At one time or another, most of you have seen in the street the warning sign "Danger: Men at Work." None of you have seen a danger sign warning "Danger: Collective Choice at Work." This is probably a great mistake, for collective choice has an immense destructive potential, ranging from corrosion to explosion, and the fiction that the social contract makes it all right and all benign is at best a half truth and at least a half lie. The present article looks at what tends to happen when collective choice is at work where men are at work and are paid wages for it.
The knee jerk understanding of collective choice is "democracy," where its rough-and-ready meaning is one-man, one-vote majority rule circumscribed by constitutional limits on what the majority may and may not do, with these limits being fixed by the majority itself in some higher, constitutional incarnation. The gaps between this ideal and the ways it works out in practice are well known. In any case, the democratic ideal is only a very special case of the form collective choice may take. In its general form, it is the solution of a "game" by which the decisions of some members of society are accepted by most or all as binding. The former rule and gain the outcomes they seek, the latter are ruled by habit, passive acquiescence, the threat of raw power or, at the limit, because of defeat in war or insurrection. Each of these "games" may be formalized, and its solution reached at the lowest cost, for society is persuaded to adopt a rule of choice-making (e.g. "the dictator's word shall have the force of law," or "majority vote by secret ballot shall be decisive").
All this looks very abstract and far removed from the prosaic contingencies of industrial relations, the labour market and the scandalous malfunction of the contemporary economy on far too many a countries where unemployment ranges from 8 to 25 per cent of the active population. In fact, however, the way from abstract generalization to prosaic misery is short and direct. The French code of labour law currently runs to 3,200 pages. Its rate of growth, if that is the right word to use about the number of its pages, puts to shame the rate of growth of the economy. It promises a spurt of expansion in 2013, when the "historic" negotiations between the Patronat (the employers' association) and the labour unions about reforming the labour market, that have been going nowhere for three months, will have reached their deadline and the government will step in with fresh legislation. Meanwhile, unemployment has passed the 10 per cent mark and deems inexorably headed for 11 per cent by mid-2013.
Unemployment has a number of major causes and each of these is in its turn caused by many minor ones. Over shadowing all, especially in France but also in Spain and Italy, is the modern labour law.
A French employer can terminate a labour contract of indefinite duration for a number of obvious and fairly even-handed reasons, but not because he judges it to serve his own best interest (e.g. because he wants to replace him by a more suitable candidate). The widest category authorizing him to dismiss an employee is "economic redundancy." Unsurprisingly, the law is unable to define "economic" without much ambiguity. The employee can seek juridical remedy from the courts, arguing that his dismissal was not economically necessary. The courts, massively encouraged by the media and the government, with the latter being threatened with protest strikes and attacks in the legislative chamber, often disallow the dismissal because they judge the economic justification not strong enough. The employer may be forced to reinstate the employee because its business is not loss making, or because, though running at a loss, it is the subsidiary of a multinational group that it is not running at a loss. The ringside public is greatly excited and puts forward a remarkable version of the science of economics, for instance that the employer can well afford to retain the employee because its sales are more than sufficient to pay the wages. The employer, if it is a public company, is often accused of seeking to cut its payroll to please the stock market, a place well known to be a temple of greed and sin. For redundancies of more than 9 persons, the employer must propose a "social plan" that may include offers of alternative employment, vocational training and severance payments over and above the legal minimum. The government may not approve the "social plan" and the matter may finally end in the courts after a fight that may take years.
The obstacles in the path of redundancy, including union and government opposition, bad public relations and a protracted court fight, may in most cases be bought off by generous severance payments that in some celebrated cases have reached two or more years of salary.
The rational employer will under these circumstances only hire an additional employee if the latter's expected marginal product over a given period is greater than his wages and payroll taxes for the period plus probability-weighted cost of overcoming the legal and institutional job protection, should the necessity for closing down the job arise. The employer, a busy manager, may not actually make this detailed and pseudo-precise calculation, but will simply conclude that he would just as well not face the job protection by the unions backed by the state and the media, should the need arise to cancel the job he is considering creating today. He will instead just stay put, not create the new job or fill it with a fixed-term employee whose contract automatically terminates in a short while. The net result is a rise in temporary employees, fairly high job security for the "ins" who are on indefinite contracts, and a very bleak outlook for the "outs," particularly the young. Unemployment of 10 per cent or more is becoming the standard, blithely blamed on the "crisis," the banks, the "speculators" and the Chinese. In France, the "Anglo-Saxon" liberal globalisers will be found even more blameworthy.
The French case gives a special edge to the malignant role of collective choice in the workplace. French labour unions have a negligible membership outside the public service providers, such as the tax offices and the state railways. They are maintained by mostly covert state subsidies. The influence and the salaries of the union hierarchy depend, not on the service they render to their members, but on the image they manage to project as the frontline defenders of the working class. They proclaim branch- or industry-wide collective bargaining, the security of employment and payroll-financed social services as sacred taboos and are ready to incite their members to strike action whose cost they do not even indirectly bear. In terms of collective choice, they are the rulers, the wage-earners are the ruled who persist in believing, despite the mounting evidence to the contrary, that the decision-making rules work to their advantage, and the unemployed who are the helpless victims of it all. In the "historic dialogue" now going on between the Patronat and the unions, the government in an oblique and apologetic manner is asking the unions to give up some job security in exchange for some job creation. These negotiations are making no noticeable headway and should end presently by the government taking over. Everybody's incentives will remain exactly the same as before.
Hope, such as it is, lies in the gradual return of individual choices into the play, and their intrusion into what is now the reserved domain of collective choice. Collective bargaining, for one, must lose its sacrosanct monopoly and so must the exclusive right of unions to represent workers and be accepted as their sole agent. Labour law must cease to be the expression of what collective choice deems to work in its favour, such as the recruiting of allies and the harvesting of votes, and must instead find its bases in what the parties directly concerned can most easily accept. It would be wonderful indeed if the trimming of collective choice would lead to the re-discovery of the freedom of contract.