CHAPTER XI STRIKE IDLENESS AND AGGRESSIVE IDLENESS

(1) The distribution of monopoly-gains among cooperant monopolists is indeterminate, and may depend upon “reasonableness”

IN DISCUSSING the relations between cooperant stages of production in the last chapter, we ignored an important consideration which may arise when two or more of these stages are monopolized. Idleness of a different kind may result from the arrangement of distribution among the owners of cooperant sets of productive operations (e.g., firms, and groups of workers) who are sharing in the benefits of restrictionism. It has its origin in distributive considerations but is otherwise completely different from that which is the product of bargaining among the owners of competing resources. When purely cooperant activities are concerned, no question of quotas arises. But the proportion of the monopoly-gains which accrues to each cooperator is just as indeterminate as the size of quotas. The monopolists’ optimum output (which is to their collective interest) is again independent of the shares of the monopoly revenue which each cooperant party happens to get. If output falls short of the optimum at any time, then arrangements are conceivable under which no cooperant monopolist will lose whilst the whole will gain. As no principle of distribution exists, however, it is once again probable, as we have already pointed out, that “reasonableness” will dictate the solution. And “reasonableness” usually means in practice a division of the spoils not diverging greatly from the proportions in which aggregate revenues have been shared in the past. The result is expressed in the prices charged for monopolistically controlled cooperant services at each stage of the productive process. To some extent contracts may give permanence to any system of distribution which develops. But “vertical” monopolies which are not held together by complete amalgamation appear to rest in the long run upon little more than tacit understandings reinforced by custom and the acceptance of the status quo. It is not surprising, then, that each cooperant firm or group still wishes to get more for itself out of the benefits achieved by exploiting consumers.

(2) The distribution of monopoly-gains may depend upon bargaining, in which case “strike idleness” may arise

But as there are no principles other than that which is based on the maintenance of existing rights, it is obvious that a deadlock must sometimes arise. A price is demanded which the next cooperant producer in the chain of production refuses to pay at all. His response is not to cut down his purchases but to cease buying altogether. Consequently, two sets of resources stand idle; and unless there are stocks of semi-finished goods ahead, and unless previous cooperant producers can manufacture for stock, the whole chain of production will be brought to a standstill. This will be the result if interlopers (i.e., “blacklegs”) are not attracted in and substitutes are not available. We can call it “strike idleness” because the strike, organized by a trade-union, is the most common cause of the actual phenomenon. But the term “strike idleness” as we have used it, applies to all of the resources rendered idle, and not merely to those owned by the party which takes the initiative in demanding a price change in respect of productive services being bought or sold. It is futile to try to distinguish “the aggressor” from “the defender,” unless we call the party which demands a change, “the aggressor.” The strike and the lock-out are of identical nature. Thus, in the labor contract issue, in both cases the workers collectively demand a previously existing or a new wage-rate (or conditions similarly affecting costs) and refuse to supply any labor at all unless it is conceded; and in both cases “the employer” (or “employers” collectively) refuse to engage any labor at all at the wage-rate insisted upon.

(3) When competing firms operate over more than one set of cooperant productive processes, distribution may be arranged through “demarcations,” which may be enforced by strikes

We must now consider the fact that “withheld capacity” arrangements among a number of competing firms, each of which operates over severalstages of the productive process, may take a different form. Agreements may be expressed, not in quotas, but in “demarcations.” Each firm will consent to specialize for the future on, say, a particular process and give up the others. Especially where this policy has been followed, but in many other conceivable circumstances, the resulting firms may stand in both an actually cooperant and a potentially competing relationship to one another. And even where a cooperant firm or group cannot itself compete by invading other stages of production, it may frequently be in a position to supply interlopers in a subsequent process. Hence it may indirectly be in a potentially competing position. We frequently find a like situation in the internal relations of organized labor. The essence of the quarrel between “craft” and “industrial” unionism arises out of circumstances of this kind. In respect of the claims of cooperant groups, however, it is seldom a collusive agreement that binds the monopoly together; it is tradition and the recognition of a vested interest which determines each group’s functions (and indirectly their claims) under a demarcation scheme. In all of these circumstances, because of this twofold—cooperant and competing—relationship, the strike may be used against potentially competing firms or groups. When employed in this way, the “strike” has much the same significance as “aggressive selling.” It may be used to enforce “joint monopoly,” that is, to prevent cooperant monopolists from invading spheres tacitly or formally forbidden to them, or to prevent them from dealing with outside interlopers who may wish to operate in some other stage of the productive process. This is manifested in the relations of organized labor to “the employers,” i.e., the shareholders. The strike is used to prevent “the employers” from dealing with interloping labor. And all coercive enforcement of “demarcations” is one of the same nature.

(4) “Strike idleness” does not arise from “withheld capacity” unless a cooperant producer resists in order to force a sharing of the monopoly-gains

It is important that the “strike” should not be confused with “withheld capacity.” Let us suppose that in a field of production in which competitive institutions are freely functioning at the outset, the workers succeed in combining and suddenly demand together an increased wage-rate. If the capitalists really stand in a competing relationship with one another, the effect will be, as in any other increase of costs, that output will fall and the burden will be partly transferred (through a price increase) to consumers. The transfer may be either direct, or through the next stage of production. So far, there will have been “withheld capacity” on the part of labor. Suppose that there are no substitutes for the labor and no further labor-saving organization is possible; and suppose the resulting commodity price to bring the maximum aggregate receipts from the sale of the final product. The monopoly-revenue part of these receipts is available for sharing among all the parties to production. Hence, if the “capitalists” understand the position, and wish to preserve their former income, they can share in the spoils. They can do this by coming to a collective decision concerning the wage-rate which they will pay. There is no strike unless there is action based on such a decision (or unless the capitalists resist with altruistic intentions, being unwilling to see consumers exploited). Until the capitalists acting in collusion—or in the case of single capitalists possessing some monopoly advantage, acting singly—refuse to give employment except on terms agreed among themselves, the idleness caused is merely “withheld capacity” on the part of the workers. The essence of the strike is that it is temporary, and in intention coercive. The coercion is based on the power to dislocate the process of “roundabout” production by the withdrawal of temporarily or permanently, imperfectly or absolutely, irreplaceable resources. In a “pure” strike between two parties, each side believes that the other will be the more burdened or inconvenienced, and counts on the other side’s continued waste of its services forcing it to acquiesce. And the position can be equally simply conceived of when several cooperant parties are involved. But in practice the position is not so simple. It is complicated because potential interlopers usually stand ominously near, and because cooperant monopolists are tacitly threatening to bring in such interlopers if unreasonableness is persisted in; and because the coercion of the strike is used for other purposes than fighting over the distribution of the value of the product of a set of operations under conditions of monopoly. These problems do not now concern us, however. Our present object is to distinguish clearly between idleness of “withheld capacity” and “strike idleness.”

(5) “Aggressive idleness” arises from the maintenance of unutilized capacity with a view to aggressive selling against potential interlopers

There is yet another reason why producers in a trade may desire the preservation of equipment in idleness. They may desire it collectively rather than individually, as a means of aggression against interlopers (the case of “aggressive idleness”). Far from being a disadvantage in these circumstances, the idle equipment must be thought of as a protection for the monopolists collectively, worth much more to them than its scrap value; for it confers the power to sell aggressively in order to crush new interlopers. Hence it stands as a constant menace to would-be interlopers. Restriction schemes are threatened less from internal quarrels than from the danger of competition from outside. It is probably interlopers rather than those who are already sharing in the spoils who most often cause the disintegration of collusive monopolies. Indeed, it seems probable that the greater part of that divergence of interest within, expressed chiefly through quota-hunting, would cease entirely if the permanence of a cartel could be assured by the suppression of all external competition. There is every motive therefore for keeping idle capacity in existence for the specific purpose of deterring interlopers. The motive may usually be but vaguely present in the minds of cartel authorities. But they are conscious of the power which it confers, even if hardly aware of its origin. We may call such idle capacity “aggressive idleness.”¹ It is relevant internally as well as externally because every member of a cartel, for instance, is a potential interloper. He actually becomes an interloper immediately he breaks the understanding or collective agreement by cutting price or exceeding his quota. The idle equipment may be aggressively employed (through discrimination or otherwise) on rare occasions only; but its aggressive function is fulfilled by the threat implied in its mere presence. When it is engaged in an act of aggression, it is, curiously enough, no longer idle. The distinction between “participating” and “aggressive” idleness is not always clear when internal relations are considered, although in principle the distinction is plain enough. Capacity provided with aggressive intent may lead to participating rights being conferred. If the maintenance of the capacity is then necessary for the continuance of these rights, it is in “participating idleness.” If that necessity is due to the requirement of a continuous threat to internal price-cutters, it is also aggressive. But rights acquired by internal aggression need not demand a permanent defense. Income-rights so achieved come to be regarded as “reasonable,” whatever their origin.²

1 See W. H. Hutt, “Nature of Aggressive Selling,” Economica (August, 1935).

2 We can think of no parallel to “aggressive idleness” in the case of labor, although privileged labor groups may benefit from the condition in cooperant equipment.