The benefits of labour for baby include:

- Protects baby from accidental prematurity
- Protection from Respiratory Distress Syndrome (RDS)
- Release of cataecholamines resulting from compression of the fetal head
during pushing which effects include a slowing of the fetal heart rate,
increased blood flow to the heart and brain protecting fetus from less
oxygen during contractions.
- Stimulation of lungs, absorption of amniotic fluids so baby can breath at
birth, avoiding wet lung syndrome.
- Highly alert state which may help in mother-infant attachment at birth and
consequently better breastfeeding results.

Reference: A Good Birth, A Safe Birth by Korte & Scaer

Babies born after labor begins have fewer cases of accidental prematurity
and less risk of respiratory problems than babies born by c/s before labor
begins. That's one of the advantages of waiting for labour, even if the mom
actually ends up giving birth by cesarean. (Cohen, M, Carson, BS,
"Respiratory morbidity benefit of awaiting onset of labor after elective
cesarean section" Obstetrics and Gynecology l985 vol. 65, pages 818-824)

Here's a quote about another study, as described in Robert Creasy's
Management of Labor and Delivery, Blackwell Science, Oxford Eng. l997:
"More recently, Hales et al. compared the frequency of respiratory morbidity
in the term neonate inrelation to three different delivery modes: cesarean
without labor, cesarean after labor, and vaginal delivery. Thirty-three
(9.1%) of 363 newborns delivered by cesarean section developed respiratory
morbidity compared with only 2 (0.6%) of 329 who were delivered vaginally.
The neonates delivered by cesarean section without labor demonstrated a
higher frequency of respiratory morbidity compared to those delivered by
cesarean section after labor (12.4% versus 5.6%). There was also a greater
risk of respiratory morbidity in the cesarean-in-labor group c ompared with
those who delivered vaginally (5.6% versus 0.6%)."

The study he's discussing is Hales, DA, Morgan, MA, Thurnau, GR, "Influence
of labor and route of delivery on the frequency of respiratory morbidity in
term neonates" International Journal of Gynaecology and Obstetrics, l993;
vol. 43, pages 35-40.

Labour helps the baby to clear its lungs ready to breathe air and to produce an appropriately elevated level of stress hormones to deal with the challenge of getting born. A planned cesarean takes away from the baby the opportunity to initiate labour themselves, which is what nature intended, so what they're hardwired for. Labour also ensures that the baby is really ready to be born, rather than relying on notoriously inaccurate calculations and US estimates of due dates and size (not to mention the
whims of doctors!)

I believe that all babies somehow "know" how birth is supposed to go, otherwise why would a breech or c-section baby invent the game of climbing up inside mama's T-shirt, turning around and then diving out head first, over and over again, as babies have been observed to do? A person I know who was born by scheduled C-section loves diving off high cliffs with his kids, but insists on being the one to say "now!" --a way of taking  charge of "when" that he didn't have with his birth. Another person I know who was born by c-section is terrified of flying (c-section babies "fly through the air" as they're lifted rapidly from the incision and sometimes carried to the warmer), elevators, bridges and tunnels (not unusual in babies who haven't made their own journey through the birth canal).

Some c-section babies are fearful of knives. Many have trouble with breast-feeding because of anesthesia and/or suctioning; many feel they can't do things by themselves; many feel that others are manipulating them; many crave touching (an OB friend of mine makes a point of passing his hands down the baby's body to simulate the passage through the birth canal whenever he [reluctantly] delivers a baby by c-section); many have trouble completing things; have control issues; communicate very indirectly; think they do things wrong; are easily confused and have trouble making decisions.

Lastly, working with adults with birth traumas, I am frequently struck by the delight with which they finally accomplish their own "births" with encouragement, rather than assistance (just like moms with midwives, in a way). Not a c-section, but a client recently [anesthesia, nuchal cord, forceps birth) trusting their body to know when to go for it and use a contraction to risk powering out before losing consciousness and trusting that the rest would be taken care of once they emerged, came out thrilled that their body had been trustworthy--when I said "and no forceps!" the person laughed and said: "Oh, I forgot about the forceps!!" That's the victory of accomplishing birth without interventions--in this case, even with some life-threatening impediments! I really believe babies feel differently about being born with interventions as opposed to doing it themselves--I see it in adults so often.

Then there's that story (posted here not that long ago, but very apropos),
that I think says it all: