Tuesday, May 19, 2009

Unequal Bargaining Power

An overblown shibboleth of labour market regulation is unequal bargaining power (pdf) (basically an application to the labour market of the Marxist notion of unequal exchange). The great irony in this is that labour market regulation (presuming that enforcement is effective) can destroy worker bargaining power. A would-be worker whose expected productivity is below that of the minimum wage, has no bargaining power. A would-be worker whose associated employment risk is above the level set by the difficulty in sacking folk, also has no bargaining power. (On the other hand, if there is effective collusion by employers, banning certain practices can increase worker bargaining power.)

A striking feature of actually existing socialism is that there is no sin of capitalism which actually existing socialism did not commit worse, usually far worse. The collection of articles in The Economics of Forced Labor: The Soviet Gulag describe a society—via a mixture of general analysis and case studies—with genuinely unequal bargaining power, using information now available from the former Soviet archives.

How unequal? In a law of 26 July 1940, the Presidium of the Supreme Soviet decreed that no worker could leave their job without the permission of their workplace (p.25). That is the essential characteristic of serfdom. Soviet records show almost 4 million convictions of workers for unauthorised leavings from 1940 to 1952 plus almost 11 million convictions for absenteeism (p.28). (Yes, taking a “sickie” was a criminal offence.)
The law was repealed in 1956 (p.38). It turned out that industrial serfdom was not an efficient way to run a modern economy. Even in a situation of a command economy where one’s ultimate employer commanded all the power of a totalitarian state, the workers were not without some bargaining power, fraught though exercise of that bargaining power could be. They had bargaining power because managers desperate for skilled (or even willing) workers could turn a blind eye to new workers’ lack of permission. And because the managers did want them to actually produce.

Prior to creating industrial serfdom, the Soviet regime had revived state slavery, a process that started in 1929. It is clear that the GULAG had both economic and political purposes. These could work at cross-purposes. Thus, the collectivisation famine adversely affected GULAG productivity by greatly increasing prisoner mortality (in 1933, 15% of camp inmates died) while the huge influx of prisoners due to the Great Terror was also very disruptive of production.

It is clear that Stalin’s regime regarded the new slave labour as a potential economic boon. Labour camp inmates could be sent where directed, be “paid” at subsistence level yet it was presumed be as productive as ordinary workers. In fact, the regime constantly underestimated the costs of coercion and was continually frustrated with low productivity, trying a variety of expedients—such as ration penalties (particularly counter-productive when rations were already at subsistence level), bonuses, honorific titles—to improve productivity. Contributors to The Economics of Forced Labour argue that the forced labour effort was destructive to the wider economy. Many of the projects were ill-considered and coordination problems were rife. The level of waste was high. Anyone familiar with the socialist calculation debate will find the discussion of the inefficiency and wastefulness of central planning provides further and better particulars. (I particularly liked the reference to the pervasive unpredictability of the Soviet planned economy [p.185] : market economies are, in fact, more reliable in their patterns of normal provision.)

There were also levels of servitude (something familiar to any student of medieval serfdom). There were the camp inmates, “tied” workers who were no longer inmates but tied to the projects and subject to various other restrictions and penalties and “free” workers who suffered only the restrictions which applied to all workers.

Perhaps the most telling commentary on the economic efficiency of the system is that, upon Stalin’s death, the figure who had had most to do with it—Lavrenti Beria, responsible for the entire system for over a decade—was very quick to start dismantling the entire systerm. He knew its problems intimately.

Indeed, part of the discussion includes a nice little critique of simple-minded public choice theory, since the MVD became very uninterested in maximising its “bureaucratic empire”, given persistently poor productivity performances (pp72-3). (It is always good to keep in mind that functional utility rarely has zero importance in public policy bargaining.)

As the volume itself points out, the Soviet forced labour system provides a fascinating (if horrible) case study of the economics of forced labour. It is a tribute to the contributing scholars that the volume manages to do considerably more than that, providing an excellent study of the failures of command economics.

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