One of the most devastating threats to free
markets in particular, and freedom more broadly, is to evade the distinction
between economic power and political power.
Economic power to derived from voluntary
choices. It is a measure of the value consumers place on the goods of
producers. It doesn’t matter whether the goods are produced by a giant
corporation like Amazon or Merck, or by individuals like plumbers or secretaries.
When a consumer buys something from Amazon, that consumer is awarding economic
power to Amazon. When a consumer hires a plumber, that consumer is awarding
economic power to that plumber. Importantly, that consumer can withdraw that
power anytime she decides that a different retailer or plumber better suits her
purposes. It’s all voluntary: Economic power is the power to create economic
value for consumers willing to buy it.
Political power is the power of physical force;
that is, the power to legally override the voluntary choices of consumers. You
have a choice on whether to patronize Amazon or abide by its terms of sale, by
virtue of the freedom to just not buy its product. You have no choice on
whether to “patronize” Medicare or conform to a government law or regulation.
You cannot simply walk away, lest you be fined or thrown in jail.
It has been said that “power is power.” That’s
not true. There is a black-and-white difference between the power to produce
and persuade and the power to physically force. To fail to recognize this
distinction is dangerous. One of the areas in which this distinction is evaded
is in the issue of monopoly. A true monopoly is when the government protects a
business by legally forbidding competition, leaving the consumer with no
alternate choice. A good example of this is electric utilities or the United
States Post office regarding first class mail. These have been labeled
“coercive monopolies” because their “market” position is cemented by political
power. That is a coercive monopoly. A market monopoly—a dominant
market position earned without access to government protection—is not a true
monopoly, because competitors are free to enter and compete.
The corollary of monopoly power is monopsony—the
capture of a market through buying rather than product activity. And like with
monopoly, there is a sharp distinction between a coercive monopsony and
a market monopsony. Blurring the distinction between the two is the
classic tactic of the statist.
Monopsony power is the latest tactic of the
economic regulators. In Booker,
Warren take aim at chains that use ‘non-poaching’ deals to keep workers stuck
at one store, Washington Post
reporter Jeff Stein reports:
Say you work at a Jiffy Lube 30 miles from your house. You're
happy enough there, but when you see an opening at another Jiffy Lube that's
around the corner from where you live, you can't resist applying. You think
you've got a decent chance; after all, you're already trained for the job.
After you apply, however, you don't hear anything back.
It's possible you just weren't the candidate they wanted. But it's
also possible that you were never even considered because your local Jiffy Lube
was barred from hiring you, thanks to a “non-poaching” agreement it signed with
the corporate headquarters. The non-poaching pacts vary, but generally they
eliminate or limit franchise owners' ability to hire workers from other
locations within the franchise.
The agreements are common at fast-food giants like Burger King and
chains like Jiffy Lube and H&R Block in other industries, and they’re
gaining prominence: Non-poaching clauses are now included in up to 56 percent
of large franchises, up about 20 percent from two decades ago, according to a
report published Wednesday by two prominent economists.
Worker advocacy groups have long opposed such agreements, arguing
they hurt employees' leverage in negotiating raises and stifle worker pay. And
now the agreements are drawing renewed scrutiny from Democratic lawmakers — as
well as from President Trump's Justice Department.
Democratic Sens. Cory Booker (N.J.) and Elizabeth Warren (Mass.)
on Thursday introduced legislation that would make these arrangements illegal,
calling them an “anti-competitive” practice and giving workers the ability to
sue and the right to claim damages.
But this is market monopsony power. The
“non-poaching” agreement Is just that--an agreement. It is non-coercive
and limited to within the company. It is mutually agreed among all parties--the
parent company, the franchisee, and the employee. The employee is free to seek
employment outside the company, and the franchise owner is free to hire from
outside the company.
But “This is patently unfair and against the
ideals of a so-called free market,” Booker said in an interview, forgetting
that the “free” in free market means free from government coercion.
This attack on private voluntary contract is
particularly outrageous since both Warren and Booker have endorsed the
mother-of-all coercive monopsonies--Medicare for All. The existing Medicare
program is already a monopsony over the over 65-year-old healthcare market. If
Warren and Booker were truly against monopsony power, they would call for the
phaseout of existing Medicare. Instead, they want to expand the Medicare
monopsony to the entire healthcare market. The same goes for the public school
monopsony.
How do Warren and Booker get away with so
blatant a double standard--seeking to ban market monopsony power limited only
to private parties who voluntarily agree while expanding coercive monopsony
power enforced by law? By cashing in on ignorance of the difference between
political and economic power, and then inverting the two so that coercion is
seen as good and voluntarism as bad.
In fact, just as with monopoly, a market
monopsony is not a monopsony at all, because coercion is absent and therefore
competitive alternatives cannot be blocked. As with the issue of monopoly, a
true monopsony can only grow out of the barrel of a governmental gun—that is,
by law.
Warren and Booker have it exactly backwards.
Private companies like Burger King, Jiffy Lube, and H&R Block have every
right to make “non-poaching” agreements. Whether preventing an employee from
moving to a job 30 miles closer to home and thus risk losing a valuable
employee, the example cited in the beginning of the article, is good business
is questionable. And the example may be a red herring. And if an employee is
not made aware of the non-poaching aspect of his job when he is hired, critics
may have a case based on transparency or anti-fraud issues. But it is the right
of the company to allow such agreements among its franchisees. It is an abuse
of power for the government to outlaw such private agreements, or to use its
power of law to monopsonize any market for goods and services.
Political versus economic power: That is the
issue that must be grasped. A good place to grasp and understand this
distinction is Harry Binswanger’s essay The
Dollar and the Gun, reprinted by
permission from Why
Businessmen Need Philosophy on his HBL newsletter.
Related Reading:
The rest of my articles published under the
label “Economic
vs. Political Power” that relate this
dangerous equivocation to concrete issues.
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