Trade Unions

Subject: do trade unions hinder or benefit the workings of a liberal capitalist economy?
On the face of it, the usual right-wing answer is , they hinder it. They impose additional costs on management, they disrupt production with strikes, they prevent modernisation by objecting to new technology.
One must also note, though, that the most successful economies are those that have free trade unions. "Socialist" countries (those with the word in the name, that is) do not have free unions, and they also are very backward technologically in the processes of industry. Oligarchies such as the former Soviet union countries are also not exactly roaring ahead economically.
So I wonder, then, whether the answer is the exact opposite.

Consider.
Before unions, wages were adjusted by the management at will. In times of slow trade, staff were laid off at will, wages cut, in order to keep profit margins at the required level.
But when unions came along, it became much less easy to cut wages. Unions campaigned for protection of employment rights, so sackings without compensation were limited by law.
Management had to manage better. They had to invest in better procedures to control stock and produce better goods. Everyone gains from that - the customer, the management, the workers.
Before unions, the usual rate of expansion in the economy was barely 2% p.a. Since then, the long-term growth rate has been higher and sometimes at 5% for years. One can't credit unions with this - technological change was a major driver. But unions keep management on their toes, keep them honest, they punish incompetent companies by exposing weaknesses.
Adam Smith's "invisible hand" at work, perhaps?
One other thing, though. Unions did make it more costly to employ staff, by reducing the rights of management to sack people at will. So unemployment has, I believe, settled at a higher rate than would have been the case.
Another consequence has been raising of the barriers to entry to a trade. Businesses need more capital to start up nowadays. So to enable the necessary competition to flourish, there has to be the capacity to hire economical workers at the price set by the market.
This means that there should be no minimum wage.

Conclusion: unions good. Labour legislation good. Minimum wage bad.

Update:
Realised later that it can be said that trade unions wanted to create Democratic socialism. They got deomcratic capitalism as well.

"Communism that works"

Some people writing in Spiegel Online (English version) think that the Chinese have proved what all unrepentent left-wingers have secretly wished for: that Communism can be made to work after all.

View it here: http://www.spiegel.de/international/spiegel/0,1518,465007-2,00.html

It's a good overview of the was "China, Incoprorated" functions as a vast low-cost factory, witht he politburo functioning as a board of directors, which can get on with the job of focussing on the job in hand, without the boring political bit of relating to voters, appearing on talk shows and generally looking after the appeal of the party.

It is undeniably a remarkable transformation going on in China. The phrase "economic miracle" has been over-used and in this case its not really miraculous, of which more in a moment.
(Incidentally, I think I was about 11 when I learned my second German phrase - it was "wirtschaftwunder". The first, obviously, was "blitzkrieg".)
First comment, though, on the Spiegel feature is the crass assumption in the article that the Chinese like it this way. They aren't asked whether this is what they want their country to do. They just have to suffer the pollution, land-grabs, corrupt officials and everything else.
Asks people in India, and they say - freely - that they prefer to have democracy. The wealth is on its way anyway.
Second, and more importantly, is this.
You're the rulers of a country with over 1 billion people. You have fortuitously managed to free agriculture and as a result the countryside can now feed the towns. You have a large, docile, cheap labour force, the right to use any piece of land for a state purpose, nobody can obstruct your plans by legal objections, because you own the judges.
You look at Hong Kong and see that 4 million people can create a world class manufacturing, finance and toursit centre and become very rich.
Not a difficult call, is it, to decide that you can do it with 1 billion people?
You don't have to invent anything, you don't have to make tough calls about what system will work best. You just copy what is done in Europe, Japan and America.
Adam Smith noticed that colonies have second-mover advantage - they know what will work. They become rich very fast.
China is doing the same. The managers of the country know that they will need motorways, railways, airports and regional airports, so many power stations and so many dams etc. They can plan for these by noting how many are needed elsewhere.

The comparison with with the last time a country was tagged with the suffix "Incorporated". This was Japan, in the 60s and 70s. Then, too, it was thought that the Ministry of Industry and Technology had a genius for economic indicative planning. But the exchange rate was 250 yen to the dollar. At that rate, they could make anything cheaply and sell it.

Their problems came when the economy matured, the exchange rate rose and they had to compete properly. China will have the same issues - but without a democratic process to provide the outlet for people's complaints.

I predict that they will get the worst of both worlds: a Communist system with enough wealth to buy the surveillance to control everybody, and a capitalist system with a capacity for brutalising the labour force and driving down wages relentlessly in the desperate need to compete. At present wages are rising 14% per year. Whether that will happen when the exchange rate rises and squeerzes profit margins is another matter.

The Market

Interesting snippet in "The Economist" last week. Studies in America show that while it's possible to pick a worthwhile investment and make a provide as it rises on the stock market, it isn't so easy to hedge against risk by investing in "safe" products which always increase in value.
Most major fields of investment rise together with eath other, keeping within 95% of each other. Property, government bods, commercial loans - all rise and fall together.

It was Thatcher said: "You can't buck the market" - though it was scarecely an original thought.

So many financial instrucments to invest in, all information is available, free movement of capital, all evens out. The market works.