any measures that could be taken to curb these excesses of unionism would be even more of a boon to the better and more common type of labor organization than to the community generally.

Turning now to the evils charged

against the trusts, we may summarize them also in three propositions:

(1) They have advanced prices and have extorted huge monopoly profits from helpless consumers.

(2) They have allied themselves wth the common carriers of the country to evade the spirit and often the letter of the law requiring the latter to treat all shippers alike.

(3) They have used unfair methods to crush their competitors. For example : they have lowered their prices below cost at competitive points while retaining them at monopoly heights elsewhere; and they have forced iron-clad agreements upon retailers, requiring them to boycott other than trust products.

These practices, proved against a few of the trusts, have served to engender a wide-spread distrust and even hatred of all of them. Without stopping to inquire whether such practices are the necessary or even the principal fruits of the movement towards combination on the side of capital, public opinion has condemned the whole tendency. The anti-trust acts are a response to this anti-trust sentiment.

As a dispassionate study of trade unions results in a somewhat qualified recognition of the benefits with which they are commonly credited, a similar study of the trusts in operation leads one to qualify the statement of the evils with which they are commonly charged. Unreasonably high prices, at least over short periods, have undoubtedly been exacted by many of the trusts. Some, like the Standard Oil Company, because of conditions peculiarly favorable to the realization of monopolizing ambitions, have been able to control prices so as to reap large monopoly profits over long periods. Many, perhaps most, of the trusts, however, have not advanced prices or extorted unreasonably high profits from the consuming public, either because the situation did not permit of such a policy or because it was recognized that moderate profits over a long term of years were more desirable than excessive profits for a

year or two followed by an almost inevitable reaction and loss.

As regards the other clauses in the indictment brought against the trusts a similar verdict is to be rendered. Many have been guilty at times ; others have been guilty all the time; still others have not been guilty at any time, either because of the nature of their business or because of the greater conservatism or honesty of their business managers.

It would be a great injustice to the business men who have taken part in the trust movement to think that a desire to share in monopoly profits extorted by unfair means from a reluctant public was their dominant motive. From the point of view of the business man the arguments for combining his capital and abilities with those of other business men, and for carrying such combination to a point where a certain amount of control may be exercised over prices and output, are fully as convincing and defensible as are, from the point of view of the wage-earner, the arguments for trade unions. The economies resulting from large-scale production call for production on a scale continuously increasing with every improvement in the means of transportation and communication. Even before manufacturing industry had grown up to the limits in the economically desirable size of the producing unit as fixed by the railroad and the telegraph, new standards were set by the trolley car and the telephone. Still later the automobile and the wireless telegraph have contributed their portion towards the concentration of industry. With the growth of the size of the producing unit that is most economical and the accompanying heapingup of capital in fixed forms, the losses due to unregulated competition and the resulting variable market have increased greatly in magnitude. -To escape these losses by combining with other producers sufficiently to steady prices and outputs is, from the point of view of the business man, the dominant reason for entering the pool or trust. That this is the case is proved by the world-wide scope of the com-

bination movement. Wherever modern methods of transportation and machine industry are found, there is found also the tendency towards combination. Germany, with her stateowned railroads dealing impartially with all shippers, has at least as many cartells as the United States has trusts. England, although without a protective tariff, “the mother of trusts,” is little behind the protectionists countries in the combination movement.

Until quite recently the formal condemnation of capitalistic combinations in American anti-trust acts has been important in the field of morals rather than in the field of business. Under a divided system of government and according to the earlier decisions of the courts, power to deal effectively with the trust appeared to be vested neither in the state legislatures nor in Congress. Their business went merrily on while the sentiment against them was temporarily appeased by the enactment of statutes strong in words if weak in execution. The moral effect of this situation has been most unfortunate. In the minds of those opposed to the trusts—that is, the great majority of the voters of the country—the impression has been created that the rich and powerful are able to evade the law with impunity. Widespread distrust of the governmental machinery has been engendered, and an atmosphere of cynicism has been created that tends to paralyze all efforts towards reform. In the minds of those interested in the trusts a contempt for law and a spirit of lawlessness have been developed that are equally if not even more dangerous. Convinced of the injustice and inexpediency of the anti-trust acts and of the justice and expediency of evading them by almost any means, trust managers have been changed from law-abiding citizens into habitual law-breakers and have lost their power of discriminating between legitimate methods of advancing their business interests and methods which at an earlier period they would have been the first to repudiate. Thus, if the evils enumerated above have

been characteristic of many American trusts, it has been in no small degree because of the crudity of the legislation which has thus far been enacted with a view to curbing them.

The latest phase of this situation is the earnest effort of the present executive to enforce the federal antitrust act and the amended interstate commerce act in a way that will bring it home to these giant corporations that they are still creatures of law. The pending suits to dissolve the Standard Oil Company of New Jersey, the holding company which perpetuates the oil trust, and the sixty odd corporations which constitute the tobacco trust will, if successful, no doubt be made precedents for attacking the other trusts. When it is considered what would result from this policy should it be upheld by the courts, the bitter denunciations of the president and all his works which have begun to appear in the financial press are perfectly comprehensible. The business community has no sympathy with the anti-trust acts. It perceives clearly that the combination movement has behind it sound business considerations. It sees no reason why legislation should not be confined to the evils connected with the trusts—and most business men will go so far as to admit that there are serious evils—instead of prohibiting combinations altogether.

It was the purpose of this article to consider whether the analogy between the trade union and the trust was more than formal. We have seen how widely different has been the attitude of the state in the recent past towards these two forms of combination. We have seen also that the tolerant but negative attitude of the law towards the trade union permits the continuance of policies on the part of some unions that are squarely opposed to the public interest. Finally we have seen that the very different attitude of the law towards the trust, that of sweeping condemnation, has brought the country into a critical situation, because it prohibits what the sound judgment of the business community approves, while it fails

effectively to prevent the evils which alone justify condemnation of the trusts. It now remains to consider whether the analogy between the trade union and the trust is capable of affording any suggestions for constructive legislation that shall curb the bad tendencies of trade unions, now too commonly ignored, and also the evils of the trusts, which there is now an equal tendency to exaggerate.

If, as we have argued, combinations on the side of capital advance the general welfare as well as combinations on the side of labor, a repressive policy towards either is indefensible. If, furthermore, both forms of combination are susceptible of abuse, as will be generally conceded, then it is the duty of the state to adopt towards both a policy of regulation and control which shall prevent abuses, without checking any of the beneficial tendencies in the combination movement.

In general outline the evils connected with trade unions and trusts are not unlike. Trade unions are under temptation to try to secure monopoly earnings for their members, just as trusts are tempted to ask monopoly prices for their products. To secure monopoly returns in either case it is necessary to control the supply of the thing sold. Trade unions which enter on this policy try to maintain a monopoly by keeping down their membership on the one hand and by making the lot of the non-member as uncomfortable as possible on the other. Trusts similarly try to maintain their monopoly by controlling as far as possible raw materials and transportation facilities, and by putting all sorts of obstacles in the way of the business success of their competitors. These lines of policy on the part of both forms of combination give rise to most if not all of the serious evils connected with them. In the case of trade unions they lead to unfair methods of keeping down the membership and to intimidation and violence towards non-members. They create a situation in which the employer feels that is is paying higher

wages to his employes than he would need to pay if competent workmen who would be glad to work for him were allowed freely to do so, and in which therefore the relations between employer and employes are strained and likely at any time to terminate in a strike or a lockout. In the case of trusts they lead to discriminatory arrangements with the railroads and unfair methods of competition as regards business rivals. Finally, so far as these policies are successful, they tend to keep wages and prices at monopoly heights and thus to oppress the consuming public.

As the evils connected with trade unions and trusts have a general resemblance to one another, so the regulations that would be necessary to check these evils are not unlike. In the case of trade unions the most important regulation would be one effectively preventing any union from debarring from its membership any competent and respectable workman who was willing to bear his fair share of the common expenses of the organization. Unreasonable apprenticeship regulations, arbitrary and unfair entrance examinations and exorbitant initiation fees—these and other obstacles to the free admission of competent men should be abolished. This done, there would be little opportunity left to the unions to build up a monopoly of labor force. In the case of the trusts the most important regulation would be one effectively assuring to all shippers fair and equal treatment on the part of the common carriers. It has been mainly through advantages of transportation that the few trusts that have attained to' the position of successful monopolies have gained their ascendancy. If these advantages were completely taken away, the element of monopoly would be reduced in most cases to insignificant proportions. The next regulations applying to trade unions would need to be directed against the unfair and unlawful methods to which they too often resort in connection with strikes. It is desirable for the good of trade unions themselves that

they be compelled to admit non-members freely to membership in the union, rather than impelled to resort to violence and intimidation, as is too often the case at present, in order to keep down their numbers and maintain a labor monopoly. To accomplish this end it would be necessary not only to have the organization run as an open union, but to protect from violence and the fear of violence all workmen who for any reason preferred to remain independent of the union. The next regulations applying to trusts would be those designed to check unfair methods of competition. Similarly other policies, such as forcing exclusive contracts upon retailers, which when practiced on a small scale may be passed over as phases of ordinary business competition, are magnified into serious evils when employed by monopolistic trusts. Regulations would need to be devised to put a stop to these practices, so that the independent producer would be protected against the effect of unfair discrimination on the part of his stronger rival as effectively as the scab would be protected against violence by the analogous regulations applying to trade unions.

If these regulations were effectively enforced, presumably through commissions resembling those already so generally established in the United States to control the railroads, the more serious evils to which trade unions and trusts may give rise would be checked. It might even then be true, however, as regards some trusts, if not as regards any trade unions, that a monopoly based on control of the supply of raw material or upon some other advantage would still be maintained. In such a case the final regulation that would have to be imposed would be that already applied to the railroads, that is, such regulation of the prices asked as would make them fair and reasonable. The few trusts that would not be shorn of their monopolistic power by the other regulations advocated might be successfully attacked by a revision oí the protective tariff.