Is the House of Labor falling apart or is there strength in disunity?

Last week, the AFL-CIO's annual convention exploded when unions representing nearly a third of the confederation's 13 million members decided to bolt and form their own umbrella organization. At first glance, the walkout looks like a major blow to organized labor, whose watchwords have always been "in unity there is strength."

Yet the union movement may be stronger disunited. The dissidents are pushing a different strategy and mission for organized labor. If they're right, their walkout could mark the start of a new and more powerful union movement.

After all, the history of organized labor in America has been one of upheaval and rebirth, reflecting changes in the structure of the American economy (and not merely the personal rivalries of union chieftains). First came the Knights of Labor -- skilled craftsmen who joined together in the last decades of the 19th century to prevent factory workers from taking over their jobs. The Knights' mission was to "abolish the wage system."

But as factories spread all over New England and the mid-Atlantic, the Knights died off, soon to be replaced by the American Federation of Labor. Drawing from the ranks of coal miners, cigar makers, printers, iron and steel workers, and garment sewers, the AFL accepted the inevitability of wage work. Samuel Gompers, the AFL's first president, said, "We are operating under the wage system, and so long as that lasts it is our purpose to secure a continually larger share for labor."

The AFL soon faced its own challengers as labor's evolution tracked the economy's. By the 1930s, giant industries like automobile and steel were employing legions of blue-collar workers. If these workers were to have adequate bargaining power, they needed to be organized into large industrial unions. This required massive organizing drives quite different from anything the AFL had ever attempted. Rising to the challenge, industrial unionists under the leadership of John L. Lewis split off from the AFL to form the Congress of Industrial Organizations. (But not before Lewis decked the leader of the carpenters' union with a punch in the nose at an AFL convention.) Lewis won high wages for his workers and one of the first employer-paid health and retirement programs, and the CIO signed up hundreds of thousands of new members. It wasn't until 1955, by which time almost all big American companies had converted to mass production, that the two labor groups reunited.

The 1950s and '60s marked a golden age for the energized union movement. More than a third of the American workforce was unionized, and wages and benefits of most workers rose steadily. Organized labor's clout during those years reflected the new realities of mass production. In order to achieve huge economies of scale, major industries became dominated by a few giant producers -- three major automakers, five chemical manufacturers, six steel makers, a handful of airlines, and so on -- that roughly coordinated prices and investments. And most blue-collar jobs in them were boiled down to certain predictable steps, done over and over.

This mass-production system was an ideal environment for organized labor. Since mass production depended on predictability, a strike or work stoppage could wreak havoc. Hence, management was eager to bargain. On the other hand, because big companies in each major industry didn't really compete much with each other, they willingly accepted the terms of the same industrywide labor contracts. This meant wage and benefit hikes could be passed on to consumers in the form of higher prices without eroding the competitive position of any single company. Moreover, labor contracts could be based on industrywide job classifications and work rules. (The only danger of this system was to the economy as a whole. Wages and prices could easily spiral out of control, occasionally prompting presidents to "jawbone" both labor and management to keep wage and price increases within bounds.)

That was then. Today, fewer than 8 percent of private-sector workers belong to a union. What happened?

One analysis, widely held among those in organized labor, contends that the decline in union membership was due to a tide of virulent anti-union activism that began in the early 1980s, after President Ronald Reagan fired the striking air traffic controllers (who had no legal right to strike in the first place). According to this view, America's big corporations took Reagan's act as a sign that it was now okay to fight the unions -- which they began to do with a vengeance. They fired workers who sought to organize. (The incidence of National Labor Relations Board findings of illegal firings began to soar about this time.) They permanently replaced or threatened to replace striking workers. (It had been legal to do so since the 1930s, but companies rarely threatened it before the '80s.) Many of them moved their factories to states with lower wages and "right-to-work" laws, which undermine unions. And then corporations started moving jobs to Latin America and Asia.

There's some truth to this view, but it's way too simple. It fails to account for the shift in the structure of the American economy, beginning in the late 1970s and '80s, that shattered the mass-production system of the mid-20th century. The shattering pushed every major company into intense competition for consumers and capital, and forced many of them to slash their payrolls.

First came global competition. Cargo ships, containers and satellite-communications technologies made it cheaper to make a lot of things abroad, and Japanese manufacturers set up non-union factories in America. Then came technology: Software made it possible to produce lots of things at low cost without mass production, and fiber-optic cables made it easy to outsource production anywhere. Meanwhile, privatization and deregulation allowed lots of new entrants into airlines, trucking and government services. And mega-retailers like Wal-Mart forced thousands of suppliers to become even leaner and meaner. With all these new opportunities to make money, capital markets also became more demanding, inviting takeovers of companies that didn't cut costs as readily as they might.

Wages and benefits typically account for 70 percent of a company's total costs. So it's not surprising that as companies have scrambled to cut costs, they've done everything possible to cut the wages and benefits -- and numbers -- of their employees. One method, of course, has been to fight unions.

Industrial workers have been hardest hit. Their wages have eroded and their benefits have been cut. Many of their jobs have disappeared. Meanwhile deficit-ridden federal and state government have also cut costs by trimming payrolls and outsourcing jobs to the private sector.

Not surprisingly, these workers want to hold on to what they have left. Unions that represent them are at the core of the remaining AFL-CIO. They're interested in gaining new members, of course, but they see their mission primarily in terms of preserving the good jobs and relatively high incomes of their members in the face of these fierce headwinds.

The future of these unions -- representing, among others, airline, auto, steel, chemical, communications and many public sector workers -- depends largely on what happens in Washington. Hence, their strategy is intensely political. They're using what's left of their political muscle to fight trade agreements, oppose privatization and deregulation, join with their companies to get lucrative government contracts, and preserve their members' health and pension benefits. And they're intent on getting Democrats back in power so labor laws can be strengthened.

Contrast them with the other category of blue-collar worker -- those who inhabit the local service economy. Retail, restaurant, custodial, hotel, elder and child care, hospital and transportation workers face a profoundly different challenge. Their jobs aren't in danger of disappearing. They can't be outsourced abroad and most won't be automated. In fact, the number of local service jobs keeps growing. The real problem is that these jobs tend to pay very low wages, rarely include benefits and provide little chance of advancement. Significantly, most of these jobs have never been unionized. If they were, these workers might have more bargaining clout with their employers.

By and large, the unions who look out for these workers -- such as the Service Employees International Union (SEIU), the Teamsters, the Hotel Employees and Restaurant Employees International Union (which merged with another union last year), and the United Food and Commercial Workers -- are the ones now leaving or threatening to leave the AFL-CIO. They see their mission less as preserving good jobs in danger of disappearing, and more as boosting the prospects of people trapped in lousy ones. They're less interested in gaining political clout because the fate of their members is not closely tied to votes taken in Washington. Their future depends instead on how many other local service workers become union members, and how quickly. That's why organizing is of such central importance to them.

In some ways, the mission and strategy of these dissidents are closer to that of organized labor in early decades of the 20th century when blue-collar jobs were abundant but poorly paid, within industries where few workers had ever been unionized. Then as now, organizing required lots of effort at the grass roots of the economy, often among new immigrants and the poor, in communities dependent on a handful of employers often deeply suspicious of unions.

Above all, it required constant innovation -- new ways of recruiting members, building grass-roots organizations and empowering communities. Andrew Stern, the rebel leader of the SEIU, for example launched a national "Justice for Janitors" campaign by coordinating renegotiation dates for custodial contracts and made deals delaying pay increases until 55 percent of rival contractors in a region agreed to go along. He's also looked at alternate retirement plans, recruited immigrants and sought leverage by, for example, questioning the tax-exempt status of nonprofit hospitals whose workers he's tried to sign up.

It's too early to tell whether Stern and his fellow dissidents will succeed, of course. But, given the evolution of the American economy, it's just possible that what we saw at the Chicago convention last week marks a rebirth -- or at least the rejuvenation -- of organized labor.

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Robert Reich, secretary of Labor under President Bill Clinton, is professor of social and economic policy at Brandeis University.