Author: Mr. X
There are two major stories that are going to reshape Western economies over the coming months. The first is one that almost everyone is aware of now – the European energy crisis is going to hit harder and sooner than most expected.
Recession is now virtually certain – the only question is its depth and length. Given that policymakers have consistently underestimated the costs of their proxy war in Eastern Europe, it is likely to be worse than most expect.
The second is something more subtle. It will largely hit the United States. Mass unionization is returning, and it is going to hit businesses that have long thought center-left cultural politics kept them immune from such campaigns. Chief among them are Alphabet (GOOGL), Starbucks (SBUX), Amazon (AMZN), and Apple (AAPL).
Unions have long been seen as almost an anachronism. Almost 60% of nonunion workers in a recent poll said they were not interested in joining a union. In 1983, during the height of President Ronald Reagan’s power, more than 20% of American workers were in a union. It was 15.7% by 1993. In 2020, the Bureau of Labor Statistics reports that union membership was less than 11%. Even that is misleading, given that public sector union membership was over 34%, while private sector union membership was just over 6%.
At the risk of linking economic to cultural trends, the politics behind certain companies partially explains this. The “new economy” of the “creative class” that came to define the Internet economy seemed to discourage unions. Ruthlessly meritocratic, favoring globalization and immigration, internationalist, urban, mobile, and mercenary, new startups resisted the large stable workforces that tend to be associated with union membership. Skilled workers could be tempted to individually leave a company with offers from a competitor and the idea of a long-term contract seemed absurd. Even companies that weren’t directly related to the online economy cultivated its urban, cosmopolitan values. Even a coffee company like Starbucks provided a lifestyle as much as a physical product – the promise of sophistication, center-left politics, and personal liberation.
Yet COVID-19, the political divisions of the last few years, and the emerging labor shortage are changing all of these underlying premises. Tech companies are no longer scrappy startups, but established institutions working to box out competition, not necessarily out-innovate them. Starbucks is, for better or worse, the standard, bland, ubiquitous coffee that you can get anywhere and everywhere. It’s certainly nothing exciting. The promise of liberation once promised by the Internet – a connected world of independent content creators, free discussion, and no boundaries – looks dangerous to many people rather than joyous. Culturally, politically, and economically, the demand is for control.
I don’t like this trend, but it’s the reality.
And so it’s not surprising that workers are, rather sensibly, dismissing any idealism about their jobs being some kind of a higher calling. (To provide just one example, think of the 2013 movie The Internship, which portrayed the idea of a starter position at Google as some kind of incomprehensible dream job. What could possibly be more out of tune with worker sentiment today?)
In July, American companies reportedly posted over 11 million job openings – and there are just six million unemployed workers. “The Great Resignation” may be overstated, but the labor market remains tight. COVID-19, national security concerns, and political tensions also make it unlikely that simply opening up immigration can cure all these problems. Even open immigration wouldn’t necessarily lead to skilled jobs being filled.
In service jobs and at companies that depend on just in time production chains and extremely limited production costs, unionization presents a possibly mortal threat. At Starbucks, more than 180 locations have voted to unionize and at least 300 have filed for elections. Three Amazon warehouses have held union elections – but the Biden Administration has backed these efforts and these could be just the beginning. In late June, the first Apple store unionized – and the company is reportedly trying to fight expanded efforts through a legal battle. Even 4,000 contract workers who work in Google cafeterias have organized.
Move fast, keep winning
President Joe Biden has been accused of flip-flopping on several issues throughout his long, long political career, but he has always framed himself as a champion of organized labor. This perceived blue-collar appeal may be why the Democrats consolidated around him as they faced the mortal threat of a Republican Party led by Donald Trump that could appeal to workers in the Blue Wall of the Midwest. President Biden is not just trying to consolidate traditional union strongholds like auto manufacturers, but help organized labor break into these new market sectors.
This includes clean energy. The Biden Administration has been noticeably cool towards Tesla (TSLA) compared to its celebration of EV manufacturing from other American automobile companies. Elon Musk dared United Autoworkers to try to organize at Tesla earlier this year. He may regret that. The company has already been forced to hire a public relations firm to monitor worker activity and try to mitigate the danger of unionization, which can considerably increase production costs. For a company whose factories Musk has already derided as “money furnaces,” that could be ruinous.
Unionization isn’t something investors have had to consider for some time. It should be at the top of everyone’s agenda now, especially considering the Biden Administration’s support. As the Democrats’ odds for keeping the Senate and possibly even the House increase, so too does the possibility of increased production costs. A tight labor market, a Democratic Party alert to the threat to losing workers to MAGA Republicans, and college-educated and blue-collar workers both demanding more at a time of increased inflation all suggest that this trend will intensify. The public is also on their side. A recent poll found an astonishing 71% of Americans feel positively towards unions, a figure not seen in decades.
Corporations have also burned their own bridges. It is almost ridiculous to imagine a company like Starbucks or Apple desperately trying to back conservatives without torching what’s left of their brand reputation. They will be forced to deal with this problem that they have enabled. That’s good news for many American workers, but it may be bad news for investors who have grown used to an economy where protracted labor negotiations, high-cost contracts, and even the possibility of strikes are something that seemed to happen only in Europe. It’s coming here, and investors will need to remain carefully aware of the political signals if they don’t want to lose everything.
Of course, there’s still something to be thankful for. As of this writing, Russia is claiming that more “technical” problems mean less gas is coming for Europe this winter. While the American economy might suffer some problems, for Europe, the situation is going to be far, far worse.