by
Emeritus Professor of Economics and Former Director of the Smith Center
California State University, East Bay, CA 94542
Section 1 of the Sherman Antitrust Act states that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce is hereby declared to be illegal." Notwithstanding that the antitrust laws have been used more often to favor particular competitors rather than the process of competition, the official position of the federal government is to promote competition in most markets. Two notable exceptions are the K-12 education market and the labor market. This essay examines the antitrust issue with respect to the latter.
Combinations in Restraint of Trade
Economists define a cartel to be an agreement among sellers (or buyers) of a product or service, who otherwise would be competing against each other, not to compete. Cartels are organized and run for the sole purpose of eliminating, or at least restricting, competition among their members. The members of a cartel join together to try to act as a monopolist would act in the market. For example, if General Motors, DaimlerChrysler, and Ford organized to take car prices out of competition (fix prices) and to assign sales quotas to each other, that organization would be a cartel. And it would be an illegal combination in restraint of trade under the Sherman Act. As such it would be subject to criminal and civil prosecution. Similarly, if the employees of General Motors, DaimlerChrysler, and Ford organized to take wages out of competition (set a standard union rate) and set up job demarcations (specify who does what work) that organization would be a cartel. Using ordinary English the worker cartel (union) would be a combination in restraint of trade. But, thanks to Congress, it would not be illegal under the Sherman Act.
Congress did much more than just immunize labor unions against antitrust prosecution. With the National Labor Relations Act (NLRA, 1935, amended in 1947 and 1959) Congress undertook to promote their formation, operation and durability. In fact, the NLRA has been used by the courts as the basis of a "non-statutory" exemption from the antitrust laws. The Clayton (1914) and Norris-LaGuardia (1932) Acts gave the unions a statutory exemption regarding specific activities including secondary boycotts and strikes. Whenever the unions undertake other activities, for which no statute has given them specific exemption, but which are anticompetitive, they, too, are declared exempt simply because they must be exempt in order to make the NLRA effective.
For example, in the Allen Bradley case [325 US 797 (1945)] the Court ruled that although collusion between unions and employers that restricts competition in labor markets is exempt, it is not exempt when it is aimed at markets for nonlabor goods and services. Of course, every collective bargaining contract is the result of joint action of an employer and a union to fix wages and work rules in a labor market; and this necessarily affects the prices and availability of the nonlabor goods and services produced by that labor. However, those activities are permitted under the NLRA so they fall under the unions' non-statutory exemption.
Ignoring Constitutional Principle
One of the most basic principles of the rule of law under the U. S. Constitution is equal treatment of all under the law. The statue of Justice wears a blindfold signifying that all courts, including the Supreme Court, should pay no attention to who a person is in applying justice. The same rules are to be applied equally to all irrespective of their identities and circumstances. There is not supposed to be one set of rules applied to some and another, contradictory set of rules applied to others. But, when it comes to antitrust, if it is to abide by the will of Congress, the Supreme Court must ignore the principle of equality before the law.
Consider, for example, Apex Hosiery v. Leader [310 US 409 (1940)]. The issue was whether a labor union that had, mainly with people who were not employees, undertaken a two-month, violent, destructive sitdown strike at a plant, could be prosecuted under the Sherman Act. These were clearly actions in restraint of trade. Workers who were willing to work, customers who were willing to buy, and suppliers who were willing to deliver were, through violence, prevented from doing so. Goods that would have been produced and sold in local and interstate commerce were, by force, kept off the market. Moreover, both the Clayton and the Norris LaGuardia acts proscribe government interference only in "peaceful and lawful " labor disputes "without fraud and violence." Nevertheless, the Court ruled that "Restraints not within the [Sherman] Act, when achieved by peaceful means, are not brought within its sweep merely because, without other differences, they are attended by violence" (at 513). The Court recognized that labor unions are, indeed, combinations in restraint of trade, but said that does not matter because unions must take wages out of competition in order to achieve their goals which Congress endorsed in the NLRA. So much for constitutional principle.
Absent constitutional principles, what is and what is not acceptable legislation in the U. S. depends merely on the votes of at least five sitting Supreme Court justices who can make it up as they go along depending on their own peculiar perceptions, beliefs and dispositions. Consider, for example, Hunt v. Crumboch [325 US 821 (1945)]. Here a union used its closed shop contracts (which are, themselves, inherently anticompetitive) with shippers to drive a trucking firm out of business simply because the union leaders didn't like owners of the trucking firm. All the shippers with whom the target firm might have done business had agreements with the union that they would use only unionized truckers. The target was willing to unionize, but the union refused to accept any of the target's employees into the union or to supply the target with any unionized drivers. Simply put, out of pure malice, the union drove the target firm out of business through its combinations in restraint of trade. Was this a violation of the Sherman Act? The Court, by a 5-4 vote, said no. These activities were declared legitimate because, and only because, they were carried out by a labor union. The Court conceded that "Had a group of petitioner's business competitors conspired and combined to suppress petitioner's business by refusing to sell goods and services to it, such a combination would have violated the Sherman Act" (at 824). The vote could have gone the other way. Only one more justice had to see the union's actions as outside the limits of the union's antitrust exemption because they were not ordinary union activities as envisioned by Congress in the NLRA. The call was wholly arbitrary because the rule of law was ignored.
In Conclusion
In my view Congress should repeal all antitrust regulation. As long as government does nothing to support combinations in restraint of trade, they are inherently unstable and inevitably give way to competition. But government does support labor cartels, and it is not about to repeal the Sherman Act. Under these circumstances the principle of equal treatment before the law requires that unions be subject to antitrust regulation. I will discuss all these issues in future columns.