This is the fourth of a five part series on public sector unions. The opening post argued that political attacks on public sector unions are more likely to worsen fiscal or political problems than solve them. The second article asserted that low levels public sector productivity relative to pay is primarily a management failure. The third article noted that efforts by unions to create tenure or job security for public employees is counterproductive and argued for easy and frequent terminations with mandatory, generous severance. This essay suggests that political activities by public employees to elect their bosses via political contributions are undemocratic and that the federal restrictions on political activity should be expanded to all public employees. Finally. I argue that the economic and professional interests of our most valuable public employees are better served by a technologically enabled professional associations than by collective bargaining and political lobbying.
My previous post took note of the decline of private sector unions and suggested that it has left public employees unexpectedly vulnerable to citizens who are jealous of the job security that most public workers enjoy. I recommended that we replace job security with very generous mandatory severance and argued that without the ability to replace people, managers cannot restructure, consolidate, or redesign public services.
Job security is not the only public employee benefit that causes envy among private sector workers: the public sector is the last bastion of your daddy’s defined benefit pension. When public workers can retire at age 55 and expect to live another twenty to thirty years, this can represent a multi-million dollar retirement benefit. Aggravation turns to rage however, when taxpayers suspect that these benefits were not negotiated at arm’s length but were purchased by union contributions to state and local politicians.
At one level, this is foolish. If unions could easily purchase politicians and make deals with them, public sector pay would be exorbitant, not merely higher. Teachers and firefighters would be earn as much as physicians – a profession whose collective organization and political influence puts teachers to shame. And obviously businesses and other interests make campaign contributions as well. Why single out public employees?
For two reasons. First, there is solid evidence that small contributions make a big difference in city, county, and school board elections. Second, it undermines both public service and democratic values to permit even the appearance of labor capture – particularly since restrictions on the partisan political activities of federal employees has produced good outcomes for more than six decades.
What has this to do with public employee pensions? Plenty. Nationally, unfunded state and local health and pension obligations now total over a trillion dollars. This is a crisis because these commitments are economically catastrophic and, in many states, constitutionally binding. Court decisions have mandated that pension obligations be honored, even in the event a local government declares bankruptcy. These pension obligations are a ticking time bomb for states and ultimately for public employee unions.
The financial black hole of public pensions was the result of three forces — not all the responsibility of public unions: bad managers, bad forecasts, and bad politics. The latter, unfortunately, contributes to the former.
Public managers who negotiate union pensions often work under terrible incentives. Too often, they are judged not on the lifetime cost of the contracts they negotiate but on the impact on the current cash cash budget. They are rewarded for settling union contracts with what amounts to free money: future pension benefits that are not charged to current budgets. Worse, the manager’s own pension is often raised to match the increase that he or she had just granted the union (this happened a lot in the private sector as well, notoriously among automakers).
Bad forecasting made bad management worse. Unions bear no responsibility for this. Public pension managers frequently assumed real returns that were 200-300 basis points higher than they could deliver on a consistent basis. A financial collapse obviously made this much worse, because in a defined benefit plan, capital appreciation risk remains with employers (a big reasons that the private sector went to 401(k) defined contribution plans).
Bad politics aggravated bad management because public sector unions contribute heavily to local election campaigns in which they have an interest. It is not uncommon for public employee unions to be the largest donors in a campaign.
Of course it was only “bad politics” for the public. For unions and their lawmakers, it was very good politics. Agreeing to large future pensions not only enabled lawmakers to appease unions, but it set up second game for which unions are not directly responsible: budgeters often deferred funding these obligations, effectively increasing the funds available for current services. Viola! Happy unions, more public services all without tax increases.
But voodoo economics never works for long. Promising pensions without paying for them, although no different from borrowing, was frequently not accounted for in state and local balanced-budget requirements. Until the market crashed and forced the issue, it was free money — a politician’s dream.
The risk of politicians “captured” by public employee labor unions has long been recognized by many thoughtful progressives. It is easy to forget now, but most politicians, labor leaders, economists, and judges warned of this risk and long opposed collective bargaining in the public sector for just this reason. President Franklin Roosevelt, surely the staunchest friend of labor ever to occupy the White House, declared in 1937 that
Meticulous attention should be paid to the special relations and obligations of public servants to the public itself and to the Government….The process of collective bargaining, as usually understood, cannot be transplanted into the public service.
F.D.R. believed that
[a] strike of public employees manifests nothing less than an intent on their part to obstruct the operations of government until their demands are satisfied. Such action looking toward the paralysis of government by those who have sworn to support it is unthinkable and intolerable.
Private sector labor leaders, men who did not routinely turned down an opportunity to collect dues, were virtually unanimous in their opposition to public sector unions. The first president of the AFL-CIO, George Meany, believed it was “impossible to bargain collectively with the government.”
The result of labor capture, critics asserted were predictable:
- Unions would distort the labor market because they would be able to protect less competent employees. Government service would soon attract the risk averse and repel risk takers.
- Unions would weaken public finances by driving up not only the cost of labor but demand for it, since they would develop the political capacity to lobby consistently for government employment
- Unions would negotiate work rules and employment protection that would help diminish the responsiveness of government and the quality of public services.
Not only were these concerns voiced at the time by progressive thinkers, they have been vindicated not by conservatives, but by some of the nation’s most progressive economists.
- On the subject of labor capture, it was every intellectual’s favorite union leader, Victor Gotbaum who lead New York City’s AFSCME District 37 who boasted in 1975: “We have the ability, in a sense, to elect our own boss.”
- It was the son of UAW leader Irving Bluestone, progressive economist Barry Bluestone, who demonstrated that between 2000 and 2008 the cost of state and local public services increased by 41% nationally, compared with 27% for comparable private services.
- It was pro-labor economist Richard Freeman at Harvard who concluded that ”public sector unions can be viewed as using their political power to raise demand for public services, as well as using their bargaining power to fight for higher wages.”
- And it was my fellow Clinton Administration Assistant Secretary of Labor Jack Donahue at Harvard whose most recent book concludes that public-employee unions have reduced government efficiency and responsiveness to the point that government work increasingly attracts those with limited skills and repels talent to the point of a significant “brain drain”.
(Credit for these examples goes to a nicely researched and well-written article by Daniel DiSalvo, an assistant professor of political science at the City College of New York).
The standard union defense to concerns about capture, is to point out that companies contribute money to government too. They do, and it can be a problem. But there are fundamental differences between the public and private sectors:
- Private sector unions rarely affect company strategy. But government employee union contracts deeply shape government policies by constraining what officials can or cannot do — regardless of voter mandates. The UFCW has little to say about meat-cutting reforms but even a cursory view of the role of teacher’s unions in education reform illustrates the power of a large block of unionized professionals outside the realm of bargaining.
- Private sector unions cannot donate money to a company it bargains with. It is flat illegal (you will sleep better knowing that this was one of the laws I enforced in the Labor Department). These contributions do not decide every issue, of course, but on average and over time, they matter enormously. Union leaders, among other things, enjoy virtually unrestricted access to local politicians. A convincing amount of political science research suggests that these contributions matter. And the appearance of a union “electing its own boss”, to say nothing of lobbying for extra work (yeah you, California prison guards) is utterly corrupt and lacking in even rudimentary checks and balances.
- Public unions, unlike private sector ones, are relatively free from market forces. Unless a union represents workers in a tight monopoly (the defense sector comes to mind), wage demands are tempered by market competition. But a government monopoly eliminates market pressure on public sector unions.
- Organizing private workers is very tough — an act of industrial combat. Organizing public employees, is much easier because management does not hit back. Likewise, private negotiations are conducted by managers who answer directly or indirectly to owners who are jealous of their capital. Public sector negotiations are conducted with managers who have no stake in where a contract settles and a high stake in preserving stability and avoiding a strike.
- Private sector companies fail all the time. Governments never fail. Private sector unions have to organize new members just to avoid falling behind because of this. Public sector workers once organized, stay organized. As a result, public-employee unions are able to devote much more resources to political organizing since the cost of acquiring a new member is so much lower.
Public union capture is a problem — and not a small one. Happily, it is a problem we solved seventy years ago when WPA funds were ending up in the hands of local politicians as “contributions” from employees who had been hired to work on WPA funded projects. The solution was the Hatch Act, which applies to federal employees but should be extended to all state, county, and city employees as well.
- The Hatch Act restricts federal employees from participating in partisan political campaigns. Federal employees may nonetheless register and vote as they choose, contribute money, register voters, express opinions about candidates and issues, and participate in campaigns where none of the candidates represent a political party. They can contribute money to political organizations or attend political fund raising functions, attend political rallies and meetings, join political clubs or parties, sign nominating petitions, and campaign for or against referendum questions, constitutional amendments, municipal ordinances. It effectively restricts employee unions as well.
- But under the Hatch Act federal employees may not be candidates for public office in partisan elections, campaign for or against a candidate or slate of candidates in partisan elections, make campaign speeches, collect contributions or sell tickets to political fund raising functions, distribute campaign material in partisan elections, organize or manage political rallies or meetings, hold office in political clubs or parties, circulate nominating petitions, work to register voters for one party only, or wear political buttons at work. These restrictions have been upheld repeatedly by the courts.
The Hatch Act is why you do not see Obama stickers on federal vehicles or Bush buttons on five star generals. The enforcement of the Hatch Act in the federal government is incredibly serious; violating it is usually a career-ending offense.
At the DOL, two OSHA employees once invited a candidate for Congress to tour their local offices (after Clinton had relaxed some of the more draconian provisions of the Hatch Act in 1993). The invitation was deemed a Hatch Act violation and the employees were forced to spend their savings on counsel to defend themselves. Many of us believed the enforcement overzealous; none of us doubted that it would seriously damage the careers of the individuals involved. I am sure that I had colleagues who would at that moment anyway, have favored repeal. In retrospect, I think that the nation is well served by the law, even if enforcement is sometimes overzealous.
The internet has made email, Tweeting, and blogging subject to Hatch Act enforcement. In one high-profile case, a NASA employee was suspended for 180 days without pay for sending political e-mail messages and using his blog to solicit campaign contributions during work hours. Active duty military are subject to similar restrictions, which is why – fortunately in my view — you do not have generals ordering their soldiers to campaign for the Presidential candidate they prefer. Teachers, cops, public nurses, or firefighters who are paid by taxpayers should live under the same restrictions – because public service requires abstinence from partisanship. Indeed, it is hard to explain why a provision that clearly solved a this problem seventy years ago has not been extended to local public employees.
Next: Can Unions Innovate?
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