Capital, Labor, and State: The Battle for American Labor Markets from the Civil War to the New Deal

Published by EH.NET (January 2002)

David Brian Robertson, Capital, Labor, and State: The Battle for American

Labor Markets from the Civil War to the New Deal. Lanham, MD: Rowman and

Littlefield, 2000. xxii + 297 pp. $75 (cloth), ISBN: 0-8476-9728-2; $22.95

(paperback), ISBN: 0-8476-9729-0.

Reviewed for EH.NET by William A. Sundstrom, Department of Economics, Santa

Clara University.

In this book political scientist David Brian Robertson (University of

Missouri, St. Louis) offers an account of American labor exceptionalism that,

perhaps unsurprisingly, appeals to the uniqueness of American political and

legal institutions. Contrasting American and European labor law and

regulations during the late nineteenth and early twentieth centuries,

Robertson argues that the constitutional separation of powers — in particular

federalism and the commerce clause — and antitrust law were the fundamental

sources of U.S. distinctiveness. Although there are many points on which one

might challenge Robertson’s evidence or interpretation, economic historians

interested in labor or political economy will find much to sink their teeth

into here.

Robertson begins with a useful comparative overview of labor law in the United

States and Europe during the late nineteenth century. A strength of the book

is its attention to labor law broadly defined: not merely laws relating to

unions and bargaining, but also the regulation of working conditions, workers’

compensation, and unemployment and health insurance. Robertson offers evidence

suggesting that as late as 1900 U.S. labor law was overall no less developed

or interventionist than the laws in developed western European countries.

Furthermore, union density (union membership as a percentage of the workforce)

was not significantly lower in the United States.

Still, the book’s underlying theme is that labor law in the United States was

ultimately shaped by the country’s core legal and political institutions. (In

this sense it would be a misreading of Robertson to infer that the development

of labor law was historically contingent, despite the similarities across

countries around 1900.) The national government was constitutionally

constrained to regulate only interstate commerce, while the states were of

course unable to restrict interstate trade. The consequence, in Robertson’s

view, was that labor market regulation was largely left to the states, but

political competition between states inevitably led to a race to the bottom,

as stringent regulation would put local firms at a competitive disadvantage in

interstate trade.

U.S. antitrust law reinforced the laissez-faire orientation of U.S. labor law.

In Europe, Robertson argues, labor unions and government management of labor

relations were accepted by employers because they could help stabilize cartels

by standardizing labor costs and conditions across firms. In the United

States, antitrust efforts busted the cartels and fostered the merger

movements, leading to large corporations and concentrated markets. Having no

use for unions to help coordinate and enforce cartels, large American

corporations tended to view them as an unnecessary evil and adopted various

union avoidance strategies: production shifting across plants to break

strikes, deskilling technological and organizational innovations, and welfare

capitalism (chapter 4). These strategies involved scale economies, and were

largely unavailable to smaller firms. Instead, small employers formed the

vanguard of active anti-union efforts: the open-shop movement. All considered,

“Anti-trust probably made American labor market exceptionalism irreversible”

(p. 115).

Robertson’s race-to-the-bottom thesis reverberates in current debates over

international trade and labor standards. Economists have, of course, raised

doubts about the theoretical and empirical validity of the race-to-the-bottom

idea, so it would be of obvious interest if Capital, Labor, and State

could make its case convincingly. What is the evidence? Robertson gains some

leverage examining the exceptional U.S. industries in which labor-market

regulation or unionization was particularly successful. These included the

railroads, where of course federal regulatory oversight was established under

the Interstate Commerce Commission. In the building trades, where markets

tended to be highly localized and insulated from trade, employers could use

unions to regulate local competition, much along the lines of the European

corporatist model. Negative examples are instructive as well: In bituminous

coal mining, for instance, an 1897 agreement between the United Mine Workers

(UMWA) and Midwestern coal operators failed under competitive pressure from

anti-union West Virginia mines. Indeed, Robertson includes a lengthy 1903

quotation from UMWA President John Mitchell that nicely summarizes the

difficulties competitive federalism posed for labor unionists and reformers

(p. 71).

Other aspects of the argument are less compelling. For example, Robertson

suggests that state-level workers’ compensation laws tended to be weak and

inadequate, again reflecting political competition and a race to the bottom

(chapter 9). He cites recent work in this area by Fishback and Kantor (1998),

but his interpretation seems to be at odds with the evidence they present: the

terms and generosity of these programs actually varied considerably across

states, a heterogeneity that hardly seems consistent with the cross-state

uniformity that a race to the bottom would imply. Similarly, under the Social

Security system, unemployment insurance and welfare benefit levels are set by

the states and also vary significantly. More generally, Robertson takes it for

granted that interstate competition would disfavor firms in states that

adopted a more regulated regime or more generous social benefits. Yet there

were persistent interstate differences in social spending as well as wages,

for example between the northern and southern regions (see Wright 1986). These

regional differences did not place northern firms at a competitive

disadvantage during the first half of the twentieth century, at least in most

industries.

The claim that antitrust and corporate mergers killed any hopes of cooperation

between capital and labor by obviating the use of unions to stabilize cartels

seems to rest on Robertson’s perception of corporations as monopolies in the

U.S. Steel or Standard Oil mode. But in most industries mergers resulted in a

number of oligopoly firms that competed fairly vigorously, if not over price

then over products and market share. Is it not possible that such firms would

also have greatly benefited from collusion, and that such collusion might have

been enforced or stabilized by unions? Pattern bargaining in the postwar

automobile industry might be cited as an example.

Read as an account of American exceptionalism, Capital, Labor, and

State is incomplete because it never really tests its thesis against

alternative explanations, such as mass immigration, internal mobility,

individualistic cultural values, or racism. As I have noted, early in the book

Robertson establishes rather convincingly that American labor law really was

not exceptional before 1900, and thus one might question accounts of

exceptionalism that rely on longstanding national differences such as mobility

or national character; these should have shaped labor institutions earlier on.

But the same objection would apply to Robertson’s thesis as well, resting as

it does on the distinctiveness of the American system of government going back

to the Constitution.

As a political history, Capital, Labor, and State is more interested in

the positive than the normative, but it is clear that Robertson’s sympathies

lie with the European corporatist model, in which the law provides “a fabric

of worker protections,” and labor and capital cooperate in setting wages and

working conditions. Of course, those advantages have to be paid for, and

Robertson is essentially silent on the costs to consumers and economic

efficiency of permitting or even promoting cartelization. He does acknowledge

those critics who blame rigid labor-market regulations for Europe’s high

unemployment and slow growth during the 1980s and 1990s, but he questions

whether U.S. performance during the same period can be attributed to more

flexible, free-market labor institutions, and notes the costs of those

institutions in terms of inequality and job insecurity.

Where Robertson faults federalism, with its checks and balances that have

served to limit the centralization and regulation of markets, admirers of

American laissez-faire might see evidence of the enduring wisdom of the

federalist system. It is a virtue of David Brian Robertson’s stimulating

historical interpretation that both sides of the debate will find much to

learn and ponder.

References:

Fishback, Price V., and Shawn Everett Kantor, “The Political Economy of

Workers’ Compensation Benefit Levels, 1910-1930,” Explorations in Economic

History 35 (April 1998): 109-139.

Wright, Gavin, Old South, New South: Revolutions in the Southern Economy

since the Civil War (New York: Basic Books, 1986).

William A. Sundstrom is Associate Professor of Economics a Santa Clara

University. His research interests include the history of U.S. labor markets

and racial discrimination. His recent publications include “Discouraging

Times: The Labor Force Participation of Married Black Women, 1930-1940,”

Explorations in Economic History 38 (January 2001): 123-146.