Beyond the bargaining table: Why do many union leaders oppose tax incentives and grant programs that are supposed to create jobs? What do they say about high wages and low productivity? Dying industries? Fair trade? A union free environment? In this article former state Rep. Douglas N. Kane talks about the dilemmas facing union leaders and discusses their alternative to the trickle-down theory of economic prosperity. This is the seventh article in the Illinois Issues series on economic development, made possible by a grant from The Joyce Foundation.

By DOUGLAS N. KANE

ECONOMIC development has become the dominant political issue in local and state government. We attribute prosperity to free enterprise, but we expect our state and local officials to make sure that prosperity happens where we live. We express faith in the invisible hand of Adam Smith, but we expect a helping hand from government.

Congress and the president are held accountable for inflation, interest rates, unemployment and the Dow Jones average. Mayors and the governor are blamed for the plant around the corner shutting down. Programs are promoted and pushed through city councils and the General Assembly on the basis of the number of jobs they will create. "Jobs" has joined "patriotism" in the pantheon of virtues called upon to justify any proposal, however inappropriate.

Gov. James R. Thompson stated it well: "The issue is jobs, jobs, jobs." People want work. A job brings security, dignity, a sense of achievement and self worth. As plants have closed and cut back, officeholders and would-be officeholders have responded with plans to attract new businesses and keep existing ones.

Economic development has become synonymous with jobs. Jobs are identified as the reason for, and the end product of, economic development. One would think that if jobs are the goal, labor would be supportive. But that has not been the case either in Illinois or the rest of the country. With the exception of increased spending on public works projects and job retraining, organized labor has generally opposed the economic development programs that have been proposed by state and local officials.

Reaction to economic development plans depends on how one defines "economic development" and what one assumes about the forces that bring it about. The common understanding in economic thinking has been that development occurs when labor, capital and raw materials combine to produce goods and services. Labor is one of the essential, driving, productive forces. The goal of development is a rising standard of living for everyone in the community. Shares in the accumulating wealth are negotiated by all the participants — workers, management and the owners of raw materials.

Contrary to that understanding, current popular thinking makes capital the one driving force that produces economic growth. Labor is demoted from full partnership in the activity of creating wealth to beneficiary after the fact. Instead of work being part of the creative force, work itself is created by another force. No longer part of production, it becomes an end product, the end product.

In this view, labor is at best a cost; at worst, a hindrance. There is no community of interest, no partnership. Capital is increasingly free from public criticism for moving to wherever financing is cheapest, wages are lowest and workers most docile. Companies and plants are sought after, courted and enticed by communities and states because from them flow employment, well-being, tax revenues and the assurance of reelection.

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With this the accepted definition of development, it follows that economic programs emphasize investment tax credits, industrial revenue bonds, enterprise zones, property tax abatements, development finance authorities, venture capital funds, state trading companies, cuts in benefits for injured and unemployed workers and negotiated concessions in wage contracts. There are two characteristics: benefits for capital, concessions from labor.

These programs that center on lowering taxes and making investment cheaper do not take into account that development occurs within a total environment. Business does not thrive where there is crime, ignorance and blight. Business will not locate in an area that does not have a skilled workforce, stable government, good schools, efficient transportation, sewers, waste disposal, opportunities for recreation, reliable supplies of energy, good health care, comfortable housing, fire protection and a sense of security. All of these things that enrich the economic soil of a community are bought with tax dollars by people and businesses that care about a particular location. As the environment nurtures business, business in turn must nurture its environment.

In recent years this nurturing attitude has almost disappeared. Business has reverted to behavior like the primitive agricultural technique of slash and burn in which the farmer used up all the soil nutrients and then moved on to clear, slash and burn another section of forest. Modern agriculture was born and production rose above subsistence levels only when the farmer realized that the environment must be renewed and nutrients returned.

Today, many corporations deny community responsibility, look for the best offer, use up local resources and threaten to move on when something better is promised. Bill Dart, executive director of the Illinois Manufacturers' Association, describes it this way: "If an owner can sit and look across the border into Indiana and sees he can make a half million more a year there, pretty soon he is going to go." In contrast, Robert Gibson, president of the Illinois State AFL-CIO, talks about "quality of life" rather than jobs being the goal of economic development. A rising standard of living for the community is the benchmark. His rhetoric is collective. He, along with other union leaders, wants a tripartite coalition of business, labor and government to set industrial policy for the nation and state.

He is willing to sacrifice jobs before reducing the standard of living. His harshest words are directed at tax and trade policies that have decimated basic industries; at economic development plans that have fostered "pirating"; and at those corporate and government leaders who are working for a "union-free environment.''

Labor feels threatened. Union membership is declining. Economists are writing about technological changes that will inevitably change the structure of work. There is an anti-union bite in the air. The early decision of the Reagan administration to decertify the air controllers' union sent a signal that union busting is okay. Corporate reorganizations under the bankruptcy laws and policy changes approved by Reagan appointees to the National Labor Relations Board have made it easier to abrogate union contracts. These messages, along with management decisions to close and move, tell labor: "You are not essential. We will make the decisions. You will accept them." Gibson points out, "Ours is the only industrial nation in the world that doesn't almost encourage workers to join unions. Our leaders praise Lech Walesa in Poland. They think he is great. But here they want a union-free environment. They can't have it both ways."

The bargaining table has been the traditional arena for union leaders. Since the 1930s they have negotiated increasing wages and benefits in the context of an expanding economy, a rising standard of living, increasing expectations and a limited domestic market. That all changed in the late 1970s and early 1980s when the economy was hit with the combination of high unemployment, high interest rates, double digit inflation, increasing imports and the decision by increasing numbers of American corporations to shift production to low wage, third world countries.

Union leaders, particularly of the industrial unions, are squeezed between their members and the corporations: members who are divided between wanting job security and wanting improved wages and benefits; and corporations who are demanding concessions as the price for not closing the plant. The union leaders feel pushed into corners, victims of policies and movements over which they have no control.

There is much tentativeness and uncertainty on the part of union leaders. One senses that many feel that they are groping with forces that are too large and too complex, with changes that are irreversible and with conflicting pressures that cannot be successfully compromised.

Local union officers, particularly in manufacturing plants, know that changes in technology and economic structure are permanently eliminating jobs. Even after "recovery" the workforce will never again climb to previous levels.

They are caught between knowing that they must accommodate to the inevitable and keeping their often militant, angry and insecure members behind their leadership. Some have negotiated concessions with the full realization that this could cost them their reelection. Although union legislative activity at federal and state levels is often centered on job protection, subsidies for declining industries and trade protectionism, the leaders realize these are temporary measures, not solutions.

Labor's prescription for curing the nation's economic ills is not altogether clear. The AFL-CIO and the UAW national offices have proposed programs; however, legislative efforts indicate positions that are not necessarily consistent. Often unions defend the status quo because their members are threatened by change. At the same time ideas are thrown out for discussion and experimentation.

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If there is a consensus, it is that today's problems can no longer be resolved at the bargaining table: The problems are too big and are essentially political. The community as a whole must be brought into the decision process. This consensus lies behind the whole-hearted involvement in presidential politics this year by the AFL-CIO, the United Auto Workers, the United Mine Workers, the National Education Association and other like-minded groups. For the first time ever, they have endorsed a candidate before the primaries and before the conventions.

"In the past we have reacted to what others have done to us," says Mike Klien, a field staff person for Region One of the AFL-CIO based in Chicago. "This year we have said we are going to be part of the process that makes decisions, rather than letting others make the decisions and then take what is given to us. The goal of organized labor is to change the national agenda through political action. If that doesn't work there is only one thing left — revolution. We are committed not to revolution but to making democracy work through participatory politics."

Many of the ideas advanced by union leaders emphasize the ties that hold economic activity to a particular location because when a business moves and jobs go, the lives and families of the workers are torn up. Where business wants a one-night stand, labor wants a marriage. Labor wants to eliminate the differences that make "down the road" and "over the line" more attractive.

There are four central points that emerge as a working outline of labor's program:

• full participation by the working force in economic decisions;

• a commitment by corporations to rebuild America's basic industries;

• enforcement of trade policies to protect American jobs;

• the elimination of all tax and other nonmarket incentives that might encourage companies to relocate in another state or overseas.

Labor wants acceptance of its role as a full partner with management and government in making economic decisions. The partnership would be institutionalized in a tripartite board comprised of labor, management and government representatives, with power to make and coordinate policy at the highest levels. The board's function would be to shape fiscal, monetary, trade and investment policies to achieve targeted goals of employment, production and prices.

Too often in recent years unions have come to individual bargaining tables with very little room to maneuver. The economic environment in which they have had to negotiate has been such that they have had no leverage. They now want a say in making the policies that create the environment in which they have to bargain.

Historically labor's membership has been concentrated in basic industry. To accept the "inevitability" of the economic forces that are transforming the American economy into one based on service and high technology is to strike at the strength of labor. Union leaders do not view high tech as a quick fix for an ailing economy. They state forcefully that basic industry is essential to economic strength and to maintaining the current American standard of living. They reject the argument that manufacturing must move overseas to low wage countries.

When questioned about low productivity, high wages and the economic laws of supply and demand, they stress that corporate and government policies, not blind economic forces, have brought about much of the present condition. U.S. Steel chose to buy Montgomery Ward rather than reinvest in the steel industry. Laws which create incentives and benefits that influence business decisions are conscious acts by legislative bodies.

The AFL-CIO's Klien argues that rebuilding basic industry is essential because the combination of antiquated technology and a high wage base in this country cannot compete with the low wage base and the latest technology abroad. If our basic industry continues to decline, if reinvestment does not occur, then the rest of the economy will be dragged down too. Klien states: We have a helter-skelter economy that plays one sector off against another; industrial versus high tech. The strong will survive. The weak will go. A coordinated national policy could make both strong. We are going to have to accept a lower standard of living for all America, or we are going to have to rebuild. If the professionals want to sit back and applaud concessions and cuts in wages, they had better understand that their standard of living is coming down too. You can't depress the standard of living of industrial workers and not have it affect the rest of the economy. The unions want "fair trade" to replace "free trade." The American market is relatively open to imports so that restrictions by other countries on American-made goods are seen as a lack of good faith. In labor's view U.S. trade negotiators should take into account the potential impact of agreements on American workers as well as the benefits to American bankers, merchants and consumers. In the last several years unions have specifically pushed legislation to require a percentage of the contents of imported foreign cars to be made in America and to require government agencies to buy American-made products.

The increasing proliferation of government incentives to relocate can be reversed. There are changes in the tax laws that can be made to strengthen the ties between businesses and the communities in which they exist. Tax benefits can be denied to companies that close domestic plants and locate overseas. Creation of jobs can be equally favored in the tax code with investment in plant and machinery. Tax incentives for building new plants and equipment can be increased relative to the incentives for simply buying existing plants and equipment. Tax benefits arising from corporate mergers and conglomerate acquisitions can be eliminated, In fact the alarming rate at which control of the American economy is becoming centralized — a process that has loosened the ties between particular plants and communities — argues for imposing tax penalties on mergers and acquisitions.

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Tax breaks, incentives, and differences in safety standards, work rules, unemployment benefits and workers' compensation levels that induce businesses to move from one place to another can also be eliminated. Relocation that does not result in increased efficiency is not economic growth but only rearrangement of the patterns of employment and unemployment. Illinois AFL-CIO President Gibson states:

Most of the tax incentive and grant programs make pirates out of communities and states. In no other country in the world can a plant shut down and wipe out a whole community so that the only alternative of the workers is to leave. We allow businesses to make these decisions unilaterally. We need some kind of industrial policy that does not permit that to happen. Businesses have a responsibility to those people who have invested themselves, their lives and their skills. Now their only concern is for the stockholders who have invested their money and for the members of the corporate board.

It is ridiculous to have states bidding against each other. We don't want to deny a company moving to its market, but not to obtain tax benefits, low wages and no unions. We should take away dislocation incentives and set federal standards.

Is labor fighting the inevitable? Will the policies labor is advocating raise costs, lower productivity, slow technological change and reduce economic growth? Does labor want to protect jobs by subsidizing and protecting dying industries and thus slow the transformation of the American economy into a knowledge-based, service-oriented, high tech economy? Will labor's policies take us down the road of decline followed earlier by England — the example always pointed to with horror by proponents of laissez-faire policies? Are labor's interests narrowly selfish and will the greater good for the greater number be sacrificed if labor's goals are achieved? The debate over these questions is vigorous and will be central in the 1984 political contest. Disagreement over the answers lay at the root of the differences between Democrat Adlai E. Stevenson III and labor in the 1982 gubernatorial campaign. Stevenson's economic philosophy emphasized free markets and the inevitability of change: The old must give way to the new; the inefficient must be allowed to die; death should not be prolonged with subsidies; the technologies and industries of the future should be nurtured; natural advantages should be emphasized; trade is essential; capital to finance the transition must be mobilized; and workers must be retrained. Labor's emphasis is different. Where Stevenson and others emphasize the use of government policy to accelerate and facilitate the working of "irresistable" economic forces, labor emphasizes policy to promote human values during economic change. If labor's views are taken simplistically, or pushed to the extreme, or if individual legislative efforts are taken to characterize labor's whole position, then unions surely seem to be blindly — and selfishly — fighting the inevitable. But labor's position is not simple: It is complex. It is still in the process of being worked out.

Although often characterized that way, labor's position is not one of no change, no innovation and no automation. Rather the argument is that as transformation occurs, as some industries decline and new ones grow, values other than short-term profits should be included on the bottom line, and all costs should be counted. After World War II the technological changes in transportation, manufacturing, agriculture and communications resulted in tremendous dislocation of population and economic activity. Blacks and poor Appalachian whites moved north to central cities; urban whites moved to the suburbs; and companies were freed from dependence on water and rail transportation, while their employees could go anywhere by automobile. So firms cut their ties to central locations and spread across the landscape. Production became more "efficient," but we are still paying for some of the costs in fighting the blight, violence and poverty of our cities; costs that resulted from the technological changes but were never counted against the benefits.

In the American economy, companies have traditionally externalized as many costs as possible. Waste has been dumped into rivers for those downstream to clean up, or into the air for government to deal with, or into landfills for the next generation to dig up and dispose. We are beginning now to tell industry that it must internalize its environmental costs, that the land, air and water cannot be used freely, that the costs of cleaning up after production should be included in the price of the product and not be left for government. But companies still externalize human costs, leaving government responsible for supporting and retraining long-time workers who are suddenly discarded at age 55 with no marketable skills and no future.

In Japan the company internalizes many of these "labor" costs and assumes the responsibility for continual training and employment of its workers. Government is not left to deal alone with the human effects and wreckage of corporate decisions.

The policies promoted by labor may not maximize profits in the short run, but they will improve the overall economic health of the nation. Tax incentives for making existing industries more competitive? Yes. For increasing productive capacity? Yes. For maximizing employment and investing in human capital? Yes. But not for closing, relocating, moving overseas or buying up other businesses. The biases in the law that favor dislocation should be reversed.

Recently labor has shown itself willing to make concessions if there are reciprocal concessions from management along with a determination to invest in the rebuilding of the industry. The example pointed to most often is the Chrysler bailout in which labor, management and government cooperated in putting together a plan that resurrected a dead company in a declining industry. (Ironically, the whole industry reported record profits in 1983.)

For the tripartite alliance to work, labor must sense an attitude on the part of management and government that labor is essential to production, just as essential as the machinery, the entrepreneur and the raw materials. To be only a beneficiary of the productive process is also to be helpless — the victim of forces over which one has no influence, forces large enough to affect one's whole life, family and future when plants close and unemployment hits. A victim falls prey quickly to a psychology of uncertainty and anger — anger at the union, the company, the government, everyone. That anger, once it finds expression, will not soon be contained.

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The Swedish economist and political philosopher Gunnar Myrdal 25 years ago wrote that Western democracies were moving toward a bargaining process involving major organized interest groups in the making of social, economic and political decisions. The emerging role of government was to set the ground rules for bargaining and to see to it that groups without economic power have a place at the table. As this process develops the need for government intervention in the economy diminishes. Myrdal wrote:

As suffrage has been extended, the state has become democratic. It has increasingly been induced to use its power to help the weaker economic strata to build up their own organizations; by legislation and administration it has given them support by changing the conditions under which they can bargain.

The essence of the argument ... is that though planning is continually being necessitated by the rising volume of intervention, the purpose and accomplishment of planning ... is, in fact, constantly to simplify, and largely to liquidate, old and new intervention: to substitute a few, mostly overall state policies for a growing mesh of detailed and direct ones, and, in particular, to recondition the national community in such a way that for the most part it can be left to the cooperation and the collective bargaining of the people themselves, in all sorts of communities and organizations beneath the formal state level, to settle the norms of their living together.

In some communities, labor-management committees have been formed to work on economic problems at the community rather than the shop level. An example is the Decatur Area Labor Management Committee formed in 1981. The organizers had three main goals: save existing jobs and attract new industry, improve relationships between labor and management, and increase the general public's and the media's appreciation and understanding of the free collective bargaining process.

One of the organizers, Richard A. Mannweiler, dean of the Tabor School of Business and Engineering at Millikin University, describes the committee as not a new idea. "It has its antecedents in the garment industry and in World War II. Such committees are born in difficult economic times when both management and labor are talking survival. A fixed ingredient is the inclusion only of management that is involved with organized labor."

As business becomes increasingly large, more remote, and ownership more concentrated, the ties of business to any particular community become looser. From the distance of a conglomerate boardroom, environments are interchangeable; all that counts is the numbers. As companies merge and diversify they have fewer incentives to reinvest in and maintain the viability of any single unit, or any single company. It is easy to kill the old, go with the new, and justify the decision with statistics and the rhetoric of "inevitable" economic change.

If our goals are to maintain communities and to promote renewal through reinvestment, then it is essential that we stop and reverse the rush toward acquisition, concentration and conglomeration. We already know that almost all innovation and most new jobs are created by small businesses. Small businesses recognize and appreciate the supporting environments in which they exist and on which they depend. They are also more competitive, more profitable and much less likely to move.

Agriculture is often pointed to as the most innovative, the most productive, and the most capital-intensive industry in the country. What is often overlooked in that discussion is that agriculture is also the industry characterized by the smallest, most discrete, least concentrated productive units.

Economic principles are abstract. "Supply," "demand," the "marketplace," "free trade," "efficiency," "competitive advantage" are ideas, lines on graphs, principles that get translated into actions that affect particular individuals and families.

There is always conflict between the abstract and the particular. That conflict has been the stuff and history of American politics. Few stated it as starkly as William Jennings Bryan: "You shall not crucify mankind on a cross of gold." The historical question has always been what weight to give to conflicting human and economic values. When all of the jargon is stripped away, this is the essence of the argument over supply and demand side economics. The question is the same in economic development policy: Shall we emphasize investment and let the benefits trickle down to people, or shall we build from the bottom up, creating an environment in which investment will occur?

Economic and technological forces drive toward bigness, centralization, standardization, impersonalization and control. Human values are individual. They thrive in an environment characterized by decentralization, creativity, personal contact and freedom, Because technological and human values drive in opposite directions, it is impossible for labor to achieve its vision of economic development with its emphasis on human and community values without decentralization of the American economy. That will require political power and political action.

Ironically, this pursuit of human and community values results in economic growth. Historically, economic growth has occurred when the political-economic environment has been characterized by decentralization, creativity, personal contact and freedom. Growth is stifled by centralization, standardization and impersonalization.

Big has not proved to be better. If the environment that makes growth possible is to be maintained, then the unrestrained growth that destroys that environment must be curbed. Breaking up conglomerates and reducing the size of companies may be the necessary first step toward achieving labor's goal of economic renewal while preserving communities and enhancing the lives of individual workers.

Former Democratic representative from Springfield, Douglas N. Kane, is an economist and a part-time instructor of public finance at Sangamon State University.

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