A Union by Any Other Name, Part 2

Picking up from where I left off, this installment looks at the development of what became the modern organizations we recognize as unions and corporations. The most recent political struggles of the past thirty years are not covered here because of the length of this entry and the complexity of the issues that have been conflated with the debate of the role each plays in the economic structure of modern society.


Trade Unions

While there is no direct links to guilds due to laws that banned labor organizations for upwards of 500 years in some places, as in England. That said, enough similarities exist to suggest that the modern unions are rooted in the guilds of old. How so, you may ask? Like trade unions, guilds served to protect their members and the knowledge of their craft. In part, this last point was in lieu of legal protections that find modern analogues in various laws for patents, trade secrets, product identity, and so forth.

By controlling what amounts to instructional capital (now mainly held in the hands of private schools and their public institute counterparts), the guilds not only held job security, but also the insurance manifest in the power bound in their protected crafts and the need of access by those not privy to such services offered by their respective guilds. Guilds were as much a vocational school as they were organizations designed to protect their members’ interests. Maintaining secrecy meant that guilds could limit or prevent a client’s exploitation of its members. In effect, it let the guild shield its members from the aristocracy’s power.

So, what happened to them? In part, technology helped in their undoing. Mostly, they were legislated out of existence for being too much of an obstacle either to someone else’s power, or their own bureaucratic system that made them financial burdens, depending on who you ask. They didn’t completely disappear, however. The word “guild” comes from the German “Guilde,” which applied only to merchant organizations. “Gilden,” the plural form of the word, dealt in money. “Gilden” was the Saxon word “to pay” and helps explain phrases like “the gilded hand.”

Despite laws which eventually broke the guilds, not all of them disappeared outright. Some of them changed forms. Merchants had their own guilds, after all. The breaking of the guilds decoupled labor from its performers. It not only sent the knowledge to the universities (predominantly in the hands of the church at the time), but also the means of production into the hands of those who owned the devices and commodities of production. Thus the standardization of production meant the technology and location fell to those with the capacity to acquire the resources necessary to control and supply goods.

Modern unions arose with the Industrial Revolution. By this time, laborers had no claim to their work. The work done was paid with wages, but the value of the service performed was greater than the compensation. In part this was due to the fact that, despite schooling, laborers were unskilled. The improve work conditions, wages, and job security (including protection from an employer’s whims), workers began to unionize in the nineteenth century. No longer the one-stop shop of the guild system, a modern union works to control the conditions of labor and access to it to prevent exploitation. Unions work to protect jobs, but this can also result in negative views of the unions.

The early strikes of modern unions resulted in a great deal of violence that has colored the perception of these groups. The tactic was, and still is, used to prevent exploitation via unfair labor extraction of union members. Beyond ensuring a workers is considered skilled enough to be a journeyman (meaning such individuals can move from one work site to another and is treated as a skilled practitioner), the ability to strike or call for one as a bargaining chip to force factory owners to the negotiation table. As such, the modern union has some of the tools of the guilds, but not their clout. One doesn’t need to look at the recent developments in Wisconsin with Scott Walker’s union stripping bill. The clashes with the Pinkertons and factory workers marked the struggle to unionize and set the tone for American unions.

The “us vs. them” mentality has been a part of the American psyche since the nation’s inception. Americans have always been xenophobic because of the invasive policies of the British Crown. While some will gladly point out that the Revolution was over a 3% tax, this is a red herring. It’s what that fee (and other taxes) represented; or rather, what they didn’t grant in terms of representation. Like modern unions, the colonists were looking for a place at the table to prevent any exploitation via the Crown’s wealth extraction of the colonies. Being denied that, both sides ramped up the pressure and antagonism until only violence would lead to any changes. As a result, a system of antagonistic forces was inculcated in the fabric of American culture along with a deep-seated xenophobia. It carried over to the struggles between factory owners and laborers, which led to the violence during the factory strikes of early unionization.

Corporations

The earliest recorded company charter in Europe dates back to the fourteenth century, not coincidentally around the same time that guilds were being outlawed; discounting those of the Roman Empire that is. The purpose of a company is to minimize the risk to any one person. Perhaps not so curious is the fact that merchants did this in their own line of work. Look at the array of goods available to a consumer in any one given store. That example of so many different products in one location serves to show how companies work. If one product fails, the store doesn’t suffer. The varied inventory makes up for the loss of any one line.

As corporations are all about providing services at a cost, the image of the merchant serves well here; so further examination is warranted. As merchants operate stores, a bit needs to be done to understand what that means. Depending on how far back one goes, say mid-thirteenth century, the word refers to goods kept on a premises, such as food, fuel, clothing and so forth. It is in this context Americans use the word for a merchant’s place of business. The building and the goods/services offered are the merchant’s stores. What a merchant does, then, is provide the service of compiling goods in one location. This has fundamentally remained unchanged for the profession throughout its many iterations.

When a company is formed, the partners have to invest it with capital from their personal reserves, or stores, if one wants to extend the metaphor. The more partners, the less risk (and reward) to those involved in the venture. But companies cannot merely spring up out of nowhere. So the corporate charter from the 1300s is pretty important. Not only does it establish the legal precedent that marks business formation, but it also recognizes and regulates the proposed corporation. Short of a monarchy owning stock in the company’s business, the charter is designed to preserve the power of the crown while allowing those forming the company to have an exclusive grant to use the company to their mutual advantage. The question is where the funds come from to start the enterprise.

Now, any student of history can confirm that money in the fourteenth century was predominantly concentrated in the hands of the aristocracy and/or nobility of any given country. Laborers and the like from the lowest social strata surely couldn’t afford to establish a business. When the guilds were dissolved, this left the merchant class and nobles with the means to form a company that extended beyond selling their labor as services. Corporations are understandably modeled on merchants as the purpose of a corporation is to provide a service to their clients and shareholders. The people who provide the labor make it possible for corporations to do this at a profit, which will be discussed later.

What one should take away from the above point is that the merchants didn’t just disappear when their guild did. It is a good bet they didn’t lose their accumulated wealth, either. Some began to channel it into newer ventures. With their acumen in diversification, merchants knew how to minimize risk. Anyone who doubts as much should read the works of Adam Smith and Daniel Defoe. While not the oldest treatises for the transition and development of what would become the corporate model, these writers show the mentality that informs capitalist and corporate theory. Granted, some of this has fallen out of favor, but that does not negate the importance such work has in how corporations have developed and continue to affect modern economic theories and practices. Comparisons to the South Sea Bubble and the recent economic crises are a good indicator to the accuracy for this argument.

Where do factories fit into this system? For one, all those unskilled laborers had to go somewhere. With the collapse of cottage industry with its piecemeal work in favor of standardization and automation that improved output at the cost of skilled labor. As the primary site of production, the factory owners were applying technology to an old economic model: feudalism. Replacing farming and other duties of the serfs tied to the land system that was the site of labor extraction with the factory changed the relationship to finished goods the peasants formerly enjoyed. Like corporations, the factories lacked the means to provide the services they promised without employing others to perform the services on the company’s behalf.

Merchants had the money and knowledge to set up new ways to give clients services previously more cost intensive than what clients wanted to spend time doing themselves. This extended to activities people were unaware of that they needed someone else to help them accomplish. Advertising helps get the word out in regards to this last point. By having groups of people who not only can do the work needed to provide the service, the corporation divides the labor any one person performs. Like any other merchant, the corporation doesn’t make the good or service, it provides the conduit for customers to purchase a physical object or access to the commodity. Readers are free to speculate where this places venture capitalists and investment firms, but it should suggest itself.

In the next installment, how these seemingly divergent paths aren’t so different after all.