Sigh

An Economist blog again:

Now to the tension we discussed. Economists in general and, I think it's safe to say, Mr Acemoglu and his co-author James Robinson, would characterise labour unions as extractive institutions. It's easy to paint unions with too broad a brush, but labour unions—and guilds and professional associations—are fundamentally rent-seeking. Their aim is to create labour-market barriers to entry in order to capture a larger share of the surplus generated by production. In doing so, they frustrate labour mobility. Quite often in economic history, such associations have also worked to impede innovation and creative destruction. By helping to shut out people and ideas that might upset the existing order, unions place themselves firmly in the extractive category, and thereby contribute to reduced societal wealth.

Only that is not the beginning and the end of union involvement in political economy. As institutions of civil society unions have often leaned against other extractive forces. Unions have been an instrument for extending the franchise, making political systems more pluralistic and thereby making it more difficult for a narrow group of elites to build extractive political institutions that cement their own authority. Within the more inclusive political institutions unions have occasionally helped to foster, trade groups have also supported policies—like social insurance or more progressive taxation—that further prevent the concentration of economic and political power at the very top of the income spectrum.

If we take institutional economics seriously, and I think we should, then one has to wrestle with the utility of "countervailing institutions". That makes economics a much messier and unpleasant thing to try and understand. But a clean dismal science that misses important features of the real world may not be particularly useful. I have occasionally written here that economists should be more open to things like progressive taxation and trade-adjustment assistance than the models might indicate is appropriate, because support for a liberal economic order will erode if the perception grows that it primarily functions to enrich a narrow elite. Perhaps it's appropriate to take things one step further: if a liberal order can't persist without policies that ensure the gains from growth are broad-based, then maybe a liberal order can't persist without the institutions that provide the political muscle to ensure such policies are adopted and sustained—and that may include strong labour unions. I'll admit, that's an idea that makes me deeply uncomfortable. That doesn't mean it's wrong.

Would the writer be willing to concede that business-owners are also "fundamentally rent-seeking"? (Do I have to cite Adam Smith?) Why does the notion that there needs to be organizations to concentrate the capacity for collective action of the working population to counterbalance the already-concentrated power of wealthy elites make this writer "deeply uncomfortable"--while, implicitly, that previous concentration (surely the result of generations of thrift <cough>) is no cause for concern?

Oh, and of course our main concern is maintaining "support for the liberal economic order" and not the improvement of the lives of the majority of the population as an end in itself.

Somehow the fact that it ends up on more or less the right side politically makes it worse. It's enough to make one think that yes, really, the correct response to something like this would be: "Up against the wall!"