Welcome to American colleges and universities, which are both the envy of the world and ripe for disruption. It’s a big business (about $350 billion in the US alone) and a really soft target. It is, after all, run by tenured scholars whose idea of competition is a snarky jibe in the faculty lounge. The dons have allowed their costs to not only rise faster than family incomes, but faster than health care costs, which ain’t easy. That they have lasted this long is due to the monopoly they enjoy on certifying talent. As Kevin Carey noted in a recent New Republic article,

The historic stability of higher education is remarkable. As former University of California President Clark Kerr once observed, the 85 human institutions that have survived in recognizable form for the last 500 years include the Catholic Church, a few Swiss cantons, the Parliaments of Iceland and the Isle of Man, and about 70 universities. The occasional small liberal arts school goes under, and many public universities are suffering budget cuts, but as a rule, colleges are forever.

Small wonder that thousands of startups are now focusing on the market for higher education. Even the guy who discovered disruption, Clayton Christensen, has declared that online technologies will thoroughly disrupt education at all levels, predicting that half of all K-12 classes will be taught online by 2019.

During the past five years, online higher education has gone mainstream. The Sloan Foundation estimates that more 30% of all enrolled college students, some six million people, participated in on-line learning at accredited U.S. colleges and universities in 2011 and that the U.S. market for online higher education grew 12-14 percent annually between 2004-2009.

Many educators are realizing that the explosion of online education not simply due to its lower cost; it is often higher quality as well. Sometimes this is because of dramatically higher investment in course and instructor development. Christensen notes that the largely online University of Phoenix spends about $200 million each year developing online teachers and highlights a key difference with traditional universities: “..Harvard defines research as creating new knowledge, while The University of Phoenix defines it as finding new ways to provide knowledge. It blows the socks off of us in their ability to teach so well.”

Online education is quickly killing the in-class lecture, since recorded lectures have obvious advantages. Students can watch them when they are ready — after they are off work or when the kids are asleep. They can replay the confusing bits or skip the obvious parts. Most important however, is that the lectures themselves are more likely to delivered by world class teachers like Norman Nemrow, whose online accounting course has been taken by several hundred thousand students or by Walter Lewin, the MIT physicist whose lectures are shown on television. Supposedly over five million people have taken his intro to physics course (watch his promo reel below to see why. What? Your professor did not have a promo reel?)

It is not only lectures that fare better online. Instructors in online classes can measure outcomes and tailor the course to the needs of each student. Modern learning management systems provide live seminars with multi-location live video, backchat, social media, and many other capabilities not available in a classroom. Quizzes can be graded instantly so that both faculty and students get feedback fast enough to change course. Algorithms distill questions from thousands of students so that they can be answered either live or off-line. Students can undertake projects online with “classmates” who have never been on the same campus — or even the same country.

This is a time of vast experimentation with online education technologies. Two years ago, the Kahn Academy began to attract huge notice as a self-tutoring tool based on the brief lectures of one talented teacher. A year ago, 2Tor closed a large Series C and got very serious about providing major universities with technology, marketing, and course development assistance. A month ago, Google’s self-driving car maven Sebastian Thrun gave the talk at BLD in Munich that launched Udacity after 160,000 students from around the world completed his Stanford-based online computer science course (268 students achieved perfect scores on all the quizzes). In October, Knewton, an education technology startup, raised $33 million in its 4th round of funding to roll out its adaptive online learning platform. Earlier this year, Apple launched a suite of authoring and course scheduling tools to allow universities to move content to iTunes University. Only yesterday ShowMe launched its 2.0 platform that takes the Kahn Academy model and makes it social — anyone can use the platform to teach anything.

Universities are developing their own online education initiatives, often plagued by a terrifying thought: what if online education is just another form of digital media? They know full well that that as books, movies, and music, moved online, few incumbents survived. In each case:

• Content was disaggregated and mashed. Just as record albums were broken into songs, ringtones, and clips, educational content is unlikely to remain entirely within current disciplines or courses. Literature will not remain separated from history, nor calculus from chemistry. As technology makes it easier to recombine and repurpose courseware, it may become possible for two students to complete the same course without confronting the same content in the same sequence or manner. New forms of learning will produce certifications not limited to degrees, concentrations, or even courses.

• Engagement became social.  Digital movies benefitted Hollywood much less than YouTube and Netflix. It should not surprise us to see more learning become self-paced, socially certified, and delivered outside of colleges and universities. Startups may increase the demand for formal education, but they could also substitute for it just as many of the needs once filled by campus fraternities or alumni associations are now met by online social networks.

• Value shifted from content creators to aggregators. Book publishers and music labels learned that aggregators of content (Amazon and iTunes) hold a lot of cards. Will universities aggregate and distribute high quality educational content regardless of its origin? Or will universities, like film studios, attempt to remain relevant by offering exclusive, premium-priced, high-quality, proprietary content protected through careful online distribution and syndication? Top universities are betting on the Hollywood model, which is not only under sustained attack, but presumes producers who control their IP. Universities, in contrast, rarely limit the ability of their faculty to sell lectures and other courseware to the highest bidder, even though the university paid the professor to produce the content. In no other industry is such theft conceivable — a fact that Udacity will not be the last to exploit.

• The product went global. Books, movies, and music are licensed or sold in tightly controlled, nationally bounded markets, but digital media is naturally global because there are far fewer natural distribution barriers. This means more customers, which is why universities are now lusting after talented and wealthy Indian and Chinese students who are (at the moment anyway) willing to pay US-type tuition for a degree from a globally prestigious institution.

• Prices fell as comparison shopping became easier. It appears that the revenue optimal price for eBooks is between $2 and $5, depending on the author and in some cases the publisher. For songs it is between $1-$2, forcing record labels and publishers to seek entirely different business models to monetize their content. As a result, many of media markets actually shrank as they went online (if you only measure product sales. In music, for example, the market is about the same size, because concerts and merchandise make up for losses in record sales). Once

The response of universities to the rise of online education is like the response of Barnes and Noble to online bookselling. Faced with the rise of Amazon.com in the 1990s, the chain store simply created barnesandnoble.com. When Amazon launched the Kindle, they launched the Nook and merchandised it in their increasingly irrelevant bookstores. But the winner of this contest will of course be the company that is not forced to carry the cost of several hundred bookstores. Open Yale, MIT’s Open Courseware and MITx courses, Stanford’s Massively Open Online Courses including Corsera, and many others like it all share the Barnes and Noble problem: they need to price their offering to pay for extraordinarily high fixed cost institutions. Their disruptors do not.

Barnes and Noble charges customers for a wide range of activities unrelated to book purchases. It designed many of its stores as community centers where authors and  could meet readers. It built fun sections for kids to discover books. It integrated Starbucks in many locations. But books are simply not going to be sold in stores much longer, so these activities added more cost than value and ended up making the problem worse. Likewise, many institutions of higher education support multiple activities with tuition: research, sport, socialization, teaching, and credentialing. Online education exposes the fault lines between these different businesses, just as Amazon did with Barnes and Noble.

• Research. Top schools recruit faculty based on their ability to contribute new knowledge to their field not on their ability to teach. This is terrific for graduate students, who apprentice and occasionally indenture themselves to senior faculty, but suboptimal for undergraduates because the correlation between insightful research and capable undergraduate teaching is somewhere between weak and negative. Once undergraduates can receive a higher quality education at a lower cost by studying online, many will do so. Once Amazon made books cheaper, nobody wanted to pay for those kids play areas — not even people who liked them.

• Sports. That giant sucking sound is money draining from university budgets to support massively wasteful professional sports programs — while managing to abuse college athletes in the process. Intercollegiate sports are fine. Division 1 football and basketball is a scandal — and both universities and the NCAA know it.

• Teaching. Teaching and learning are rapidly becoming another online interactive social media. Some online learning will doubtless be indistinguishable from games. This part of what a university does will be rapidly mashed, commodified, and redistributed, just as books and movies have been. Universities often claim that they make use of these online technologies in “hybrid” classrooms. This is like selling Nooks in bookstores: the customers who buy will never come back.

• Socialization. Residential undergraduate programs deliver to young people a group of peers and the experience of learning independently with them. Some of what the university provides is in loco parentis — a structured environment for 18-22 year olds to transition to self-sufficiency as they learn. The question is how much families will pay for this service. As high quality online education becomes universally available, middle class families will be very tempted to forgo residential colleges for their kids. Now that families cannot enhance their incomes by working longer hours, sending a second adult to work, or borrowing easy money against overvalued homes, families will be willing to cut back on college expenses if it does not compromise the quality of their children’s education.

• Credentialing. Credentials are necessary for employers and future education institutions to distinguish between similar candidates. Many markets with this problem rely on brands or other signaling effects (watch how you select wine next time you are confronted with dozens of plausible choices). University degrees emerged long ago as a critical signal of professional capability independent of what the degree holder knows. Part of this is because of selection effects, as Malcom Gladwell explained some years ago:

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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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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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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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