Adam Smith on the Interests of Labor and Business

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Alex Aragona for AdamSmithWorks

According to Smith, to understand business economics we need to see that both labor and business should be recognized as classes, and that both pursue separate interests and agendas that sometimes conflict.
It is generally recognized that the most basic interests of employers and labor are in conflict. Take wages, for example. That the “workmen desire to get as much [and] the masters to give as little as possible” (WN I.viii.11, pp. 83) is obvious to everyone. That’s the name of the buying and selling game in a market economy, and each side does its own share of pushing and pulling. However, if anything beyond that most basic level is discussed, many seem to feel that labor is the side primarily responsible for increasing tensions by bringing broader class interests into play and trying to implement certain agendas. For example, a given strike isn’t viewed as workers just demanding higher wages or better conditions at one workplace, it’s also looked at as one of the many ways labor unites as a class against particular employers or individual business interests. 

What of the shared interests of businesses and employers as a whole, or as a class? This side of the equation often escapes the same kind of notice or critique. Many prefer to think of corporations, businesses, and employers as simply separate interests competing in — and disciplined by — the market. And, because this is indeed true on one level, many fail to recognize how these separate interests can also unite and act as a class with broader sets of shared interests and agendas in opposition to labor — consciously coordinated or not. As Adam Smith reminds us, an attempt to truly understand economic tensions and competing interests beyond the most individual levels is off to a bad start if it doesn’t include recognizing businesses as a distinct class with interests separate from that of the general public. Furthermore, we must also understand that both labor and business push their interests as classes, and why the latter’s efforts often fail to get as much attention.

Indeed, many seem to have the idea that labor more commonly organizes to pursue broader class interests, while businesses stick to narrower and more immediate interests. As Smith says, whether the issue in question is worker wages in contrast to the “high price of provisions” and cost of living, “the great profit [the] masters make by their work,” or anything else, the “offensive or defensive” combinations and tactics of labor are seemingly “always abundantly heard of”— especially as compared to the other side of the equation. (WN I.viii.13, pp. 84)
Perhaps this is because the tactics employed by labor (and those who support labor) make a specific kind of noise that attracts mainstream attention and consciousness more easily. Or, perhaps it’s the way stories about business-labor disputes come off in mainstream media or literature. After all, these kinds of disputes are only news when there’s a clear boil-over of tensions like a shutdown, sit-in, strike, work slowdown, or even some level of violence that provides the right kind of spectacle. In this context, it is easy to interpret labor’s side of the issue as the more unreasonable, vocal, active, or disruptive one — especially if your Amazon Prime service is interrupted. 

However, the fact that “we rarely hear…of the combinations of masters; though frequently of those of workmen” doesn’t mean that combinations of masters aren’t happening and aren’t having an effect. As Smith also pointedly observed, to think “that masters rarely combine” as a class to push for their own interests “is as ignorant of the world as of the subject.” (WN I.viii.13, pp. 84) And, it is important to remember the relatively quiet methods the business community prefers and can afford to handle the pursuit of their class interests. Whether it is closed-door meetings in high towers, formally lobbying the government for privileges, cozying up with politicians, locking out the employees and then using a PR firm to quiet the issue, and so on, the suit-and-tie approach to leveraging economic power and pushing class interests makes much less noise for itself than, say, a protest or a strike.

Some may say this is all a wash anyway and that, yes, we do hear of one set of class interests more often and another less so, and that they are ultimately two competing forces that cancel each other out — or at least, find some sort of balance. This view is only tenable if you leave the forms of power each side possesses out of the discussion. Of course, Adam Smith doesn’t do this. He keeps the nature of the power dynamic between business and labor in mind. It is a game of tug of war, but often not a fair one. Contrary to the self-portrayal of the business community, or the angle the press may take to frame an issue, “it is not…difficult to foresee which of the two [classes] must, upon all ordinary occasions, have the advantage.”  And, furthermore, which of the two can “force the other into a compliance with their terms” — whether due to their economic strength or that “the masters, being fewer in number, can combine much more easily.” (WN I.viii.12, pp. 83-84)

Smith furthers this point by noting that “the law, besides, authorises or at least does not prohibit [the masters’] combinations, while it prohibits those of the workmen.” (WN I.viii.12, pp. 84) Of course, a lot has changed since his time, especially the forms commerce, capitalism, and labor laws have taken. And labor, broadly speaking, has won many concessions and protections from the state that counteract the interests and power of business. However, all these auxiliary truths don’t contradict the fundamental one: There is still a marked contrast between the two classes. The power dynamics often favor the masters, and furthermore their methods of combination are more effective, or even viewed as more acceptable. For instance, businesses find many benefits from joining lobby groups, improvement associations, chambers of commerce, or other similar organizations. Furthermore, it’s interesting to note that not too many blink an eye at these kinds of associations — even when it’s clear they at times exist almost solely to fight for the increase of business power and influence. In many cases, the reduction of worker benefits or legal protections is plainly on the agenda. 

It’s also important to consider that if an owner combines with a group of owners, no one is going to fire them — they own their businesses after all. However, workers have a more difficult time combining or organizing for their own purposes and face tougher obstacles, “partly from the interposition of the civil magistrate, partly from the superior steadiness of the masters, partly from the necessity which the greater part of the workmen are under of submitting for the sake of present subsistence,” and so on (WN I.viii.13, pp. 85). Labor’s efforts often “end in nothing, but the punishment or ruin of the ringleaders” — especially if they work in the private sector. Even white collar companies assumed to have open and progressive work environments make it clear to their well-paid labor force that the hammer can come down quite easily if you rock the boat too much by organizing anything more than leisure lunches and Christmas parties with your colleagues.

Unfortunately, for many — especially market liberals— any talk of how the masters combine to push their class interest almost always raises eyebrows. And, it is often lamented that it is in fact unions, labor groups, etc. that exercise their class interest and tilt the playing field in a way that hampers the wonders of markets, while businesses are put in defensive positions. To be fair, it is easy to get this impression when you don’t hear as much from the business side of the equation. Whatever the reasons behind a hesitancy to see and speak plainly about the class interests and power of business, the fact is the modern state of capitalism isn’t one of solely butchers and bakers just looking to make a buck via their local mom-and-pop shop while some big labor representative tries to ruin their livelihood. The actual forms business power takes can often dwarf anything labor can throw at it. 

Of course, Adam Smith wouldn’t encourage us to think of an employer refusing to give an employee a raise as the embodiment of class conflict. However, he would note that to form a well-rounded understanding of economic tensions we need to see that both labor and business should be recognized as classes, and that both pursue separate interests and agendas that conflict. It just so happens that one side often has the social and economic upper hand. We “seldom hear of [the] combination [of the masters] because it is the usual, and one may say, the natural state of things which,” indeed, “nobody ever hears of.”  While the negative effects of these combinations are “severely felt by [the workers], they are [often] never heard of by other people.” And, of course, “in all such disputes the masters can hold out much longer.”(WN I.viii.12-13, pp. 84)

Related Links:

Paul Schwennesen, Farming in the Time of Coronavirus
Steve Horwitz, Adam Smith on the Labor Theory of Value
Bryan Caplan, Pro-Market AND Pro-Business