Public Sector Unions and Governance

For over a year, unions and lefty pundits have been up in arms about the Scott Walker.  Union members and sympathizers took to the streets.  Passions were high, and, at times, scenes out of Madison appeared chaotic. 

Unions likened their public protest to the righteous, impassioned calls for democracy in Egypt. 

Really?  Ok.  Let’s forget that Governor Walker was democratically elected.  Forget the fact that Walker enacted the reforms on which he explicitly campaigned (with the help of the elected legislature).  On Wednesday, Team Union received their second (or third; maybe fourth, fifth) chance at democracy. 

The democratic results were resoundingly clear:  Wisconsin voters favored Governor Walker’s efforts to pare back the financially crippling, government-backed advantages enjoyed by public sector unions.  

Team Union’s reaction reveals the inveterate and pervasive nature of their grievance:  they covet the state-backed guarantee of control and power to which they’ve become accustomed, and to hell with the rest of the electorate.  This much was clear from the beginning, and their phony cries for democracy were belied by their equally phony comparison to Egypt.  As Chris Edwards aptly put it back in February 2011:  “While Arabs are fighting to end extraordinary overreach by government, Wisconsin union protesters are fighting to preserve it.”

Lest you think I am being hard on unions, let me make this clear:  I have no quarrels with unions qua unions.  I quarrel only with the laws that trample on the rights of non-union workers, employers, and consumers.  In fact, laws like the NLRA undoubtedly trample on people’s rights, but they also hamstring unions in ways I do not condone.  As the recall was objectively about public sector unions, a discussion about private sector unions will wait for another day. 

Why Public Sector Unions?

First of all, were the actions taken in the budget-repair bill justified?  Yes.  Basically, the crippling fiscal effect of public pensions forced Wisconsin’s hand.  This is something Walker's opponent recognized in their 2010 race.  Completely neutral budget analysis showed that Wisconsin faced a $3.6B deficit in the coming two-year budget cycle.  Sweetheart deals for public workers contributed to the red ink, and it was only going to get worse down the road with demographic shifts.

Unlike most modern-day private sector workers, public workers receive a defined benefit plan.  Regardless of how the retirement plan performs in the market, beneficiaries are guaranteed a generous payout upon retirement. 

There is an ongoing debate about how much the state workers contribute versus how much the taxpayers contribute to the retirement fund.  Union backers claim that public sector workers fund much of their retirement through deferred pay.  Unfortunately, this is a dubious claim.  The Koch-funded, conservative propaganda machine known as the Wisconsin Office of State Employment Services reveals on their website that public employees contribute at most 0.8% of their earnings toward the pension plan and “executive status” employees contribute 0%. 

Under Walker’s reforms, affected public employees* will contribute between 5.8% and 6.65% of their earnings toward their guaranteed pension.  On average, they will be asked to pick up 12.6% of their health costs.  A pretty sweet deal considering private sector workers pay on average 21% of their health costs.

In reality, this may be too little to prevent disaster.  State and local governments have been lousy when it comes to calculating the cost of future liabilities.  Some studies estimate that Wisconsin's retirement fund was 54% unfunded - that's a $63 trillion hole.  And if you disagree that it is a hole, it is certainly a risk worth addressing.  

Limit Collective Bargaining Rights, Too?

Is it necessary to limit the power of public employees to collectively bargain?  Yes.  Two words: unchecked power.  Public unions wield their power in a different environment than their private sector counterparts.  The government has a monopoly on the goods and services they provide.  On top of this, when a union has a monopoly on labor (i.e. they can extract dues from all public workers, regardless of the worker's consent), the disastrous results are highly predictable.    

Unions naturally push for higher wages and benefits, and in the public sector, there is no countervailing pressure that will tend to keep costs at a sustainable level.  Private unions can only ask for a level of compensation that allows the company to remain competitive over time, lest the company goes under (or elsewhere) taking the jobs with them.    

In the government sector, taxpayers must take the goods and services the government offers.  The lack of competitive forces is only the beginning, though.  The costs of excessive compensation are dispersed among all taxpayers.  The unions, on the other hand, are a concentrated and highly influential political force.  They almost always favor increases in public spending because they personally benefit from an expanded government programs. 

Moreover, when politicians give outsized benefits to unionized public workers, they receive immediate gratification in the form of campaign donations and votes, but the cost to the taxpayer only comes due down the road.  This is why public workers’ salaries (which must be paid every year) remain fairly normal, while future compensation is goosed.  And this doesn't even get into the problem of pension spiking.

Behind closed doors, the bureaucrat and the union boss negotiate beyond scrutiny.  As I’ve only briefly demonstrated, these parties’ interests are pretty much aligned.  This leaves the taxpayer, the one with skin in the game, without effective representation.  The politician fails to be the faithful fiduciary of the average citizen.**  This suppresses the proper agency relationship guaranteed to citizens of a free society.  It is, therefore, no surprise that we see windfall transfers of money to the politically connected in boom times, and an unsustainable calamity in lean times. 

It’s not the End of Democracy, I feel Fine

Seeing where I'm coming from on this issue, you may be able to understand my surprise at some of the reactions.  Among these, the obits for democracy are the least sensible.  I harbor no schadenfreude against this guy, but I disagree more than a little with his cries that Walker's second electoral victory signifies the death of democracy in America.   

In fact, something closer to the opposite is true.  On Tuesday, voters were shaken out of a long slumber, and, regardless of what some will say, it’s unclear that it was a partisan victory.  Even people who voted for Barret last election have come around to see the iniquity of the current public union status quo.  

In Wisconsin, public polls show 69% of voters favor transferring new public hires into a 401(k) style retirement account, and 75% favor requiring public workers contribute more to their pensions and health care.

Alexis de Tocqueville famously noted that the greatest threat to a democracy’s survival is the ability of its members to vote themselves into bankruptcy and financial ruin.  Wisconsinites looked this monster in the face, and they decided to back away.  Democracy in America is not dead, it is trying to survive.

The Others Spoketh Too Much, Thus Killing Democracy

The President of the National Education Association, a union, took to the New York Times to claim that message of the Wisconsin recall is “the peril of corporate dollars” in our elections.  Of course, it's the catch-all boogeyman of Citizens United.  Unfortunately, the deriders of political speech have picked a case that is especially unsympathetic for their cause.  

First of all, Citizens United freed the speech of large labor unions just as much as it did corporations.  It is a bit disingenuous to fall back on the evil court decision when unions were some of the first and biggest actors to take advantage of the newly lifted restrictions back in June 2010. 

It is true, in the present election, Walker’s supporters decidedly outspent the opposition.  But was money the deciding factor?  Consider the fact that 9 in 10 voters had made up in their minds before May.  Moreover, of those who made up their minds in the last month, nearly 30% went for Barrett.  Those facts emit a stench of wasted money more than anything.***

Related issues were presented to the voters in San Diego and San Jose, California.  San Diego’s Propositions A and B aim to save money and are largely opposed by union forces.  San Jose’s Measure B reigns in unsustainable public worker compensation.  On a whole, supporters of these measures outspent their labor opponents (not the case for spending on Proposition B, unions pumped in over $1M dollars), but the gap was less than in Wisconsin.  Still, voters supported each of these measures by between 60 to over 70%.    

To be sure, I favor unrestricted political speech for all based on principle.  Still, it seems especially unfair to rail against shady corporate paymasters when your side loses in its bid to lock in generous and unsustainable compensation—compensation that comes at the great expense of all members of society, especially the private sector working class.

But is it Right to Void Public Worker’s Settled Contracts?

Some libertarian-minded people argue that the state should not lower public compensation by meddling with the contracts on which public workers have come to rely.  As a supporter of contract freedom, I have sympathy for this line of reasoning.  However, I tend to agree with Richard Epstein’s argument that these are illegitimate contracts:

“Those bloated union pensions and salaries were the product of the illicit gift of collective bargaining rights by legislatures, who by their oath and position are fiduciaries for the public, not the unions. But this case of abject self-dealing should make these contracts ‘voidable’ so that they can be set aside, if needed, by the government, after which these benefit packages could be modified to match comparable packages in the private sector.”

In an optimal world, the union bosses would pay the difference to public workers in order to fulfill their expectations under the voided contract.  In fact, I think a craftier attorney than I could make a case for that.  Nevertheless, public workers are fully aware of their agency relationship with the union.  The taxpayers, shut out of this process and too often sold down the river by lily-livered politicians, deserve the protection in this situation. 

After the votes in Wisconsin, San Jose, and San Diego, other parties may require protection of a more physical sort.  Check out this protester’s advice for Wisconsin’s Lieutenant Governor, Rebecca Kleefisch.  He tells her she better run, get the F out of the state because we are coming for you.  Asked to elaborate on this notoriously vague and cliché threat, he explains that “hopefully the colon cancer takes her before we get her.”  (Kleefisch was diagnosed with colon cancer in 2010.  On a less serious note, this usage of the word hopefully was granted grammatical clemency earlier this year). 

On the night of the election, an infuriated Barrett supporter slapped the mayor after he conceded the race to Walker.  The twisted and the violent should be attributed to the individuals and not to the group they represent. 

Another form of churlish browbeating pervades the public sector movement, and it is more indicative of the public union’s modus operandi.  Steve Maviglio, organizer for an umbrella group for the state’s major unions, told the San Francisco Chronicle that, “Chuck Reed [San Jose Mayor] will never get union support again as long as he lives.”  This is no idle threat.  Since the 1960s, public unions have enjoyed great success in shackling politicians of both parties.  Sadly, Americans with the least political clout paid for these shackles.  Hopefully Tuesday’s elections portend a future where independents, democrats, and republicans find a common desire for a governance structure able to face up to our shared fiscal reality.  

*Police, fire fighters, and others were exempted from the reforms.  Police and fire fighters are valuable members of society, but their compensation is just as much of a problem as other public workers.  Sadly, this is reminiscent of the hapless way in which many Republicans have caved in to unions over the years: under the guise of a public safety and tough on crime schtick.  

**This article only touches on one side of the crappy deal politicians have dealt us.  Their untoward affair with public unions have arguably lowered the goods and services they provide, most notably public schools.  Most egregiously, unions are allowed to extract union dues from any non-consenting public employee, and they then use this money to lobby against school choice.  The power structure allows unions to stand in every single door in which a taxpayer may gain a little bit of exit from the diseased system.

***On the other hand, the increased expenditures coming from both sides seems to have increased voter turnout.  Lovers of democracy can’t complain about that.