Workers Power is the key to a free republic

A powerful workforce counters domination within the firm and within society. The post A Free Republic Depends on Worker Power appeared first on The American Conservative.
"Capital was only possible because of labor. It would not have been possible without labor." "Labor is superior to capital and deserves far more consideration."

This excerpt from Abraham Lincoln’s first annual address highlights one of the key features of Republican Party’s founding philosophy. Citizens workers are at the core of a free and democratic society. The government’s policy should therefore be aimed at promoting the welfare, Status and opportunities of workers. Abolition of slavery was the most worker-friendly policy in American history. Lincoln believed that abolition of slavery was essential to republican efforts in order to redeem the moral heart of the Union as expressed in the Declaration of Independence. Republicans failed to grant property ownership to newly freed slaves, and thus greater economic independence. This failure was a major influence on the subsequent racial politics. Lincoln was able to boast of many policy successes. After Southern secession, in 1862, the Homestead Act was passed. It ensured an equal distribution of productive land.


The Pacific Railroad Act was passed in the same year. It began to modernize and transform America’s productive infrastructure. The Morill Act allowed a similar transformation to take place in America’s Human Capital by making higher education more accessible. disseminated and raised standards for primary and secondary education. Together, these acts gave propertyless Americans, including recent immigrants with greater opportunities and freedom from dominance in the workshop. They laid the foundations for America’s rise as a global manufacturing giant (following Alexander Hamilton vision).

Theodore Roosevelt’s first State of the Union address highlighted another Republican Party tenet: that private, unaccountable economic concentrations are a danger to a free nation. There is widespread belief among the American public that the trusts, or large corporations, are harmful to the welfare of the country ….. This conviction is based on a sincere conviction, which is that the combination and concentration of power should not be prohibited but rather supervised, and within reasonable limitations controlled. Economic power is a precursor to political power. It undermines the political accountability that is a fundamental component of republican politics, and the freedom justification for the American Revolution.

The power firms then create barriers to entry into the market, or buy out potential competitors, further consolidating their market and slowing down innovation and economic development. The owners of big firms can use this market power to increase their share of growth while putting more vulnerable workers under dominance at work. In order to counteract this threat, Roosevelt’s administration revived the Sherman Act in order to break up Rockefeller’s Standard Oil Company, and J. P. Morgan’s Northern Securities Company. Both companies had built empires based on government infrastructure investments. Hepburn Act expanded the powers of the Interstate Commerce Commission in order to fight abuses of railroad commerce. Roosevelt refused to use the National Guard in the Coal Strike 1902 to break up the striking coal miners. He instead tried to equalize the relationship between workers and employers. The central theme of Roosevelt’s domestic economic policy was to provide a fair deal. This term, coined by Roosevelt, was used to describe the settlement for the coal strike.

Let’s look at the latest, innovative research on the economics behind market power. Jan Eeckhout and Jan de Loecker highlight the role of market power in the rise of marksups, which is the ability of firms charge more than their marginal costs for goods and services, over the last four decades. In 2016, companies were able charge 61 percent more than the cost of goods and services, compared with just 21 percent back in 1980. During the same period, the average profit has increased from 1% to 8%. This steady increase is not evenly distributed across the market. This steady rise is not spread evenly throughout the market. Instead, it’s driven by a small number of historically successful firms that have significant market power. The pricing power allowed corporate profits to reach highs despite inflation reducing the purchasing power for most workers.


paradoxically the enormous profitability of these companies functions to suppress aggregate production and demand. The economy produces less as high-profit firms with high markups claim an increasing share of sales. A rise in markups implies a decrease in demand for labor. Workers might not realize that firms with a lot of market power can and often do hire more workers, pay them higher wages than their competitors. This is a tiny fraction of their huge profits. This results in a further concentration of employment and market share among the firms with the highest markups. This is the exact opposite of what would be expected from models of perfect competitiveness. The use of data from the workplace, and surveillance technologies lower wages for efficiency because firms are less motivated to reward employees with more of the fruits of great market power.

Market power is the same thing that allows for markups on goods and services but also leads to wage markdowns. Over the last two decades, many economists have taken a renewed interest in the power imbalance between employers and employees in the labor markets. Monopsony is a concept that was introduced by the great labor economic Joan Robinson. It occurs when the labor supply curve for individual employers is not elastic, so that wage cuts do not result in the worker loss predicted by textbook models. The company towns from yesteryear are the archetypal example of monopsony. Recent scholarship points out a number sources of monopsony in the labor market. These include not only market concentration, but also Non-Compete Clauses.

Lower wages and productivity is the predictable effect of market power. Take a simplified version of Suresh Naidu’s work, where a company is considering two potential employees (Jessica or Nicole) that would produce $25 per hour for the firm. Jessica will only accept a $23 offer, while Nicole, a worker who is equally productive, would accept $16 due to the monopsony. However, the firm cannot know which worker will accept which rate. It would be impossible for them to tailor benefits and wages to each employee. They have to choose between two options: 1) employing both workers at $23, resulting in $50 worth of goods and service per hour, with a profit of $4, or hiring Jessica at $16, resulting in $25, with a profit $9. Profit-maximizing firms will choose the latter. Market power is a powerful incentive to hire fewer employees and pay them less than the marginal productivity of those workers, as well as keep productive capital inactive.

Unfortunately, over the years, the Republican Party failed to emulate their predecessors. Many Republicans seem to have adopted an economic doctrine which refused to recognize market dominance as a real threat to freedom and welfare. Lincoln’s ideal of a labor centered economy gradually gave way to one that focused on protecting the rights and increasing the power of capital. This change could be due to party members’ stubbornness in retaining the ideal of an independent republic of small business owners and farmers, despite economies of scale making this idea increasingly impractical. In contrast to the republican idea, control of productive capital is highly centralized.

In order to achieve a free and just society, it is important that empowers the workers. Republicans (and Democrats!) can learn from the examples of Lincoln and Roosevelt. Use antitrust laws to protect not just consumers from high prices, but also workers and citizens against the negative impact of market power. should consider the impact of mergers on the labor markets when evaluating. Concentrations of power are a concern that is shared by both parties. Without government intervention, the concentration will only get worse, as AI transforms society and economy. The AI industry is dominated by a small group of companies, whose research priority are geared towards increasing their market share and cutting costs instead of serving the public interest.

Even more important, Americans must use public policy in order to ensure that workers get a larger share of any rents that result from market concentration. has recently argued that one of the best ways to achieve this is by providing an effective policy infrastructure to organized labor. Americans can push for legislation that would move away from the adversarial, firm-based approach to collective bargaining which encourages a race towards the bottom of worker wages and power to sectoral negotiation, which forces firms to compete in a level field.

To increase worker power, you can also provide better job opportunities and resources for searching. The post-Covid economic situation provides some interesting insights into this. The pandemic was a way to combat monopsony by forcing workers to change jobs. However, they did not suffer severe economic instability because of public policy. The result was that workers were able to move up the ladder of productivity and wages. The lower-income workers were able, in particular to claim a greater share from the fruits of economic expansion, partly reversing the decades long trend of rapidly increasing wealth and stagnant wages for the bottom 50% of the working population.

The Inflation Reduction Act is unique in that, despite the fact that no Republican senators or representatives voted for it, it promises to be a boon to manufacturing in “red” counties and states, including areas a href=”″ rel=”noreferrer noopener” target=”_blank/a> hardest hit by globalization. The Inflation Reduction Act has a peculiarity: despite no Republican senators and representatives voting for it, the bill promises to boost manufacturing in “red” states and counties, including areas most affected by the globalization. In response to this bill, multinational corporations are announcing their plans to construct a factory within the United States. The goal of industrial policies should be to maintain demand for workers even when wages are rising.

It is important to broaden prosperity geographically in order to combat monopsony. Commodified labor has a lower mobility compared to capital and non-labor commodities. This is partly because it is composed of real humans. They care not only about the price of their products, but also about family, community, and social ties. Globalization has left many workers with little family support and few financial resources. Even middle-class families find it hard to move because of the exponential rise in rent and property values in productivity hubs. All of these factors are clear deterrents to moving in search of better jobs, even though some models would suggest that “community-less”, “nationless” agents were more “efficient.”

The predictable decline in the number of new businesses in economically distressed regions is a major source of geographic development inequalities. The majority of job growth is attributed to young firms . Individual entrepreneurs often use the equity in their home as collateral to start these businesses. Local banks are faced with a variety of challenges as a result of regional economic decline. For these reasons, there is significant potential for place-based development initiatives–including targeted tax credits focused on high-multiplier industries, public-private partnerships, infrastructure development, and investment in public services–to close massive regional gaps in prosperity.

Federal Reserve efforts to fight inflation combined with the current structure of the Federal Deposit Insurance Corporation, which only covers deposits up to $250,000. threatens to increase financial dominance. The rising spread between returns on loans and bonds with long maturities and the cost of deposit retention when money market funds and treasuries offer 4-5 per cent, puts pressure on all banks. implicit subsidy is provided to larger banks that are deemed systemic. This subsidy increases share prices and reduces borrowings for large banks in periods of relative stability. It also increases their profits and market shares. It is currently causing a migration of deposits away from local and regional bank. This flight of deposits is especially troubling to American workers, given the important role that these banks play in investment. We should expand the “risk-priced FDIC insurance” to alldeposits and explore other regulatory reforms in order to reduce the risk of bank run, as well as the ability of “systemically significant” banks to collect huge rents from the productivity of the remainder of the economy.

Conservatives have for a long time emphasized an important strand in America’s republican traditions: the importance to adopt public policies that encourage individual and civic virtue. What republicans, from Thomas Jefferson to Hamilton, to Lincoln to Frederick Douglass, recognized and what current Republican Party members seem to miss is the connection between economic power and opportunities and virtue. For example, it makes no sense to urge workers to be more diligent and to take on greater responsibility when you adopt policies that result in declining or stagnant wages, and reduce worker power and safety in the marketplace. The hope that hard work will lead to a better future for them and their community is a crucial source of virtue. We need to restore this hope if we want Americans to be more virtuous citizens and workers.

To achieve a more innovative democracy, with a vibrant middle class, Americans must use existing antitrust provisions, change labor laws to allow for sectoral bargaining and targeted development policies. They should also pass bipartisan legislation. A strong workforce can counter dominance within the company and in society. It also encourages firms to compete on innovation and productivity, rather than by profiting off low wages. It leads to an economy where more productive resources are used, demand increases as workers get a greater share of the economic growth and the citizen worker is placed in the center of American Society. The republican vision for a free, just and democratic society in America is more important than ever before.

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