Bring Back Countervailing Power

A new ethos of wage boards and worker power would help right the injustices in our economy.

John Kenneth Galbraith in 1982 (Diana Walker/Getty).

On the left, right, and center in American politics, there is growing agreement that, after nearly half a century, the neoliberal consensus is crumbling—but there is no agreement about what neoliberalism is. Many on the left treat neoliberalism as a synonym of capitalism, while the right tends to denounce “woke” business, on the assumption that the problem is the progressive attitudes of corporate managers, not the structure of the economy itself. The best way to understand neoliberalism is to compare it to what it replaced—New Deal liberalism between the 1930s and the 1980s, a consensus broad enough to include “modern Republicans” like Eisenhower and Nixon. And the best way to understand New Deal liberalism is the concept of “countervailing power,” which should be the fundamental principle of a post-neoliberal order in the decades ahead.

The phrase “countervailing power” was coined in the 1952 book American Capitalism: The Concept of Countervailing Power by the economist and social thinker John Kenneth Galbraith. Galbraith argued that, in a modern technological society, most important markets would be dominated by a few large firms. Their market power and political influence could be checked, however, by countervailing power—both public, in the form of a strong regulatory state, and private, in the form of labor unions and consumer cooperatives. Arguing that measures to strengthen the bargaining power of unions and farmer groups were “among the most important legislative acts of the New Deal, all designed to give a group a marketing power it did not have before,” Galbraith asserted that “the support of countervailing power has become…perhaps the major peacetime function of the Federal Government.”

The equation of the New Deal with government-supported checks and balances in the market may seem surprising today, when many associate the New Deal with social insurance programs like Social Security or Keynesian deficit spending in downturns. But this view was the conventional wisdom (another phrase coined by Galbraith) of many New Dealers. For example, in 1940, the journalist John Chamberlain wrote: “The labor union, the consumers’ or producers’ cooperative, the ‘institute,’ the syndicate—these are the important things in a democracy. If their power is evenly spread, if there are economic checks and balances to parallel the political checks and balances, then society will be democratic.”

Between the New Deal and the 1970s, the “broker state” (in Chamberlain’s phrase) prevailed as the major method for limiting the potential harm of economic concentration in the United States, rather than antitrust or the technocratic planning favored by some progressives. In the last half century, however, the decline of organized labor has led to an upward shift of political power on the center-left to college-educated progressives, whose preferred mode of politics consists of technocratic measures to reach pre-ordained numerical targets—quotas for minorities and women in the name of Diversity, Equity and Inclusion, specified increases in atmospheric temperature in the case of climate change. At the same time, despite the emergence of populist Republicans like J.D. Vance, Josh Hawley, and Marco Rubio, who sometimes side with unions, the mainstream GOP remains captive to the anti-labor agenda of libertarian donors. Virtue-signaling, technocratic progressivism and anti-labor neoliberalism have been synthesized in “woke capitalism,” exemplified by Starbucks, which has strenuously fought the unionization of its coffee shops while spending lavishly on philanthropic initiatives related to diversity and climate change.

Technocratic neoliberalism, which is hegemonic in corporate and financial circles, universities, and the prestige media, reflects the values of the college-educated overclass, which tends to be culturally progressive but wary of higher taxes or organized labor. Technocratic neoliberalism ignores the values and interests of the two core constituencies of the New Deal—the working class and rural Americans. Unrepresented in either party, these groups are drawn to outsider populists, including maverick old-school New Dealers like Sanders and right-wing demagogues like Trump.

Some “popularist” liberals like the political strategist David Shor hope that the Democratic Party can move in a New Deal-ish direction if it downplays divisive left-wing policies and focuses on the universal, bread-and-butter concerns of the multiracial working class majority. There has always been a school of elite progressives who preferred to help American workers directly, through legislation, rather than indirectly, through making it easier for organized labor to organize workplaces and industries. Franklin Delano Roosevelt’s Secretary of Labor, Frances Perkins, famously said, “I’d rather pass a law than organize a union.”

The obvious rejoinder is that if pro-worker politicians were capable of defeating organized employer interests and mandating higher wages and benefits by law they would have done so already. Except on rare occasions, business interests will control both parties, and therefore it is necessary to give organized labor the countervailing power to demand wage hikes and benefit extensions which labor-friendly politicians are incapable of pushing through Congress or state legislatures themselves. Even if employer lobbies block higher federal and state minimum wages and reactionaries control Congress, organized labor working within a sound framework of labor law can raise wages through direct negotiations with employers.

Unfortunately, the National Labor Relations Act (Wagner Act) of 1935, as subsequently amended and interpreted by the courts, requires that, in the absence of employer agreement, only individual work sites like Starbucks coffee shops or Amazon warehouses can be unionized, not entire companies at one time, much less entire industries. In contrast, the Railway Labor Act of 1926 permits the government to force all of the employers in a sector to negotiate collectively with relevant trade unions. But the Railway Labor Act applies only to railroads, airlines, and transit agencies, while most unionization efforts must follow the site-by-site enterprise bargaining approach under the Wagner Act. Now that organized labor includes only six percent of workers in the private sector, the prospects of increasing private sector union membership, one shop or warehouse at a time, are bleak.

Recognizing the inadequacy of the Wagner Act, some proponents of “alt-labor” approaches have suggested alternatives. One is mandatory multi-employer sectoral bargaining of the kind familiar in many other democracies and which exists on a small scale in sectors covered by the Railway Labor Act. But this reform would require federal legislation and is unlikely to pass Congress.

A more promising approach can be found in the idea of “wage boards.” This model was devised more than a century ago to help workers in dispersed workplaces like sweatshops who were harder to unionize than workers in big factories or infrastructure firms. Representatives of labor, employers, and sometimes consumers or government officials are appointed by a governor or mayor to a wage board, which makes recommendations for minimum wages, hours, and benefits in a particular low-wage occupation. In recent years, Democrats in New York and California have revived the wage board model to help fast food workers and farm laborers, among others. State and city governments can convene wage boards without federal enabling legislation, and because most low-wage jobs are in the nontraded local service sector, there is no danger of offshoring or capital flight. Unlike a manufacturing company, a janitorial company cannot offshore its work to another state or country with lower wages and labor protections.

Frances Perkins was wrong. Organizing a union, or other methods of direct labor representation in negotiations with employers, is better than passing a law. Relying on benevolent elites to help the working class out of charitable sentiment is no substitute for worker power. In the short term, both the Democratic and Republican parties will be dominated by those who benefit from post-1980 neoliberalism. But nothing lasts forever, and neoliberalism will be replaced by some new policy consensus. Although this new consensus cannot resemble the New Deal of nearly a century ago in detail, the countervailing power of the working class should be its central organizing principle. 

Michael Lind is a contributor to Tablet, a fellow at New America, and author of Hell to Pay: How the Suppression of Wages is Destroying America. 

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