Organization matters:
Trade Union Behavior during Peace and War
Ralf R. Meisenzahl
Abstract
This paper employs a comparative institutional analysis to explain
the origins of different trade union organizational structures in Germany and Britain as of 1913 and their macroeconomic implications.
We first model coordinated industry-wide unions and centralized employer organizations in Germany, on one hand, and fragmented unions
and decentralized employer organizations in Britain, on the other
hand, as two equilibria of a union-employer game. Next, I use WWI
as a “natural experiment” to study the impact of the union structures on union strategies and bargaining outcomes during the war in
a union-government game and discuss their long-run ramifications.
We were the worst organised nation in this world for this
war... It is a war of munitions. We are fighting against the best
organised community in the world, the best organised either for
war or peace...
David Lloyd George, Minister of Munitions, to trade unionists in
Manchester 3.6.1915
In March 1892 delegates of the German Free trade unions voted for a new
organizational structure: centralized, industry-wide unions with the Generalkommission der Freien Gewerkschaften Deutschlands (General commission
of German’s Free Unions, henceforth Generalkommission), the elected leadership of all Free unions, as a powerful coordinating body for member unions.
This centralized structure was unique for a large, industrialized country at
Department of Economics, Northwestern University, 302 Arthur Andersen Hall, 2001
Sheridan Road, Evanston, IL 60208-2600, [email protected]
I am indebted to Joel Mokyr for guidance and comments on this project. I also would
like to thank Joe Ferrie, Sebastian Karcher, Chiaki Moriguchi, Kathleen Thelen, and
the participants of the Third Max Planck Summer Conference on Economy and Society
and seminars at Northwestern University and University of Wisconsin, Milwaukee for
helpful comments. A Summer Research Travel Grant from the Center for International
and Comparative Studies at Northwestern University is gratefully acknowledged.
1
the time. Over 1100 British trade unions, for instance, remained fragmented
and the main overarching body, the Trades Union Congress (TUC), weak.
So far the literature on trade unions has discussed the impact of different
organizational modes on the postwar economy.1 However, the origins of the
observed organizational modes and the consequences of each mode for the
war economy was neglected.2 What caused this major institutional change
in pre World War I Germany? And can disparate trade union structures account for the differences in union strategies during the first truly exogenous
macroeconomic shock of World War I?
This paper studies the origins and consequences of disparate union structures, using a comparative institutional analysis. This methodology laid out
in Greif (2006) views institutions as multiple equilibria.3 We explain why
multiple equilibria in trade union structure arise and provide detailed evidence on the sources of equilibrium selection in Germany and Great Britain.4
Divergent paths in union strategies as consequence of equilibrium selection
lead to differences in labor allocation, strikes frequencies, and wage development during peacetime. The selected equilibrium is also the departure point
for the different varieties of capitalism observed by Hall and Soskice (2001) in
both countries. Moreover, we extend our analysis of the consequences of different union structures by examining the path dependent responses of trade
unions to and during World War I. The Great War offers crucial insights as
trade union organizations faced a new bargaining partner, the government.
This exogenous change in the bargaining partner allows us to identify in the
impact of previously chosen trade union structure on union strategies. As
we will see, union strategies during World War I set the stage for industrial
relations today. As such Germany and Great Britain, large industrialized
participants in the Great War with different trade union structures, serve as
important case studies.
To better understand the mechanisms of equilibrium selection, we model
the trade unions and employers choice over their organizational form as a coordination game. Olson (1982), studying macroeconomic outcomes, argues
1
For instance, Hoel (1990) and Mares (2006) discuss wage bargaining and employment,
Lingens (2004) growth, Iversen and Soskice (2000) monetary policy and Hall and Soskice
(2001) the structure of the economy.
2
Eisenberg (1986) studies differences in the early trade union organization.
3
See also North (1990) on multiple equilibria of institutions.
4
Greif (1993) and Moriguchi (2003) study equilibrium selection and consequences, using
the same methodology.
2
that collective action problems on the trade union side might be substantial. Hence, we embed a collective action problem among trade unions in
a bargaining game to determine the payoffs of the coordination game. In
our peacetime model two equilibrium modes of organization exist. In one
equilibrium both employers and trade unions choose a weak national organization with strong local entities and firm level bargaining (Great Britain)
and in the second both establish strong national industry wide organization
and national level bargaining (Germany). We argue that the expectations
of German employers about the future structure of German trade unions
triggered an “arms race” in which both sides overcame their collective action problems and centralized their respective organizations. Our peacetime
model predicts that fractionalized trade unions will bargain for exclusive
rights for their members and thereby distort the allocation of labor within
and between firms. When bargaining with the employers, unions with strong
national organizations will instead focus on the wage increases, internalizing externalities arising from distortions of labor allocation. We provide pre
World War I evidence on average wage development, strike behavior, and
labor allocation within a firm that is consistent with the peacetime model’s
predictions.
Olson (1982) claims that centralized trade union internalize macroeconomic conditions. We use World War I to test this claim. Firstly, World
War I is an exogenous shock in which an output maximizing government
replaces profit maximizing employers as the bargaining partner. This change
was not foreseen by trade unions when they chose their organizational structure during peacetime. Hence, this “natural experiment” allows us to identify
the impact of trade union organization on union bargaining strategies. Since
the length of war was unknown, we model wartime bargaining as a repeated
game with stochastic end. From the perspective of the wartime bargaining partners the next round of negotiations is reached only with a certain
probability. If union leaders can credibly promise support for the government’s effort to organize the war economy, then they are able to push for
legal changes in industrial relations such as worker participation in the firms’
decision making process (co-determination), a central goal of the trade union
movement. Instead of supporting the government, unions can strike and bargain for wage raises. The wartime model implies that strong national organizations can increase their bargaining power by providing significant support
for the government in its effort to organize the war economy. Fractionalized
unions embedded in weak national organizations, however, are more inclined
3
to strike to prevent a decline in the standard of living for their members and
thereby further decreasing the leverage and credibility of their national leaders. In fact, German trade unions suppressed strikes, and thus faced a decline
in real wages. But they successfully demanded that the government enacts
legislation forcing firms to allow worker participation in the firms’ decision
making process in 1916; a triumph that has affected industrial relations in
Germany until today. The road to this triumph proved to be costly. German
trade union membership declined by 60% from the beginning of the Great
War to mid 1916 as a result of the draft and dissatisfaction of union members
with the trade union leadership’s war policies. In the wake of the successful
negotiations of worker participation it recovered to prewar levels in 1918.
Frequent strikes, disrupting wartime production, kept up British wages with
the cost of living. British trade union membership increased by more than
50% during the Great War, but British trade unions did not achieve a change
in industrial relations. This confirms Olson (1982). Centralized trade union
do in fact internalize macroeconomic conditions, while fractionalized trade
union organizations don’t.
A possible alternative explanation for wartime bargaining outcomes is
representation of trade unions in their respective parliaments and their close
ties to the respective Labor parties. We examine this political channel and
argue that trade union structure rather than representation in the parliament accounts for the observed outcomes of wartime bargaining. Lastly, we
examine the long run ramifications of the outcome of wartime bargaining.
Trade unions in Germany and Great Britain: A brief history
Trade union organizations in Germany and Great Britain developed differently in the last 25 years before World War I.5 After the expiration of the
Sozialistengesetz (Anti Socialist Law) of 1878, which outlawed the Sozialistischen Arbeiterpartei (Socialist Workers Party) and trade unions, on September 30, 1890 German trade unions could re-organize. For the duration of the
Sozialistengesetz workers could organize in Fachvereinen, clubs restricted to
admit members of one profession only.6 The conference of the Free trade
5
For a comparison of the early trade union development in both countries, see Eisenberg
(1986).
6
See Schröder (1965) for a survey.
4
TABLE 1
TRADE UNION MEMBERSHIP IN 1913
Germany
Total membership
2,973,395
Total Number of Trade Unions
99
Membership in main federal organization
2,525,042
Trade unions in main federal organization
49
Great Britain
3,993,769
1,135
2,232,466
n.a.
Source: Statistisches Jahrbuch für das Deutsche Reich 1914, p. 433-434, Labour
Gazette August 1914, p. 283, and Lloyd, Trade Unionism, p. 66.
unions, by far the largest trade union federation in Germany, in 1890 mandated the Generalkommission to propose a new organizational form. In
1891 the proposal suggested umbrella organizations (Zentralverbände) with
local branches for related trades, basically industry wide trade unions with
the Generalkommission as coordinating body.7 The two small competing
federations, Christian and Hirsch-Duncker, chose a similar structure. Both
federations accounted for 25 trade unions each. Since the Generalkommision
as executive committee of the Free trade unions represented roughly 84% of
all trade unionists, we focus on it and on the Free trade unions.
As coordinating body the Generalkommission, which received parts of the
union membership fees, had significant influence by moderating between the
Zentralverbände and setting the date and the agenda of the trade union general meetings. It was credited with the increase in trade union membership
and became more influential within the trade union organization. In fact,
the Generalkommission reserved to itself the right to call for a general strike.
Unlike their German counterparts, British trade unions were never dissolved by law. British labor remained organized by profession. At the eve
of the war some four million union members were organized in 1,135 separate trade unions which were overlapping within industries, professions, and
firms.8 The TUC, main federal organization, represented about 50% of all
7
Gimbel (1989), pp. 69 ff. During the first trade union general meeting in Halberstadt
(Halberstädter Kongress) several organizational forms, including local and industry wide
unions, were considered. However, both extremes fell short in votes. Overlapping of
trade union activities was minimized. Exceptions were the printing, construction and
textile industries, where some trades had separate organizations originating in the medieval
guild/apprenticeship system. See Umbreit (1928), pp. 31-32.
8
Lloyd (1921), p. 35.
5
TABLE 2
TRADE UNION MEMBERSHIP BY INDUSTRY IN 1913
Germany*
Great Britain
Industry
Number
Members
Number
Members
of Unions
of Unions
Building
8
472,186
65
248,568
Mining and Quarrying 1
104,113
91
915,634
Metal, Engineering and 2
560,644
183
538,275
Shipbuilding
Textiles and Clothing
6
268,053
314
518,408
Transportation
1
229,785
61
699,952
Printing
6
135,300
35
84,414
Other
25
803,617
700
988,518
Notes: * Free Unions only.
Source: Statistisches Jahrbuch für das Deutsche Reich 1914, p. 433, Labour
Gazette August 1914, p. 283.
unionized workers, in 1913. The powerful Amalgamated Society of Engineers
(A.S.E), however, did not join. Likewise, the miners had their own federation, accounting for about 700,000 workers, leaving more than one million
trade union members unfederated.9 Since the TUC as a loose federation was
not able to enforce decisions upon individual trade unions, its resolutions
were consistently ignored. This structure was criticized as highly inefficient
by the members of the Fabian Society.10 The Triple Alliance, consisting of
the National Union of Mineworkers, the National Union of Railwaymen and
the National Transport Workers’ Federation, founded in 1914, rather than
the TUC, was seen as the only institution within the system of trade unions
which was able to call for a general strike in Great Britain. However, these
three federations were not competing among each other for members. The
Alliance, formed to strengthen its members against other trade unions in
9
Lloyd (1921), p. 70.
Beatrice and Sidney Webb described the TUC as “an unorganised public meeting,
unable to formulate any consistent or practical policy” (cited in Lloyd (1921), p. 201).
George Lloyd saw a ‘disastrous’ amount of independence and confusion. He attributes
some weaknesses of the federal organizations to selfishness and jealousies of trade union
leaders (Lloyd (1921), p. 69).
10
6
their industries, ended due to a lack of solidarity after only seven years.11
On the eve of the Great War German trade unions were centralized with
a powerful coordinating body, the Generalkommission, and minimal overlap. The Generalkommission represented the vast majority of German trade
unionists. In contrast, British trade unions remained fragmented. They competed among each other and were reluctant to join or cede power to the TUC.
Bargaining in Peace and War
Peacetime Bargaining
A model of peacetime bargaining should accommodate the two observed
modes of trade union organization and take a stand on costs and benefits
of each mode. Bargaining over wages and exclusive assignments of tasks to
certain trades, so-called demarcations, introduces a collective action problem
on the trade unions side. While securing work for its members, fragmented
trade unions impose a negative externality each other by restricting the work
of each trade. The Report on collective agreements between employers and
workpeople in the United Kingdom (1910) states that there existed “...schedules of the work which it is recognised belong to a certain branch of trade.” 12
Centralize trade unions, internalizing this externality, focus on wage development. Centralized trade unions also increase their bargaining power as strikes
of all employees are more effective. For the same reason, strikes should be on
average shorter than strikes of fractionalized trade unions. Similarly, centralized employer organizations reduce the bargaining power of trade unions by
being able to break strikes at the cost of more flexible bargaining outcomes.
The following peacetime model, based on historical evidence, integrates all
aspects mentioned above. It allows us to study the implication of different
modes of employer and trade union organization in more general setting.
To address the implications of differences in the structure of trade union
organization, we model the peacetime bargaining process between trade unions
and firms within a coordination game.
11
Perkin (1989), p. 175.
Report on collective agreements between employers and workpeople in the United
Kingdom (1910), p. XXIX.
12
7
GRAPHIC 1
COORDINATION GAME
Employers
Trade unions
weak
weak
x,z
strong
0,y
strong
w,0
me ,mu
with mu ,me > 0, z > y and x > w.
To justify our payoffs of the coordination game, we assume that on the
trade union side the wage increase due to higher bargaining power does not
offset the loss in job security provided by demarcations. Similarly, firms
prefer the ability to cut firm specific deals rather than lower wages due to
coordinated strike breaking effort. Hence, two equilibria, one in which both
employers and trade unions have weak national organizations and one in
which both support strong national organizations, exist.13 In fact, these are
the two modes of organization observed in industrialized countries.
We adopt the static asymmetric information bargaining set up from Hayes
(1984).14 We modify that approach by allowing for bargaining about so-called
demarcations, i.e. exclusive assignments of tasks to certain trades, providing
job security. Trade unions impose externalities on each other, by imposing
demarcations. Therefore trade unions, representing one trade only, face a collective action problem with respect to imposing demarcations. To illustrate
how demarcations affected the firm’s labor allocation, we specify a nested
CES production function with heterogenous labor. Suppose a firm can hire
labor from different skill groups. Each skill group i has a comparative advantage in executing a respective task i. An end product Y requires N different
tasks. Task i can be carried out by specialized labor i with productivity ai
or others j with productivity bij and ai > bij , ∀i, j. Task i (Qi ) is executed
13
Without specifying the functional form of the utility function, we cannot rank the
equilibria. Note that from a social planner’s perspective z < y or x < w or both are
possible and hence the (weak, weak)-equilibrium may not exist.
14
Tracy (1986) and McConnell (1989) provide empirical evidence for asymmetric information in wages bargaining.
8
by

Qi =
ai L
σ
σ−1
i
+
X
σ
σ−1
bij (1 − Ri )Lj
 σ−1
σ
,

j6=i
where Ri ∈ [0, 1] measures the extent to which a task is exclusive or not.
The elasticity of substitution between the skill groups is σ. The end product
is the aggregate of tasks with θ as elasticity of substitution. Each task has a
weight ηi .
Y (L1 , ..., LN ) = A
"N
X
θ
θ−1
ηi Qi
# θ−1
θ
.
i=1
If tasks are sufficiently complementary and different types of labor are imperfect substitutes, demarcations increase the labor demand to produce the
same output. In fact, depending on ai and bij , Ri shifts demand to group
∂Li
i. In the following analysis we will consider the case ∂R
> 0. Note that
i
2
∂ Y
≤ 0. The trade union of worker type i demands a wage wi and de∂Li ∂Rj
marcations Ri , i.e. only workers of groups i are allowed to execute task
i.
Trade unions maximize membership. The objective function of union i,
Ui , depends positively on the wage wi , employment Li , and worker participation, the right of workers to participate in the firm’s decision making process
(co-determination), valued with Ω. As argued above Li is increasing in own
demarcations Ri and decreasing in other trade unions’ demarcations R−i . N
trade unions share the influence within a firm (for an industry wide union,
N = 1). While worker participation could be industry specific, it was never
observed to be skill group specific. Hence, we assume that worker participation is a public good, i.e. either all or no trade unions are included in the
decision making within a firm. While co-determination was a long run goal
of the trade union movement, it was not vital to trade unions. Hence, we
Ω
.
assume that Ui (wi , Li , Ω) = Ui (wi , Li ) + N
Since demarcations distort the allocation of labor within the firm, the
firm’s profit Π(wi , w−i , Ri , R−i ) − c(Ω) is decreasing in all variables. Moreover, we assume that worker participation incurs possibly high fixed cost c(Ω)
in case of implementation. Hübler and Jirjahn (2003) argue that worker participation on a firm level leads to profit reducing rent seeking.15 Addison et al.
15
In their model, worker participation can be beneficial if an establishment is covered
by collective bargaining. The latter was introduced in Germany after the Great War.
9
(2000) find that worker participation reduced firm performance in unionized
firms in Great Britain and small firms in Germany in the 1990s.16 There are
two states k = h, l of the profit levels due to changes in demand, where state
h occurs with probability ph . The firm knows the current state, the trade
union does not. The length of the bargaining is T . The trade union offers a
set of wages wik , demarcations Ri , and strike length sk , and the firm choose
the optimal contract given its profit levels.
Note that the cost of Ω further reduces profits, making an implementation of workers participation less likely. Since workers participation enters
additively in the objective function of the trade union, we solve the trade
unions problem for a separating equilibrium neglecting Ω. The trade unions
problem, given other trade unions’ demarcations R−i , is:
max
wih ,wil ,Ril ,Rih ,sli ,sh
i,
ph (T − sh )Ui (wih , Lhi ) + (1 − ph )(T − sl )Ui (wil , Lli )
(1)
subject to incentive compatibility constraints for firms’ to truthfully report
the state of profits:
h
l
(T − sh )Πh (wih , wh−i , Rih , R−i ) ≥ (T − sl )Πh (wil , wl−i , Ril , R−i )
l
h
(T − sl )Πl (wil , wl−i , Ril , R−i ) ≥ (T − sh )Πl (wih , wh−i , Rih , R−i ),
(2)
(3)
participation constraints:
h
(T − sh )Πh (wih , wh−i , Rih , R−i ) + sh Πh−i ≥ Π
(T −
l
sl )Πl (wil , wl−i , Ril , R−i )
+ sl Πl−i ≥ Π,
(4)
(5)
and feasibility constraints:
(T − sh ) ≥ 0
(T − sl ) ≥ 0.
(6)
(7)
Π−i can be interpreted as the profit level during strikes and Π as the firm’s
outside option. By the standard arguments, the participation constraint of
the low type, equation (5), and the incentive constraint of the high type,
16
Addison et al. (2000) note that in Germany this result does not hold for large firms.
However, employers were very resistant to the introduction of worker participation either
expecting high cost or unwilling to share power.
10
equation (2), always bind. Combining the first order conditions with respect
to wih and Rih , we obtain
∂Ui
∂wih
h
∂Ui ∂Li
h
∂Li ∂Rih
=
∂Πh
∂wih
∂Πh
∂Rih
.
(8)
In the equilibrium, each trade union chooses demarcations Ri optimally given
∗
all other trade unions demarcations R−i . Hence, Ri (R−i
) = Ri∗ , ∀i. To be
clear, demarcations in Britain reserved the right to execute a certain task for
a particular skill group. For instance, it was recognized that the shipwrights
were to “case all pipes leading through tunnel”, but the joiners were to “case
in all pipes in cabins, deck houses, and any other room in connections with
joiners’ work.”17 Therefore, demarcations reduce the ability of employers to
allocate workers to certain tasks and, as Lorenz (1991) shows, severely affect
efficiency.
In the case of an industry-wide union, i.e. a trade union representing
workers of all skills, the payoff of the union is the weighted sum of the individual skill groups with weights φi . For simplicity, assume two symmetric
skill groups i = 1, 2 only. We restrict the strike length to be the same for
both groups. The maximization problem becomes
max
l
l
h
2
X
∀i{wih ,wi ,Ri ,Ri },sl ,sh i=1
h
i
φi ph (T − sh )U (wih , Lhi ) + (1 − ph )(T − sl )U (wil , Lhi ) (9)
subject to constraints similar to equations (2) - (7). The optimality condition
for the industry-wide unions is
∂Ui
φi ∂w
h
i
h
∂Ui ∂Li
φi ∂L
h ∂Rh
i
i
∂U−i
+ φ−i ∂L
h
−i
∂Lh
−i
∂Rih
=
∂Πh
∂wih
∂Πh
∂Rih
.
(10)
−i
Since ∂L
< 0, an industry-wide union internalizes the externality of one
∂Rih
group’s demarcation on the other groups and will demand less demarcation
per group (if any). In other words, an industry-wide union does not care
about the skill identity of its members but overall membership. Fractionalized trade unions, maximizing over the employment of their skill group only,
have no incentive to coordinate.
17
Report on collective agreements between employers and workpeople in the United
Kingdom (1910), pp. 111-112.
11
The length of strikes depends implicitly on the profit level during strikes.
Since the punishment of industry-wide unions in more severe, i.e. Π−i = 0,
strikes of industry-wide unions are shorter. Trade unions have an incentive
to coordinate if employers’ organizations are able to break small and medium
scale strikes, i.e. increasing the value of Π−i . However, firms are facing cost
of organizing, e.g. they lose the ability to cut deals, satisfying their firm
specific needs. Introducing a collective action problem on the trade unions’
side implies the (weak,weak)-equilibrium as “natural” state of the coordination. In this state we should observe a high density of demarcations, a
slow wage growth, and long strikes. A second implication of the peacetime
model is that, as one side overcomes the collective action problem, the other
side unifies, too. In this case, the peacetime model predicts a low density
of demarcations, high wage growth, and short strikes. These testable implications allow us to evaluate the validity of our assumptions. In particular,
the model sheds light on the mechanisms and the potential impact of the
collective action problem on the trade union side.
Wartime Bargaining
During wartime an output-maximizing government replaces profit maximizing industrialists. However, the length of the relationship is uncertain as
it depends on the length of war. The bargaining between the government and
the trade unions during wartime is therefore modeled as repeated game with
stochastic end. This allows us to derive conditions under which a trade union
organization would abandon the strike weapon and support the government’s
effort to organize the war economy in hope of later rewards.
Governments, in need of maximum production to win the war, will not
accept any restrictions on the allocation of labor. Hence, Ri = 0, ∀i. The
Ω
Ω
= Ui (wi , Li ) + N
.
trade union’s utility can be now written as Ui (w) + N
After the first war enthusiasm died away and it became clear that the war
would last longer than expected, trade unions could either 1) support the
government and hope for a later reward, 2) strike for wage increases, or 3)
oppose the war. For simplicity we restrict union strategies to these observed
outcomes. Again, trade union structure plays a crucial role in the decision
making process. While individual trade unions assume initiative in decision
making in an economy with a weak national leadership, a strong national
leadership, due to control over organization and strike funds, can set the
trade unions’ agenda during wartime.
12
The government can either 1) actively ask trade unions for extended support in organizing the war economy, 2) passively react to demands of (striking) trade unions, or 3) dissolve trade unions. A government will seek only
for extended support, if it is confident that the trade unions are a) loyal
and b) able to carry out the particular policy. The government uses earlier
support of the trade unions as an indicator about trade union loyalty and
ability.
Government
GRAPHIC 2
WARTIME GAME
ask
support
P
Ω
δti − N ,
k:τk =1
react
dissolve
Ω
N
Trade union
strike
P
∗
− ζ −w ,U (w∗ ) +
k:τk =1
∗
−w∗ ,U (w )
−γ,−X
δ, −ζ
−γ,−X
Ω
N
oppose
P
−Z,Z +
k:τk =1
Ω
N
−Z,Z
−γ,−X
The wartime model consists of 2 periods. The first period (P = 1) represents the initial transition to a war economy. With probability p the war
lasts longer and P = 2 is reached. In P = 2 trade unions and the government
renegotiate. Wages increases, valued with Ui (w∗ ), cost the government w∗ .
The trade unions can support the war effort by abandoning the strike weapon
without prior negotiations with the government. This can be either out of
hope for future concessions or out of fear of being dissolved. In this case of
support the government receives a payoff of δ. The government can also ask
for extended help. The value of extended help increases if the government
is confident that the trade unions can carry out the demanded policy. If
the trade unions supported the government before, the indicator variable ti
increases. The government receives a payoff ti δ with ti = 2 if trade unions
were supportive in an earlier period and ti = 1 otherwise. Support costs
trade unions ζ as real wages of their members and therefore membership
declines. The government rewards the whole labor movement for extended
support of the war effort. It offers to realize the trade unions’ long run
goal: workers participation. Therefore, the reward for trade union support
is the same Ω which was, due to high cost on firms’ side, not implemented
Ω
for each supporting trade union.
in the peacetime bargaining. It offers N
The indicator τi is set to 1 if trade union i supports the government. We
13
assume that for a government, the trade union’s support outweighs its cost
Ω
> δ. We consider N -symmetric unions. In case of strong national
2δ > N
leadership N = 1 and N large otherwise. A strong leadership fixes the strategy for all trade unions and receives N times the individual payoff. Due to
symmetry the government plays the same strategy against all trade unions.
Trade unions opposing the war receive and cost the government Z. Z can
be seen as the value of public support or as bribe necessary to appease trade
unions. Governments can dissolve trade unions at cost γ and the game ends.
Trade unions receive −X in this case. Governments, engaged in war have
a high time preference. They need production now to win the war. Workers, facing steep price increases and a fast deterioration of the standard of
living, demand that the trade union leaders deliver instant wages raises, so
the time preference of trade unions increases in wartime, too. For simplicity,
governments and trade unions discount future payoffs at rate β.
We can solve for a pure strategy equilibrium in which a strong trade union
leadership supports the government during all phases of the war by backwards
(U (w∗ )+ζ)
induction. Having a strong leadership implies N = 1. If Ω ≥ 1+βp
βp
holds then one equilibrium outcome of this game is [(support, react),(support,
ask)]. A second Nash equilibrium is [(strike, react),(strike, react)]. Now we
consider the case of weak trade union leadership. A profitable deviation by
one trade union from [(support, negotiate),(support, ask)] in the last stage
Ω
≤ U (w∗) + ζ. Under this condition [(strike, react),(strike, react)]
requires N
is the outcome in a weak trade union leadership setting. Supporting the
government in the first stage signals the government that its demands will
be met in the second stage. Thus, the trade unions and the government can
coordinate the outcome of the second stage.18 Note that [(oppose, dissolve),
(oppose,dissolve)] constitutes another Nash equilibrium.
The peacetime model serves the understanding of the trade-off trade
unions face in their choice of organizational structure. Introducing demarcations in the peacetime bargaining results in a collective action problem
on the trade unions side. Centralization would yield higher wages for trade
unionist but also less job security. The testable implications of the peacetime
bargaining are: 1) Fractionalized trade unions and employers remain fractionalized without outside pressure, 2) economies with industry-wide unions
have less demarcations and higher wages, and 3) economies with fractionalized trade unions lose more workdays due to strikes. In the next section we
18
Follows from Crawford and Sobel (1982).
14
identify the circumstances leading to centralization in Germany and provide
evidence that supports the peacetime model.
The wartime bargaining allows us to identify the impact of trade union
structure chosen in peacetime. Since the war imposes an exogenous change
in the bargaining partner, we can use the wartime model to test whether
centralized trade unions are in fact more likely to internalize macroeconomic
conditions as Olson (1982) claims.
The testable implications of wartime bargaining are that centralized trade
unions (N = 1) are more likely to support the government throughout the
war. They experience a reduction in membership as long as they do not deliver results to their member. However, centralized trade unions can achieve
long run goals of the trade union movement by internalizing macroeconomic
conditions. In particular, by abandoning strikes and restrained wage demands they are able to signal their credibility as bargaining partner. Secondly, fractionalized trade unions, focusing on their respective members,
strike for higher wages.
Evidence I: Coordination in Germany
The peacetime model shows that multiple equilibria in union structure can
arise due to collective action problems on the unions’ and on the employers’ side. We now focus on equilibrium selection, in particular why German
unions and employers overcame their respective collective action problem.
Mallmann (1990) notes that the foundation of German employers organizations, in particular the powerful Gesamtmetall, the steel and electronics
employers’ umbrella organization, can be directly linked to the expiration
of the Sozialistengesetz in 1890. Between January 1889 and April 1890,
while the Sozialistengesetz was still effective, 1,131 strike are reported. As
a result of calls for a general strike on May, 1 1890 of the Internationale
and organizing attempts during the Sozialistengesetz, employers expected
the formation of industry-wide unions. At the same time, arguing that it
was in the public interest to have less strikes, the advisers of Kaiser Wilhelm II. suggested compulsory arbitration. Averse to any interference by
the state, the employers proposed forming organizations able to prevent and
break strikes, increasing Π−i . The first circular letter of Gesamtmetall from
April 15, 1890 therefore emphasized that the main goal of the organization
would be to prevent and fight off strikes. It claimed that experience proves
15
that only joint effort will be successful in the future. While between 1882
and 1888 only 11 mostly regional employer organizations were established,
43 employer umbrella organizations with strike prevention as principal goal
were founded in 1889\90. Third parties mocked the new organizations as
Antistreikvereine (Anti Strike Clubs).19 In fact, the beliefs about the organizational form of labor triggered the emergence of industry-wide national
employers organizations.20 Employer umbrella organizations are listed in the
German national statistics for the first time in 1909. Gesamtmetall was
then by far the largest umbrella organization measured by the number of
employees of its members.21 German employers found federations in 1905.
The members of the two main federations, the Verein deutscher Arbeitgeberverbände and the Hauptstelle deutscher Arbeitgeberverbände, accounted
for 22 out of 41 employer umbrella organizations and for roughly 80% of all
workers in firms which were members in employer organizations. Both federations had their own strike insurance systems. Some umbrella organizations
paid strike support to their members.
The newly formed employer organizations drew the attention of trade
unionists when Hamburg’s employer organizations unified and locked out
several thousand workers on May 1, 1890. Hamburg’s employers had threatened to lock out workers if they were to follow the call to strike of the Internationale. Ignoring this threat, roughly one third of all workers (organized
and unorganized) in Hamburg went on strike on May 1, 1890. At that time
30,462 workers were organized in 84 Fachvereinen in Hamburg.22 The employers aimed to force their employees to leave their respective Fachvereinen.
Despite nationwide solidarity and donations, trade unions suffered a severe
blow. In reaction five officials of the metal workers published an open letter to all trade unionists on August 17, 1890, asking how trade unions can
fight off these new employer organizations. Employer organizations were
the second of four agenda points at the first German trade union conference in November 1890. The third was the structure of the trade unions
organization. Employer organizations were used to push for industry-wide
trade unions. The final resolution of the conference explicitly states the need
for centralized industry-wide unions because of the new employer organiza19
Mallmann (1990), pp. 17-25.
In coordination games, signals about future actions are informative. Crawford and
Sobel (1982).
21
Later statistics lack this level of detail.
22
Kutz-Bauer (1988), p. 412 and Albrecht (1982), p. 514-515.
20
16
tions.23 Heilborn (1907) sees the concentration of employers as reason for
trade union centralization.24 Paul Umbreit, a trade unionist and a close ally
of the chairman of the Generalkommission Carl Legien, dismisses the idea
that the Social Democratic Party’s call for unity affected the trade unions’
decision to centralize. He concludes that “the struggle [with the employer organizations] led to the unity of trade unions.” 25 By 1913, 99 Zentralverbände
with 2,973,395 members existed. At the same time we observe 111 employer
umbrella organizations had 145,207 members who employed 4,631,361 workers.26
Lacking a similar threat, British employers founded 1,435 mostly local
associations and did not attempt to centralize.27 German trade unions, facing strong organizations with the ability to break small and medium scale
strikes, reorganized in national organizations with strong leadership, following the employers’ strategy. This is consistent with the first prediction of the
peacetime model.
Eisenberg (1986) in her pre-Sozialistengesetz study identifies socialism,
the existence of a nation state, and the stage of industrialization as possible
candidates for differences in trade union organizations in Germany and Great
Britain.28 She argues that German unions were founded by the political elite
in the 1860s. But she also acknowledges that the German union organizers,
who regarded the British trade union structure as outdated, saw the British
skill-based structure as the only feasible way to sell the idea of trade unions
in Germany. In her view, the Sozialistengesetz eventually led to the take off
of German unions as response to and as defense against future repression by
the state implying, that the repressive policies also account for the centralized union organization.29 However, capitalists and state were not as unified
23
Umbreit (1915), pp. 7-9 and pp. 156 ff. and Ritter and Tenfelde (1975), p. 95.
Heilborn (1907), p. 5.
25
Umbreit (1915), p. 7.
26
Developments in neighboring Austria highlight the importance of employer organizations. Employers did not strongly centralize when trade unions were allowed. Despite
late industrialization and the development of the Social Democratic Party in a repressive
state, trade unions remained organized by trade with a low degree of centralization. In
fact, the centralization of employers, which was considered to be weak, followed the weak
centralization of trade unions. See Grandner (1992) for details on Austrian trade unions
and employer organization.
27
Waddington (1995), p. 113.
28
See Marks (1989) for details on trade unions in politics.
29
Eisenberg (1986), pp. 259-263.
24
17
as this view suggests. The emperor, unable to stop production stoppages,
pressured the employers to prevent strikes. Moreover, an extension of the
Sozialistengesetz was seen as impossible. It is therefore unlikely that the fear
of repression by the state in the future motivated the centralization. Thelen
(2004) points to differences in the control of skill formation. While the German employers’ control of skill formation and late industrialization may have
reduced the threat potential of German skilled workers at the point of formation of trade unions, unskilled workers were still not easily substitutable for
skilled worker and the latter were already organized in Fachvereinen in 1890.
Moreover, employers gained control over skill formation with the Handwerkergesetz (Handicrafts Protection Law) of 1897, which is too late to explain
the timing of centralization.30 Hence, as argued above, the emergence of
employer organizations, which threatened the success of fragmented trade
unions, played a critical role in the decision to centralize.
According to the peacetime model we should also observe a favorable
wage development and a lower density of demarcations in Germany relative
to Great Britain. In fact, between 1899 and 1913 the share of productivity
increases going to the workers, measured as the real wage increase relative to
the increase in output per worker, was 79.5% in Germany and 73.8% in Great
Britain.31 We find no evidence of demarcations in Germany. The Report on
collective agreements between employers and workpeople in the United Kingdom (1910) lists over 1600 formal agreements. Some deal with demarcations
only. The report states that “in a large number of cases the question is between two different classes of workpeople each class claiming that a particular
piece of work belong to it.”32 Most agreements on demarcations, however,
were informal. Lloyd (1921) notes that, for instance, the Engineering and
Shipbuilding Trades Federation, with 28 affiliated trade unions, was mostly
concerned with mediation in demarcation questions arising between trade
unions.33 The wage and demarcation data are also consistent with the hypothesis that collective bargaining maximizes the sum of shareholders’ and
union members’ wealth.34
30
Thelen (2004), p. 47.
Real wages from Klönne (1981), p. 99 and Feinstein (1990), p. 344. Output from
Broadberry (1997), p. 43.
32
Report on collective agreements between employers and workpeople in the United
Kingdom (1910), p. xxvii
33
Lloyd (1921), p. 64.
34
See Abowd (1989) for a discussion and empirical evidence.
31
18
TABLE 3
STRIKES 1900 - 1913
Year
Strikes
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910
1911
1912
1913
648
642
442
387
355
358
486
601
399
436
531
903
853
1,497
Great Britain
Number of Workdays
Workers
lost
189,000
3,153,000
180,000
4,142,000
257,000
3,479,000
117,000
2,339,000
87,000
1,484,000
94,000
2,470,000
218,000
3,029,000
147,000
2,162,000
296,000
10,834,000
301,000
2,774,000
515,000
9,895,000
962,000
10,320,000
1,463,000
40,915,000
689,000
11,631,000
Strikes
806
692
805
1,200
1,513
2,010
3,059
2,469
1,795
1,839
2,224
2,707
2,469
2,173
Germany
Number of
Workers
101,081
40,062
48,922
75,830
104,555
363,917
222,686
176,292
66,307
96,750
142,113
211,89
397,490
177,594
Workdays
lost
1,051,159
1,070,278
847,121
1,109,461
1,512,886
5,565,546
3,991,606
2,147,695
1,139,636
1,587,257
2,193,452
4,359,062
3,447,729
4,139,720
Average
610 393,929
7,759,071
1,840 158,964
2,440,186
Source: Dearle, Labour Cost, p. 122 and Hohorst, Kocka, and Ritter, Sozialgeschichtliches Arbeitsbuch, p. 132.
Comparing the two countries with respect to strikes, Table 3 shows that
on average more strikes occurred in Germany. However, Table 4 shows that
on average fewer workers participated per strike in Germany, and that strikes
were, on average, shorter in Germany. A possible explanation for this pattern
lies in the sectoral composition of strikes. While in Great Britain 76.6% of
the strikes occurred in the concentrated sectors (mining, textiles and transport), strike activity in Germany was largest in sectors in which small and
middle sized firms without an overarching employer organization predominated. Construction, accounting for about 15% of the total labor force and
8 Zentralverbände, experienced 25% of all strikes with 25.8% of all striking
workers participating. Of all firms affected by strikes, about a third were
construction companies. Notably the German construction industry founded
the largest non-federated umbrella organization. It had neither strike in19
TABLE 4
STRIKE STATISTICS 1900 - 1913
Country Average Num- Average Dura- Workdays lost per
ber of Workers tion (days)
year and industrial
worker*
Germany 86
16.5
0.9
Great Britain 645
19
1.5
Notes: * 1899-1914. Average duration is calculated by dividing total workdays lost by
the total number of striking workers reported in Table 3.
Source: see Table 3 and Boll, “International Strike Waves”, p. 122.
surance nor assistance payments. Likewise the German textile and clothing
industry, with 12 employer umbrella organizations and 6 Zentralverbände in
1913, experienced small scale strikes.35 This is consistent with the model,
since it predicts more strikes in sectors with more trade unions. Thus, we see
more frequent small scale strikes in the fragmented sectors, explaining the
low number of workers per strike in Germany. The cross country comparison
and the variation within Germany, therefore, confirm the prediction of our
model with respect to differences in strike behavior.
Evidence II: Wartime Behavior
The outbreak of the war forced the governments to organize the war economy.36 Trade unions as representatives of labor were regarded as critical
in the effort to transform the peacetime economy. Demarcations, distorting
the allocation of labor and thereby reducing output, or interruptions of production due to strikes endangered war success. If centralized unions in fact
internalize macroeconomic conditions, they should support the government’s
war effort for later rewards. Fractionalized trade unions, however, would
continue to strike for the well-being of their members only.
The German Generalkommission immediately met with delegates of the
Zentralverbände on August 2, 1914. Within 24 hours of the declaration
of war, the conference presented its fundamental position for wartime: 1)
35
36
Boll (1985) and Statistisches Jahrbuch für das Deutsche Reich, multiple years.
Ritschl (2005) discusses the impact of WWI on the German economy.
20
TABLE 5
STRIKES DURING WAR TIME
Great Britain
Germany
Year
Strikes Number of Workdays
Strikes Number of Workdays
Workers
lost
Workers
lost
1914
793* 414,000*
8,923,000*
1,115 61,000
1,715,000
Aug.-Dec.
206 34,000
1,188,000
26 2,101
n.a.
1915
707 453,000
3,040,000
137 14,000
42,000
1916
578 281,000
2,581,000
240 129,000
245,000
1917
803 885,000
5,809,000
561 667,000
1,862,000
1918
1,194** 928,000**
4,845,000**
531 391,000
1,452,000
Notes: * from Jan-July 1914, ** from Jan-Oct 1918.
Source: Dearle, Labour Cost, p. 122. and Petzina, Abelshauser, and Faust, Sozialgeschichtliches Arbeitsbuch III, p. 114.
strikes were to be abandoned immediately, 2) no strike money would be paid
to any worker for the duration of the war, and 3) trade unions would focus
on the support of war families and the unemployed. This, as Table 5 shows,
resulted in only 26 strikes in Germany from August to December 1914, a
sharp reduction compared to the whole year. The number of strikes not
aiming at wage increases or reductions of hours worked increased from 26%
in 1915 to 63% in 1917. The reasons for strikes include protests in the wake
of the trial against the most prominent anti-war politician Karl Liebknecht
in the summer of 1916 and food shortages in 1917. Democracy within the
trade union organization was abolished and internal opposition to the war
censored.37
With the war economy picking up pace, the government, maximizing
war production, subsequently took over the position of bargaining partner
of trade unions. It negotiated agreements and legislation with the trade
unions , restricting the rights of workers, to enhance production. The German department of labor within the Ministry of War relied heavily on the
support of trade unions. The Generalkommission, having access to every
region through local branches, helped to allocate unemployed workers into
37
In fact, as the war continued more and more members of the lower and middle management of trade unions were drafted, whereas the leadership, thanks to its political and
military contacts, was able to avoid the draft or limit its duration. This tilted the power
balances even more towards the well connected top level (Bieber (1981), p. 114).
21
TABLE 6
SECTORAL DISTRIBUTION OF WARTIME STRIKES IN GERMANY
1915
1916
1917
Industry
Strikes
Number
of
Workers
1,506
5,327
2,317
Strikes
Building
29
44
Mining
22
77
Metal and
30
57
Engineering
Textiles and
8
413
8
Clothing
Transport
7
173
7
other
41
1,909
47
Source: Statistisches Jahrbuch für das Deutsche
Number
of
Workers
1,890
44,166
65,081
618
Strikes
37
209
286
Number
of
Workers
5,460
162,625
170,938
30
4,641
427
8
12,233
95
Reich, multiple years.
1,682
305,312
agriculture and construction and also partly financed reeducation of workers. Although trade unions were able to conserve some of their achievements,
reallocated unemployed workers experienced wage cuts relative to their previous profession. Lastly, the Generalkommission gave advice on food supply
politics.38 The promised rewards for the trade unions’ help, however, were
rather vague. Nevertheless, the Generalkommission, suppressing opposition
within the trade union organization, actively supported the war effort, even
publishing war propaganda in their trade union newsletters.39
When Great Britain entered the war on August 4, 1914 over 100 strikes
were in progress. Three weeks later the TUC pledged to end all strikes
and avoid further disputes as the contribution to the war effort of the labor
movement. At the end of August all but 20 strikes had been settled.40 Despite
the national trade union leaders’ promises, rising prices from January 1915
onwards led to an increase in strike activities back to levels of the early
1900’s. The British national leadership was, due a lack of control over its
38
Pohl and Werther (1989), pp. 123 ff. See also Feldman (1966), Chap. I.
Grandner (1992) notes that the Austrian trade unions’ involvement was strikingly
similar. However, lacking the same degree of centralization they were less efficient in
suppressing strikes. Fearing a loss of control, the leadership eventually challenged the
government openly when it became clear that the war could not be won.
40
Aris (1998), p. 99.
39
22
TABLE 7
SECTORAL DISTRIBUTION OF WARTIME STRIKES IN
GREAT BRITAIN
1915
1916
1917
Industry
Strikes
Number
of
Workers
15,925
298,138
46,710
Strikes
Building
68
76
Mining
85
74
Metal and
191
113
Engineering
Textiles and
109
38,632
119
Clothing
Transport
86
26,600
60
other
169
26,556
139
Source: The Labour Gazette, multiple years.
Number
of
Workers
7,679
310,660
75,628
Strikes
53
128
181
Number
of
Workers
6,897
247,145
426,699
77,032
107
75,929
34,578
26,510
40
179
26,740
50,317
local members, unable to end strikes effectively or to support the efforts to
reorganize the economy. While the leadership of the TUC favored the entry
into the war, trade union publications and some trade unions published anti
war propaganda.41
David Lloyd George, then Chancellor of the Exchequer, led the organization of the British war economy. He realized that the rigid unwritten
customs and privileges of skilled workers, were limiting output.42 On March
17, 1915 his negotiations with the TUC and the leaders of the 36 trade
unions, involved in war production controlled by the government aimed to
enhance production. In exchange for the abandonment of all independent
union rights, including the possibility to employ un- and semiskilled workers
in jobs reserved for skilled workers (dilution), it offered some safeguards and
the restoration of pre-war practices after the war. Stressing the fact that
the soldiers at the front were suffering from the delays in production, Lloyd
George was able to convince most trade union leaders to allow dilution with
the promise of restoration of the pre-war practices. However, nationalism
itself did not unify the trade unions. In fact, the miners’ leaders, unwilling
41
Parliamentary Debates, House of Commons, 1915, Vol. LXXII, pp. 167-168 and The
Lloyd George Papers, D/20/2/9.
42
Official History of the Ministry of Munitions, Vol. 2, p. 4048.
23
to accept compulsory arbitration, left the conference after the first day. The
A.S.E renegotiated and succeeded in demanding more specific protection of
their skilled workers in this so-called Treasury Agreement.
Trade union behavior in the early stage of the Great War shows cooperation of the national leadership with the government in Germany. Control
over the individual members was crucial for the success of the Generalkommission’s support of the government. In Great Britain, the TUC lacked the
power to set the agenda for the trade union movement. Despite the TUC’s
pledge of no strikes during wartime, individual trade unions chose confrontation to offset price increases. The British government, noting the weakness
of the TUC, negotiated with the trade unions involved in war production
controlled by the government directly.
Evidence III: Wartime outcomes
The Munitions of War Act in Great Britain and the Auxiliary Service Act
in Germany were the main wartime legislation organizing labor. Both laws
are similar in their aim and their means to enhance wartime production by
regulating allocation of workers. But the differences between the two in the
rights of workers shed light on the impact of trade union strategies. The
negotiations and implementations of these laws exhibit differences due to
trade union structure. In particular, while the duties of workers are alike in
both countries, the rights and their distribution are quite different.
In Germany, the trade unions, having supported the war effort unconditionally so far, built up a reputation as moderate, credible, and loyal to the
Reich. General von Gröner, in charge of mobilization, announced: “We can’t
do it without the unions.” 43 The trade union leadership demanded worker
representation, appeal courts for wage settlements, arbitration councils (all
three with equal representation), exceptions from the draft for welfare insurance workers, unions’ and employers’ officials, and wage safeguards for their
support of industrial conscription.44 Industrial conscription, the obligation
for all men at ages 18 to 60, who did not join the armed forces, to work
in the war economy, became law on December 12, 1916. In the law almost
43
cited in Umbreit (1928), p. 146.
Feldman (1966), p. 218. For a detailed description of the power struggle over this law
Shakespearian in its magnitude, see Feldman (1966), Chap. IV.
44
24
all trade union demands were met. German unions achieved their long run
goal: worker participation. In addition, members vital to the trade union
organization were exempted from the draft. The Generalkommission then
issued a statement in favor of the auxiliary service and offered an explanation why industrial conscription was necessary and supported by trade union
leadership.45
The Generalkommission was not able to suppress strikes fully as Table 5
and Table 6 show. But in Germany, strikes were used to protest particular
policies rather than demanding wage increases. In the wake of the trial
against Karl Liebknecht in the summer of 1916 the first massive strikes broke
out. In the two biggest strike waves, in April 1917 and January 1918, were due
to food shortages. In both cases trade union leaders helped the government
to divide the strikers. Trade union leaders, pointing to a promised suffrage
reform, reduction in hours worked without wage cuts and minimum wages
after the war, managed to appease moderates. The government dissolved
the meetings of the radicals with brutal force.46 However, the long support
of the government imposed a cost for the German trade union movement.
As a result of the abandonment of the strike weapon to increase wages, the
minimum wage was stagnant, while prices for essential food tripled during the
war. In the best case the average nominal wage for a day laborer went up by
only 150%.47 Dissatisfaction with the strong war support by German trade
union leadership and the draft cost the German free unions three fifth of its
members until the end of 1916.48 The Generalkommission’s achievements in
the negotiations of the Auxiliary Service Act led to an increase of membership
to prewar levels at the end of the war.
The British war economy was regulated earlier than the German. The
first Munitions of War Act, an expansion of the treasury agreement, came
into effect on July 2, 1915.49 The Act provoked a series of strikes, peaking
in the industrial unrest of 1917, despite the safeguards including wage rates
and a renewal of the promise of restoration of pre-war practices.50
The Munitions of War Act was amended in 1916 and 1917 regulating the
45
The statement is printed in Umbreit (1928), pp. 245 ff.
Pohl and Werther (1989), pp. 164 ff.
47
In the counties Lippe-Detmold and Mecklenburg-Schwerin. Statistisches Jahrbuch für
das Deutsche Reich (1919), pp. 104-105.
48
Umbreit (1928), p. 161.
49
Fyfe (1917) states the Act and its amendments.
50
Cole (1923), Chap. V.
46
25
dilution of skilled labor in the private sector as well. The TUC played no
substantial role in the negotiation with the government over this law. The
weakness of the TUC allowed the individual trade unions to negotiate separately. The A.S.E. and others, for instance, negotiated an exemption from the
draft for their members. Shortages of skilled workers already threatened war
production, and thus this concession was almost costless to the government.
British national trade union leaders, disappointing their members by conceding demarcations, lost more and more influence to the radical so-called
‘shop steward’ or ‘rank and file’ movement. The latter called more frequently
for strikes to improve the standard of living. Trade union leaders, failing to
centralize control of strike funds during peacetime, were unable to suppress
strikes. The number of workdays lost increased above the average of the first
decade of the 20th century. This strategy kept the real wage at least stagnant over the period of war. Succeeding in increasing wages and by offering
protection from the draft, trade unions increased their membership by more
than 50% during the war.51 The British government had to negotiate with
individual trade unions rather than with the TUC to achieve its goals in
organizing the war economy. It bought out moderates with minimal concessions and dissolved the revolutionary wing as, for instance, in the case of the
Clyde Workers’ Committee.52
The Generalkommission had promised to end strikes and to support the
government’s war effort, and it had delivered in the first two years of war.
The German government, now seeing the trade unions as moderates and
useful, actively sought the support of trade unions in implementing industrial conscription. The Generalkommission named its price for support: the
inclusion of co-determination in the Auxiliary Service Act. The German government, desperate to increase production and to prevent strikes against the
law, agreed. The promises of British trade union leaders, on the other hand,
had proven worthless. Strike activity had increased throughout the war. The
British government did not actively seek the help of trade unions in drafting
the Munitions of War Acts. It rather passively responded to the demands of
trade unions by increasing the wage or in the case of crucial trade unions by
granting other concessions like exceptions from the draft for A.S.E. members.
51
52
Mitchell (1988), p. 137.
Perkin (1989), p. 208.
26
Political Ties
Not only trade unions themselves but also their political wings, the respective labour parties, could influence legislation. To separate the effect of trade
union structure, we examine the behavior of the German Sozialdemokratische Partei Deutschlands (SPD) and of the British Labour Party before and
during the war. In addition, we analyze the links between trade unions and
labor parties in both countries.
After the expiration of the Sozialistengesetz the trade unions regarded
themselves as the recruiting school of the SPD.53 In 1912, the SPD emerged
with biggest fraction (34.8% of the votes). Lacking a coalition partner, this
was, however, not enough to have a leverage to obtain concessions from the
Emperor or to dominate politics in the Reichstag. Only 46 out of 110 MPs
of the SPD fraction in the Reichtag were trade union officials including six
members of the Generalkommission and 30 of the extended national leadership.54 Trade union membership was, however, not mandatory for members
for the SPD.55
When the martial law was declared on July 31, 1914 the SPD faction
in the Reichtag met to discuss whether they would support to government’s
request to be allowed to issue war bonds, which were essential to the ability to
fight the war. In spite of previous concerns and because of fear of repression
by the empire, the faction waved the patriotic flag and voted unanimously
for the first war credits indicating the support of the politics of the Reich
during World War I. To explain their voting behavior to war sceptics, they
later argued to have acted to defend the Reich.56
The Social Democrats also supported the Enabling Act on August 4, 1914,
which empowered the Bundesrat to enact emergency economic legislation
(kriegswirtschaftlich notwendige Verordnungen), including all interventions
necessary to run the war economy, for the time of war.57
The strong war support led to a split of the SPD into pro-war (MSPD)
and anti-war (USPD) factions in December 1915. The trade union leadership remained in the pro-war camp, another signal of credibility of the
national trade union leadership. The representation in parliament simplified
53
Mommsen (1985), pp. 372 ff.
Miller (1975), pp. 49-50 and Varian (1956), p. 45.
55
The attempt to introduce it failed in 1905. Umbreit (1915), p. 76.
56
Kruse (1993), pp. 26 ff.
57
The abandonment of convertibility of money into gold was part of the bill. Feldman
(1966), p. 29.
54
27
the negotiations between the unions and the government over the details
of the Auxiliary Service Act in 1916. The unions successfully insisted on
co-determination. However, Feldman (1966) notes that the behavior and
the pressure of trade unions rather than the party accounted for the worker
participation clauses in the Auxiliary Service Act.58
In Great Britain the Parliamentary Labour Party, formed in 1906, understood itself as the political wing of the trade unions. It did not admit
non-union members until 1918.59 After the elections of 1910, the Liberal
government had to rely on the 42 Labour Party MPs (out of 670 total), including nine out of 13 members of the TUC’s leading committee, to govern.
However, the question who was to deal with the government, the TUC or
the Labour Party, was not solved. The TUC’s Parliamentary Committee,
which was responsible for lobbying at Westminster, was not dissolved but
in fact, demanded to be included in future dealings with the government.60
The Fabian Beatrice Webb noted that with few exceptions the Labour Party
MPs were a “lot of ordinary workmen who neither know nor care about anything but the interests of their respective trade unions and a comfortable life
for themselves.” 61 This suggests that the collective action problem of British
trade unions carried over into their representation in parliament. In fact,
trade unions of sectors under special legislation, like the miners or the railway workers, defended individual interests.62
The Labour Party’s war position was neither fully supported by all Labour
members nor by all TUC members. This led to two splits, one at the outbreak
of the war and one in August 1917.63 After the Liberal split in December
1916, David Lloyd George needed the support of the Labour Party to govern.
He offered a seat in the war cabinet, and promised not to introduce industrial conscription and to put coal mines under state control. Conscription
had already weakened the Liberal Party. Industrial conscription was infeasible without the trade unions. Since even more unskilled worker would have
threatened the status of skilled workers further, British trade unions fiercely
opposed industrial conscription. Therefore, preventing industrial conscription was hardly progress for the trade union movement, but rather another
58
Feldman (1966), Chap. IV.
Perkin (1989), p. 102.
60
Martin (1980), pp. 116-127 and pp. 151-157.
61
Webb (1984), p. 196.
62
Lovell (1991), p. 43.
63
see McKibbin (1974), pp. 88-110 for details.
59
28
attempt to preserve the status quo.
Being recognized as moderates, German trade unions succeeded in demanding worker participation in the negotiation over the Auxiliary Service
Act. The British Labour Party ensured the majority of the Liberal Party’s
minority government and therefore had a bigger lever to push favorable legislations compared to its German counterpart. The Labour Party succeeded
only when joining Lloyd George’s government but neither the trade unions
nor the Labour Party was able to crucially influence in the Munition of War
Acts. Thus, trade union structure, not political representation, led to the
observed wartime bargaining outcome.
Impact of the War Legislation
Representatives of German industrialists started talks with the trade union
leadership about peace time arrangements in April 1917 because the Generalkommission had built up a reputation as being moderate rather than
revolutionary and therefore, was seen as credible bargaining partner.64 With
their wartime behavior, the trade union representatives set the stage for the
Stinnes-Legien Agreement of November 15, 1918, including general wage negotiations, trade unions access to all companies and a reduction in working
hours.65 The Weimar Constitution of 1919 acknowledged the role of the
workers as equal to the employers (Artikel 165). The plant representation
of workers became law one year later. Laws regarding worker committees in
firms, weakly included in the constitution, used the Auxiliary Service Act
as a blueprint. The idea of equal representation can be found throughout
the law.66 Today, industrial relations in Germany are still shaped by equal
representation in arbitration councils and plant representation.
In Great Britain, after the expiration of the Munitions of War Acts, trade
customs came into effect again. The coal mines were handed back to private
control on March 31, 1921. Having learned from the past, trade union leaders were more inclined to delegate power to the TUC when negotiating with
the government. When the miners called for a general strike in 1926, the
TUC expressed its support and with its newly won power helped to organize
64
In December 1917 the talks were expanded see Feldman (1976).
Clearly, the negotiation process was speeded up by the Novemberrevolution. Varian
(1956), p. 124.
66
Harrer and Roßmann (1989), pp. 182 ff.
65
29
the general strike. As an irony of history, the greater power of the TUC
ultimately led to its decline when the general strike was defeated in 1926.
Lacking a moderate reputation and being defeated in the first direct confrontation, British national trade union leadership never fully recovered, and
the fractionalized system with its implication for labor allocation persisted.67
The lack of coordination left demarcations in place. Lorenz (1991) studies
the decline of the British shipbuilding industry in this context. Pratten
(1976) estimates the distortions of labor allocation within firms. He finds a
significantly reduced competitiveness of British firms even after World War
II.
Conlusions
Collective action problems on the trade union side proved to be decisive
for the history of labor unions. These problems define trade union structure and thereby trade union behavior. During peacetime, collective action
problems led to a misallocation of labor and lower wages; in wartime they
reduce workers’ grievances but they also prevent the achievement of long run
goals. Without external pressure neither trade unions nor employers have no
incentive to centralize.
In Germany, the institutional change was triggered by pressure from the
emperor and employers’ expectation about trade unions’ organization after
the upcoming expiration of the Sozialistengesetz. They formed umbrella
organizations to prevent and fight strikes which forced German trade unions
to unify in order to withstand the employers’ strike breaking attempts. Due
to their centralized structure, German trade unions were able to play an
active part in the organization of the war economy by suppressing strikes
and criticism, supporting the reallocation workers, providing training, and
helping distribute food rations. The government accepted the demands of
the helpful, moderate trade union leadership in the Auxiliary Service Act as
reward for their continuing support.
Neither British trade unions nor British employers were subject to comparable pressures and thus kept their fractionalized structure. Lacking the
infrastructure and the willingness, British trade union leaders never played
the active part in the war economy that their German counterparts did.
Only trade unions crucial for war production, such as the A.S.E., were able
to negotiate favorable terms for themselves, e.g. exemption from the draft.
67
Dorfman (1983) p. 5 ff.
30
We find that identifying the source or absence of pressure to overcome the
collective action problem is crucial to explain the divergent paths of trade
union structure. World War I as a natural experiment confirms Olson’s claim
that centralized trade unions internalize macroeconomic conditions. The different structure of trade unions, leading to different strategies during the
war and their implications, favored the achievement of long run goals in Germany (worker participation) whereas the factionalized British trade unions
successfully fought for short run goals (wage increases and restoration of prewar practices). The outcome of the coordination game, not representation
in the parliament per se, accounts for the differences in industrial relations
and laid the foundation for Germany’s variety of capitalism: the coordinated
market economy.
Official Publications
Parliamentary Debates (1915), House of Commons, Vol. LXXII.
Official History of the Ministry of Munitions (1920-1924), 12 Vols.
Report on collective agreements between employers and workpeople in the
United Kingdom, Board of Trade, submitted by G. Askwith (1910), Cd.
5366.
Statistisches Jahrbuch für das Deutsche Reich, multiple years.
The Board of Trade Labour Gazette, multiple years.
Primary Sources
The Lloyd George Papers, Archive of the House of Parliament.
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