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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Why ask them to swap when both Clinton and Biden are by all accounts doing a great job? Mainly because it would revitalize and unify the Democratic ticket, which will face a formidable opposition, contrary to popular wisdom. I don’t know whether the Republicans will nominate Perry or Romney, but I have a pretty good idea of who the short list for VP will be — and Sarah Palin and Michelle Bachman don’t need to wait by the phone.

The strongest VP candidates for Perry or Romney are David Petraeus and Mario Rubio. Petraeus is unlikely to do it. He is a Rockefeller Republican, who Romney could not appoint. He just began a job running the CIA, which takes him out of domestic politics. I hope. He is not Tea Party certified and while he clearly brings huge strengths to any ticket, is not an experienced campaigner (military campaigns don’t count, although the differences are fewer than many realize).

Rubio is a different matter entirely. He is young, son of Cuban exiles, the politically savvy former Speaker of the Florida House, telegenic, and a Senator from a battleground state. He is fully credentialed by the TP crowd. A Romney – Rubio ticket will begin with massive strength in the south and will be very tough to beat in Florida. Romney will play well in the Midwest, where his father was a popular governor, and to conservative parts of New England. Rubio would energize Hispanic voters and extend the Republican base beyond the rich, the pugnacious, and the certifiably looney. It would be a tough ticket to beat — and Obama knows it.

Hillary helps Obama to rally Democrats and Independents. She is a formidable, even relentless, campaigner and she works harder than anyone in politics. It is not simply that she has handled problems in North Korea, Iran, and Israel without upstaging Obama, or that she has been supportive of the president and has been serious, intelligent, and energetic. It’s not just that people in the State Department like her — and some like her a lot — or that she has kept her husband out of the limelight, despite the fears many had. It’s that, unlike Joe, Hillary has a devoted constituency. She draws women, independents, and blue collar voters in much larger numbers than Biden or Obama. She adds deeply to the ticket.

The case for Biden as Secretary of State is also clear: it is the job he has always wanted and he would be very good at it. He was the ranking member and often the chair of the Senate Foreign Relations Committee, he has the requisite rolodex, and he likes diplomacy. He will rely more on personal relationships with foreign leaders than Hillary has, but that’s fine. Biden has built a very solid relationship with Obama and would continue as a senior advisor — a role he enjoys and excels at.

The timing of the Great Swap is constrained by the Constitution. Section 2 of the 25th Amendment states that “Whenever there is a vacancy in the office of the Vice President, the President shall nominate a Vice President who shall take office upon confirmation by a majority vote of both Houses of Congress.” At the moment, that confirmation would be far from assured, so Obama is not likely to ask Biden to resign, appoint Hillary VP, then appoint Biden to State (where his Senate confirmation would be a cake walk). Instead, if he decides to do this, he would plan the move now and nominate Hillary at the convention. Once nominated, Hillary would resign her position and Obama would name Biden to fill it immediately. No House vote needed.

Will Obama make the Great Swap? A lot can go wrong with moves like this — but Obama knows better than anyone that a Presidential campaign requires imagination and energy. Much can and will change before the convention, but we can count on this: Obama is considering this move.  

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But as the world’s third richest mogul, Buffett seems to be arguing against his own economic interest. Buffett might assert that higher taxes, a more stable economy, and even less inequality are in the long term economic interest of the super rich. Might be true, but it is still unusual for people to campaign against their short term interests. As a group, his fellow moguls are not only fighting for tax cuts, but for cuts in public spending that will not affect them either.  At a minimum, Buffett is showing off the contrarian view that made him rich.

Buffett provides an interesting contrast to Congress, where arguments against interest are as common as snowballs in August. Congress is, by some measures, more divided than at any time in the past 120 years. We badly need Congressional leaders who will argue against their political interest: Democrats who will fight waste, Republicans who will support short term fiscal stimulus. What we get instead is a culture of pledges designed to prevent this.

• The Tea Party is circulating the short, radical, and malign “Cap, Cut, and Balance” pledge, which has been signed by most Republican presidential candidates.
• Other Tea Party members are circulating a more comprehensive “Contract From America“, signed by more than 300 elected leaders.
• The Susan B. Anthony list is circulating an anti-abortion pledge, promising to cut all funding for Planned Parenthood and close all abortion clinics. It was signed by  by Michele Bachmann, Newt Gingrich, Ron Paul, Tim Pawlenty and Rick Santorum.
• Most GOP members have signed Grover Norquist’s Taxpayer protection pledge
• Norquist is also backing the pledge to support the Parental Rights Amendment, which massages the erogenous zones of the conservative family values crowd
• The American Council for Immigration Reform is circulating a Congressional pledge to oppose amnesty in any form for illegal aliens
• The made for Jon Stewart Marriage Vow promises to to oppose same-sex marriage, reject Shariah law and pledge personal fidelity to their spouse . Good luck with that.

These pledges represent a promises not to think, not to negotiate, and especially, not to compromise. The pressure to sign them is intense. Only one leading Republican, Jon Huntsman, has refused on principle to sign pledges (although he joined the band of imbeciles in Iowa who promised to reject a hypothetical budget deal that offered ten times more spending cuts than tax increases).  Huntsman’s campaign is imploding and stuck in single digits. Certified theocrat Rick Perry, who looks from here to be the likely nominee, won’t even have Huntsman as VP.

Democracy is built on negotiation and messy compromise. Pledges subvert this, and are fundamentally anti-democratic. Compromise means your interest does not always prevail — we don’t always tax the fella behind the tree. A leaders takes an oath of office and recites a pledge of allegiance. That’s all they should commit to: on principle, no leader should ever sign an interest group pledge.

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Cryin' Time

As of tonight, it is not at all clear when the US debt ceiling will get extended or when the entirely artificial crisis caused by Republican House members will be resolved. But one thing is now very clear: the ham-fisted GOP tactics will raise interest costs for every American family and business. It is the economic equivalent of a tax increase — except that that it increases government expenses, not revenues. These higher interest rates are caused by Congressional flakiness.

Interest rates reflect perceived risk — and China and other lenders now see the US as a lot riskier than we used to be. Real risk is unchanged — but perceived risk is higher, and that’s what counts. The power to punish political stupidity with higher borrowing costs is what once caused Clinton advisor James Carville to announce that in his next life, he wanted to come back as the bond market, since it powerfully influenced all federal economic decisions.

It used to anyway. At least one rating agency, S&P, is poised to downgrade US debt. This is unlikely to be calamitous, but it is entirely avoidable and it will needlessly increase US borrowing costs. This makes government more expensive, not less. Worse, it increases interest rates for banks whose borrowing costs that are pegged to Treasuries, which is roughly all of them. It erodes our privilege of serving as the world’s reserve currency — the equivalent of a tax break extended by the world economy to Americans but to no other country. The President of France once termed it an “exorbitant privilege” — and he was right.

For Cryin' Out Loud

This is very likely to end badly for Republicans. There is no economic crisis — the US is obliged by self-interest, to say nothing of the 14th amendment, to pay all debt obligations. Obama will however, end up paying doctors and soldiers late or with IOUs, like California did a couple of years back. The fractious Republican Party will quickly begin to devour it’s Tea Party wing, which has already been denounced by Gingrich, McCain, and Anne Coulter — hardly left wingers.

If the market starts downward, plenty of people will buy stocks because many investors regard the “crisis” as temporary political insanity. Economic fundamentals, although not great and not helped by a spike in interest rates, are also not vastly changed. Treasury bonds have to remain the global fixed-income benchmark because there’s no good alternative. The $9.3 trillion of Treasury securities in circulation is five times more than the total debt of countries like France, Germany, or the UK and the $580 billion of US bonds that trade every day is 17 times higher than UK gilts, the next highest triple-A rated government debt security. The world is learning what every bank knows: if I borrow a small amount from you, I am your debtor, but if I borrow a large amount, I am your partner.

Still, Congressional perfidy will cost Americans billions of dollars in needless interest expense. Nobody benefits except banks and China — the banker to the US government. Perhaps there is after all a reason Speaker John Boener cries so often.

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On September 7, Amazon relented and made a deal to pay sales taxes on shipments to California (no doubt the trenchant analysis that follows persuaded them to do the right thing). For details of the deal see http://goo.gl/kNwjQ.

Now every other state in America needs to make a deal with Amazon — even if they have fewer than California’s 10% of the population. This reinforces the need for Congress to enact a cross-border VAT and to rebate 100% of the funds to the state to which the product ships.

==

Amazon’s refusal to collect sales taxes is bad for the company’s reputation, bad for honest retailers, and bad for state governments. Six states have taken modest steps to level the tax playing field, causing Amazon to respond with a business, political, and legal offensive to protect its tax-avoidance strategy. The first battleground will be California, where Amazon and national retailers will fight a very expensive ballot initiative. Longer term however, Congress should close the unintended sales tax loophole created by Article I of the US Constitution.

One-click Tax Evasion?

Unlike almost every modern country, the US has never had a national sales tax. Most states tax sales within their state but are rightly prevented by the Constitution from taxing out of state transactions. Amazon has turned this important limit on state tax authority into a major piece of its business model. Unfortunately, a smart tactic is becoming a stupid strategy. Congress needs to level its head — and then level the playing field.

From its first day of business, Amazon.com has taken extraordinary measures to avoid collecting sales taxes. It locates distribution centers in low population states to minimize the number of customers for whom it must collect sales taxes. It builds complex software to ensure that every possible product ships across state lines so that customers have no tax obligation. It puts engineers and logisticians to work in shell corporations even if they work on Amazon’s retail website just to avoid creating “taxable nexus” — which obligate Amazon to collect sales taxes. It hires legions of attorneys to minimize and manage the inevitable tax claims. When states like Texas attempt to collect taxes, Amazon retaliates by closing facilities and filing f-you lawsuits. When states declare that Amazon’s hundreds of thousands of third party sellers and affiliates amount to a physical presence in the state, Amazon simply closes the programs — as it did last week in California. Today Amazon went even further: they filed a state ballot initiative in California that will let Californians vote on whether or not to pay sales taxes on third party purchases. National retailers are gearing up for a mammoth fight.

California Turns Green

Amazon is now America’s Number One Tax Evader. The company says that if you buy Hot Freddy’s Thai Salsa from a Los Angeles seller on Amazon, the sales taxes on the transaction are for you and Fred and the state to sort out. Unlike the corner grocery store, they won’t collect these taxes. Nobody disputes that Fred owes taxes on his sales to Californians, but Amazon says that collecting them is Fred’s job, not theirs. Since, as a practical matter, it costs California more to chase Fred than it is worth, Amazon’s policy needlessly costs California tax revenues and denies Californians badly needed public services.

So California sensibly joined five other states that require Amazon to collect sales taxes on the intrastate sales of third party sellers. The law goes further, and declares that third party sellers or affiliates (sites that earn commissions on traffic they send Amazon) constitute taxable nexus — as do subsidiaries. Jerry Brown signed the measure into law on June 30, whereupon Amazon immediately notified all California third party sellers and affiliates that they were discontinuing their program.

Amazon has built its business model around a court decision. In 1992, the Supreme Court ruled  in Quill Corporation v. North Dakota that a state can compel a company to collect taxes only if they have a physical presence, or a nexus, in the state. Absent nexus, the court held that online retailers and mail-order companies can sell products across state lines without collecting the tax. This decision reflects the current law and our national architecture as a republic formed in an era when very few goods were traded across state lines. It also reflects an odd twist in the way the US collects sales taxes: by taxing transactions based on where the seller does business not based on where the buyer lives, we effectively tax selling, not buying. In old fashioned Main Street America it doesn’t matter: every sale is local. But the rise of mail order and online retail meant that our peculiar approach created a giant loophole. I am aware of no other country that makes this mistake.

Your sales taxes have arrived...

The cost of this loophole is huge. According to the New York Times, “The state Board of Equalization, California’s tax collector, estimates the unpaid taxes at $1.15 billion in the last fiscal year, and estimates it will grow to almost $1.2 billion this year and $1.27 billion in 2012.”. For California, this is roughly the size of the state’s cuts to higher education. Not all of these taxes would have been collected by Amazon, but as the largest retail site in the world and the most aggressive defender of the interstate shipping loophole, they symbolize the problem.

Six states, including California, Texas, and Illinois, have now demanded that Amazon collect taxes based on the existence of third party sellers in their state. In each case, Amazon has killed third party and affiliate sales rather than comply. More states are likely to follow. Jeff Bezos has become an outspoken opponent of any move by states to cooperate on taxing cross-border sales and opposes any effort by Congress to resolve the issue. Amazon collects sales tax in only five states — Kansas, Kentucky, New York, North Dakota and Washington — where it has offices or another physical presence (and it suing New York). To avoid collecting taxes in several other states, it simply operates warehouses as subsidiaries which do not sell anything and are not subject to sales taxes. In California, Amazon hires engineers under the name of A9, its search subsidiary, and Lab 129, which digitizes books for the Kindle. In fact, these engineers all contribute directly to Amazon.com retail sales. Amazon does not even operate a search business in California or anywhere else and 100% of Kindle sales take place on Amazon — but Amazon is fighting for its right to use state resources without helping pay for them. A9 hires Silicon Valley engineers but argues that it creates no taxable nexus because it is a separate company and not itself a retailer. The new law makes this impossible. Amazon, of course, is suing.

Once upon a time, policymakers justified online sales tax exemptions on the grounds that e-commerce was an “infant industry” entitled to a break. The infant is now grown: online sales are now almost $200 billion. Soon, a majority of all media (books, movies, music, games) will be purchased online and the online share of many other retail categories will exceed 20%.

Amazon’s policy is narrow and short-sighted. Instead of building a finely tuned sales tax evasion machine, they should help shape a level playing field. Instead of crippling the tax base of states, they should lobby Congress for a national tax on interstate sales. This tax would only apply to goods shipped across state lines — something the commerce clause clearly lets Congress legislate. The taxes would be collected federally but rebated to states according to the ship to address. This would be the first step in rationalizing consumption taxes to actually tax buyers instead of sellers. Amazon could ask for two tax exemptions: for downloaded digital media because it is essentially a service — you cannot resell digital goods as property. Second hand items would be exempt, as they are in many states already, on the grounds that they were taxed once already.

Amazon is not going to do this, so citizens should. We could design the interstate tax as an education tax to build political support. Of course, any such measure would require Congressional tax leadership, a complete oxymoron at the moment. Amazon has effectively made a large business bet that Congress will be unwilling to enact a national consumption tax. But if national retailers and states combine to lobby Congress for a national sales tax on goods shipped across state lines, they have a powerful argument leveling the playing field and closing the loopholes that Amazon has invested far too much IQ figuring out how to exploit.

Besides, Amazon does not need a tax advantage in order to succeed. The company has a built a powerful brand by offering customers a great selection, a fine shopping experience, convenience, and low prices. The low prices are not simply the result of not charging taxes — they are the result of a much more efficient delivery system. Amazon has overhead that is radically lower than retailers like Home Depot, Barnes & Noble, or Sears. Amazon customers are not going to stop shopping online because they have to pay the same sales tax they would pay at the local store. With public pressure for Congressional leadership, Amazon will quickly figure out that the cost of collecting sales taxes is trivial relative to the cost of being branded the nation’s number one tax evader. If ever there were a time for retailers to organize a campaign to boycott Amazon, it is now. Independent booksellers should be especially easy to mobilize, since most are terminally ill and have nothing to lose.

Amazon is is rightly admired by consumers, investors, and business partners. It is suicidal for them to risk this reputation by becoming a poster child for tax evasion. With states struggling to finance basic health and education services and tens of billions of revenue dollars now at stake, Amazon should send a message that it is a public-spirited brand.  It owes us, and itself, a much higher standard of corporate citizenship.

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Gay Freedom does not matter yet to most Americans — but it will, soon enough

One of the great strengths and great weaknesses of humans is that we form tribal attachments. We are drawn to people like ourselves, which allows us to form families,  communities, enterprises, and governments. Tribes enable science, education, commerce, and religion. Tribes probably enable language itself.

The problem, of course, is that the bonds that tie can also enslave. Tribes have boundaries and reject those who cross them. They have to or it isn’t a tribe. Children have a known tendency to wander from their parent’s tribe. Thank God for that — human progress surely depends on the freedom to form and demolish tribes. In general, the more of both the merrier. Tribes matter — we cannot and will not do without them — but they rarely evolve.

Gay freedom is at least in part about the ability of people to re-form or reshape our tribe of birth. Most members of the LGBT tribe were not born into it and most people outside the tribe are nervous about their kids or friends joining it. It’s an unusual tribe because, unlike being female, black, or Asian, being gay or lesbian isn’t visible. Imagine the history of feminism if first, one had to acknowledge the socially unpopular fact of being female.

This is the context for Tales of the City, the exuberant musical now on at San Francisco’s ACT. It is a huge, sprawling, production based on bits from the beloved books by Armistead Maupin. The play, (like The Beginners, featuring George Plummer as a man who comes out at age 75) is saved from a meandering and implausible script by wonderful characters and spectacular acting, just as the music is saved from forgettable melodies by terrific lyrics and enthusiastic performances. I have not enjoyed myself at a musical this much since Avenue Q, (the talented Jeff Whitty wrote the libretto for both).

Even three years ago, following the passage of Prop 8 in California, it was not clear that New York, backed fully by Wall Street and large numbers of business Republicans, would endorse gay marriage. It was very clearly not true in 1976, the setting for Tales of the City. But some small decisions made that year have rippled forward to the present day.

Recall that in 1976, San Francisco mayor George Moscone prevailed in a campaign to legalize homosexuality by repealing California’s sodomy laws.  That same year, San Francisco was gripped by the trial of Patty Hearst for helping an apparently drug-addled group called the Symbian Liberation Army to rob a bank. Patty was the granddaughter of William Randolf Hearst, the American publishing magnate who printed, among other rags, the San Francisco Chronicle. Then, as now, the Chron was not a real newspaper. We bought it to find out when movies were playing and to read Doonesbury. Also Herb Caen, the irreverent cataloger of left coast life and father of three dot journalism…When interest in the SLA trial began to wane, the editors of the Chronicle decided to try something new: a serialized novel.

Printing a novel in daily installments in the local newspaper was an old idea, not a new one. It is how much of Charles Dickens, first came out (US papers would plagiarize each episode without paying Dickens or his publishers a dime. Made him mad as the dickens…). The Chron ran a column by writer nobody had ever heard of. Armistead Maupin, who called his column Tales of the City.

Oh. My. God….the effect was amazing. It was like soap opera – you hated to miss an installment. Pretty soon you actually cared about the friends and neighbors at Barbary Lane — the fictional community invented by Maupin. The plots never made any sense (a cult of cannibals at one point took over St. Mary’s cathedral on Nob Hill), but it was a helluva lot of fun. And not only that, it was outrageous gay fun — which at the time seemed considerably more fun than the sort the rest of us were having. This was the year that George Moscone nominated a respected community leader, Jim Jones of the People’s Temple, to San Francisco’s Housing Authority and banned roller-skating on public streets. It was the year that Bob Dylan, Eric Clapton, Joni Mitchell, Neil Young, Van Morrison, Muddy Waters, and Ringo Starr performed “The Last Waltz” with The Band at Winterland, which Martin Scorcese made into a fine movie.

Within two years, Maupin was a successful author and an important voice of a gay community that continued to grow in power. In 1978, the Gay Freedom march drew 250,000 people — double the size of the San Francisco antiwar marches of a few years earlier. Reaction was swift: orange juice commercial queen Anita Bryant launched a Save the Our Children Campaign, a crusade that received national attention and politically galvanized conservative churches. The gay community retaliated, boycotting Florida Orange Juice, costing Bryant her lucrative endorsements, and driving her into bankruptcy. John Briggs, the Orange County Republican, tried to ban gays from teaching positions in California. But the cause of Gay Freedom seemed only to grow, spreading from San Francisco and New York to major cities around the country and the world.

What could stop this sort of delirious progress? It was a dizzying, naive, and stupid time — wonderful and amazing to recall. To preserve the momentum hes saw building, Moscone played hardball: he led San Francisco to district elections. This meant that San Franciscans voted by neighborhood. For the first time, they elected a Chinese-American leader, an African American woman, a single mother, and, most incredibly and for the first time in US history, an openly gay man: Harvey Milk of the Castro.

Those who wondered when the progress would end soon found out. San Francisco was forming new tribes and demolishing old ones at a record pace. Some tribes were crazy like SLA wannabes such as the Red Guerrilla Family and the New World Liberation Front. Or the People’s Temple. Moscone responded by installing metal detectors in City Hall. But in November, Jim Jones, who had left the Housing Authority and taken his followers to Guyana, killed 900 of them in a mass suicide. Nine days later, Dan White, a disgruntled Irish Catholic cop and former supervisor who had lost out in district elections, assassinated both Moscone and Milk. He avoided Moscone’s metal detectors by crawling in through a basement window.

Within three years, gay men were being diagnosed with an illness nobody understood. Doctors knew that it was an immune disorder, but had no idea what triggered it, so they could only call it a syndrome, an acquired immune deficiency syndrome. The disease is now a global pandemic and has killed more than thirty million people. Nearly two million people die from AIDS each year, even though it is now a disease that can be medically managed. I can think of no social movement in human history that has been so disproportionately affected by a contagious illness that targets its members. AIDS slowed the cause of gay rights by at least twenty years.

Which makes this week’s victory all the more powerful. Liberty and the pursuit of happiness cannot happen in a closet and often cannot happen in one’s tribe of birth. Those who care about freedom, and that is a very large group, need to defend the freedom of all people to define, discover, and celebrate their own identity at least as vigorously as we protect our ability to form tribes.

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Of course, along with a heart of oak, the town also has a brain of well mashed potatoes. We celebrate diversity beyond parody and indulge in thousand clown politics “somewhere to the left of whoopee!”. Our schools work with immigrant kids that show up speaking more than two dozen languages (actually, nobody speaks two dozen languages. That’s the problem. Each kid speaks one. A different one). Like our libraries, these schools are collapsing under the weight of dodgy managers, paleolithic unions, and ineffective parents (not necessarily indifferent, just collectively ineffective outside of Crocker Highlands).

My part of town, near Lake Merritt, has been brought together by a weekend farmer’s market and by the perpetual comedy of the Grand Lake Theater billboard (typical offering: “Prosecute Dick Cheney for torture” followed by “Kick Ass II”).

We have a terrific neighborhood association which, like most neighborhood associations, is where liberals go to be conservative. Ours is earnestly opposed to rich corporations. And to poor corporations. But perhaps not to Trader Joe’s, because they are German and cool. Also not to Peets, because he was Dutch, their coffee is cool, and they come from Berkeley. (Starbucks: you are clearly suspect). We like “small local businesses” because they are so small and local. The Gap is a dilemma. It is local, but not small — so like Starbucks, we tolerate but do not embrace. What matters here is not whether you create stable, well-paying jobs with health care benefits or even whether you deliver useful goods or services. What matters most in Oakland is that you are small, local, and (ideally) ethnic. Our motto: we love you. Unless you succeed.

Which pretty much rules out McDonalds. In 2004, the Golden Arches wanted to take over Kwik Way, a burger joint that had been abandoned for years. In 1980, Commander Cody and his Lost Planet Airmen memorialized Kwik Way in “Two Triple Cheese” on their Lose it Tonight album. The lyrics suggest that the Commander lived in this part of town, even if he takes liberties with the street names. His ode to saturated fat, salt, and cholesterol now enjoys a place of honor in the permanent collection of the Museum of Modern Art in NYC. Watch it below: it’s pretty good.

Post Cody, the Kwik Way became an abandoned dump and a favorite haunt of sketchy crackheads who sold stuff in plastic tubes and left them lying all over the massive drive-in parking lot. McDonalds offered to renovate the place, hire local kids to run it, and keep it swept up. The arches might have framed the Grand Lake Theater quite nicely, but no way. The ‘hood mobilized against the would be corporate trespassers. Conveniently ignoring the KFC next door, we stopped Big Mac by asserting that the traffic would snarl up the place (we argued, in short, that “we gotta stop this restaurant because it might be so popular”).

Gleeful idiocy of this sort mixed with strong coffee is what keeps Oakland running. Truly if you polled my neighbors, 65% would nod solemnly at the assertion that McDonalds was responsible for Dick Cheney and his Guantanamo torture. (The sordid truth, of course, is that McDonalds has killed more people than Dick Cheney ever dreamed of and quite likely contributed to the Veep’s own lousy ticker. But the Oaklandish among us objected to the crowds that McDonalds would attract, not to the celebrated American tradition of serving cardiotoxins to teenagers.)

Kwik Way crumbled until it was finally sold to a local developer with an appreciation of mauve, ecru, and other soothing colors. He relaunched it as a higher priced burger joint a couple of weeks ago. The place sells food that is arguably more salty, fatty, and sugared than McDonalds, but hey, it is small and local. Here is a video of the opening (a prime specimen of neighborhood values appears at the 1 minute mark).

Comparing the two videos, who wants to argue that we have made real progress?

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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.

afscme

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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