PG: “Any industry that still has unions has potential energy”

Historically, unions have been very antagonistic to capital. Paul Graham is basically the definition of capital; he uses his wealth to generate more wealth. And what he is suggesting is that startups could fix the inefficiencies in the market that unions have created. The problem is that fixing these inefficiencies would primarily benefit people like PG, who make their money from the ownership of enterprises rather than labor.<p>Generally speaking, the inefficiencies of unions exist to protect the interests of the workers, who generate wealth for the company but more often than not do not have an equity stake in the business. Unions exist to maintain the balance between capital and labor, and to make sure that people like PG don&#x27;t deprive the laborers of fair remuneration for their work.<p>While we can almost always find someone who will do a job for less money, as a society we have an interest in providing an equitable share to labor, as there are far more workers driving this global economy than there are venture capitalists (or even just plain old capitalists) contributing to the economy in the form of seed round funding and the like.

Sometimes the political divide between Europe and the US becomes glaring on Hacker News. I feel this tweet is one of those moments. Our differences makes us more interesting but this tweet was a bit hard to digest.

If I were to put this tweet in my own words in order to convince others of its truth I&#x27;d say something like: companies in industries that have met both of the necessary conditions of having unionized workforces [0] could probably be improved by the application of recent technological progress to that company&#x27;s operations, but most large companies lag in their efforts to refactor their processes, so there&#x27;s an opportunity for brand-new companies to gain market share by using new technology in ways that make them categorically better at delivering the product or service associated with that industry.<p>The problem I have with this tweet is that it makes PG look like an arrogant, detached asshole. It&#x27;s the kind of thing that non-VC&#x27;s imagine that VC partners say amongst themselves while swilling $500 organic Merlot in their palatial estates in Woodside. PG to a great extent is seen by the outside world as speaking for the Valley, which is usually a good thing because usually the stuff he puts out there is thoughtful and makes him look smart. I&#x27;d say this tweet is a pretty big outlier from that pattern.<p>[0]These are: a) existing for long enough and b) employing enough people that their workforces decided to unionize

It always amazes me that if you get a bunch of workers together and organize them so they can act collectively, you get a ton of hate and a lot of people assume you&#x27;re destroying value. Yet do the <i>exact same thing</i> on the employer side and this is not only acceptable, it&#x27;s the only way we would ever think of doing things.<p>In other words, why can&#x27;t I replace &quot;unions&quot; with &quot;corporations&quot; and have the statement still be true?

Followup clarification tweets:<p><i>(I don&#x27;t mean in simply paying people less, but rather that industries afflicted by unions are sclerotic so have left lots undone.)</i><p><i>There is much more money in doing new things than in paying people less.</i><p>edit: this received a number of downvotes, and I&#x27;m having trouble understanding why. Presumably providing context is a good thing here, right? There are comments that would be better informed if they had seen the follow up tweets.

Without unions (or minimum-wage laws), the price of labour reflects supply and demand. Skills in shortage have higher wages; unskilled labour drops to starvation wages - or below, provided there are replacement people.<p>In good times, with labour in demand, wages are higher, up to the point where the demand is met. Wages can go no higher. If there are enough people, these wages might be quite low. The remaining surplus is captured by capital.<p>In bad times, when demand for labour is low, wages may drop arbitrarily low.<p>Another solution to starvation-wages or below is social security or, more radical, universal income. It acts like an employer competing for labour, providing a minimum-wage threshold, through market forces. If capital doesn&#x27;t offer sufficient wages, labour chooses the safety net.<p>However, this ignores the non-wage benefits of employment: people <i>like</i> to work, to be important&#x2F;needed&#x2F;useful, to be part of something, social contact, etc not to mention practice and acquisition of skills.<p>Finally, to be fair to pg, unions also represent a freezing of a particular way of doing business. Like back-compatibility or a requirement to use a particular technology, it restricts the way work can be organized. It prevents work from being &quot;re-factored&quot; - even if there exists another arrangement that would be just as good or even better for workers. Inflexibility eventually causes inefficiency.<p>[ BTW I think there are three levels of systems that we can optimise for &quot;efficiency&quot;: technical systems are efficient at their task; a business as a system is efficient at making money; a society as a system is efficient being something people want to be part of - that is, serving their needs. ]

This is sort of self-evidently true; the purpose of a capitalist firm is to achieve a monopoly (in exactly the sense used in antitrust law, that is, to achieve a market within which they exercise pricing power) and extract rents from it for the capitalists the firm serves. Unions are a mechanism by which labor does much the same thing, limiting the ability of capital to retain rents even if firms achieve a mechanism to extract them.<p>So, sure, from the point of view of capitalists, the existence of unions <i>is</i> an inhibition to the realization of capital yields.

You know, like a log of wood does. Light the sucker and you&#x27;ll unlock all its value!

Absolutely reprehensible.<p>Dismantle all protection for labor, keep oppressing them, and you will eventually force a destruction of the very canvas of economic stability against which you want to tap this &quot;potential energy&quot;.

There are some fantastic counter-arguments in there. For the record I think both sides have valid points: unions <i>do</i> make industries &quot;sclerotic,&quot; but they also exist to prevent a deflationary race to the bottom in wages. I&#x27;d reference Peter Thiel&#x27;s comments on competition from Zero to One-- they apply just as well to labor as they do to companies.<p>&quot;All workers can&#x27;t be paid union wages&quot; is perhaps true, but flattening the labor market completely would result in a squeezing of disposable income that would harm the economy overall not to mention the well being of its participants. As Thiel correctly argues: surpluses are required for pretty much anything outside the status quo to happen. If there are no corporate surpluses there can be no R&amp;D or expansion. If there are no labor surpluses, there can be no adoption of anything new or interesting or novel. How many impoverished check-to-check workers will be purchasing an Oculus Rift or a Tesla?<p>A lot of the criticism of unions is also hypocritical. For example, corporate executives as a class are de-facto unionized. Why is it that companies pay absurd salaries for directors? Being a CEO is a hard job but it&#x27;s not that hard. The reason companies hire superstar directors and pay them superstar wages isn&#x27;t because these people are actually hundreds or thousands of times more effective. It&#x27;s because these people are <i>connected</i>. They&#x27;re plugged into the &quot;old boy network&quot; a.k.a. in the union and that confers a privileged position in relation to things like raising money, making big deals, protecting companies from government scrutiny (the CEOs union has a revolving door with government), etc. A great recent example would be Condi Rice being recruited for the Dropbox board. What expertise does she have in IT enterprise marketing, distributed systems, engineering team building, ...? None. But she&#x27;s very connected in the &quot;union.&quot;<p>I think it&#x27;s reasonable to hypothesize that any time you see what appear to be above-market wages being paid for any form of labor, something union-like is going on even if it&#x27;s not officially organized as such.<p>I also love the comparison of YC to a union. It&#x27;s very much like one. An open question for pg:<p>Would he be willing to forego YC&#x27;s union-like attributes? This would entail ceasing all collective bargaining with investors on the part of YC companies and refusing to permit companies to openly leverage the YC brand to increase their clout in the market. YC could still provide co-working space and mentorship but could not use any collective marketing, branding, or bargaining strategies to assist its companies in fund raising or growth.<p>Wouldn&#x27;t it be a more efficient market if startups competed only on merit and negotiated in a flat market domain with investors?

There are people who work, such as the young programmers in SoMa who work 50&#x2F;60&#x2F;70+ hour weeks pounding out code for startups, who after rent and such don&#x27;t have much savings piling up in the bank, nor much of a social life. These are the people who work, who create wealth.<p>Then there are the parasites - the heirs whose families haven&#x27;t worked in living memory. The LPs give money to the VCs and whoever else does Series-A type rounds nowadays, who filter it to the CEOs. Unlike the poor 22 year old sap, they have their bets spread. Once a Facebook, or Google, or Oracle gets big enough, they start extracting their profits from the monopoly type situation they created, and from the wealth the workers have been creating.<p>Labor organizes into unions so that the people doing the work, the workers, get to keep more of the wealth they create, as opposed to the money going off in dividends to these parasitic heirs. The parasites hate organized labor, because it prevents the parasites from expropriating more surplus labor time from people who work and create wealth.