The economics of Bob Crow

Frying down in Rio: Union baron Bob Crow soaks up the sun on Copacabana beach

Bob Crow, 1961 – 2014

The reactions to the sudden death of RMT leader Bob Crow from friends and foes alike were unanimous about one thing; he was good for his members. Indeed, most of those who ride London’s underground can only dream of the tube drivers’ basic salary of £44,000 and 52 days holiday a year. But how much of this was due to Bob Crow?

A private enterprise will not pay a worker more than it thinks that worker will add to turnover, if it did it would be losing money on the employment. The private sector enterprise has only three sources of funding; debt (bank loans, corporate bond issues), equity (selling shares), and income. If it loses money and exhausts these sources by paying workers above a level commensurate with their productivity it will go bust. No matter how determined or skilful the union representative, the workers’ marginal productivity sets a cap on their wages.

But the situation is different for public or government backed enterprises, such as those Bob Crow faced across the negotiating table. They have a fourth source of funding; the taxpayer. In these circumstances unions can push pay claims ever higher. If a union seeks to push wages above a level commensurate with worker productivity and the public enterprise exhausts the funds it can raise from debt, equity, or income, it doesn’t go out of business; it receives taxpayer support. For the public enterprise, unlike its private counterpart, on the other side of the bottom line isn’t bankruptcy, it’s a bailout funded by taxpayers. This is why trade unions continue to thrive in the public sector but are largely absent in the private.

Indeed, despite their extravagant remuneration the productivity of tube drivers, what they add to output, is actually rather small. The big value adding inputs into the production of tube travel are mostly capital inputs; boring machines, trains, track, IT systems, ticket machines etc. It is quite possible, in fact, for tube trains to run without drivers at all. Indeed, as far back as the 1960s the Victoria line could have been built to run without drivers. It was only the insistence of trade unions that saw a role created for drivers to sit in the cab and press a couple of buttons – drivers who could become their paid up members. To avoid union headaches Margaret Thatcher built the Docklands Light Railway to run without drivers in the 1980s, which it has ever since with a safety record comparable to manned tube lines. If a factor of production, in this case labour, is being applied to production needlessly it is wasteful and unproductive. It should not be receiving high wages.

If Bob Crow was aware of the economic possibilities for his members offered by recourse to taxpayer’s money he was also acutely aware of the politics of the situation. He knew, as a former RMT employee put it to me, that “Boris wants to get re-elected as mayor and/or become PM. If he screws up the tube his chances of either are lessened. He has to balance the damage caused by, on the one hand ‘giving in to the unions’ and, on the other, chaos on the underground. The fact that he has to balance those factors makes the union’s position a strong one.”

Such was Bob Crow’s terrain and, like a Wellington, he understood it well. But it did not make him a labour relations genius any more than the Mediterranean coast and Qattara Depression made Montgomery a military genius. His membership prospered not so much because of his skills as a leader, but because of their status as public or semi-public employees whose pay claims were underwritten by the taxpayer. Bob Crow played his hand well but he had a strong hand to play. Those hoping for a more emollient approach from his successor ought to remember that they will inherit that hand.