Business and Economics

The rise and fall (and rise?) of unions 11-17-18

Source - Economist, November 17, 2018: "Workers of the world, log on!"     

Examination of popular theories for the rise and fall of labor unions. Best evidence points to technology. Unions thrive when capital-intensive industries bring workers together and create choke-points where organized labor can shut down the expensive machines. As developed countries have shifted to a less capital-intensive service economy, the potential for powerful unions has declined.

Union membership

Industrialization, beginning in the 18th Century, took isolated workers and brought them together under one factory roof. This proximity allowed for close contact and coordination. In 1910, 10% of US workers were unionized. By 1950, that had risen to 30% - but that number has fallen again, to about 10% of all US workers belonging to unions today. This is mirrored in the developed world. The median OECD union membership rate is 18% today down from 50% in 1980. What has caused the decline?

A popular theory is that law has caused the change. Union membership was low at the turn of the last century when US law considered most unions to be "criminal conspiracies". When those laws were changed in the 1930's, union membership increased. In the1980's, as restrictions on unions began again to increase, union membership declined. The Janus case would be an example of an anti-union law. However, there is no empirical evidence linking the legal environment to changes in union members.

Another theory (also with no empirical evidence) is that governments have taken the place of unions. Governments, not unions, now set minimum wages and minimum safety standards therefore unions are no longer truly needed.

The best explanation involves technology. Early industry was capital-intensive (factories, coal mining) and labor and capital were placed together in close proximity. This created choke-points where a few organized workers could go on strike and render the expensive machines worthless. Tim Mitchell takes this point of view in his book "Carbon Democracy".

As technology has changed and the developed word has moved away from manufacturing and towards service and software, the amount of capital stock as a percent of GDP has fallen (see chart) and so has union membership. The technology and capital stock theory regarding the rise and fall of union membership has empirical evidence to back it up.    

Unions and capital

New technology is making it easier for workers to connect. Take the 2018 West Virginia teacher's strike as an example. The teachers organized themselves using Facebook. Out of 35,000 West Virginia teachers, 70% of them joined the Facebook group where they shared advice and decided on actions.

From the article:" was long an isolated example. Recently similar services have flourished by mimicking the startup approach and “unbundling” the roles of official unions. These startups are parcelling the various functions of unions into a series of discrete digital alternatives. In this way a new breed of activists is changing the way that workers can organise. Some startups aim to fulfil the role of informing workers and recruiting members. Two years ago OUR launched WorkIT, a smartphone app for Walmart workers. After signing up, users are presented with a simple chat interface where they can ask questions about the retail chain’s complex workplace regulations. Volunteers, often Walmart employees themselves, answer."

From the article: "For now, unions still look weak. Membership continues to decline. But their history shows that the relative power of labour and capital is constantly in flux. Recent decades have been tough on labour, largely as a consequence of technological change. But technology may also be the thing that helps turn their fortunes around."

Deep Sea Mining 11-10-18

Source - Economist, Nov 10, 2018: "The sea is lovely, dark and deep"     

Business and economics: primary extraction (mining) of rare earths will begin soon on the ocean floor, the environmental consequences are unknown but may be severe and long-lasting.  

The Clarion Clipperton Zone is a stretch of seafloor located a few hundred miles south and southwest of Hawaii. About three thousand feet down, on the surface of the ocean floor, are nodules of metal, usually iron or manganese. These nodules also contain rare earths like vanadium and molybdenum. As the nodules merely need to be scooped off the surface, their extraction is cost-competitive with that of traditional surface mines.  

As the CCZ is more than 200 miles away from any nation's coast, it is governed by the United Nations Convention on the Law of the Sea and the UN International Seabed Authority or ISA. The ISA has issued 17 exploratory licenses for companies to begin mining the nodules. As the US is not a signatory to the UN Convention on the Law of the Sea, any US involvement must come through US-owned foreign subsidiaries who reside in a nation that has signed the Convention.

The environmental impacts are uncertain. The abyssal plain maintains a static environment, slow to respond to changes. Tracks from exploratory craft on the ocean floor can till be seen decades later. The mining should resemble a conveyor belt, with silt being returned to the seabed for minimal disruption. But profits can be increased if the silt is simply dumped back into the ocean from the surface, it will negatively impact life along the entire water column from seafloor to surface. 


India's banking crisis 11-10-18

Source - Economist, Nov 10, 2018: "India's shadow-banking crisis"     

India's state-run banks are sitting on about $100 billion in bad loans. India's shadow banks rely upon the state-run banks for loans. If the government fails to support the state-run banks, India could face a major financial crisis.  

India's financial sector: about half of all loans come from state-run banks. These banks face political pressures to buy government bonds, make credit readily available to rural borrowers (who are also voters) and make loans for government-approved infrastructure projects. These state-run banks are sitting on about $100 billion in bad loans. About one-fourth of all Indian loans come from "shadow banks" - these are institutions that make specialized loans (ex: housing sector) and are barred from taking deposits like a regular bank. Thus, they finance their consumer loans through borrowing from the state-run banks. Already, tightening credit in the state-run banks has caused the market value of the shadow banks to drop 40% this year alone. If there is a serious liquidity crisis caused by writing off the bad loans, the shadow banks are in deep trouble and 75% of India's loan could be in trouble. Note: 25% of all Indian loans are made by private banks which are generally well-run and in no danger.

Microbrands are growing 11-10-18

Source - Economist, Nov 10, 2018: "A handmade tale"     

Small retail companies (microbrands) account for the majority of the growth in the retail sector.  

In the retail food-and-beverage sector, the top 25 companies account for 45% of all sales revenue, but only 3% of the total growth in this sector. The long tail of 20,000 small food-and-beverage retailers produce half of the growth in this sector. These long tail retailers are the "microbrands". Think of Warby Parker for glasses or Glossier for cosmetics or the Dollar Shave Club for razors. This new microbrand dominance is made possible through platforms like Amazon, which allow small companies to easily connect to consumers and platforms like Facebook and Google which allow small companies to target their advertising. This is further complemented by the large amounts of data these small companies have on their customers, which allows for effective targeted ads. Other companies like Lumi use a network of factories to give access for small firms and small manufacturing runs. Companies like Shopify help small companies outsource other backend functions including payment processing. One response large companies have is to buy their smaller rivals. This happened in 2016 when Unilever bought the Dollar Shave Club.