He was right.

Bardacke, a respected labor activist and educator based in Watsonville California, was first mentioned in this blog six years ago in connection with his research on Cesar Chavez. Like Bill Gates and Mark Zuckerberg, he dropped out of Harvard after his freshman year and moved west to change the world. Unlike them, he joined the Berkeley Free Speech Movement and has had an abiding interest in radical politics ever since. In the early 70s, I traveled to China with Bardacke to get a first hand look at Mao’s proletarian dictatorship. Frank admired all things proletarian; I feared the dictators. Bardacke often views the world through a different template than I do, but I have learned a lot from him and continue to have enormous respect for his views.

Bardacke became a farmworker – one of a handful of Anglos and surely the only former Harvard student to work the celery fields. He became fluent in Spanish and formed friendships with many of the union staff and farmworkers who appear in his book. He spent more than a decade interviewing every major participant in the drama, reading every known book on the farmworkers and scouring every archive. He received help in managing this massive project from faculty in history and politics at nearby UC Santa Cruz.

The result, Trampling Out the Vintage: Cesar Chavez and the Two Souls of the United Farmworkers, is the most complete account yet of the rise and fall of the UFW. It is also an epic, Shakespearean drama with all of the elements of a Hollywood blockbuster. The pitch meeting would be surreal:

OK, picture this: we have a conservative Catholic who fasts and marches like he’s Ghandi. He courts progressive clerics and hires liberal Jews and alienated Anglos to mobilize immigrant Mexicans and Philipinos to fight Slavic and Italian growers. At first David slays Goliath, but then he morphs into King Lear and destroys his newly built kingdom amidst slaughter and recrimination. We’ve got side plot romances between devotees who work for $5/week and bad food trying to raise farmworker pay. We’ve got violent Teamster, UFW, and grower thugs straight out of the Sopranos. We’ve got a certifiably batshit human potential guru who wreaks havoc getting everyone to criticize everyone else. And under the carpet here somewhere, we may even have communists trying to advance a proletarian revolution without a proletariat. How can we miss?”

Astonishingly, it is a true story and Bardacke delivers it with intelligence and compassion. Unique among labor historians, he grounds his analysis in “the work itself”, with brilliant, memorable descriptions of how different stages of production for different crops in different regions of California all affect the ability and willingness of different crews to self organize. He describes clearly why organizing was often sustained by the tight-knit, highly skilled lechugeuros or the celery cutters, not the garlic or asparagus workers or those in ladder crops. He describes the skill and endurance that the work requires, introduces leaders that arise from various crews, and captures in fine detail how they interact with a union that was built on a very different set of principles from farm work. In a decade spent organizing waiters, housekeepers, nurses, bartenders, machinists, cannery workers, and assembly workers, I observed precisely these differences. The work itself shapes our propensity to organize. Bardacke is the first writer to apply this principle to the fields and he does so with a deep understanding and compassion for the work.

Bringing an existing union into a workplace is an act of industrial combat not for the faint of heart — but starting a new union from scratch is a herculean task that almost always fails.  I started a company that has lasted more than a decade, a public agency that lasted three years, and a union (United Espresso Workers – I was a bit early) that lasted all of three weeks. With the proud exception of the United Farmworkers, I cannot think of a single independent union formed in the United States in the past 50 years that was not sponsored and controlled by an incumbent union (I can think of several that tried and died – but none who made it).

This was not always true — new unions once spawned regularly in the US. There are many reasons for the change, but the lack of competition between unions has positioned them nicely for extinction. Organizations evolve through the mutation, variation, and selection that is always produced by competition. The labor movement stopped growing the instant the AFL joined with the CIO and prohibited unions from competing with each other. When two teachers unions competed, both grew. The instant the Teamsters stopped raiding the UFW, growth stopped. I hated the Teamsters (who were kicked out of the AFL-CIO for corruption and are not subject to the noncompete provisions) and I took a nasty beating from them once, but like sharks or wolves, they have their place in the ecosystem. (I am aware of no union leader who agrees with this view, by the way. Most feel that they have all the competition they can handle from employers).

But for a brief moment following the civil rights movement in the 1960s, a new labor union arose in the United States and in the least likely place. If you had asked in 1960 where in the economy a new union might appear, you would never have selected the farmworkers of California. Organizers prefer workers who are tied to one place and to one employer, not workers who are seasonal and often itinerant. Probably wrongly, organizers prefer workers who are covered by labor laws, which had always exempted farmworkers. Organizers like English-speaking Americans, not Tagalog or Spanish-speaking immigrants or Braceros who are tolerated for a season then ushered back to Mexico. A dozen or so failed efforts by farmworkers to form agricultural unions seemed to validate Marx and Lenin’s belief that workers would organize once they were forced into factories and worked for a single employer.

Bardacke demonstrates that Cesar Chavez succeeded in organizing farmworkers because he was, at heart, a brilliant and hard-working Alinksy-trained community organizer. As a community organizer, Chavez pioneered an enormous innovation that had the potential to transform labor organizing: he mastered the secondary boycott (illegal for most workers under the federal labor law, which thoughtfully excludes farmworkers). Chavez tirelessly organized enormous boycott operations in grapes, lettuce, and against major retailers including Safeway.

Farmworker boycotts were the Occupy movement of the 70s and 80s – a way for college students, community activists, and middle class young people to participate directly in the tough work of social change. And credit Chavez’s brilliant leadership, it worked magnificently: faced with effective boycotts, growers raised wages and improved working conditions and politicians begged the army of grass-roots Chavistas to help register voters and turn them out on election day. The UFW became a powerful force for social change.

But the UFW was only briefly a powerful labor union. Bardacke correctly diagnoses the boycott as creating a formidable tension within the UFW. He frames the tension between labor and boycott organizing as a struggle between the “two souls” of the UFW. The metaphor is fraught. As Bardacke demonstrates, the UFW collapses not because it has two souls, but because none of its activities were organized, financed, or led in a manner that enable them to grow. The problem is not that community organizing is a distraction – most American labor unions lack a community service organization and are much the weaker for it. This is tragic: having discovered and refined one of the few recent innovations in union organizing, Chavez cannot let it grow. Instead, he strangles his own child.

One of the heros of Bardacke’s book is Marshall Ganz, one of America’s most innovative labor organizers. Ganz also dropped out of Harvard, but moved south to organize for civil rights before heading west. After his exile from the UFW, Ganz helped the Silicon Valley Central Labor Council build a powerful neighborhood-based political organization for the 1984 elections. He was terrific at posing fundamental questions – and at directing me and others to writers and thinkers who helped answer them. In 1984 he urged me to read, of all things, a business book, In Search of Excellence. I quickly developed an appetite for business writing. decided to get trained in it, and ended up working with the book’s authors. Marshall returned to Harvard, got his degree after a 28 year hiatus, and now teaches at the Kennedy School. (His version of the UFW story, told in Why David Sometimes Wins, is a fine companion volume. It suffers for being his PhD dissertation and dwells more deeply on theories of organizing and less on the dynamics of local struggles).

So let’s ask a Marshall Ganz-like question: what does it take for an organization to grow successfully? Venture capitalists, a group not deeply concerned with the welfare of those who produce their salads, obsess about this question. There are at least as many answers as there are VCs, but common elements include:

• A big market. If there is not substantial demand for the product or service an organization produces, the organization cannot get very big.

• Positive unit economics. If serving one more person imposes more cost on the organization than it generates in revenue, then growth makes no economic sense and the organization will depend for growth on funding from charity or government. Anyone can sell a dime for a nickel; selling a nickel for a dime means that an organization has to add at least a nickel’s worth of value if it wants to grow.

• Customer or member acquisition costs that scale. Every organization has a cost of acquiring a customer that must be repaid over the lifetime of that customer or member. Smart organizations exhibit declining COA: the cost of acquiring each incremental customer declines with scale. Very smart organizations (and effective social movements) are viral: COA approaches zero as current participants recruit new ones. See Facebook, Google, or Arab Spring.

• Leadership. Growth is very, very demanding on an organization. Everyone in a fast-growing organization has to grow with it: jobs change radically every few months. Not everyone grows at the same pace, so leaders must recruit furiously, communicate direction and values continually, promote and replace people regularly, and test what works all the time. It is stressful and a lot of fun – ask anyone who has been involved in a fast-growing company, boycott, strike, or organizing campaign.

Back to the fields. Boycotts have completely different economics than labor organizations. Boycotts have huge markets: liberals eager to shop their conscience. Churches and colleges do the recruiting at very low cost to the boycott sponsors. Every convert adds more value (the grapes they don’t buy) than cost (the very low cost of volunteers leafleting).

Unions are different. The market for a membership organization of farmworkers is not small, but it is small enough that the UFW needed to capture almost all of it because, as Bardacke notes, organizing half an industry penalizes the organized growers. A union has a responsibility to organize the remaining growers and will frequently be cheered on quietly by those who have signed. More fundamentally, unions need to grow big enough to achieve minimum economic scale: they cannot fund the fixed cost of their operations if they are too small. Unions with fewer than a half a million members are nearly always too small to operate efficiently across the US (meaning that most unions in the United States waste money because they are too small). The UFW never had 100,000 members — although its field operations were mostly in California. Bardacke would counter that the democratic character of the union matters more than its size, which is true, but creating organizations that are not economically sustainable is a bad idea. Unions do this all the time.

Unions have a second problem, to which Chavez developed a unique but ultimately unworkable solution: the economics of labor organizing are often unattractive. Campaigns, negotiations, and strikes are expensive and uncertain of success. If unions file for elections on half of the campaigns they run, win half of the elections they file on, and negotiate contracts successfully 80 percent of the time, then every successful contract has to finance four unsuccessful campaigns and potentially a strike. If the campaigns and the negotiations are labor intensive and the union bears all of those costs, then the economics of organizing turn heavily on the cost and productivity of staff and on the cost and duration of strikes.

The Chavez solution to this dilemma was simple but utterly unsustainable: pump talented people through the organization. Those of us who worked boycott operations worked 14-16 hour days, often 7 days a week. We were paid $5/week and had to beg for donated food to eat. Once we were burned out, the UFW happily replaced us in a process Chavez once compared with pumping water. At any given time during large boycots, hundreds of young people slaved on the campaigns for months and sometimes years. Staff at headquarters (located in the small misnamed town of La Paz), were likewise furnished with living quarters, food, and a miniscule stipend. Chavez personally approved all expenses. From here, it looks like a cult – although from inside the cult, it looked like La Causa and stands today as some of the best work many of us ever did. Regardless of how it feels or looks however, and regardless of the ethics of exploiting volunteers on behalf of underpaid farmworkers, an organization without a core of talented, motivated leaders simply does not scale. Volunteers are not enough — and finding people like Marshall Ganz and Eliseo Medina to fight year after year for farmworkers without paying them even farmworker wages is simply unrealistic.

Bardacke does not go deeply into union economics in part because there is a much bigger tension restricting growth: a command and control organization. Chavez not only micromanages, but much worse, he prohibits local labor or boycott operations. Centrally led boycott operations could work: boycotts demand a consistent message and negotiations with a single adversary and since allied organizations delivered most of the volunteers with help from a skeletal UFW staff, there were relatively few local issues to resolve. But labor organizations are built in hundreds of unique workplaces. This is in part due to the work itself: the problems of lechugueros are simply not the same as tomato workers or lemon pickers. More important however, is that without elected reps, stewards, and ranch committee members, contract negotiations suffer because strike threats lose credibility. Without a credible strike threat, backed in this case by a credible boycott threat, growers rationally refuse to negotiate. Chavez tried to run the union from the top, like he built and ran the boycott. When George Meany and others derided the UFW as “not a real union”, they were wrong at the level of the fields. But in their description of La Paz, they were right.

Bardacke reveals Cesar Chavez to be a brilliant community organizer who campaigned for farmworkers but did not empower them. Bardacke plots the tragic trajectory of the UFW from an authentic movement led by a charismatic leader to one paralyzed by demoralized staff that could see no way to grow a union beyond the constraints imposed by its increasingly unstable founder. Chavez died afraid of his own organization, which he had shriveled into a family business devoted to nonprofit services, La Raza not La Causa, and promoting the Chavez legacy. The union was all but gone.

Bardacke masters an enormous amount of material to relate these events skillfully. He salts his prose with stories and characters straight out of Steinbeck. He rarely leaves the reader guessing about his point of view: Walter Reuther, the brilliant activist who built the United Auto Workers (and marched with Cesar in Delano) is a worthless hack because he voted against seating the Mississippi Freedom Delegation in 1964 and drove communists from the union. Those who cross the US border illegally are noble immigrants deserving of union embrace; those who cross picket lines legally are scabs deserving of UFW tire-slashing and intimidation (but not of UFW efforts to call La Migra and send the illegals among them home). Teamster and grower goons are thugs; Manual Chavez, designated hitter for his nonviolent cousin and other UFW punks are charming rogues who firebomb field sheds and beat their opponents. Those who seek to impose Synanon’s destructive ideology on the UFW are obviously crazy and should be driven from the union; those who seek to advance various communist or nationalist ideologies within the organization are dedicated activists who should be protected. Trampling Out the Vintage is a beautiful work despite these caricatures; it would be even stronger without them. It is a book that deserves a wider distribution and better copy editing than Verso, a niche left publisher, can provide. It would also be nice had Verso published the book electronically (then again, Frank confesses in the postscript that he composed the early chapters of the book on a typewriter!)

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Public employee unions are losing public support, at least in part because taxpayers are unwilling to grant civil servants wages, job security and retirement benefits that they no longer enjoy. Public support is not something that government employee unions take casually. It is literally their oxygen and they die quickly without it. 

Chronic, structural state and local budget shortfalls due in part to unfunded defined benefit pensions, mean that the challenges facing public unions are essentially permanent. Public unions will be tempted to see criticism and attacks as either the temporary product of tough economic times or simple anti-unionism. This would be a huge mistake: the landscape is changing fundamentally and public employee unions will either adapt or they will go the way of their private sector brethren.

What should public employee unions do? Unions are reactive organizations — their instinctive response to a crisis or to criticism is to curse the opposition and to seek comfort in the solidarity of victims. This wastes time. Instead, unions need to rebuild both membership and advocacy services on more solid footing.They need to build professional associations based on technologically enabled membership services. They need to focus advocacy efforts on the needs of private sector families, not their own members. To do this requires leaders focused on service innovation and talent development, not on the protection of an unstable status quo.

This is achievable — indeed many public sector unions have built prototypes. The unions that would emerge from these changes would be less dependent on collective bargaining, less dependent on unsustainable compensation, less committed to protecting the marginally competent and the malign in their ranks, and less focused on using political influence to advance the interest of members at the expense of citizens. Most importantly, these unions can regain the strong public support that is vital to their success.

Many and probably most public employee unions began as professional associations. The larger of the two teacher’s unions, the National Education Association, for example, grew largely by affiliating local associations of teachers. (Its rival, the AFT, embraced political action and collective bargaining from its earliest days and was the driving force behind the movement to universalize tenure in the 1930s).

These associations of county or city employees varied enormously in quality and impact. In most, membership was voluntary and the association rendered symbolic services that combined health care benefits, advocacy, and professional education benefits with discounts to Disneyland. Most regarded unions as too proletarian. The leaders of these associations tended to be genteel advocates, not firebrands. 

By the 1970s, most professional associations embraced collective bargaining and became labor unions. The combination of the guaranteed dues from union security provisions and the quick return on political investment from protected political funds persuaded teachers, nurses, and cops that “the union made them strong”. As state after state enabled collective bargaining in the 1960s and 70s, the economic logic of unionism overran all other considerations. I recall several professional associations growing from a staff of one or two to a staff of dozen or more people during this period. 

Public unions blossomed as industrial unionism peaked. Frequently public employees imitated their dying comrades in the private sector, encrusting rights, rules, and benefits in collective bargaining agreements lifted (occasionally verbatim) from auto and steel contracts. Interest in advancing individual professionals gave way to campaigns of solidarity. Interest in best professional practices yielded to large and sophisticated political operations, able to mobilize, elect, and lobby local and national Democrats. 

These changes made a great deal of sense at the time. I argued for them and helped them along. Looking back, I doubt that public unions would have grown as fast or as powerful any other way. But the move from professional association to labor organization was unquestionably a deal with the devil.  It’s a deal that public sector unions need to revisit in light of very changed circumstances.

The future of public sector unions is as professional associations, not as traditional labor unions. What would a modern professional association do and, as important, what would it refrain from doing? 

• Professional associations focus relentlessly on the continual training and credentialing of members. The certification and continual upgrading of professional skills provides valuable information to enable potential employers discern the highly qualified from the merely competent. Labor economists such as David Card at UC Berkeley have shown that credentialing can improve employee incomes as much as collective bargaining. (To be sure, training matters more than credentialing and “sheepskin effects” appear to be strongest in uncredentialed fields — but there are a lot of those and more each day, as anyone who has tried to hire a database administrator, an SEO specialist, or a BI programmer can quickly attest). 
• Members of professional associations should participate in hiring and firing. Serious professionals realize that the only way for a self-governing profession to increase increase the average competence of its members is to reward the best performers and replace the worst. Professional peers, not generalist managers, are best able to judge professional performance. (Indeed, the definition of a profession is that it regulates and regularly advances its own quality standards). Teachers, nurses, cops, and building inspectors would all be well served by participating directly in professional evaluations of their peers. Self governing professions weed their own gardens: architects, accountants, professors, consultants, and lawyers do not advance within their organizations except with the agreement of their highest achieving colleagues.
• Promote professionalism, not job security. Associations can serve as a check against capricious or arbitrary managers. Terminations need to be related to management initiatives, performance, or cause – not whistleblowing, union activity, or unwillingness to submit to an abusive boss. Anyone who thinks these issues never go on in public employment is naïve. Professional associations that expect forced turnover of 3-5% each year as a part of normal reorganization and performance improvement should have no trouble working with competent public sector managers and ensuring generous severance arrangements.
• Finally, professional associations need to promote self organization. An association of computer professionals will suddenly have a group of SysAdmins, which will spring a group of DBAs, which may spawn a group of XML professionals who work all day with APIs. It is simply not possible for the parent group to know or to define in advance which of these groups will get traction and which will not. That is why we have social media: for self organization, not as a megaphone to people under 30, which is what most unions use Facebook for today.

Evaluating professional performance takes real work and bears no resemblance at all to performance reviews as practiced in most organizations. It takes thinking, planning and time by people intimately familiar with your work. It is not at all unreasonable for evaluating and developing the performance of the people who work for you to take 10% of your time – that’s at least a half day a week, every week. Companies and professional service firms that devote this sort of time to evaluating and developing people make good decisions. Those who hack out a performance review by spending an hour a year on it reap what they sow.

Teacher evaluations are a good example. Teaching is hard work – and evaluating teachers is even harder. It is not possible to come to a final view of a teacher’s capabilities by simply analyzing student test scores. Which critical skills does a promising teacher lack? Can they acquire them? How? What personal qualities help this person’s teaching and which hinder it? Can they overcome their weaknesses? Can they modulate their strengths? Who, at the end of the day, are the outstanding teachers who deserve annual 15% pay increases? Who can develop teachers? Who are the ones stuck in the bottom quartile who should be glad to pursue another profession? Solid data is just the beginning of the conversation, not the end. Good evaluation takes thought, discussion, and judgement. It is never a perfect process — but so long as it is fact-based and not deeply political, it will work and have a huge impact on professional productivity and quality.  

Teachers unions or professional associations need to be deeply involved in this process and committed to it, not as a way to protect their members but as a way to advance the productivity, respect, and quality of their profession. If they do this, public support and higher earnings will follow.  

Professional associations should run online services to facilitate professional mobility and advance.

• Associations should run jobs boards. They should replace the moribund Craigslist, which is primitive, or they should aggregate dozens of different sites using simple APIs. This gives associations incredibly valuable information about regional labor markets and provides an opportunity to  engage members much deeply. 
• Professional associations can also help members to document their reputations, which in many professions matters more than certification – and reputations have moved online. But Facebook is too personal and LinkedIn too vapid to tell me anything about what you are really good at. Klout and PeerIndex are brilliant starts, but twittercentric. Xobni is a promising example (it is much more than an inbox tool) and there are others. 
• In doing this, professional associations can learn from unexpected sources. From the Girl Scouts, they can study a nonprofit that refocused its mission and the youth it chose to serve. From USAA, a financial services organization targeted at veterans, they can see a powerful example of ancillary services with world class customer service. From Groupon, they can learn the power of engaging members as consumers. From Hizbollah they can learn how even groups with noxious ideologies thrive if they provide convenient access to day care and health care. 

OK, maybe not Hizbollah, but you get the idea. It should become much easier to use “union” and “innovation” in the same sentence.

Public unions also need to rethink their political advocacy. They will not volunteer to be placed under Hatch Act restrictions, but it would do a lot to ensure their survival. Especially if, as professional associations, they took on social causes unrelated to the near term professional needs of their members. Teacher’s associations can (and sometimes do) campaign for healthy lunches. Cops can (and very often do) sponsor Youth Athletics. Nurses can teach kids about avoiding illness and injury. The point is to focus on the broa needs of constituents, of private sector families, and of the underserved — not on the narrow needs of members. Professionals engaged in public advocacy can be hugely effective and important — and effective advocacy can strengthen the standing of any association. 

At the same time, public unions need to advance the interests and raise the incomes of their members. Bargaining won’t be enough — or even a terribly useful way to achieve this. For the foreseeable future, public services will be under pressure to improve productivity and service delivery. Smart unions can contribute to this — and public unions are often very smart. 

A story from the private sector illustrates the challenge. A car plant that will remain unnamed had a really atrocious safety record. OK, it was a GM plant and I was advising management. The union bitched and grieved about safety, but accidents and injuries persisted. I met with hourly employees and union leaders and simply asked “what if the company turned responsibility for over safety to you?” It was the sort of question that often freaked union guys out because they are much more comfortable in opposition. Union leaders advance not due to their management skills, but due to their anti-management skills. Nonetheless, one influential shop steward finally said, “Bring it. Can’t get any worse.”

Results improved significantly (results always improve if you focus on something. A famous experiment once showed that just turning up lighting improved plant productivity. So did turning it down again.) The real impact in this case, was not just that accidents went down as the union focused on training, equipment, and redesigning dangerous practices. It was that the union decided to take responsibility for improving things, not just for grieving about them. Soon they were initiating quality improvements and asking to meet with designers about ideas for improving the cars (they had plenty — and they knew the cars sucked). GM closed the plant before anything really exciting happened, but it confirmed what every parent and most managers know: challenge complainers to solve the problem. They will either shut or focus on a solution. Either is fine.   

Can public employee unions advance the professionalism of their members? Not easily, and in candor, not likely. The major barrier is ideological: unions are spiritually attached to a dissipated legacy of labor solidarity that makes no sense at all in an information age. Power in public sector unions should stem not from collective action but from the talent, commitment, and professionalism of individual members. Public unions can and should certify skills or certify other groups that do so. Who says that you are qualified to administer a database or a water supply? We certify cops and nurses, but who certifies x-ray techs, foresters, or Spanish teachers beyond the schools that grant them diplomas? More importantly, which skills will be in short supply in three years, ten and twenty? How will we attract and develop outstanding teachers, nurses, and managers? How will we help people to have not one forty year career but four ten year careers — or ten four year ones? 

These and other questions raised by this series point the way to revitalized public sector unions. The need for these changes is clear and it is urgent. Whether unions can generate the leadership and vision required to navigate these changes is, however, far less certain.  

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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.

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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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Predictably, given the crisis in state and local budgets, rants against public sector unions are now kicking into gear. A recent editorial in the pro-labor New York Times is typical:  

“Last April, in the midst of one of the worst financial crises that New York and the nation have ever faced, the state’s unionized workers got a 4 percent pay raise that cost $400 million. It came on top of 3 percent raises in each of the previous three years. These raises were negotiated long before the recession began, by a Legislature that routinely gave in to unions that remain among the biggest political contributors in Albany.

“During the same period, many private-sector workers had their pay or hours cut. Private-sector wages in New York dropped nearly 9 percent in 2008. In 2009, Gov. David Paterson pleaded with the unions to give up the raises to help the state out of its crisis. Union leaders attacked him in corrosive television ads, and Mr. Paterson eventually caved, settling for an agreement that reduced pension payments to new employees.

“The deal wasn’t enough to address New York’s serious fiscal problems. The average salary for New York’s full-time state employees in 2009 (even before the last round of raises) was $63,382, well above the state’s average personal income that year of $46,957.

What is going on? Have unions driven up public worker pay? Not exactly.

To start with, nonunion as well as unionized government employees have enjoyed larger pay increases than the private sector increases, so it is hard to blame unions alone. 

Second, it turns out that even if you look at take home pay, not benefits or job security, that what public unions have done is to compress wage differentials. The lowest third of public employees earn higher pay and benefits than their private sector counterparts but the highest third (including managers not covered by union agreements) are paid less. This means we overpay secretaries and underpay managers. The former is not a huge problem, but the latter surely is, since what is most profoundly wrong with public services is largely a management responsibility. (Contrast this approach with Singapore, which runs one of the most efficient civil service systems on the planet. They recruit top management talent and pay some of them $2 million/year. My bet is that taxpayers are well served.)

Are public employees actually overpaid? The Economist equivocates, and not for the first time:

Economists still debate exactly what impact public-sector unions have on pay. Evidence from the American Bureau of Labour Statistics support the conservative argument that they have used their power to extract a wage premium: public-sector workers earn, on average, a third more than their private-sector counterparts. Left-leaning economists reply that public-sector workers are, on average, better educated. 

How can we tell whether public employee pay is high if benefits and job security are better but cash compensation varies? One way is to look at how often employees voluntarily quit. Don’t count people who are fired or who retire or transfer – just count folks who quit. After all, if people are underpaid, they’ll find a better job and leave. If they are not finding a better job and leaving, then considering the whole group and the different forms of compensation, they are overpaid.  

Fortunately the good folks at the BLS keep score. What do they tell us? Private sector workers quite three times more often than public sector workers do. You might think that this is fine, since turnover is expensive. (The Daily Kos makes this argument, but it is beside the point if you are trying to determine whether public employees are overpaid).

Of course, it would make sense to pay public employees more than private sector workers doing the same job if they were more productive. But it is not so simple to figure out whether they are or not. You can think about productivity as having two parts: hours worked and output per hour. We know that private sector employees on average work more hours. The BLS National Compensation Survey, private-sector employees worked an average of 2,050 hours in 2008, 12 percent more than the 1,825 hours worked by the average public-sector employee. 12 percent is a significant difference, even if these averages always conceal a bit of mischief. 

Comparing workers hour for hour, the best evidence that improving public sector productivity is a real opportunity comes from two sources. The first is McKinsey, the consulting firm whose research arm has done a great deal of research on labor productivity in sectors and countries around the world. McKinsey’s research suggests that: 

The private sector becomes more productive each year. Long term productivity increases in the private sector average 1.64 percent in the United States, 1.54 percent in the European Union, and up to 7.53 percent in developing economies such as China and India. Although figures for public sector productivity are notoriously difficult to come by because of the problem of quantifying outputs, research suggests that public sector productivity in large economies such as the United Kingdom and the United States is flat or even down and certainly below levels seen in the private sector.

The second source of information is the government itself. Peter Orsag, the talented technocrat who until recently ran Obama’s Office of Management and Budget, was rightly very focused on the gap in labor productivity with the private sector. 

Some of this increasing gap has to do with advances in management techniques in the private sector. Some, undoubtedly, has to do with the challenges the federal government has in attracting and hiring top talent…The average time it takes to hire a new federal employee is 140 days – and by that time, many of the best candidates, understandably, have gone elsewhere. But I believe that the biggest driver of this productivity divide is the information technology gap

Orszag offered some telling examples: IBM reduced the number of data centers it uses from 235 to 12, while Hewlett-Packard has consolidated 14 data centers into one, but since 1998, the number of federal government-operated data centers climbed from 432 to more than 1,100. Orszag also noted that “high-performing” private sector firms kill about one of three IT projects within their first six months. Uncle Sam, he asserted, rarely ends a single one.

Managing public sector productivity takes real effort and leadership to overcome the lack of competitive forces in government. Private sector businesses face constant pressure to improve productivity by reducing costs or improving output. Government agencies usually don’t. We need public services because private markets cannot provide public goods, including street cleaning, police, and a judicial system because of the free rider problem — but increasing pay without increasing productivity is economically and politically disastrous. 

Thinking about public sector pay as partly a productivity problem is helpful because it puts the challenge of public sector unions in perspective. Public employee pay and productivity are management responsibilities. What, exactly, do we pay public managers to do, if not to produce services cost effectively?

From this perspective, labor unions are like vendors. If you sell chain link fencing to the City Parks Department and the city pays you the price you propose, nobody would blame you. From this perspective, a city official who overpays for labor is no different from one who overpays for park fences. An overpaid union member, like an overpaid vendor, represents a management failure and the rare public employee who gots hired away because they found a better job who represents a union failure. That this rarely happens, tells you that public unions are better at their jobs than are public managers. 

The analogy is obviously fraught. Vendors do not enjoy a legally protected monopoly on their fences. A vendor, unlike a union, will not have a three year contract that accounts for 80% or more of all spending. Unlike unions, vendors cannot usually contribute enough money to local politicians to affect a purchasing decision (not unheard of, but not typical). Vendors cannot shut down city services if they don’t like the price. These are real issues, about which more next time.

But the larger point stands: every union agreement has two signatures on it and it is the job of public sector managers to produce effective services with limited budgets. Public sector managers frequently shrug, palms skyward, and blame union restrictions for inaction. 90% of the time, they are shirking their responsibilities. Blaming unions for high union pay lets city and state managers off the hook much too easily.  The compensation data say that we underpay for managers — it appears that taxpayers are getting what we pay for. Nowhere is this clearer than management reluctance to fire marginal public employees — our next topic.

Next The Price of Job Security

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What’s up with Wisconsin? Is the American labor movement finally rising from the dead? Will progressives in the birthplace of the Progressive Party defeat Republicans in the birthplace of the Republican Party?

Wisconsin is a misleading event because Republican overreach masks the real, even desperate, problems facing public employees.

• Public unions in many locations face legislation intended to destroy them. The attacks will succeed in some states — perhaps even in Wisconsin. But unions are well-equipped to deal with political attacks. Plus, as Wisconsin illustrates, politicians habitually over-reach. These things backfire.
• Every public union is now under massive economic pressure thanks to the math of budget deficits. This is a separate problem that fuels the political attacks. It’s urgent because most unions lack the tools and the imagination to address structural deficits in state and local governments and their contribution to those deficits is both nontrivial and politically damaging.
• Finally, public unions lack a sustainable strategy. Public employees depend on public support. But they sold their soul in the 60s when they chose politics and collective bargaining over service innovation and professionalism. They will be obliterated if they don’t rethink the deal.This is the most daunting challenge of all because it requires unions to rethink their purpose and redefine the source of their power — something that very few organizations can do successfully.

The Cheeseheads Fumble

Wisconsin Republicans are behaving badly and increasingly, the public knows it. The newly elected governor, Scott Walker, is turning out to be the gift to organized labor that keeps on giving. He has made at least three unforced, rookie errors:

• He ruined the optics by championing a self-serving proposal. Instead of proposing to weaken all public unions, he wants to exempt the firefighter’s and police unions that supported him. Since the public fears strikes by cops and firefighters more than by teachers or janitors, this is hopelessly back asswards.
• His timing is off. Walker attacked after unions had granted substantial economic concessions not before. He denied himself the cloak of economic crisis. Weak.
• His tactics are ham-fisted. By confronting unions directly, Walker played to their strength. American labor unions are born of industrial combat — confrontation is a core competence. Walker forgot what every third grader knows: don’t pick a fight with the big mean kid. Instead, put him in a round room and bet him he can’t find the nickel in the corner. Major fail.

Walker has botched not only his tactics, but along with most Republicans, his fundamental strategy is also a mess. Walker wants to cut off the air supply of public unions by removing union security and dues check off provisions and requiring annual recertification votes. Union security agreements address the free-rider problem that plagues organizations designed for collective action. These provisions require anyone who enjoys the benefits of a union contract to contribute to the costs of obtaining and enforcing the contract. Dues check off requires an employer to collect the dues via payroll withholding.

Walker fails to appreciate that what makes unions happy also make them fat. Union security provisions are like donuts: they satisfy an immediate craving but leave unions soft in the middle. When union members pay dues in person to a shop steward or at the union hall, unions get valuable first-hand information about their member’s concerns. The union becomes tightly woven into the fabric of work life. Once management automates the process, loyalty to the union weakens. But hey, those are some nice donuts…

I began organizing and representing public health care workers in the mid 1970s, when California did not permit either agency shop or union shop agreements in public hospitals. As a union representative, I had to collect dues on the job, which required me to organize and train a cadre of shop stewards to get it done. It forced me to visit all three shifts 2-3 times each week for every public hospital I represented. I got to know every workplace leader. If someone had questions about the union or a problem with it, I met them in person. I learned about workplace problems early (in a hospital in Salinas, I never filed a single grievance in two years. I knew every supervisor and could worked out quick solutions when I needed to – often before an employee had been disciplined or fired. Of course the threat of formal grievances helped). The point is not that I was always convincing – it’s that I was never indifferent. Frankly, I couldn’t afford to be.

In the late seventies, California law changed and we negotiated union security and dues check off provisions. Soon, I knew the shop stewards but not the shop floor leaders. I cut back on late night and early morning visits. The union felt stronger because it was richer– but we had been weakened and we knew it. One sign: a backlog of grievances.

Employers, notably those affiliated with the National “Right to Work” Committee think that taking donuts away makes unions weaker. They look at states that prohibit union security arrangements and see weaker unions. They conclude that imitating these states, as Wisconsin is basically proposing to do, would weaken their unions. And in the short term, they are surely right. Sugar cravings are a bitch.

But in the long term, Republicans would be smart to remember that every truly powerful union in American history was built without union security or dues check-off. The railroad, steel, mining, auto, shipping, and textile unions that could and did paralyze national commerce were built by hand, without the help of friendly HR staff who signed up members as part of the employment paperwork. Republicans who want their unions unsweetened risk seeing them mutate like a zombie virus. Unions may die or they may go the gym and come back ten times stronger, especially any place they enjoy a steady diet of arbitrary management. Which is to say, everywhere.

During my health care days, there was one CEO we feared more than any other -- a guy who achieved astonishing clinical and cost results by applying management principles to hospital operations. He didn’t fight unions so much as he focused them on improving patient outcomes. His hospitals were very tough to organize because he fired arrogant managers and listened to his people. Unions were delighted when this guy got caught in the largest Medicare fraud scandal in US history.

That CEO, Rick Scott of Columbia HCA, is now the governor of Florida. He thinks he is CEO of Florida, but he knows better than to do things that strengthen his unions. He cannot put enough distance between his state and Wisconsin. What Rick Scott and other politicians much smarter than Scott Walker know is that if you hate unions, grant them security provisions and dues checkoff. Don’t take away the donuts — they are a proven sedative.

Indeed, if Republicans want to lower the cost of government, they should look as we will now, to those responsible for controlling costs: public sector managers.

Next: Management Malpractice and High Union Pay

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Obama this week announced an effort to hunt and destroy stupid federal programs. As he well knows, these programs are easy to find but tough to kill. I learned this when I was put in charge of a really stupid federal program. I got agreement at the highest levels of government to kill it. The program is still alive.

The year was 1993 and Bill Clinton had named Vice President Al Gore to chair a federal task force on Reinventing Government. This was, by some counts anyway, the eleventh such federal task force in the twentieth century. Gore created the Hammer Award to recognize government efficiency. He would send a $6 hammer, a striped ribbon and an aluminum-framed note to recipients. The award parodied the Pentagon’s infamous alleged $436 hammer.

Better if Gore had bought six hammer and a sack and given awards to programs that were dumber than a bag of hammers but Gore, like Clinton and Obama, has a core belief that government programs could be made efficient. Personally, I think there are plenty of government programs whose value exceeds their cost and a whole lot that don’t. The task of killing terminating inefficient programs is something that few democracies are good at – and when they are, it is usually because they resort to extra-legislative processes, like military base closure commissions or the Texas Sunset Commission.

At this time, I had started a new federal agency in the Labor Department and some of my colleagues had generously contributed to my new enterprise by transferring to me all manner of federal detritus. At senior levels of government, that’s how you get stuff off your shoe — you give it to the new guy. One of the programs transferred to my benevolent care was known simply as 13(c). The program had a total of thirteen employees — who turned out to be wonderful, dedicated people (the Federal Transportation Administration provides a detailed analysis of 13(c) here and the public comments on the DOL revisions to the law appear here).  

At first, I did not pay much attention to 13(c). It was a small team whose job was to approve the release of federal transit funds. But on January 17, 1994, I suddenly learned a great deal about this small program. 

On that day, a thrust fault ruptured in the San Fernando Valley of Los Angeles at 4:30 am. It produced the highest ground acceleration ever recorded by seismic instruments. Thirty people were killed immediately and another thirty died in the hours and days that followed. More than 9,000 people were injured. The Northridge quake destroyed parts of Interstate 5, California’s aorta as well as the Antelope Valley Freeway. Within a day or two, the new President and several of his cabinet secretaries, including my boss at Labor, were on their way to Southern California to provide tangible federal support for rescue and reconstruction.

But a day before the trip, the Deputy Secretary told me that the US government could not release emergency transit funds because Section 13(c) approvals were still pending. Those funds were now needed immediately because Los Angeles suddenly needed hundreds of busses and vans to create new transit arrangements. I needed to understand 13(c) in detail. To quote the DOL website

“This Federal statute requires that employee protections, commonly referred to as “protective arrangements” or “Section 13(c) arrangements” must be certified by the Department of Labor and in place, before Federal transit funds can be released to a mass transit provider.

Meaning that the United States Department of Labor must certify in writing that no employee will be inconvenienced by federal transit spending as a condition of the release of the funds. I immediately met with the woman who ran 13(c), an experienced and smart federal professional. 

“How much transit money are we holding for Southern California?”

“We don’t know”

“You need to find out”

“We have no way to find out”

“OK, bring me the files on every single federal transit program in Southern California. I am good at addition.”

“We can’t do that. The files are not organized that way.”

“Then go through every single file and pull all projects that take place in Southern California. Bring the files to me. I am releasing all the funds.”

“You can’t do that”

“Why not?”

“Because we have not certified that these projects meet the necessary protective arrangements”

“It’s true that you have not certified them. Which is why I am going to certify them. All of them. Stupid in normal times is expensive and inconvenient — but stupid in an emergency is dangerous. Bring me those files.”

“We cannot get started until morning”

“Absolutely not. This team stays in this building until those files are on my desk. All night is no problem — I’ll order pizza and come up and help”

I had the files by 10pm, I signed my name to a zillion forms and funds were released to Los Angeles. Better, certainly from my view anyway, 13(c) stayed out of the newspapers (something it is fairly good at). Not a single worker ever complained – indeed rebuilding LA created a lot of good jobs. 

By spring of 1994, Gore was in full search for needless federal programs to kill, so I quickly nominated 13(c). In no other part of government do we protect workers by witholding federal funds. Not for the military, for health care, for agriculture, or for any of the zillions other federal expenses. Why impede transit spending this way? This program was very small (we could easily redeploy the staff to more productive programs), it was unbelievably rigid (it added months or even years to federal transit funding), it had few supporters, and it had recently demonstrated its potential to endanger federal emergency response. What could be easier?

Gore knew about the program (the level of detail about tiny federal programs commanded by professional politicians always astonishes me). He wanted to make sure that Congress would support killing it. “You need to make sure Norm Mineta is on board“. Norm Mineta chaired the House Committee on Transportation and, by accident, was someone I had known for a long time, since I worked on his campaign when he was my Congressman from San Jose. Also, he and I took the red-eye from San Francisco to DC each week. Easy. 

Mineta: “13(c) is a relic. Love to kill it. Tell Secretary Reich and Gore that I’m fine letting it go. But you should probably check with OMB.” 

The Office of Management and Budget was run by Leon Panetta, a former Congressman that I remembered from when he was a Republican. Most Sunday nights, Panetta was on the same flight. He agreed that 13c was moronic (not his term) and was surprised that it was still around.  He had no problem killing 13(c).

We were ready to go. The executive and legislative branches of a powerful government would soon rid itself of this pimple on the body politic.

It never happened. The United States Department of Labor still enforces section 13(c) of the Federal Transit Law, even though the statute is now located at Section 5333(b) of Title 49 of the U.S. Code. It is a tiny, trivial program — but it delays hundreds of millions of transit dollars each year and adds millions of dollars of cost to these programs — and no value. 

Obama wants dumb federal programs to kill? Here is a tiny, stupid program without an advocate in the world outside of politically impotent transit unions. Transit professionals throughout the land despise 13(c) — I literally have found nobody who has ever seriously defended it (including, truth be told, many of the program’s own staff). But the political work to terminate even small, useless programs is enormous and the payoff is tiny. The political calculus has not changed in the five hundred years since Machiavelli advised his Prince on the danger of political reform: 

“…there is nothing more difficult to carry out nor more doubtful of success nor more dangerous to handle than to initiate a new order of things; for the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order; this lukewarmness arising partly from the incredulity of mankind who does not truly believe in anything new until they actually have experience of it.

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NUMBER OF EMPLOYEES WITH COLLEGE DEGREES

What is going on? Conservative economists have pounced: we are educating people for jobs that do not and will not exist. This is obviously a mad subsidy of the education monopolists by precious federal tax dollars.  Well, they may have a point. Why invest in a college education for someone who doesn’t need it? Indeed, if 17 million people have degrees but work in jobs that do not require them, were these individuals not defrauded?

The core of the economic argument is that the marginal value of a college degree and the average value are diverging sharply. On average, college degrees confer better jobs and higher earnings, so public policy and private preferences tend to urge kids towards college. But many perfectly decent (and in some cases perfectly vacant) jobs do not require college degrees. In a recession especially, some of those jobs are filled by people who are overqualified. 

In tighter labor markets however, you might get a different story. You might discover that a fair share of waiters, laborers, janitors, truck drivers, food preparation workers, and hotel desk clerks are recent graduates with no intention of turning their current job into a career. It ain’t evidence, but I held each of these jobs as a college graduate and many others not on the list. It didn’t kill me and probably made me a better leader when those opportunities came my way. Customer Service Reps often move into marketing and other jobs in their company — and there is a strong case that every manager should spend time as a CSR.

You also might learn that college grads hold some of these jobs because, shocking though it will be to economists to learn this, they are not maximizing their earnings. The reason that a quarter of all “Amusement and Recreation Attendants” have college degrees is almost surely that they like working at resorts. The economy is full of surf, ski, and scuba instructors with college degrees. There are days when many of us would gladly trade places with them. Flight attendants may relish an opportunity to travel. Parents may need jobs that give them flexible schedules. In short, the economics of the marginal employment decision may not reflect the average any better than the quality of the marginal college degree does. 

Then there is the question of whether education is an investment or an expensive act of personal consumption. Surely many people think of it as an investment. To the extent they do, professors should worry if returns on educational investments decline and/or the number of investors declines for demographic reasons. On the other hand, it may be that education is actually a consumer good with lasting benefits. Thinking about it this way has benefits. Economists may have trouble measuring it, but most people understand that education may be overconsumed — but it is rarely wasted. 

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We organized the local in Santa Cruz in 1976, when Tom Scribner still graced the Pacific Garden Mall with his musical saw and tales of the great Wobblie timber strikes.

Local One did not last long. The employer busted the union faster than you could say macchiato. When he couldn’t figure out who the instigator was, he just fired everybody.

Since I had organized unions at several local restaurants for the hopelessly capitalist Hotel Restaurant Workers union, I served as a clandestine adviser to the effort. It was not surprising that the employer could not finger the instigator — a Zonker Harris look-alike barista named Scott. The lockout and raucous picketing that followed gave the dozen workers more circus than bread – and quickly doubled the business of the tiny café behind Bookshop Santa Cruz.

Federal law then as now prohibits the boss from firing employees for trying to organize a union. If this law were actually enforced, every slacker about to get the sack might quickly start passing out union cards. The law has never been well-enforced — but it should be.

For years, organizing a union has been an excellent way to get fired. Employers flout the law and fire about one organizer in four. In traditionally nonunion industries your odds of getting canned for organizing a union approach 100%. Even when they don’t fire organizers, managers pay employees to attend mandatory indoctrination sessions and require supervisors to meet one-on-one to determine each employee’s union sympathy. This is where the real coercion happens. Companies hire lawyers and campaign specialists who can easily drag representation campaigns out for months.

It works. Although most unions will not petition the government for an election unless they have the support of 60-70% of the workforce, by the time the election comes around, the employer usually wins. And even when unions win a certification election, 40% of the time they are not able to bargain a first contract. Today only 12.4 percent of all workers and 7.6 percent of private sector workers belong to unions – a lower share of the private sector than when FDR signed the Wagner Act in 1935.

Unions have long believed that they could start growing again if only they could protect sympathetic employees from being fired and get the government to impose a first contract with binding arbitration. Now that Democrats are running the federal government, the Employee Free Choice Act (EFCA) is working its way through the US Senate (it passed the House last March). During the next month, you are going to hear a LOT about EFCA – this will be an epic and nasty political fight.

EFCA: A FLAWED SOLUTION TO A REAL PROBLEM

Plain and simple, EFCA makes it easier to organize a labor union. It imposes serious penalties for firing organizers, allows the government to certify unions by petition instead of election, and mandates binding arbitration so that employees who petition for a union are guaranteed a contract. The politics of the bill are clear: unions and their supporters love EFCA. If you dislike unions, you hate it.

The politicized part of the business world has worked itself into a class fever over the legislation. Home Depot co-founder Bernie Marcus termed EFCA “the demise of a civilization”. (This from the guy who wrote a $210 million severance check to Home Depot CEO and Bush buddy Bob Nardelli, who then turned up as CEO at all-union Chrysler. One can but wish that EFCA would end “civilization” as Bernie Marcus knows it.)

As a union organizer who became a business guy, I start with a fundamental sympathy for EFCA because I dislike the growth of income inequality in the United States. Many social problems would be less acute if the bottom third of the income distribution made more money, got better benefits, and enjoyed more protection at work. Unions can arguably help achieve this.

But EFCA is deeply flawed. It gives workers less power, not more. It facilitates 19th century unionism but does nothing to promote or even reflect the reality of modern work. It gives unions no incentive to modernize. EFCA is a long way from the end of civilization, but we can and should do a lot better. Since most progressives favor EFCA, lemme ‘splain.

Although this bill is being voted on as a referendum on unions, that is not the issue for most Americans. Of course managers dislike labor unions just like the President wishes Congress and the courts would go away. Power, like dessert, is more enjoyable if you don’t have to share. That is an issue here, but it’s not the main issue.

The main issue is what kind of labor unions we want and how our laws can empower employees with real decisions, not satisfy the desires of bosses or union flacks.

EFCA gives workers less power and exposes the union certification process to corruption. A bit of history makes this clear. As noted here, the United States did not adopt secret ballots in public elections until 1908. Before that, your vote was public and could therefore be purchased. The market for votes required transparency, so that when I paid for your vote, I could make sure that I got it. Secret ballots all but shut down the market for votes (it became a market for politicians – a longer story). Once I have no way of knowing whether I am getting what I pay for, I’m a fool to pay.

Would unions pay people to sign certification petitions? Sure, some would (and I speak as a former federal enforcer of union election laws). Others rely on peer pressure – or the simple desire to get me off of your doorstep because the soup is boiling and the baby is crying. I got hundreds of union cards signed when I did this for a living a quarter century ago. I am quite sure that I did not get as many votes as I got signatures. Nobody ever does.

Petitions are simply not elections. I would not tolerate my mayor or my Congressman being selected based on how many signatures he or she gathered. A fair, open contest, a strong clash of ideas and an honest, secret ballot vote is better. This is why once America tried the “Australian ballot”, as the secret ballot was called when first introduced, we never went back. Nobody ever does.

Elections confer much more legitimacy than petitions. A union that wins a secret ballot election arrives at the bargaining table with real authority and credibility. A union certified by petition will have less bargaining power. Under EFCA, unions have a less incentive to bargain, since the failure to reach an agreement entitles the government to impose one. Under EFCA, weakened union legitimacy will lead to a large share of first contracts being imposed by arbitrators.

At which point EFCA denies workers a second democratic election (and even my union pals are often surprised to learn this). After a union wins an election, workers pick a small team (typically the activists) to join the union rep and bargain a contract with the employer. If they get a contract, workers vote on it. This ratification vote is not required by law but is almost universal. Since local union leaders are nearly always elected, it is also good politics. Ratification votes are not trivial or simple. They keep the bargaining committee and the process honest.

But EFCA removes the ratification vote by mandating binding arbitration after 90 days of bargaining and a bit of mediation. An arbitrator shows up and decides what is in the contract and what is not. This arbitration is not only arbitrary, it is a huge change. It replaces a system built on a deal between private parties with a government-backed mandate from someone with no knowledge of the business or the workforce. Collective bargaining may be a shopworn tool, but it is built on mutual consent and a modicum of democracy. It never forces parties into a deal they find unworkable. Binding arbitration can and does. And workers do not get to vote on the contract that results. They just live with it, as does the company. The only party guaranteed to benefit from binding arbitration is the union itself.

PROTECTING EMPLOYEE RIGHTS

EFCA is a flawed way to make the unions we have now easier to organize. But the folks down at the union hall are right when they argue that the current system is broken and unfair. Here is a better answer: create a truly level playing field. EFCA should mandate:

• Fast elections. A secret ballot election would be held within two weeks of the filing of a certification petition with the NLRB (the government agency that oversees these things). Elections today take about eight weeks and some much longer. Mandate that the hearings that delay elections be held afterward. Making the election speedy means a lot less tension and divisiveness at work. Fast is not always fair, but slow is nearly always unfair. (By the way, when employees petition to decertify a union, the election would be handled just as quickly. What’s sauce for the goose…). Is this practical? Former NLRB Chair and Stanford Law professor Bill Gould says yes.

• Shared access to employees and information. All meetings on the subject of unionization – either group or a one-on-one meetings, would be attended by both union representatives and managers, who would get equal time. Worker contact information, phone numbers and emails would be shared and protected. We can and should mandate a level playing field.

• Mediation, not arbitration. Collective bargaining needs to remain private and workers need to be able to vote to approve or reject their contract. Mediation is a proven approach to bridging differences (as are strikes or lockouts if it comes to that). Any solution agreed to by the two parties will be better over the long term than one imposed by an outsider (whether the outsider is public or private is not the issue).

• Severe penalties for firing union activists. EFCA gets this part right. This is exactly the sort of abuse of power that causes workers to organize unions in the first place.

This modified EFCA would address union concerns and make it much easier for workers to organize traditional labor unions.

Who would take advantage of this new law? What problem do workers want to solve when they organize unions in the first place? Many managers assume that the issue is money and benefits. But everybody wants more pay and not everybody organizes a union. Money plays a role, but my experience is that workers organize unions to punish arrogant managers.
Norma Rae stood on her chair because her bosses were flaming @$$hole$.

If you are a manager and your workforce organizes a labor union, you either richly deserve it or, like liberal Democrat Michael Powell in Portland, you hired too many sociology majors with dreams of proletarian paradise. Either way, the big bookstore in Portland got work rules and a three step grievance procedure. And maybe a better health plan, which ain’t nothin’.

Unions believe that but for lawbreaking bosses, workers would flock to join. It has to be true that if employers did not flagrantly violate the law, unions would win more elections. For this reason alone, it makes sense to either increase penalties.

On the other hand, many workers do not buy what unions want to sell. Last I looked, if unions had won every certification election they petitioned for and bargained a successful contract, they would not have significantly increased their share of the US workforce (of course their share would not have declined as fast). Union leaders and Congressional Democrats often cite a 2005 Peter Hart survey commissioned by the AFL-CIO but never published that allegedly concluded that 53 percent of non-union workers, or 57 million workers,
would like to belong to a union. Another poll by Opinion Research Corp showed 82 percent of non-union workers do not want their workplace to be organized. Who is right? My guess if demand for unions is the product of management arrogance, there is little danger that it will dry up but that unless unions modernize, they will be seen as a good solution by an ever smaller share of the US workforce.

Just ask what do unions offer the great majority of people who work for decent managers? Less than they should. EFCA reinforces a model of unions born of industrial combat. And workers who are desperate enough to need a powerful weapon find that a strong union fits the bill nicely (one of the reasons that workers historically found it in their interest to tolerate thuggish unions was that they were extremely handy when you had to combat thuggish managers). What incentives does EFCA provide for unions to grow into the modern age? None that I can see. 

REVITALIZING UNIONS

Unions can make a huge difference in low skill, low pay industries – even if most of those industries are shrinking and the lowest skill jobs are increasingly done by immigrants. But why embrace an industrial relations framework that addresses the needs only of the desperate and the victimized? Why apply 1935 era collective bargaining to the 21st century world of work?

Collective bargaining was designed for an economy of large, stable, industrial enterprises in a world with hardly any local competition — much less competition that is intense and global. Collective action made sense when people rarely changed jobs, markets did not penalize lousy employers, and huge workforces had modest skills and little mobility. But the industries, jobs, skills, opportunities, and threats facing American workers today are radically different.

• People have dozens of jobs over the course of a lifetime – so a system of bargaining that ties rights and benefits to seniority make no sense. But privileging seniority is the throbbing core of most labor agreements.

• For many people it is easier to change jobs than to organize against an arrogant boss and in some industries, it’s easier to penalize a boss by leaving than by organizing. Collective bargaining imagines that the only professional relationship that matters to people is with their employer. For many people, their profession or even their region matter as much or more.

• Since 1935, women have not only joined the workforce, but they are increasingly acquiring more skills than men (57% of college students are now women — and they get better grades and are more likely to graduate). The most encrusted unions remain heavily male (definitely not true of the unions that are growing, mostly in the public and service sectors).

• The average employer is much smaller and competes hard for business. Many cannot afford health or retirement plans. Very few are unionized or can tolerate being unionized. Collective bargaining exists in the dinosaur sector of the economy — large, traditional industries and the public sector (our largest, most traditional industry).

Even though the macroeconomics of the moment are more like 1935 than we’d like, the structure of the American economy and the needs of the American worker are very unlikely to be met by laws that reinforce a 1935 industrial relations framework. I earlier argued that unions would do well to add some new tools to their tool kit. What are these tools and what might they mean for EFCA?

EFCA should promote voluntary professional associations as well as collective bargaining. These associations make a lot more sense than traditional labor unions in an economy where manual, sales, and clerical jobs have declined for decades and professional and managerial jobs have grown. EFCA should encourage and even fund professional associations.

Most would have nothing to do with collective bargaining and everything to do with shaping collective professional identity. Would they raise living standards? Sure, because professional associations are a good way to promote licensure.

Why promote licensing? Because licensed professionals earn more money. Employers need to know what you are good at. If they don’t, they get paid to take the risk of finding out. Alan Krueger, who is about to be confirmed as Assistant Treasury Secretary for Economic Policy, recently published research showing that licensure increases wages by about 15% – or roughly the same amount that unions do (and if you factor in the difficulties of comparing union and nonunion wages, there is a good argument that licensure effects are actually stronger). There are different kinds of licensure and they have different effects, but in general it helps workers and managers both if skills are certified.

A dental hygenist is certified. Some but not most database administrators are certified by software companies. Who certifies taxi drivers, graphic artists, or credit analysts? Who gathers regional wage and benefit data and shares it with employers of day care workers, chefs, college counselors, or graphic artists? Professional associations do this. Extending the reach of professional associations and private licensure should be a top priority of policy makers who care about increasing income equality.

Of course the definition of a profession constantly evolves. About 70% of what we spend money on did not exist a hundred years ago — so neither did the jobs to design, make, or service it. Many people have jobs that did not exist for their parents and almost everybody does a job that did not exist at the time of the Civil War. As recently as 1980, nobody designed, sold, or serviced websites, GPS devices, or cell phone towers. Nor did they perform Lasik surgery. But government does not need to decide professional boundaries because most professions self organize. Baristas, cosmetologists, and dry cleaning employees use meetup.org, Facebook, or MySpace to define and advance shared interests. Much of this takes place with no federal help at all and none is needed. But it shows that most “organizing” at work already takes place outside of collective bargaining.

Unions should promote professional associations (historically, a few unions have done this and it has often worked well). Unions can provide workers with many services outside the framework of collective bargaining. They can advocate financially for workers during restructuring and M&A transactions.

Unions should compete with Craigslist by creating powerful online employment agencies. Some of this is happening in fits and starts. According to the Economist, the entrepreneurial Freelancers Union is now America’s fastest-growing. They address

“..the practical needs of independent workers, who now account
for around one-third of the workforce. Over the past six months,
membership growth has jumped from 2,000 to 3,000 a month, and it now
has over 100,000 members.

The nature of their work means the union does not get involved in collective bargaining. Instead, it provides a marketplace for freelance jobs, cheaper health-care insurance (through a for-profit insurance company it has created), and political activism on behalf of its members. A notable success was to convince New York’s mayor, Michael Bloomberg, to reduce taxes on freelance work.”

Similar initiatives are not hard to imagine nor are they expensive or difficult to execute. Unions could enable their members to review their bosses and to document each other’s skills and achievements. But unions need they capabilities beyond the standard 1930’s one-two punch of collective bargaining and political action.

Unions are not likely to do this unless legislation like EFCA stops protecting them from the consequences of their insularity. Current laws do unions no favor by protecting them from competition (I have often wondered if the legislators who designed our labor laws secretly wanted to produce moribund labor organizations). Like any organization (say, public schools), unions will stagnate if there is no reward for innovation or penalty for failing to adapt. In fairness, some unions have been extremely innovative — I have blogged about Andy Stern and the Service Employees, Leo Gerard and Ron Bloom and the Steelworkers, and a handful of others. But many labor organizations remain frozen in time, protected from competition because federal law gives them monopoly bargaining rights and allows them to form cartels to not compete with each other for members. The result, is weaker, dumber unions that serve the nation poorly. Force unions to compete and innovate by repealing the laws that give them monopoly protection and free choice for employees will become more than a legislative slogan.

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Ron is a bankrutpcy rock star who works out of a union office not a Wall Street highrise. He has jumped into some 50 bankruptcies in the past 20 years and he is very good at it. (And I take nothing from Diana Farrell who, with her McKinsey colleagues, has done some pathbreaking work on global productivity).

Ron and I worked together for almost a year to turn around Algoma Steel (McKinsey was on the other side of the table). Ron did an amazing job — he is a superb financial analyst, a strong and creative bargainer, and able to find deals in places where deals are very hard to find. He is smart, funny, and mildly profane — my kind of guy.

After Algoma, Ron went on the staff of the Steelworkers, where he has done more than anyone to help create a competitive US Steel industry. When Ron joined Leo Gerard, the tough and slightly crazy Canadian who had just been elected USWA President, the Autoworkers were twice as big as the Steelworkers. Today, the United Steelworkers are larger and a good bit of that that is due to Ron (and to Leo's courageous decision to put up with a Harvard trained investment banker on his staff).

 Can Bloom work his magic on the auto companies? As an economic matter, the patients require massive and painful surgery. This is why we have bankruptcy proceedings. In bankruptcy, the shareholders and most creditors are wiped out. Labor, dealer, and supplier contracts are restructured, assets liquidated, new lines of credit negotiated, new management brought in, etc. It is tough work that tests not just the patience but the values of the people who do it. Whether bankruptcy is the right tool for restructuring auto companies and if so, what flavor of bankruptcy works best has become a pundit's parlor game. The patients, meanwhile, are declining quickly.

Three challenges make Ron Bloom's task unusually tough.

First, Ron has the curse of the federal treasury behind him. Companies on public life support frequently conclude that federal money is really nice. Restructuring becomes a game of political chicken: the President will not let GM fail, so GM doesn't take the really painful steps it needs to succeed. 

Chrysler is not the problem — it looks utterly hopeless. Ford is not the problem, since at present anyway it prefers to sip its bailout funds, not gulp them. The big risk is that GM becomes like many banks — a federally subsidized zombie who cannot live and cannot die. A federal bail out may be perfectly good policy in a recession and bankruptcy may actually be as unworkable as some in the auto industry assert, but a credible death threat always helps a tough restructuring. Stern lectures from Congress just don't count.

Second, the car business is massive, slow, and complex. Cars are regulated fashion goods with integrated and sometimes fragile supply chains. They have highly politicized workforces and distribution channels. They are culturally and politically iconic. They are not a global commodity like steel or a fungible service like airlines.

Auto makers live and die with new products, which take years and billions to develop. If you managed to eliminate chronic legacy costs and operational inefficiencies, you still have a product development pipeline that is 2-3 years long with a tendency to produce Hummers (exciting, impractical, expensive), Saturns (dull, practical, cheap), and Volts (exciting in theory, impractical in practice, and expensive). To fix this industry is not simply a matter of quickly reengineering very complex balance
sheets. It requires a long-term product strategy against large, efficient global competitors. It is a very tall order and not one that the US Treasury Department is ideally equipped to handle.

Finally, in bankruptcy creditors compete with each other but in bailouts the healthy compete with the sick for public money. In other words, transplants want and arguably deserve a piece of whatever bailout money Congress puts up. The 19 transplants employ tens of thousands of Americans to produce cars that consumers often prefer to Big Three models. They will understandably resist the use of public funds to strengthen their half-witted competitors. This is a huge factor in the Senate already and will become an even bigger factor over the next 12 months.

Paradoxically, the Big Three will probably address this by doubling down — gambling that taxpayers will commit more money to a complete transformation of the car industry if it involved a transition to high mileage vehicles
and alternative fuels. This, of course, makes the restructuring climb even steeper and asks Americans to trust in managers who have spent decades fighting against change, not for it.

So on balance, I don't like Ron's odds and if the economy turns I am likely to question the mission. That all said, I would never bet against him.

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