Deregulation in Argentina: Milei Takes “Deep Chainsaw” to Bureaucracy and Red Tape

Argentine President Javier Milei has lowered inflation, drastically reduced government spending, and dismantled large parts of the federal bureaucracy. But as Ian Vásquez points out in his guest post, one of the most far-reaching efforts by his administration has been its deregulation push, with officials implementing about two deregulations per day on average since he took office, and using ingenious ways to discover where most needs deregulation. It's an Example for the World, if only New Zealand were not too sclerotic to learn from it ...

Deregulation in Argentina: Milei Takes “Deep Chainsaw” to Bureaucracy and Red Tape

by Ian Vásquez
At the heart of Argentina’s chronically crisis-prone economy is a political system that encourages unconstrained public spending and overregulation in the extreme. It is the system set up by Juan Domingo Perón in the 1940s that strengthened in subsequent decades, and that President Javier Milei promised to cut down with a chainsaw and replace with classical-liberal policies of the kind that made his country one of the most prosperous in the world a century ago.

Since assuming power in December 2023, Milei has been slashing government to that end. His priorities have been to get spending under control and to deregulate. Milei cut the budget by about 30 percent and balanced it one month into his term. That facilitated more disciplined monetary policy and the reduction of inflation from 25 percent per month when the president came to office to 2.2 percent in January 2025.

The success that Milei’s economic stabilisation has had so far is now widely acknowledged. The president took an economy from crisis to recovery much faster than most people expected: Growth returned in the second half of 2024, wages have increased, and the poverty rate, after having initially risen, has fallen below the 40 percent range that the previous government left as part of its legacy.

How much Milei has been deregulating, however, and the role that deregulation plays in Argentina’s success, is less widely appreciated—yet it is every bit as important as cutting spending. To understand why, it helps to know something about what makes Argentina’s politics different from that of most countries.

Argentina’s Peronist System

For more than seven decades, Argentina has had a corporatist system that Perón set up using Mussolini’s fascist Italy as a model. Under that system, the state organises society into groups—trade unions, business guilds, public employees, and so on—with which it negotiates to set national policies and balance interests. It’s a kind of collectivism that erases the individual, centralises power in the state, and incentivizes interest groups to compete for government favoritism through public spending and regulation.

This system gave rise to a proliferation of rules intended to protect and promote particular sectors through price controls, licensing schemes, differential exchange rates depending on type of economic activity, capital controls, preferential borrowing rates, compulsory membership in (and support of) guilds, and other interventions.

The system that the Peronist party set up discouraged free exchange, competition, and productivity but became deeply entrenched. Privileges accorded by regulation were politically difficult to lift. Legal scholar Jorge Bustamante, moreover, notes that regulation plays a more significant role in redistributing wealth in Argentina than fiscal policy does. He adds that “the waste of scarce resources caused by regulations is more serious than the direct activity of the state in the economy itself [fiscal policy], which is known to be in deficit.”

Unions in particular gained immense political power. Such was the case that Bustamante describes the Argentine system as one that “converts the unions into organs of the state when the party to which they belong [the Peronist party] is in power or converts the state into a prisoner of the unions when the party is in the opposition.”

Federico Sturzenegger, Argentina’s minister of deregulation and state transformation, made a similar point at the Cato conference we held in Buenos Aires in June 2024 with President Milei and other leading classical liberals. “The Peronist party,” Sturzenegger said, “is the manager of the status quo.… It is the manager of the vested interests; it is the conservative party of Argentina.”

The Peronists may want to conserve the system, but Milei is right in cutting it down. According to Cato's Human Freedom Index, the Argentina that the president inherited is one of the most regulated countries in the world, ranking 146 out of 165 countries in terms of the regulatory burden. As of last year, it ranked 81st.

Milei’s Cuts in One Year

Since coming to power, Milei has made wide-ranging cuts to Argentina’s bureaucracy. In his first year, he reduced the number of ministries from 18 to 8 (eliminating some and merging others), fired 37,000 public employees, and abolished about 100 secretariats and subsecretariats in addition to more than 200 lower-level bureaucratic departments.

The president has also aggressively pursued deregulation. Using a conservative methodology, my colleague Guillermina Sutter Schneider and I calculated that during Milei’s first year in office, he implemented about two deregulations per day. Roughly half of the measures eliminated regulations altogether, while the rest modified existing regulations in a generally market-oriented direction.

Milei has implemented these reforms legally and constitutionally, and they have resulted mainly from two broad measures. First, Milei began his administration by issuing an emergency “megadecree” that consisted of 366 articles. Emergency decrees are consistent with Argentine law if they meet certain conditions. They are also reviewable by Congress, which has the right to reject the orders within a specified period of time. Since the legislature did not object, most of the deregulations in the megadecree went into effect.

Second, Congress approved a massive bill (“Ley Bases”) last June that allows the government to issue further deregulatory decrees for one year. Most of Argentina’s deregulations are taking place under that authority and have been led by the new Ministry of Deregulation that began operating the following month.

The ministry is literally in a race against time, and its sense of urgency is palpable. When I visited Minister Sturzenegger and his team in November, they showed me a countdown sign outside his office that read “237 days left,” indicating the time remaining for the government to continue issuing deregulatory decrees. Sturzenegger’s team—made up of legal experts and accomplished economists—also has a clear sense of mission: to increase freedom rather than make the government more efficient. When reviewing a regulation, therefore, they first question whether the government should be involved in that area at all.

Following that approach, the government implemented deregulations in sectors of the economy ranging from agriculture and energy to transportation and housing. 

Looking at Prices

To help prioritise those reforms, the ministry looks at prices. If the cost of a good or service is significantly higher in Argentina than internationally, the regulatory burden often explains the price differential. Sturzenegger reports that deregulation in Argentina has tended to make prices fall by about 30 percent. The ministry has also set up a web portal called Report the Bureaucracy that takes recommendations from businesses and the public, resulting in numerous reforms.

Some of the reforms have been procedural. For example, government inspections are now sometimes conducted after a firm begins engaging in business (on the assumption that it is following the law and may be subject to inspection), rather than before any business is allowed to even go forward. This “ex-post” inspection of the labeling of imported textiles, for instance, led the price of textiles to fall by 29 percent. 

The government has also instituted a “positive administrative silence” rule affecting several activities by which requested permission is considered approved if the government bureaucracy does not respond within a fixed period of time. In yet another example, Milei prohibited legally sanctioned hereditary positions that had become normal practice at numerous government agencies.

Much of the impact of the deregulations has not yet been measured, but the hard or anecdotal evidence that does exist suggests that the reforms are making a significant difference. The following are some accomplishments from Milei’s first year:

• The end of Argentina’s extensive rent controls has resulted in a tripling of the supply of rental apartments in Buenos Aires and a 30 percent drop in price.
• The new open-skies policy and the permission for small airplane owners to provide transportation services within Argentina has led to an increase in the number of airline services and routes operating within (and to and from) the country.
• Permitting Starlink and other companies to provide satellite internet services has given connectivity to large swaths of Argentina that had no such connection previously. Anecdotal evidence from a town in the remote northwestern province of Jujuy implies a 90 percent drop in the price of connectivity.
• The government repealed the “Buy Argentina” law similar to “Buy American” laws, and it repealed laws that required stores to stock their shelves according to specific rules governing which products, by which companies and which nationalities, could be displayed in which order and in which proportions.
• Over-the-counter medicines can now be sold not just by pharmacies but by other businesses as well. This has resulted in online sales and price drops.
• The elimination of an import-licensing scheme has led to a 
• 20 percent drop in the price of clothing items and a 35 percent drop in the price of home appliances.
• The government ended the requirement that public employees purchase flights on the more expensive state airline and that other airlines cannot park their airplanes overnight at one of the main airports in Buenos Aires.

Many more examples could be given, but there’s no doubt that Argentines are beginning to feel the results of the reforms. Those results also help explain Milei’s approval rating of 50 to 55 percent, according to recent polls.

Year Two of Milei: The “Deep Chainsaw” Begins

In his address to the nation on his one-year anniversary as president, Milei explained that the cuts he’s made so far are only a beginning. “We will continue to eliminate agencies, secretariats, subsecretariats, public companies and any other State entity that should not exist,” he promised, and then went further: “Every attribution or task that does not correspond to what the federal state is supposed to do will be eliminated. Because as the state gets smaller, liberty grows larger.” Milei declared that he would now begin applying the “deep chainsaw.”

Minister Sturzenegger is leading the charge. A decree in February instructed all ministers to review all laws and regulations under their purview and recommend comprehensive deregulations within 30 days. In a country with nearly 300,000 laws, decrees, or resolutions, that is no small task. But according to Sturzenegger, the government has cut or modified 20 percent of the country’s laws; his goal is to reach 70 percent. He adds that the pace of firing public employees will increase.

Regulatory reforms have already picked up pace. In January, Sturzenegger announced a “revolutionary deregulation” of the export and import of food. All food that has been certified by countries with high sanitary standards can now be imported without further approval from, or registration with, the Argentine state. Food exports must now comply only with the regulations of the destination country and are unencumbered by domestic regulations.

That innovative reform, which outsources regulation, is intended to generate “cheaper food for Argentines and more Argentine food for the world.” But it is also an example of how the ministry takes input from Argentine citizens about the need to change nonsensical regulations. As Sturzenegger explained: “Countless companies have told us of the incredible hardships they had to go through to meet local requirements that were not required by the destination market. A producer who needed to certify a sample to see if he could enter the US market was asked to set up a factory first.”

In another case, Argentina required a watermelon exporter to package his product in a way that was different from what the recipient country required. So, in practice, the exporter would load the ship in compliance with Argentine law and, once the cargo left port, the watermelons would immediately be repacked.

Other examples abound. A decree in February facilitated farmers’ use of new seeds by eliminating the requirement to conduct extensive testing of those seeds. As Sturzenegger observed, in a country where agriculture plays a significant economic role, those restrictions were especially perverse: “Brazil has tripled its soybean production, largely with seeds made by Argentine researchers, working in Argentine companies but based in Brazil. The dramatic thing is that the increase in production in Brazil sinks the price of the grain while we are relatively stagnant because we cannot access our own technology!”

Another decree reduces the cost of warehousing imported containers awaiting customs inspections by an estimated 80 percent because it allows importers to keep their goods in competing locations during that time rather than solely in places run by the customs service. That cost reduction, like countless others that result from accelerated regulatory reforms, will be passed on to Argentine consumers. And to the extent that the chainsaw really does go deeper and faster in year two, the benefits will be even more pronounced.

An Example for the World

Milei’s task of turning Argentina once again into one of the freest and most prosperous countries in the world is herculean. But deregulation plays a key role in achieving that goal, and despite the reform agenda being far from complete, Milei has already exceeded most people’s expectations. 

His deregulations are cutting costs, increasing economic freedom, reducing opportunities for corruption, stimulating growth, and helping to overturn a failed and corrupt political system. Because of the scope, method, and extent of its deregulations, Argentina is setting an example for an overregulated world.

* * * * 

Ian Vásquez is Ian Vásquez is vice president for international studies at the Cato Institute, holds the David Boaz Chair, and is director of Cato’s Center for Global Liberty and Prosperity. He is a weekly columnist at El Comercio (Peru), and his articles have appeared in newspapers throughout the United States and Latin America.

His post first appeared at the Cato at Liberty blog.

The US 'Rustbelt' explained

"[M]any people reflexively blame trade for the decline of [what's become knows as the American] 'Rustbelt.' ...
    "But ... [d]oes trade explain the decline of steel employment from roughly 190,000 to 84,000?

If trade [alone] explained the loss of employment in steel mills, then you would expect to have seen a precipitous decline in domestic steel production. In fact, there’s been very little change in steel output during a period where employment has plunged sharply:

"[I]mports have had some impact on employment in manufacturing. But the primary cause of job loss has been automation [exacerbated by] unionisation forcing jobs to other parts of the country, rather than trade."

~ composite quote by Scott Sumner and Jon Murphy from Scott's post 'Trade as a scapegoat'

"Libertarianism differs fundamentally from both left liberal and conservative perspectives."

"Popular opinion views [left] liberalism and conservatism as radically different perspectives about the proper size and scope of government. ... Yet [left] liberal and conservative perspectives are the same in one key respect: both advocate using government to impose particular values.
    "Conservatives want to ban drugs, liberals guns. Conservatives advocate banning abortions, [left] liberals subsidising them. Conservatives support subsidies for home schooling and religious schools, [left[ liberals the same for low-income housing and 'clean' energy. ... Thus the goals of favoured policies differ, but not the belief that government should promote specific views ... —all of which involve government interference with private decisions ...
    "Libertarianism differs fundamentally from both [left] liberal and conservative perspectives. ... consistently ask[ing] whether government intervention does more harm than good. And it applies this skepticism regardless of the associated 'values.'
    "Thus libertarianism argues against both drug prohibition and gun control; against government protection of unions, but not against unions per se; against government-imposed affirmative action, but not against privately adopted affirmative action; against any government-imposed content moderation of social media, but not against private moderation policies; against all trade and immigration restrictions; against government restrictions on school choice; against government-mandated licenses; and against the government defining marriage.
    "Perhaps libertarians are wrong about the merits of some government interventions. But applying a consistent lens across policies helps understand the inconsistencies of both [left] liberal and conservative perspectives."

~ Jeffrey Miron from his post 'Libertarian Consistency'

"The professional class ..."

"The professional class that supports policies like housing regulation and occupational licensing to inflate their home values and salaries has had a worse impact on opportunities for the poor than the 1%, although the latter gets a lot more attention from the left."

~ Chris Freiman

"The effects of redistribution are completely dwarfed by the effects of technological progress on long run economic growth."

"During the late 1920s, the living standard of American blue collar workers was far higher than 100 years earlier. And yet almost none of the 'progressive' ideas advocated by leftists had been put in place. There was no minimum wage, no federal unemployment compensation, no [Health & Safety Act], [no 'wealth taxes']and labour unions were fairly weak. In 1929, the federal government spent only a bit over 3% of GDP.
    "When trying to understand living standards, it is more helpful to focus on output, not money... As American industry began churning out vast quantities of consumer goods, it was almost inevitable that the living standard of the average American would rise sharply. If Apple and Samsung produce a billion phones, then lots of people will end up owning smartphones.
    "That’s not to say that income distribution plays no role in living standards... But the effects of [re]distribution are completely dwarfed by the effects of technological progress on long run economic growth."

~ Scott Sumner, from his post 'A Rising Tide Lifts Yachts and Rowboats'

"The essence of the strike, then, is the resort to coercion to force unwilling exchange or to inhibit willing exchange."

“Rarely challenged is the right to strike. While nearly everyone in the population, including the strikers themselves, will acknowledge the inconvenience and dangers of strikes, few will question the right-to-strike concept....
    "This is not to question the moral right of a worker to quit a job or the right of any number of workers to quit in unison. Quitting is not striking, unless force or the threat of force is used to keep others from filling the jobs vacated. The essence of the strike, then, is the resort to coercion to force unwilling exchange or to inhibit willing exchange. No person, nor any combination of persons, has a moral right to force themselves—at their price—on any employer, or to forcibly preclude his hiring others....
    "Lying deep at the root of the strike is the persistent notion that an employee has a right to continue an engagement once he has begun it, as if the engagement were his own piece of property. The notion is readily exposed as false . . . A job is but an exchange affair, having existence only during the life of the exchange. It ceases to exist the moment either party quits or the contract ends. The right to a job that has been quit is no more valid than the right to a job that has never been held."

~ Leonard Read, from his 1969 The Coming Aristocracy

"Unionism...[utilises] crude doctrines of sheer force, constraint of anybody and everybody who stand in the way of the immediate end, limitation of numbers and excessive prices built up on monopoly. . . 

    "[T]he labour of the country never can obtain for itself, except at the expense of other labour, more than the free and open market will yield. . . . Extracting more . . . is very near to dishonesty, since he is forcing this higher price at the expense of others. . . .
    "If the employer had behaved badly, the true penalty would fall upon him; those who wished to leave his service would do so . . . That would be at once the true penalty and the true remedy. Further than that in labour disputes has no man a right to go. He can throw up his own work, but he has no right to prevent others accepting that work. 

    "Force rests on no moral foundations."

~ Auberon Herbert, composite quote from his his 1891 'The True Line of Deliverance,' and his 1908 'A Plea for Voluntaryism' 

[Hat tip Gary Galles]

 

'Meaningful school choice would elicit shrieks of anger from upper middle-class homeowners. Too bad.'

"There are ... unwise government interventions that I would wish to eliminate, but that I would also not willingly push a button to eliminate immediately.... I’m ... sufficiently influenced by the works of Adam Smith, Edmund Burke, Lord Acton, and F.A. Hayek to understand that large, sudden changes to an economy or society can be dangerously disruptive, even when such changes involve reversing policies that should never have existed in the first place....
    "But there are buttons I would push. [One] button that I would push is one that would greatly enhance school choice. Starting with the 2023-2024 school year, I would, if I could, use a combination of tax credits and vouchers, paid for out of current government-school revenues, to end everywhere ... the monopoly grip that ... government schools and teachers’ unions have on low- and moderate-income families. This move would, in my ideal world, be a first step toward a complete separation of school and state. The squeals of the unionised teachers would be loud, as would the wailing of government-school administrators. But the pain suffered by these long-time coddled interest groups would be far surpassed by the immediately heightened incentives to improve their teaching and to tamp down their efforts at indoctrination.
    "Perhaps this sudden move toward meaningful school choice would elicit a few shrieks of anger also from upper middle-class homeowners, whose suburban property values currently reflect the superiority of the government schools in their neighbourhoods relative to the abysmally poor schools in other neighborhoods. Too bad. These property-value premia are no more just than they would be if they were instead caused by upscale areas having, say, better government-run supermarkets compared to the government-run stores in poorer neighbourhoods. If the fall in middle- and upper-income people’s property values caused by improving poor people’s access to food would be no reason to keep poor people stuck with incompetent supermarkets, the fall in middle- and upper-income people’s property values caused by improving poor people’s access to education is no reason to keep poor people stuck with incompetent schools."

~ Don Boudreax, from his post 'Some Buttons That I’d Not Push, and Some That I Would Push'

"In reality, the long history of unionisation ... is replete with homegrown racism"

"In reality, the long history of unionisation in the United States is replete with homegrown racism, as organised labor has sought to increase white workers’ wages by driving African Americans out of the competitive workforce. Many early-20th-century union initiatives, including working-hour restrictions, minimum wages, and collectively codified seniority privileges for existing workers allowed organisers to cartelise white labor against wage competition from African Americans and immigrants. The mostly white union sector benefited from artificially higher pay under these measures, whereas blacks found themselves excluded from employment entirely."

~ Phil Magness, from his article 'The 1619 Project's Confusion on Capitalism'

“It’s impossible to understand early twentieth-century progressives without eugenics. Even worker-friendly reforms like the minimum wage were part of a racial hygiene agenda… The minimum wage, in addition to providing some workers with a better standard of living, would guard white men from competition.”

~ Malcolm Harris from his article 'The Dark History of Liberal Reform', reviewing the book Illiberal Reformers: Race, Eugenics & American Economics in the Progressive Era  

"Racist views were widespread in New Zealand [too] during the nineteenth century but it was in the Labour movement that these views received their fullest expression. The emotive appeal of nationalism, the social Darwinist vision of the battle of the races and feared economic competition fused in the Labour movement to produce a series of anti- Chinese campaigns. Racism in the Labour movement peaked in the early twentieth century when the White New Zealand policy was established. Regulations which discriminated against groups on a racial basis were a feature of trade unionism in New Zealand from its early beginnings and these policies were defended in this period with great vigour by Labour racists."

~ G.R. Warburton, from his 1982 Masters thesis 'The Attitudes and Policies of the New Zealand Labour Movement toward Non-Union Immigration to New Zealand, 1878 - 1928' (p. 179)

"The Auckland Labour MPs were spurred by the Grocers' Assistants and the Furniture Trade Union into sending a telegram to the Prime Minister protesting that all this cheap [foreign] labour would lower living standards and probably lead to deterioration of the physical vigour of the race. M. J. Savage was particularly alarmist. The teeming millions of the East were less than a stone's throw away and New Zealand was faced by a rushing horde of Asiatics which it must try to stem both by laws of its own and by negotia- tions with Asian governments themselves.45 The Auckland Water- siders also recorded their fears for the living standards of the workers and their abhorrence of the 'piebald New Zealand' which now threatened..."

~. P.S. O'Connor, citing Auckland Star reports from 1920, from his 1968 article 'Keeping New Zealand White, 1908-1920'

 

They think labour is homogeneous

"The so-called 'Fair-Pay'Act took effect yesterday and hospitality workers are expected to be the first to seek a so-called 'Fair-Pay' Agreement:

"How on earth can it be 'fair' to impose pay and conditions of thousands of different workplaces in different places with different staffing requirements ?
"How can it be 'fair' to treat staff in fine dining restaurants the same as those serving fast-food takeaways?
"How can it be 'fair' to treat businesses in big cities or tourists hotspots, where costs including land and buildings are higher, the same as businesses in small towns where costs are lower?"

          ~ Ele Ludemann, from her post 'How is this fair?' 

 

INFLATION: Critique of the 'Wage-Price-Spiral' Explanation

"Closely related to the doctrine of cost-push inflation [in which rising costs to business are mistakenly said to be the cause of inflation in general] is the doctrine of the 'wage-price spiral.' According to this doctrine, prices rise because wages rise, and wages rise because prices rise. Wages and prices, it is believed, simply chase each other upward in a spiral, and that is why prices go on rising. (If a proponent of this doctrine is sympathetic to labour unions, he asserts that the process begins with an arbitrary rise in prices due to the profit-push of employers. If he is unsympathetic to labor unions, he asserts that it begins with an arbitrary rise in wages due to the wage-push of the unions.) ...
    'Little can be said in criticism of the wage-price spiral doctrine that has not already been said in criticism of the other variants of the cost-push doctrine. [See 'Profit-Push...'; and 'Crisis-Push...']
    "In the absence of an increase in the quantity of money and a consequent rising aggregate monetary demand, any 'wage-price spiral' that somehow came into existence would quickly burn itself out of existence in mounting unemployment and unsold stocks of goods.
"Even in cases in which labour unions, for example, hold the contractual right to receive wage increases on the basis of cost-of-living increases, they abandon this right when insistence upon it would add still more of their members to the ranks of an already large number of unemployed members. The experience of the early 1980s provides dramatic confirmation of the truth of these propositions."

~ George Reisman, from page 915 of his book Capitalism: A Treatise on Economics. Read it online here, or buy it here (currently at half-price!)

"Wage raises as such are not inflationary"

"There is a lot of nonsense said about these things. Some people assert that wage raises are 'inflationary.' But they are not in themselves inflationary. Nothing is inflationary except inflation, i.e., an increase in the quantity of money [and credit] in circulation... And under present conditions nobody but the government [and its agencies] can bring an inflation into being. What the unions can generate by forcing the employers to accept wage rates higher than the potential market rates is not inflation and not higher commodity prices, but unemployment of a part of the people anxious to get a job. Inflation is a policy to which the government resorts in order to prevent the large scale unemployment the unions' wage raising would otherwise bring about."

~ Ludwig Von Mises, from his 1958 article 'Wages, Unemployment & Inflation,' collected in Planning for Freedom

"If freedom of association is a right, then unions are in the wrong and pushing further in the wrong direction." Bonus #QotD

"If freedom of association is a right, then unions are in the wrong and pushing further in the wrong direction."

~ Gary Galles in his post 'Unions Are Clearly in the Wrong about Freedom of Association'
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"Lincoln would now see government not of, by, and for all the people but of, by, and for some kinds of people. It is government 'of the Busy (political activists), by the Bossy (government managers), for the Bully (lobbying activists)'.” #QotD

"Government is now very different from the one based on the common people that Lincoln thought would prevail [i.e., 'of the people, by the people, for the people']. Although his vision is still the most common encyclopedia definition of 'democracy' Lincoln cannot now be claimed as the father of our 20th-21st-century form of democracy.
    "Lincoln would now see government not of, by, and for all the people but of, by, and for some kinds of people. He would see it not as of all the people but as of the political activists. He would see government not as by the people but as managed by the politicians and their officials. And he would see government not as for the ordinary people but as for the organised in well-run, well-financed, and influential business organisations, professional associations, and trade unions. It is government 'of the Busy (political activists), by the Bossy (government managers), for the Bully (lobbying activists)'.”

~ Arthur Seldon, from his introduction to Gordon Tullock's book Government Failure: A Primer in Public Choice.

The Eight-Hour-Day dunking

Those who aren't self employed are allowed a public holiday today by courtesy of the government.

It's useful to recall the that today's holiday, Labour Day, commemorates the campaign to introduce the Eight Hour Day -- and that as a central part of that campaign, recalcitrant tradesmen and workers who refused to comply with campaigners' demands to cease work at the appointed time risked "being dunked in the harbour."

Thus, right at the beginning of this country's industrialisation, the local labour movement adopted as a weapon of policy the imposition of force against others -- and that, rather than the "ruling classes," it was other workers who they threatened.

Rather punctures the traditional story of class conflict as the basis for union activity.
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No, unions don't increase everyone's wages

 

Where would all workers be without unions? Probably much better off says Gary Galles in this guest post.

There is a well-established tradition in which unions claim credit for every worker gain. Among their most common assertions, often incorporated in attributing negative wage trends to eroding union power, is that unions raise all workers’ wages. Unfortunately, while sometimes raising those of their own members, unions retard rather than raise the real earning power of all workers in general.

Unions leverage special government-granted powers (e.g., unique exemptions from antitrust laws) allowing current employees to prevent competition from others willing to do the same work for less. This is a form of collusion that, done by any business, would be legally prosecuted.

The higher union wages that result are then credited for raising all workers’ wages because they supposedly force up other employers’ wages to keep their workers from leaving for those better-paying alternatives. However, their claim cannot be true without violating the law of demand.

Higher Wages, Fewer Jobs 

Higher wages from unions’ government-imposed monopoly power would push up others’ wages only if it increased the number of such high-paying jobs. The reason is that employers need only outbid employees’ actual options to retain them. But by artificially forcing up the cost of hiring their workers, unions reduce rather than increase the number of such jobs offered by employers, reflecting the reduced output consumers will buy at the higher costs and prices that result. Instead of improving the alternatives available to non-union workers, they are worsened, as the displaced workers are forced into competition with others for non-union jobs.

Those displaced workers increase the labour supply for non-union employment. That pushes wages for all workers in those jobs down, not up. Consequently, union wage premiums do not benefit all workers; benefits come primarily from other workers’ pockets.

With only about 18% of America’s private sector workforce remaining unionised, union power therefore cuts the real incomes of more than 4 out of 5 workers. And since unions also hike government service costs directly, as well as through other cost-increasing policies (e.g., the “Living Wage” nonsense and project labour agreements) which big labour’s political clout has pushed through, all other workers are also harmed as taxpayers.

Union Opposition to International Trade

Unions have also used the same “big lie” technique of constantly repeating the opposite of the truth as fact in other areas. For example, aware that their monopoly power to exclude competing workers stops at the border, unions have long been the core backers of protectionism. They focus their attention on those getting special protection, then assert that their benefits will also spread throughout the economy to benefit others.

But they ignore protectionism’s much larger harms — to all other workers who would have gained from expanded exports; to all other workers who, as consumers, have their access to lower cost and superior imports (and domestic production forced to compete with it) restricted; and to all other workers adversely affected by the reduction in real wealth and income produced by domestic protectionism and induced foreign protectionist responses.

Given that Labor Day in the US has been considered the traditional start of “serious” presidential campaigning, it is an appropriate time to remember just how damaging unions’ “big lie” strategy is. Its illogical twist can derail accurate understanding of the harm unions impose on almost all Americans, offering a sobering reminder that “It ain’t ignorance that does the most damage; its knowing so derned much that ain’t so.” After all, when people know they are ignorant of important variables that bear on their decisions, they usually don’t bet the house on them, but when they think they know what is false to be true, they often lose the house.

---

Gary M. Galles is a professor of economics at Pepperdine University. He is the author of The Apostle of Peace: The Radical Mind of Leonard Read.
A version of this post appeared at the Mises Wire.

 

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No buses, and traffic moves much more freely!

 

Only one data point, but it’s an interesting one:

Auckland has survived the first hurdle of the bus drivers' strike with commuters reporting "dream runs" and lighter than usual traffic . . .
    Commuters who contacted the Herald about their trip to work have reported smooth and free-flowing traffic - some are even saying the strike should happen everyday.

And 62 % of respondents to the Herald’s straw poll think the bus strike made the traffic better.

Sure, some commuters will have stayed away. 

But is it just possible the value of buses has been overstated relative to the amount of road they take up?

And without them and their bus lanes (on some of which, the police were still stopping ticketing drivers using them), the city might just move better?

(In any case, not a great result for striking bus drivers who hoped to bring the city to a standstill.)

National are “seeking to undermine collective bargaining” aka the strike-threat system

National are “seeking to undermine collective bargaining,” say unionists.

Even if that were true, which is arguable, would that be a bad thing?

In his tightly-argued classic The Theory of Collective Bargaining, William Hutt argued otherwise.

In 1930, W.H. Hutt demonstrated several spectacular points: labour unions cannot lift wages overall; their earnings come at the expense of the consumer; their effect is to cartelize business and reduce free competition to the detriment of everyone. He demonstrated these points with intricate logic that took on the main economic arguments for labour unions. In 1954, this little volume was published in the United States, with a very complimentary essay by none other than Ludwig von Mises, who saw Hutt's work as valid for the ages. Now this great essay is back in print, and all his points still hold true, particularly the least intuitive one that unions actually benefit some producers at the expense of others, and always harm the consumer. The brevity of this essay is as notable as its power to persuade…

Hutt demolished two long-standing myths about the labour market that were tirelessly propagated by late-19th-century socialists and trade unionists, and accepted even by market-oriented economists. These involved the assertion that "collective bargaining," compelled by law or induced by the threat of legally sanctioned union coercion, was necessary in the case of labour, because the competitive market process placed the labourer at a disadvantage vis-à-vis the capitalist employer and/or generated a wide margin of indeterminacy for the price of labour.
    In a later work, Hutt rigorously demonstrated that, contrary to prevailing belief, collective bargaining, or "the strike-threat system" as he labelled it, cannot succeed in increasing the aggregate income share of labour at the expense of the share of capital. Rather, as Hutt showed, the wage gains of unionised labourers come at the expense of non-union workers and consumers in general.
    Non-union workers suffer a decrease in their incomes because some of the labourers who lose jobs in those industries where collective bargaining forces wage rates above market-clearing levels will swell labour supplies and drive wage rates down in nonunionized industries and occupations. Consumers, including union members, experience an erosion of their real incomes, as consumer goods become more scarce and expensive in response to the increased unemployment in unionized sectors of the economy, and to the diversion of labour to less-productive employments in non-union industries.
    Capital is misallocated, and consumer sovereignty and satisfaction further impaired, as investors seek to inure themselves against strike-threat exploitation by reducing their investment in unionized industries and changing the form of their remaining investments to less-productive assets that may be quickly and easily converted to uses outside unionized industries in the event of a strike-induced rise in costs.

If National really were weakening the strike-threat system, that would be a bonus for everyone other than union leaders.

Would that be a bad thing?

You can’t drive a Toyota with a cloth cap

If you had a dollar for every time a local unionist or union supporter was heard to say that higher Australian wages are due to greater union militancy (as if all that extra capital Australian workers have to work with were  irrelevant), you’d have enough money to pay all of Matt McCarten’s outstanding debts.

Sure, unions can push wages high. But sustainable wage levels are generally a function of capital and its productivity – push them higher, and they soon become unsustainable.

Latest example: Toyota Australia, joining Ford Australia and General Motors Australia on the scrapheap.

Killed.

Killed, not just by protectionist businesses (so eager to farm subsidies they forgot their actual bottom lines) and not just by governments keen to pluck a good-looking golden goose (which helped reduce their profits) but by ongoing and crippling union activism (which helped raise costs beyond what could ever be sustainable).

And with this, says the Macrobusiness blog,  The Australian disease enters a terminal phase

RELATED READING:

• Who Killed Holden? – NOT PC
• Where Would General Motors Be Without the United Automobile Workers Union? – George Reisman

Who Killed Holden?

With General Motors announcing the last Holden will roll off the line in Australia by 2016, there are a number of defendants who could be called to answer to the charge: Who Killed the Golden Goose That Used to Be Holden?

I’ll answer your first question first: It wasn’t General Motors Australia, who would happily continue making Holdens if the stars were aligned differently—or General Motors America who in those benevolent starry-eyed circumstances would be more than happy to let them.

So who’s responsible for shifting the stars?

First in line are Australians: Most fundamentally it was Australian consumers who killed Holden when they stopped buying their shitty cars. It might be an “iconic Australian company” according to sundry business and no-business journalists across the great sunburnt land, but Australians themselves stopped buying Holdens many years before the subsidy per car reached the tens of thousands it is now.

Whatever they tell surveyors holding clipboards, Australians in large numbers buy other cars instead of Holdens. So if they want someone to blame for Holden’s demise, they could start by looking at themselves.

Second in line is the Australian governments that Australians vote for in their droves: not because this one elected to stop subsidising this inveterate corporate bludger, but because for decades every Australian government has denuded by usurious taxes the capital this company and others needed to reinvest to keep it ahead of its competition (pouring this stolen money mostly into various welfare black holes instead of putting it to any productive purpose),¹ and because for decades it gave Australian unions the right to terrorise this and every other Australian producer, disregarding that the golden goose they thought could be plucked forever could not.

In this respect Holden is every Australian producer writ large. (And this goes for NZ producers as well, take not.)

So third in line is the unions: It was Australian unions who helped kill Holden…

…the unions and their enterprise bargaining over many years that has made their own members unemployed. The cost of wages is more than double what it should be.
    It was a great effort by the unions to achieve high pay rates, but now there are no jobs. Any Australian who does not recognise the truth is sadly deficient in reasoning ability.
    Australian car manufacturing labour costs are reportedly twice as high as in Europe and four times as high as in Asia. Nobody wants Australian workers earning Asian wages but productivity isn't just about wages.
    Maritime workers famously insisted Australia's waterfront could never match Singapore's best practice regarding container movements per hour - until the stevedores were all sacked, replaced with novices and eventually rehired with a refreshed commitment to the job.
    Better workplace processes lead to superior output and, therefore, increased productivity without sacrificing wages.

So between losing the capital to reinvest (stolen by government) and losing the ability to improve workplace processes (stolen from them by short-sighted trades union leaders pro-union legislation empowering unions to oppose them)

 What George Reisman wrote about parent company General Motors in America could be repeated virtually word for word about General Motors in Australia. So I will (for UAW just read AMWU, and divide gross numbers involved by the ratio of the different populations):

What the UAW has done, on the foundation of coercive, interventionist labour legislation, is bring a once-great company to its knees. It has done this by a process of forcing one obligation after another upon the company, while at the same time, through its work rules, featherbedding practices, hostility to labour-saving advances, and outlandish pay scales, doing practically everything in its power to make it impossible for the company to meet those obligations…
    First, the company would be without so-called Monday-morning automobiles. That is, automobiles poorly made for no other reason than because they happened to be made on a day when too few workers showed up, or too few showed up sober, to do the jobs they were paid to do. Without the UAW, General Motors would simply have fired such workers and replaced them with ones who would do the jobs they were paid to do. And so, without the UAW, GM would have produced more reliable, higher quality cars, had a better reputation for quality, and correspondingly greater sales volume to go with it. Why didn't they do this? Because with the UAW, such action by GM would merely have provoked work stoppages and strikes, with no prospect that the UAW would be displaced or that anything would be better after the strikes…
    Second, without the UAW, GM would have been free to produce in the most-efficient, lowest cost way and to introduce improvements in efficiency as rapidly as possible. Sometimes this would have meant simply having one or two workers on the spot do a variety of simple jobs that needed doing, without having to call in half a dozen different workers each belonging to a different union job classification and having to pay that much more to get the job done. At other times, it would have meant just going ahead and introducing an advance, such as the use of robots, without protracted negotiations with the UAW resulting in the need to create phony jobs for workers to do (and to be paid for doing) that were simply not necessary…
    Third, without the UAW, GM would have an average unit cost per automobile close to that of non-union Toyota…
    Fourth, without the UAW, [Holden workers would not need to be subsidised to the tune of $50,000 per worker], which is where it is today, according to [Grace Collier in today’s Australian].
    Fifth, as a result of UAW coercion and extortion, GM has lost billions upon billions of dollars. For 2005 alone, it reported a loss in excess of $10 billion. Its bonds are now rated as "junk," that is, below, investment grade. Without the UAW, GM would not have lost these billions.
    Sixth, without the UAW, GM would not now be in process of attempting to pay a ransom to its UAW workers of up to $140,000 per man, just to get them to quit and take their hands out of its pockets…
    Eighth, without the UAW, GM would not now have pension obligations which, if entered on its balance sheet in accordance with the rule now being proposed by the Financial Accounting Standards Board, will leave it with a net worth of minus $16 billion…
    Ninth, without the UAW tens of thousands of workers — its own members — would not now be faced with the loss of pension and healthcare benefits that it is impossible for GM or any of the other auto companies to provide, and never was possible for them to provide. The UAW, the whole labor-union movement, and the left-"liberal" intellectual establishment, which is their father and mother, are responsible for foisting on the public and on the average working man and woman a fantasy land of imaginary Demons (big business and the rich) and of saintly Good Fairies (politicians, government officials, and union leaders). In this fantasy-land, the Good Fairies supposedly have the power to wring unlimited free benefits from the Demons.
    Tenth, Without the UAW and its fantasy-land mentality, autoworkers would have been motivated to save out of wages actually paid to them, and to provide for their future by means of by and large reasonable investments of those savings — investments with some measure of diversification. Instead, like small children, lured by the prospect of free candy from a stranger, they have been led to a very bad end. They thought they would receive endless free golden eggs from a goose they were doing everything possible to maim and finally kill, and now they're about to learn that the eggs just aren't there.
    It's very sad to watch an innocent human being suffer. It's dreadful to contemplate anyone's life being ruined. It's dreadful to contemplate even an imbecile's falling off a cliff or down a well. But the union members, their union leaders, the politicians who catered to them, the journalists, the writers, and the professors who provided the intellectual and cultural environment in which this calamity could take place — none of them were imbeciles. They all could have and should have known better.
    What is happening is cruel justice, imposed by a reality that wilfully ignorant people thought they could choose to ignore as long as it suited them: the reality that prosperity comes from the making of goods, not the making of work; that it comes from the doing of work, not from the shirking of it; that it comes from machines and methods of production that save labour, not the combating of those machines and methods; that it comes from the earning and reinvestment of profits not from seizure of those profits for the benefit of idlers, who do all they can to prevent the profits from being earned in the first place.

Now, it’s said that the government should nonetheless continue subsidising this losing proposition in order to “keep Australian jobs.” But the fact is, they’ve killed this golden goose and reincarnation on present lines is not possible.

The good news however is that all the capital now tied up in manufacturing and aftermarket work hasn’t disappeared. It’s all there and waiting for entrepreneurs and investors to put it to more productive use.

Just as long as governments and trade union leaders let them.

Here’s Tenpole Tudor.

1. On this point, the intelligent reader might like to enjoy George Reisman’s “Anti-Obamanomics: Why Everyone Should Be in Favor of Reducing Taxes on the "Rich"”

Do you own your job?

Unions aren’t all bad, but the reaction to the private members bill by newish MP Jamie Lee Ross allowing employers to employ non-union labour has brought out the worst in those who speak for the monopolists of labour.

If passed, Ross’s bill would give employers the right to employ replacement labour when unionised employees strike. Labour MP Darien Fenton knee-jerk reaction to it say this “is another attack on the hard-fought rights of Kiwi workers.” But is it?

Strike action by unionised employees is certainly their right.  But the unionised employees have no right to forcibly exclude non-union labour from taking the jobs from which they have voluntarily walked away.

They will disagree with me. They would place pickets and law in the way of employers hiring new folk to replace those who’ve walked out. They will argue, essentially, that they own these jobs and have a right to exclude others from taking them—to exclude them by force, if necessary.

But they don’t own those jobs, and the mistaken idea that they do is what gives unions their power to destroy.

It’s often thought that a loyalty to the interests of workers makes you a friend of union action. But consider this observation by William Hutt:

Unions gain at the expense of other labour, not capital, and the transfer reduces total output.

The meaning of his observation is this: Union action does nothing to raise productivity, and in general reduces it;  so to the extent that unionised workers earn more by their actions, it’s because more is being taken from what non-unionised workers would have earned. Or in other words, as history shows:

Gains [of the unionised few] were always ‘at the expense of the equal right of the industrious to acquire skill and to exchange their labour where and how they may.’

Darien Fenton might see herself as a friend of the working class and an enemy of capital.  But as William Jevons long ago pointed out, her loyalty is very much narrower:

The Unionist overlooks the fact that the cause to which [she] is so faithful is only the cause of a small exclusive class; [her] triumph is the injury of a vastly greater number of his fellow-workmen, and regarded in this point of view, [her] cause is a narrow and selfish one, rather than a broad and disinterested one.

Fenton’s response reveals she has loyalty to a class all right: she is loyal to the union class. And to the league of non-union workers whom she would forcibly exclude from taking jobs other have walked away from, she is an enemy.