Labour Day on September 1, (elsewhere it is May 1st or Karl Marx day) has come and gone, but it maintained the tradition of big crowds in Barnard Park to hear self-serving speeches from politicians and leaders of the labour movement, all praising the wonderful work they undertake on behalf of the workers.

I did not pick up any speeches praising our visitors (for tourism) or our clients (in international business), our anonymous customers, the forgotten people who pay our wages and salaries. It is contented customers who authorise high wages, and disgruntled customers who keep wages low. The customers’ agent in all of this is the boss of the company and he has little independent power. Happy customers, big wages. Unhappy customers, low wages and unemployment.

For over 100 years labour unions, both here and abroad, have been praised, almost worshipped, in folk songs, television specials, movies and speeches as fearless champions of the downtrodden, whilst the bosses are depicted as cold-hearted, exploitive, use slave labour tactics, and are implacable enemies of their employees by earning huge profits at the expense of workers.

The standard tale that everyone learns with their mother’s milk is that before the advent of unions, workers were horribly exploited by employers, and their wages kept falling. Any improvement in the financial condition of workers is due entirely to the BIU and other unions, and had it not been for unions workers would be on starvation wages, doing an 80-hour week, with no vacation pay and no medical coverage.

This belief is based on a fallacy, the fallacy of post hoc, ergo propter hoc, (translated as after this, therefore on account of it). Because wages increased during the period union growth also increased, it was automatically assumed that they increased because of unions. Historians correctly attribute the higher wages of today to increased productivity of labour, which mainly arose from increased investment. Bermuda is a classic case of this phenomenon.

Another misconception is that disputes concerning wages are conflicts between employees and employers. It ascribes to employers the exclusive power to determine the level of wages. This error fails to understand that the employer is not independent in this respect but is subject to the directions of his customers. Pay too much, and have to increase prices means that customers will go elsewhere — as we have seen in the hotel industry. The same story applied to the UK where the once flourishing domestic car industry does not exist; in the USA pretty much the same story — the steel industry was one of the biggest victims of unionisation.

Myths have a powerful hold on the psyche of the public and union members, and when they are repeated year after year by union leaders and politicians they gain widespread acceptance. Key historical facts are ignored in favour of delusions.

Indeed, just about everything that union members believe about how wages are determined is wrong — but then muddle-headed notions about economics are never in short supply. Many economic fallacies are being resurrected with the current People’s Manifesto.

Historically it has been shown that the only way wages can be increased is capital investment and that will occur only when employers are convinced that it is worthwhile to do so. The financial fate of employees is always aligned with the prosperity of their employer’s business.

The reason why Bermuda has a high per capita income (it used to be around $92,000 pa but is now closer to $60,000 still high by world standards but falling each day) is the staggering amounts of capital available which significantly increases the productivity of every worker.

Most of this capital comes from foreign investors attracted by Bermuda’s favourable business environment, and this principle applies equally to tourism and International Business. In Haiti and Bangladesh per capita income is around $500 pa, substantially below that of Bermuda. The main reason is that there is a dearth of capital in these two countries, mainly because they are awful places in which to do business — despite very low wages.

If unions had the power to increase wages it would be a simple matter for the governments of Haiti and Bangladesh to pass legislation empowering unions, and poverty there would be banished instantaneously. Why does that not happen? For the simple reason that passing laws and union activities do not increase wages — indeed, based on studies from all over the world they have the opposite effect.

Locally, an important question is: why are the employees of IB and local banks not unionised? They get paid more than those in retail or the hotel industry. The underlying reason is surely that those employees recognised the reality that unions cannot increase their salaries. The only factor that does so is the profits that arise from having satisfied customers.

However, unions everywhere have been losing members — the UK and US are good examples — except in the public sector. Unions there are able to leverage their power with politicians in a way not unlike that of the BIU over a PLP government. Taxpayers bear the brunt of the additional costs.

The BIU can raise the wages of a narrow group of workers, such as bus drivers, by gaining a monopolistic privilege that holds the customer as a hostage and limits the number of workers who can be employed. But in doing so they reduce the standard of living of other workers.

In short, the belief that labour unions have benefited workers at the expense of wicked Bermudian capitalists is tooth-fairy economics. It is one of the great delusions of today’s Bermuda. Any elementary economics textbook will tell you that unions cannot raise the wages of all workers; the only way that can be done is for productivity to increase (and that arises largely from more investment and better education), something unions tend to oppose.

It is no exaggeration to say that the unions work to prevent most employees from enjoying a higher standard of living. The real struggle of labour unions is against other workers. Employers are straw men.

A recent correspondent of the RG rightly objected to the BIU increasing its dues at this difficult time. Employees have no choice but to pay union dues — or give an equivalent amount to charity. This is a compulsory deduction because unions object to free-riders.

Ordinary laws do not apply to unions. Some years ago a Harvard University professor, Edward Chamberlain, made the point in a very direct way and I quote him.

“If A is bargaining with B over the sale of his house, and if A were given the privileges of a modern labour union, he would be able (1) to conspire with all other owners of houses not to make any alternative offer to B, using violence or the threat of violence if necessary to prevent them, (2) to deprive B himself of access to any alternative offers, (3) to surround the house of B and cut off all deliveries, including food (except by parcel post), (4) to stop all movement from B’s house, so that if he were for instance a doctor he could not sell his services and make a living, and (5) to institute a boycott of B’s business. All of these privileges, if he were capable of carrying them out, would no doubt strengthen A’s position. But they would not be regarded by anyone as part of “bargaining” - unless A were a labour union.”

Lest this essay reads like a diatribe against unions, let me add that unions perform significant social functions for their members such as a credit union, advice on pensions, provide educational opportunity, publicly expose renegade employers, cooperate on safety, are an informal source of job information, and so on. Without unions life would be made more difficult for their membership — and employers.

However, their main reason for existing is the misguided belief that they can, and have, without violence increased wages above normal. That is total nonsense.

In conclusion, let me end with a joke frequently told by President Reagan about the problems arising from powerful labour unions in the US economy:

“A travelling salesman is staying overnight with a farm family, and when they all sit down to eat there is a pig in a chair at the table. The pig has three medals hanging around its neck and a wooden leg. The salesman is amazed and asks why the pig is having dinner with the family. Yup, says the farmer leaning back, that is because he is a very special and valued pig — that is why he has three medals.

The first medal was awarded when he saved our baby son from drowning in the pond outside — he swam out and saved his life. The second medal is when he saved our daughter from a burning barn — he ran inside and saved her. And the third medal is because he bit the tail of a mean bull that was about to attack my wife.

The salesman was highly impressed. After a few minutes, he then asked why the pig had a wooden leg.

Well, said the farmer, with a pig like that you don’t eat him all at once.”

We once had a four-legged economy — farming, military bases, tourism and international business (IB). Farming disappeared in the 1930s because it was not competitive. The military has gone because Communism collapsed. Tourism is half a leg. Only IB stands on its own leg. It is not unionised.