Unions: From Stimulant for the Economy to Cancer

Defending Against Global Jihad

Last week, Hamas announced that Friday, October 13th was to be the Global Day of Jihad or, colloquially known as kill-a-jew-day. My daughters, Hannah and Mia Sarah, attend a Jewish school. The Denver police department even sent a SWAT team to their school, just in case.

My wife and I decided to celebrate the Global Day of Jihad by taking them out of school and having a jubilee in the privacy of IMA Global HQ, where they helped to mail my book to those who had donated to Israel. During this jubilee, I realized that what was a stressful day for us has been terrifying decades for Israeli parents.

My 22-year-old son Jonah has two high school friends, Ethan and Jacob, who are twins. Both have served in the Israel Defense Forces (IDF). When the war broke out, they went back to Israel to join the reserves of the IDF even before they were called up for duty.

Ethan’s unit is in the south of Israel, and Jacob’s is in the north. Israel has called up 360,000 reservists, but a lot more reservists showed up (this tells you a lot about how much Israelis love their country). The IDF was not prepared for that. As a result, Jacob’s and Ethan’s units are missing basic necessities, such as bulletproof vests. Their father, Alex, has figured out how to get these vests from the US to Israel, not just for his sons but for their units. Each unit has 110 soldiers.

Jonah and his friends have started a campaign to raise $144,000 for 220 vests (each costing $650). I was shocked to find out that this group of 20-somethings had already raised $118,000. These vests can save the lives of these brave kids while they put themselves in danger to defend Israel from terror. Their father, Alex, was interviewed by my friend Ross Kaminsky. You can listen to it here. If you want to make a direct difference and literally save a life, you can contribute here.

So far, with your help, we have raised over $33,000 to help Israelis recover from the Hamas pogroms and have mailed out many copies of Soul in the Game to those who have donated.

I spent some time researching Israeli charities and came up with a list, which you can find below:

• Friends of United Hatzalah Inc.
• American Friends Of Magen David Adom
• Friends of the Israel Defense Forces
• Chayal El Chayal Inc.
• American Friends of Soroka Medical Center Inc.
• Jewish National Fund

If you donate $100 or more to either a charity on the list or to protect Ethan and Jacob’s units, I’d be delighted to mail you a signed copy of Soul in the Game. Just email a copy of your receipt to Barbara at (If you already have a copy, we can mail it to your friends.  We can only mail it in the US.)

---

My son Jonah keeps repeating, “With great power comes great responsibility” (which has been attributed to both Spider-Man and Winston Churchill), when he reminds me that I am read all over the world and that it is my responsibility to tackle difficult, sometimes polarizing topics.

Though Jonah is right, I will not be discussing religion on these pages, because it is a deeply personal choice and none of my business or anyone else’s. I won’t touch politics, for a similar and also for a different reason – I will never be able to change anyone’s mind.

If you agree with what follows, and especially if you disagree, I would be delighted to hear your thoughts. I promise to read them, but I cannot promise to reply to them. You can reply to this email or, even better, leave your remarks on Substack (click on the title of the article below) and share them with others. I look forward to changing my mind if someone convinces me that I was not as right as I thought I was.

Unions: From Stimulant for the Economy to Cancer

Unions have had a very important role in shaping the US and our laws over the past hundred years. I have read stories about how working in Chicago meat packing plants a century ago was as hazardous as enduring the trenches in World War I.

Unions have fixed that.

Thanks to the unions, we have very strict government laws and regulations mandating safe working conditions, setting the work week to 40 hours, and overtime pay. We have a slew of government agencies that are there to protect the interests of workers if employers infringe upon their rights. We even have unemployment insurance (funded by employers), which provides a temporary social safety net for those who lose their jobs.

Over the last hundred years, however, the union has evolved from being a stimulant that boosts the immune system of the economy (a cause for good) to being a cancer that is slowly euthanizing industries that become engulfed by it.

In the US, we love small businesses and hate big businesses. I have never understood this. Every small business wants to succeed and become a big business; and once it succeeds, usually by creating value (which usually makes customers happy), we start hating it.

I know you’ll have little sympathy for “big” GM or Ford, so let me paint the situation in very broad strokes from a small-business perspective. There is a money management firm in Colorado called IMA, run by yours truly, that employs eight folks.

Let’s say that the employees of IMA unionized, got high on marijuana (of which there is plenty in Colorado), and issued a list of demands, including that the wages of every employee should match the national average wage of a brain surgeon. Additionally, they argue that since they only live once, they should have an eight-hour work week in order to maintain a positive work-life balance, and that coffee (a stimulant) should be banned from the company’s cafeteria and replaced with at least three strains of marijuana.

The union representatives’ demands would not be limited to pay and benefits; they would also bring their expertise to bear on how IMA was run.

They would demand that email communication with clients be banned and that all letters to IMA clients be typed on the most modern typewriters.

Furthermore, they would insist that the reconciliation of client trades and transactions, which is now automated, be done manually on computers running the latest version of Microsoft DOS, rather than with the low-cost, nonunionized cloud technology. The union representatives would explain that they were taking these measures to ensure full employment. None of these demands focus on the cost of the service, competitiveness of the service, or customer experience; they are solely focused on the wellbeing of the ever-growing union base.

These demands would result in IMA going from being a small business to a large one (at least in terms of employee count), an exponential increase in costs, and, even more importantly, a terrible customer experience; eventually leading to IMA’s untimely demise.

This example may sound laughable, but this is exactly what is happening behind the scenes at our ports. Unions dictate how much automation ports can use, in order to preserve employment. This is why US ports are some of the least efficient in the world – we are a first-world country with third-world ports. This makes the US economy less competitive, and consumers (you and I) are paying the price for this.

The UAW is dictating to GM and Ford where EV batteries should be made and which labor should be used, regardless of whether the final product will be competitive.

The UAW is also demanding a 32-hour workweek and an increase in total compensation similar to that of a doctor. In other words, a job on the assembly line, which does not require a high school diploma, would pay as much money as that of a physician who has spent 11 years in medical school, sacrificing their time and social life and accumulating hundreds of thousands of dollars in college loans.

But it gets worse.

No matter how little soul they have in the game, how poorly they perform, how rude they are to other employees or customers, or if they are poisoning the company culture, it is very difficult to let union members go. Firing one is not unlike suffering through the cost and trauma of a costly divorce – you have to negotiate the exit with a union representative and possibly with a third-party mediator.

Imagine if the cost of the dissolving a marriage was the death penalty – fewer people would get married. Similarly, the higher the cost of dissolving union employment, the fewer employees you’ll want to hire.

Don’t believe me? Take France, where over 90% of jobs are covered by collective bargaining and there are similar barriers erected to letting people go. This is one of the many reasons why France has structurally higher unemployment rates – double those of the US (the same applies to many EU countries). We don’t usually consider the second-order effects, but in our attempt to protect workers, we often end up harming them.

Also, unions are making it impossible to run these companies. At General Motors factories, until 2008 unions had 300 job classifications, and if you fell into one classification, you would break the union contract if you were asked to do tasks that fell into another. For example, if you were setting up a microphone in the conference room, you could not be asked to move chairs.

Wages and benefits are very important to employees, but they are not everything. We spend a third of our lives at work, and thus employees are looking for meaning in their places of employment. Unions often turn a workplace into a drone factory, where the relationship between worker and employer resembles that of a warden and a prisoner.

Imagine working in such an organization and the toxic culture that would result; immense frustration and resentment that slowly builds up between employees and management. A company like this has zero creativity or soul and cannot compete against a nonunionized company that pays even higher wages; it will not survive in the global market.

If I had to run IMA under these conditions, most of my energy would be consumed by navigating the bureaucratic minefield created by the union, which would stifle our vibrant culture and extinguish any desire I or any employees might have to come to work. Therefore, I would outsource nonessential tasks to other nonunionized companies and essential ones to other countries.

If you think things can’t get worse, they can.

In a right-to-work state like Colorado (technically it is modified right-to-work state), if my employees went on strike, I could hire someone who had not been tempted by the allure of the magical plant (marijuana), either temporarily (hoping my employee would detox) or permanently and go on running IMA the way I see fit.

But if IMA were in Michigan – which is not a right-to-work state, since IMA employees have now unionized – every employee I hire would have to become a dues-paying union member, and join their brethren on strike.

I would have to decide whether I want to euthanize the business fast by shutting down or slowly by agreeing to union demands. I would also have another alternative – since money management is not a capital-intensive business, I could move IMA from Michigan to another, common-sense-friendly (right-to-work) state.

Now imagine if I had billions of dollars invested in factories and my unionized employees made demands that could potentially decapitate my business. In non-right-to-work states, in broad daylight, my employees are literally taking factories hostage if I do not succumb to their demands. I have factories and no employees to operate them, thus making them worthless assets.

This is why most new factories are being built in Southern states, which are friendly to both companies and employees. Detroit used to be a gem of corporate America; now it is turning into a ghost town, and Michigan has been ranked as one of the worst states in terms of population growth.

Unions claim they protect and help the workers. They do create jobs and boost members’ pay in the short term; however, in the long term, just like cancer, they can kill the industries they are trying to save.

The US used to have a prosperous steel industry. I am certain that, at its peak, unions celebrated by boasting about how they had doubled or even tripled their members’ pay. However, they drove costs so high that American steel became uncompetitive with Japanese steel, resulting in the closure of these factories and the loss of jobs for their employees. American companies are competing in a global market where competitors are not afraid to use automation and common sense.

Anything multiplied by zero is still zero. Even if unions boosted the pay of steel workers threefold, if that led to steel companies going out of business, the zero jobs that remained, paying three times as much would still result in zero income.

We participate in a free market every day; every time you buy or choose not to buy tomatoes at the grocery store, you are voting with your credit card. Why should the labor market be any different? Free markets may not be perfect, but they are the best alternative to all other options.

Employees of IMA are not my slaves, and if they find another company that pays and treats them better, they are free to leave. Hiring better employees than your competitors, treating them well, and thus retaining them is a competitive advantage.

What each IMA employee earns is not a dictatorial decision made by me (the evil, selfish employer), but a negotiation between two consenting adults. There are dozens of factors that go into their wages; the ones that come to mind right away are: the value they create, soul in the game attitude they bring to IMA, and yes, the supply and demand dynamics in the labor market.

We live in a day and age where companies and management are rated on Glassdoor, a website where employees can review corporations. If companies treat their employees poorly, they will not be able to attract good talent, resulting in lower profitability and, eventually, going out of business. This is how the free market deals with bad employers.

Today, we don’t need more unions; we need more free market.

PS. I am aware that I will receive pushback regarding the ratio of CEO (management) pay to average worker pay, which has significantly increased over the last few decades. Unions are claiming that they are the cure, but I would argue that we have two unrelated problems combined into one ratio, so solving one has little to do with the other.

Let’s start with the numerator – management’s pay.

Top management can make a huge difference to the company. Each decision they make has great leverage, which can either improve or damage the company. Look at the value Jamie Dimon created for JP Morgan and the value Jeff Immelt destroyed at GE.

Though both were paid tens of millions of dollars, you could argue that JP Morgan got Jamie Dimon at a bargain; and even if GE had paid Immelt a minimum wage, they would have overpaid him, as he destroyed billions of dollars in shareholder capital through his misallocation of capital. We should consider management pay in the context of the value executives create.

The main problem with runaway CEO compensation is that the board, which the CEO helps to select, is the one that sets his or her pay. There is very little independent thought in the making of that decision.

I am more concerned with the slow growth of workers’ pay. There are many factors that contribute to it, and though I have placed plenty of blame on unions, they are not the only culprits here.

If we had more jobs, then we’d have more demand for labor and thus higher wages. But our industrial base got hollowed out over the last three decades. This has happened for many reasons.

The US dollar, being a reserve currency, has helped us to finance huge government deficits; however, it has also made our goods more expensive for the rest of the world, thus acting as a headwind to our manufacturers.

Our competitors, mainly China, were not shy about subsidizing their manufacturing sector, again putting our companies at a competitive disadvantage.

Our education system has been focused on producing office workers (like myself), but we don’t produce enough engineers.  

Tim Cook explained why the iPhone is produced in China: “Making Apple products requires state-of-the-art machines and lots of people who know how to run them. In the U.S., you could have a meeting of tooling engineers, and I’m not sure we could fill the room… In China, you could fill multiple football fields.”

We need more vocational (two-year) schools that spend less time on politically correct classes designed to employ otherwise unemployable professors and more time teaching students practical skills that will make them contributing, value-creating members of society. This would also reduce the student-debt burden on society and provide higher-skilled workers who would be better compensated, as their labor would add more value.

Wealth and abundance have made society complacent. We have begun to view our past successes as a God-given right and have forgotten that we achieved them through hard work and pragmatism, which has been slowly eroding. There is too much regulation and bureaucracy, and we spend too much time debating topics which, a decade ago, would have been considered laughable by our society.

The best way to improve the wages of our workers is to create more value-creating jobs, and that means we need to create a business-friendly environment – yes, it is that simple.

---

Key takeaways

• Unions have evolved from being a stimulant for workers’ rights to becoming a cancer that can slowly euthanize industries they engulf, often making businesses uncompetitive and inefficient.
• Unions’ demands, such as inflated wages, reduced work hours, and restrictions on automation, can lead to increased costs, poor customer experiences, and ultimately, business failure.
• The power of unions in non-right-to-work states can effectively hold companies hostage, forcing them to choose between crippling demands or shutting down operations.
• While unions claim to protect workers, their short-term gains in wages and benefits can lead to long-term job losses as industries become uncompetitive in the global market.
• The article argues that free market principles, rather than unions, are better suited to balance worker rights and business competitiveness in today’s economy, citing examples of how unions have contributed to the decline of industries like US steel manufacturing.