Market forces mean’s that strike action is obsolete

WITH junior doctors agreeing to an all-out strike in April and teachers considering striking over the Government's new school academies programme, it seems like a good moment to ask when, if at all, we should still allow strikes? Contrary to popular opinion, there is no "right to withhold labour" or "right to strike" in the UK. If you don't turn up to work without a good reason, you are in breach of contract. If you try to encourage others to stay off work with you, you will be inducing a breach of contract by others and could be sued for damages by the firm.

What we do have in law is a special immunity from breach of contract suits for unions inciting strikes, provided that those unions have followed the required rules such as balloting members. We've had these special protections in place for unions for more than a century, but it's very rarely asked whether we need them any more.

So what is the purpose of a strike? A strike exists to back up collective bargaining by workers over pay and conditions and in support of staff felt to have been treated unfairly (for example, by being dismissed). But one does not need to think about it very long to find it odd that this is permitted.

After all, we don't allow collective action in most commercial settings. Suppose all the plumbing firms and sole-trader plumbers in your area got together and agreed to raise the prices they charged you for plumbing work. Two things would happen. They would be pursued by the competition authorities and the ringleaders could be prosecuted for forming a cartel. In economic terms, collective bargaining via unions is exactly the same thing - the formation of a cartel to extract higher prices or other advantages through market power.

Now, it may surprise some readers, but there are circumstances where economic reasoning suggests it will be desirable to allow cartels (and in particular cartels of workers) to operate. A classic case would be the conditions under which unions originally really got going. If there is one very large employer in an isolated area, and opportunities to travel elsewhere are limited, such that if you do not work for that employer you do not work at all, the firm is what is called a "monopsonist" or "sole purchaser of labour" - a form of market power.

Under these circumstances - without unions - the firm could use its market power to force down the price of labour or working conditions below what workers would get in a properly competitive market; one in which they could take a job elsewhere if they didn't like what was on offer at that firm.

What collective bargaining via a union does in these circumstances is to balance (or "countervail") the market power of the firm by giving the workers their own collective market power. With better balance, the final result may be closer to the outcome that would arise in a competitive market.

For most of the history of unions, this kind of case has been very relevant across important parts of the economy. Even after local monopsony power for firms faded in some areas, as transport links improved and workers had more chance to go elsewhere, monopolies and cartels in many parts of the economy were looked upon benignly, actively encouraged or even enforced when gov- ernments created nationalised monopolies.

Even in sectors where there might be competition on the consumer side of the market, that could be between a small number of firms that were located in very different parts of the country ( eg one firm might be in Sunderland, another in Birmingham and another in Oxford) and certain workers might have industry- specific skills. It might not be completely impossible for workers to move, but it could be sufficiently inconvenient to give firms at least some monopsony power.

But today, across the vast majority of the economy, we have much better mechanisms than allowing worker cartels for addressing market power. Competition authorities can investigate sectors and mandate remedies. And if workers are treated unjustly, strikes are not the answer - legal action is.

Across most of the economy, strikes and the collective bargaining they support should simply be forbidden as the anti-competitive practices they are.

Mercifully, there are so few strikes these days it hardly seems worth banning them. But in principle the way it should work is that unless a sector is officially deemed to be a monopsony purchaser of labour, collective bargaining and strikes should be forbidden unless it is sought by the firms themselves. (Some firms might find it more convenient to deal with one union bargainer and feel that was worth the cost of creating a workers' cartel.)