That I think the odd mixture of capitalism and free markets that we have is pretty much the best system humans have yet devised is well known. That I also rather play down the ways in which companies and producers abuse this system is also pretty obvious. But that people really do abuse the system has been obvious at least since Adam Smith pointed it out in 1776. And that real abuse needs to be dealt with and dealt with hard. Thus my welcoming the conclusion of the Silicon Valley wage fixing scandal, where the perpetrators, Google, Apple, Intel and Adobe, are going to have to pay $415 million in compensation to the people they cheated. That a lot of what others see as market abuse or manipulation I see as perfectly honest business practice does not mean that I am actually in favour of laissez faire. We do not need to work to make sure that markets are fair but we do need to be vigilant to make sure that they are free, free of cartels.
The news itself:
A U.S. judge on Wednesday granted final approval to a $415 million settlement that ends a high profile lawsuit in which workers accused Apple, Google and two other Silicon Valley companies of conspiring to hold down salaries.
The plaintiffs alleged that Apple Inc, Google Inc , Intel Corp and Adobe Systems Inc agreed to avoid poaching each other’s employees, thus limiting job mobility and, as a result, keeping a lid on salaries.
The basic story is that the tech giants (Facebook was a notable standout from joining the arrangements) agreed that they wouldn’t try to hire engineers away from each other. There was at the time, still is in fact, a shortage of seriously talented engineers. And of course one solution to wanting more engineers in the face of such a shortage is to make really good job offers to the people who are working for your competitors. This annoys your competitors no end and of course it annoys you when they return the favour. So, it ended up with a general agreement that Google wouldn’t poach engineers from Apple and Apple wouldn’t from Google and so on.
The problem with this is that it’s illegal: it’s quite obviously a cartel. It’s a cartel of the employers against their own employees. Because if there’s a shortage of skilled engineers then the pay of skilled engineers should be bid up.
It was another classical economist, Karl Marx, who got this point correct (lifted, as with all the other bits he got right, from either Ricardo or Smith). It is this sort of bidding up of wages which leads to raises for the workers in general in fact. If there’s unemployment about then a factory owner doesn’t have to raise wages to gain more labour. And if his current labour starts getting a bit bolshie, asking for more of the profits of their labour, then he can fire them and go hire the unemployed. It’s only when there are no unemployed people around that the employer must start to share those profits with the workers: and that’s what makes wages go up in general.
So, a cartel that prevents job poaching in the face of shortage short circuits this process. And we really, really, don’t like that happening. So much so that I think that the penalties on these companies should have been rather higher. This is the civil suit settlement being announced today. The criminal stuff was sorted out several years ago and the fines paid were trivial given the size of the companies and the manner of their behaviour. I welcome this settlement, but would argue that those criminal penalties should have been a lot, lot, higher. Over here in Europe they could have been as much as 10% of global revenues of the participants. That might be too much but the basic point still remains. Yes, I think that there’s less market manipulation and monopoly around than most other people do. But when there really is this collaboration to create a cartel then the authorities really should come down on them like a tonne of bricks.
This article was written by Tim Worstall from Forbes and was legally licensed through the NewsCred publisher network. Talent HQ is a premier information channel empowering professional development for recruiting and HR communities through regional events including Minnesota Recruiters, Wisconsin Recruiters, Oregon Recruiters and California Recruiters.