As we quite rightfully expose and attempt to rid our society of corruption in the corporate and financial sectors, and as we support legislation to root out the excessive influence they have exercised in politics, it is a mistake to allow such efforts to blind us to the reality of corruption in other areas. Over the past 25 years, and especially in the last 10 years, the public sector of the United States has been increasingly controlled by labor unions. At the local and state level, in many cases the power of public employee unions has become near absolute, as they use often mandatory dues from their members to decisively influence political campaigns.
The idea that workers in the public sector should control the public sector, and make or break the careers of politicians who are determining their compensation, is something most people would agree is a conflict of interests. But that is exactly what has happened. The result is government workers receiving pay and benefits far greater than what they ever made historically. In turn this is leading to severe government budget deficits across the United States, resulting in calls for more taxes at a time when small businesses are already struggling.
There is a website called www.pensiontsunami.com that has been tracking one of the most eggregious examples of public sector union influence on our politics and public finance, which is the totally unsustainable pensions being promised public employees. At one time these pensions were a reasonable way for public employees to justify working for less annual salary – but under union pressure, these pensions have been relentlessly increased, often retroactively, at the same time as public employee salaries have also been increased to the point where most public employees – especially nonmanagement employees who are by far the most numerous – are paid far in excess of what they could make in the private sector.
Even now, as the economy slows down, public sector unions continue to demand increased pay and benefits. Here is a smattering of links provided on PensionTsunami’s website just today:
Fiscal Day of Reckoning – Orange County Register:
“…comes today as the [Fullerton City] council votes on a union-approved contract to increase most government workers’ pensions by 25 percent retroactive to the employee’s hire date. Currently, retiring Fullerton employees receive as much as 60 percent of their final year’s pay; the new plan would boost that to 75 percent of final year’s pay.”
Vallejo Unions Cry for More Money – Vallejo Independent Register:
“If you told me I would be a critic of union misbehavior a few years ago I would not have believed you. I am a socially liberal, but fiscally conservative left leaning Democrat. I have always considered unions to be critical and necessary to protect workers from exploitation. I still believe that to some degree, but the level of abuse in Vallejo is beyond anything I could have imagined. The unions have become the exploiters.”
These are just two articles out of usually about a dozen links that are posted every day on PensionTsunami, but they are fairly representative. The phenomenon of union control over local and state governments occurs across the United States, and the financial impact of this is incalculable. It is a huge factor in California’s near bankruptcy. Consider:
(1) Direct wages and current benefits (such 50 or more paid days off per year – not including the common “9/80″ programs which add another 26 paid days off per year) inflate the costs of government by 50% or more, given most of the expense of government is for salaries and wages for government employees (ref. California’s Deficit).
(2) Management’s role is limited by unions, for example, public sector union contracts often require more people present to perform a job than is required. In general, union interests to serve their members are intrinsically in conflict with the public interest. This exacerbates the intrinsic conflict of interest within government agencies that already leads to big government – create dependency, then hire more government workers, and as dependency breeds dependency, hire still more. It is not easy to differentiate between a government program that performs a legitimate need – plenty of those – and programs that create more needs than they alleviate. Having government bureaucrats, through their unions, control our elections, is not a way to make this tough challenge any easier.
(3) Future benefits, such as early retirement, generous pensions, and health care for life, represent costs whose present value (at a discount rate of 3-5%, not 8-12%) must be applied to the limited years unionized public employees work. Many government employees fail to appreciate just how much this adds to what they are actually making per year.
(4) Public employee pension funds are naturally put under huge pressure to overestimate the rates of return they can earn, lulling policymakers into thinking these huge wage and benefit concessions are financially sustainable. In turn these funds are under pressure to ignore (or even lobby in favor of) unsustainable lending practices in order – ironically given they are long term investment funds – to keep their investments delivering high returns in the short term. These pressures become mutually reinforcing and spiral out of control (ref. Inflation or Deflation?).
(5) As unions become more powerful in government, they continue to expand the requirements for companies doing business with the government. Imagine if Californians solved their transportation challenges by hiring a Chinese contractor to build and widen freeways. It might cost 1/10th what it would otherwise cost. Imagine if unions didn’t work hand in hand with environmentalists to block all new construction, thus forcing costs higher and higher – something that also fueled the real estate bubble (ref. Unions Aren’t Green, and CEQA Hijacked).
(6) All of these costs are passed directly to the taxpayers – it might take a while (ref. Bonds are Taxes), but the taxpayer always pays. And there are indirect costs. Try getting health insurance as a small business. The reason rates are so high is partially because the insurance companies have negotiated to provide benefits to public sector unions at discount rates, and they have to recoup those discounts by billing small businesses at far higher rates.
(7) This is perhaps the biggest problem of all, and the reason we cover this issue on a website oriented to environmental issues. Public employee unions influence policy. Despite rail transit being almost always (there are a few cases, yes, where rail transit makes sense) a far less efficient solution to transportation challenges than simply widening roads and adding busses to public transit services, light rail gets built. This is because not only do union contractors build the light rail infrastructure, but they then get to control it. Light rail is a job creation machine for public sector unions.
There are several qualifiers to all this. We are not against the ideals of unions – only the idea that unions should control our government, or the idea that we should reform Wall Street and Corporate America but turn a blind eye to the excessive power of unions (ref. Unions, Ideals vs. Reality). Equally important, we are not libertarians. There is nothing wrong at all with taxpayer supported government services and government financed infrastructure. But it has to be good services, and good infrastructure – i.e., a cost-effective solution to a real need (ref. Green Public Works).
Incoming President Obama has strong ties to unions, although the breadth of his financial support came from such a variety of sources we may yet hope he will adopt a balanced stance. The nightmare scenario is an Obama administration that continues the trajectory we are on, thanks to underregulated unions and extreme environmentalists, where carbon-related regulations and global warming concerns will be used as the pretext to monitor every aspect of our lives, creating a new layer of “green” taxation that will cripple small businesses while the rich get richer and the only way you can survive as a member of the middle class is if you work as a unionized employee for a government entity.
Many people will have a negative reaction to the sentiments expressed here, and that is understandable. But before failing to consider that any of this might be valid, and before failing to consider what might constitute appropriate reform and what might constitute a sustainable financial restructuring for the public sector, consider this: Try to go out and start one of those small businesses. Try to build something, try to develop property, try to get a permit or fill out a fee application, try to hire and manage employees, try to raise financing, try to sell a product. You may find it isn’t as easy as you think. Try to get a job in a successful company in the private sector that pays – taking into account the present value of future benefits – $150K per year – which is what most public employee jobs are worth when you normalize for all the vacation, early retirement, health benefits, and overtime. They aren’t out there. Most everyone respects and appreciates the work done by public sector employees – which makes this a difficult topic to discuss rationally. But unions should care about all workers. And public sector employees should understand the profitable health of the private sector is the only reason they have jobs.
For alternatives to the tyranny of public sector unions and big environmentalism, read Principles of New Suburbanism, A Centrist Agenda for Obama, and Rational Environmentalism, or anything in our Politics category.
|Every ship of dreams eventually encounters the rocks of reality.