Tacit Vertical Collusion and the Labor-Industrial Complex

In this article, we propose to test John Kenneth Galbraith's countervailing power thesis by examining labor-management conduct in four different market situations. Two of our case studies deal with "regulated" industries and two with industries in the "private" sector. We demonstrate that in all four cases, coalescing power rather than countervailing power is systematically created and maintained; that this conduct constitutes a form of tacit vertical collusion; that a central objective of this collusion is the suppression of competition in relevant product markets in order to immunize cost-price escalation by labor and management from an autonomous, exogenous control mechanism; and that the result of the exercise of this coalescing power has been to fuel a pervasive cost-price-cost spiral that has adversely affected macrostabilization policies in the United States and leading industrial nations. I. Introduction II. The Regulated Sector ... A. Airlines ... 1. Deterioration of Service for Smaller Communities ... 2. Competition Would Be Wasteful and Inefficient ... 3. Industry Chaos ... 4. Predation, Concentration, and Control ... 5. Inability to Obtain Capital ... 6. Threat to Labor ... 7. Adverse Impact upon Related Industries ... 8. Threat to Safety ... 9. Favorable Evaluation of Performance under Regulation ... 10. Summary: Airlines ... B. Trucking ... 1. Deterioration of Service for Smaller Communities ... 2. Competition Would Be Wasteful and Inefficient ... 3. Industry Chaos ... 4. Predation, Concentration, and Control ... 5. Inability to Obtain Capital ... 6. Threat to Labor ... 7. Adverse Impact upon Related Industries ... 8. Threat to Safety ... 9. Favorable Evaluation of Performance under Regulation ... 10. Summary: Trucking III. The Private Sector ... A. Automobiles ... 1. Symbiotic Government-Business Relationship in Exporting Countries ... 2. Diversion of World Exports to the Unprotected U.S. Market ... 3. Need for Breathing Space to Make Adjustments ... 4. Cost of Protection Less Than the Cost of Inaction ... 5. Summary: Automobiles ... B . Steel ... 1. Symbiotic Government-Business Relationship in Exporting Countries ... 2. Diversion of World Exports to the Unprotected U.S. Market ... 3. Need for Breathing Space to Make Adjustments ... 4. Summary: Steel IV. Some Economic Effects of Coalescing Power ... A. Airline Industry ... B. Trucking Industry ... C. Automobile Industry ... D. Steel Industry V. Conclusion