Tuesday, June 27, 2006

Lawyers against monoplies live in glass houses

Quoting Adam Smith on a 18th century problem may not add much to dealing with a 21st century problem, especially if the quoter misunderstands what Smith was getting at.

Yahoo The Nation -- "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public..." wrote Adam Smith in 1776. Four new class action suits allege that folks running hospitals are doing just that: conspiring to depress nurses' wages, even though, as I've written before, raising them could help address a nurse shortage which threatens public health.

Smith was suspicious, and with good reason, of why ‘people of the same trade’ meet together. He was, of course, dealing with a different situation to the hospitals in ‘Albany, Chicago, Memphis and San Antonio’, of which the author writes.

In the 18th century main towns were by law entitled to require all ‘merchants and manufacturers’ (the latter covering ‘trades’, such as artisans, mechanics, printers, weavers, cabinet makers, coach buildings, wheelwrights, and such like) to have served seven-year apprenticeships to Masters who were members of their respective Guilds that, effectively, ‘ran the towns’, in self-perpetuating oligarchs.

One example of which, clearly illustrates the point Smith was getting at. James Watt, a self-taught mechanic, was barred from opening a workshop within the city boundaries by the Corporation of City Guilds because he had not served the requisite seven-year apprenticeship in the city (he came from Greenock, along the Clyde).

Fortunately for him, and the eventual industrial revolution decades later, the University of Glasgow (known as the ‘college’) was outside the city boundaries, and the writ of the incorporated ‘trades’ did not run beyond the city boundaries. The faculty of Glasgow, on the look for a competent mechanic who could keep their instruments repaired and maintained, offered him several rooms in the college to conduct his work (his ‘day job’) and his experimental work in his own time.

Adam Smith at the time was Professor of Moral Sentiments and he dealt with matters relating to James Watt on behalf of the Senate (as the Senate minutes show). He was, therefore, well aware of the pernicious influence of the ‘guilds of trades’ and it was these that he was getting at as part of his critique of monopolies enshrined in laws of ancient vintage. He goes on to suggest that governments should not make it easier for trades to combine together by such modest, though obvious, measures of intended tradesmen having to register with the city authorities, because this made it easy for the guild to visit them and check their credentials, and then use the legal powers they had to stifle competition.

Smith’s targets were not companies and businesses as we know them in the 21st century; they were individual ‘skilled’ or ‘apprenticed-served’ people sheltering under the Apprenticeship laws, which Smith wanted repealed. The engaged in suhc practices to keep their prices higher than competition would have allowed.

Filed yesterday in Albany, Chicago, Memphis and San Antonio, the suits allege that hospitals in those cities are exchanging detailed information about nurses' pay, so that each can keep labor costs low without suffering a competitive disadvantage. A lead lawyer on the suit, Dan Small of Cohen, Milstein, Hausfeld and Toll (a large corporate firm whose deep pockets are backing the sex discrimination suit against Wal-Mart) tells me that the suits are based on interviews with current and former employees of these hospitals, who were privy to meetings and discussions in which pay information was shared. In each of these markets, raising the wages could have helped to alleviate a nurse shortage, instead.’

What we have here is a conspiracy to keep wages uniformly at the rate of the least efficient hospital. That must be worthy of legal action.

However, I notice that it is being pushed by an example of a modern day ‘Guild’:

Dan Small of Cohen, Milstein, Hausfeld and Toll (a large corporate firm whose deep pockets are backing the sex discrimination suit against Wal-Mart).”

The author of the article misses the irony of a large modern law firm funding actions against firms misusing their connections with each other (and for which they should be brought to justice) when, like all law firms, it is protected by laws that ensure its members have monopoly rights to exercise their trade as lawyers, which exclude competition from persons, who have not served their legal ‘apprenticeships’, with all the fury and energies that could not teach an 18th-century City of Glasgow Guild of Trades anything about how to keep James Watt from practising his trade within the boundaries of Glasgow.

This, of course, is another example of reading a handy quote from Wealth of Nations, misreading the meaning of words and the context to which they applied, and assuming it is about what happens in the mid-US in 2006.

In Smith’s day the law backed Guild Corporations against the public interest; in 2006 in the US, the law backs the public against ‘conspiracies’ by modern corporations. There is an enormous difference.

Incidentally, after two hundred years, no laws have yet breached the law monopolists to tackle their legally-backed rights to exercise their trade exclusively, including keeping out rival lawyers from different cities, let alone different countries. No wonder they have ‘deep pockets’!


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