The Political Economy Of Government Employee Unions

[lostinblue 1,989]

The Political Economy Of Government Employee Unions

Thursday, March 10, 2011 10:34

March 10, 2011 by Thomas J. DiLorenzo

The main reason so many State and local governments are bankrupt, or on the verge of bankruptcy, is the combination of government-run monopolies and government-employee unions. Government-employee unions have vastly more power than do private-sector unions because the entities they work for are typically monopolies.

When the employees of a grocery store, for example, go on strike and shut down the store, consumers can simply shop elsewhere, and the grocery-store management is perfectly free to hire replacement workers. In contrast, when a city teachers’ or garbage-truck drivers’ union goes on strike, there is no school and no garbage collection as long as the strike goes on. In addition, teachers’ tenure (typically after two or three years in government schools) and civil-service regulations make it extremely costly if not virtually impossible to hire replacement workers.

Thus, when government bureaucrats go on strike they have the ability to completely shut down the entire "industry" they "work" in indefinitely. The taxpayers will complain bitterly about the absence of schools and garbage collection, forcing the mayor, governor, or city councilors to quickly cave in to the union’s demands to avoid risking the loss of their own jobs due to voter dissatisfaction. This process is the primary reason why, in general, the expenses of State and local governments have skyrocketed year in and year out, while the "production" of government employees declines.

For decades, researchers have noted that the more money that is spent per pupil in the government schools, the worse is the performance of the students. Similar outcomes are prevalent in all other areas of government "service." As Milton Friedman once wrote, government bureaucracies—especially unionized ones—are like economic black holes where increased "inputs" lead to declining "outputs." The more that is spent on government schools, the less educated are the students. The more that is spent on welfare, the more poverty there is and so on. This of course is the exact opposite of normal economic life in the private sector, where increased inputs lead to more products and services, not fewer.

Thirty years ago, the economist Sharon Smith was publishing research showing that government employees were paid as much as 40 percent more than comparable private-sector employees. If anything, that wage premium has likely increased.

The enormous power of government-employee unions effectively transfers the power to tax from voters to the unions. Because government-employee unions can so easily force elected officials to raise taxes to meet their "demands," it is they, not the voters, who control the rate of taxation within a political jurisdiction. They are the beneficiaries of a particular form of taxation without representation (not that taxation with representation is much better). This is why some States have laws prohibiting strikes by government-employee unions. (The unions often strike anyway.)

Politicians are caught in a political bind by government-employee unions: If they cave in to their wage demands and raise taxes to finance them, then they increase the chances of being kicked out of office themselves in the next election. The "solution" to this dilemma has been to offer government-employee unions moderate wage increases but spectacular pension promises. This allows politicians to pander to the unions but defer the costs to the future, long after the panderers are retired from politics.

As taxpayers in California, Wisconsin, Indiana and many other States are realizing, the future has arrived. The Wall Street Journal reports that State and local governments in the United States currently have $3.5 trillion in unfunded pension liabilities. They must either raise taxes dramatically to fund these liabilities, as some have already done, or drastically cut back or eliminate government-employee pensions.

Government-employee unions are primarily interested in maximizing the profits of the union. Consequently, they use civil-service regulations as a tool to protect the job of every last government bureaucrat, no matter how incompetent or irresponsible he or she is. Fewer employed bureaucrats mean fewer union dues are being paid. Thus, it is almost guaranteed that government-employee unions will challenge in court the attempted dismissal of all bureaucrats save the occasional ones who are accused of actual criminal behavior. This means that firing an incompetent government school teacher, for example, can take months, or years, of legal wrangling.

Politicians discovered long ago that the most convenient response to this dilemma is to actually reward the incompetent bureaucrat with an administrative job that he or she will gladly accept, along with its higher pay and perks. That solves the problem of parents who complain that their children’s math teacher cannot do math, while eliminating the possibility of a lawsuit by the union. This is why government-school administrative offices are bloated bureaucratic monstrosities filled with teachers who can’t teach and are given the responsibilities of "administering" the entire school system instead. No private-sector school could survive with such a perverse policy.

Government-employee unions are also champions of "featherbedding"—the union practice of forcing employers to hire more than the number of people necessary to do the job. If this occurs in the private sector, the higher wage costs will make the firm less competitive and less profitable. It may even go bankrupt, as the heavily unionized American steel, automobile and textile industries learned decades ago.

No such thing happens in government, where there are no profit-and-loss statements, in an accounting sense, and most agencies are monopolies anyway. Featherbedding in the government sector is viewed as a benefit to both politicians and unions—but certainly not to taxpayers. The unions collect more union dues with more government employees, while the politicians get to hand out more patronage jobs. Each patronage job is usually worth two or more votes, since the government employee can always be counted on to get at least one family member or close friend to vote for the politician who gave him the job. This is why, in the vast literature showing the superior efficiency of private versus government enterprises, government almost always has higher labor costs for the same functions.

Every government-employee union is a political machine that lobbies relentlessly for higher taxes, increased government spending, more featherbedding and more pension promises—while demonizing hesitant taxpayers as uncaring enemies of children, the elderly and the poor (who are purportedly "served" by the government bureaucrats the unions represent).

It is the old socialist trick that Frédéric Bastiat wrote about in his famous essay, The Law: The unions view advocates of school privatization, not as legitimate critics of a failed system, but as haters of children. And the unions treat critics of the welfare state, not as persons concerned with the destruction of the work ethic and of the family that has been caused by the welfare state, but as enemies of the poor.

This charade is over. American taxpayers finally seem to be aware that they are the servants, not the masters, of government at all levels. Government-employee unions have played a key role in causing bankruptcy in most American States, and their pleas for more bailouts financed by endless tax increases are finally ringing hollow.

http://beforeitsnews.com/story/475/315/The_Political_Economy_Of_Government_Employee_Unions.html

[CarlosAndSveta 808]

Interesting read but here is another point of view of unions in general.

Thursday, March 10, 2011

How Unions Make a Nation Competitive

By MARC McDONALD

Like Rodney Dangerfield, unions in America have long struggled to gain respect, especially since 1980. I've long been amazed at all the workers I've talked to over the years who are reluctant to support the union movement.

"Maybe unions were needed back in the 19th century era of Robber Barons," union foes argue. "But these days, unions are a dinosaur. They're no longer needed."

I've heard variants of the above argument repeatedly over the years, from both Republicans and even some Democrats. Of course, it makes no sense. It's like saying, "We already have Free Speech in America, so we no longer need the First Amendment."

Indeed, unions tend to get blamed for all kinds of ills facing present-day America. After all, wasn't it "greedy, overpaid" union members that resulted in America losing its manufacturing base?

That seems to be the Conventional Wisdom these days.

But there's only one problem. It's not only bullsh*t---it's the total opposite of the truth.

Unions, in fact, help make a nation more competitive.

Don't believe me?

Take a look at two of the most heavily unionized nations in the world: Germany and Japan. Both nations are thriving and have jobless rates far below the U.S. rate. Both nations still have large manufacturing sectors, which are heavily unionized. And both nations are exporting more than ever---even to low-wage nations like China. (Japan, for example, is one of the few nations on earth that has enjoyed a trade surplus with China much of the time in recent years).

In short, Germany and Japan are the polar opposite of the U.S. these days. While the U.S. continues to rack up record trade deficits, both Japan and Germany enjoy vast trade surpluses.

Not only are Germany and Japan heavily unionized, both nations have strong pro-worker laws that back up their labor movements. In both nations, for example, it's virtually impossible to fire full-time workers. Mass layoffs are very rare in both nations.

Every worker in Germany enjoys a minimum of six weeks' paid vacation per year. In fact the average is two months. And even in Japan these days, employees work fewer hours on average than Americans (who work the longest hours of any developed nation).

According to the International Labor Organization, "Americans work 137 more hours per year than Japanese workers, 260 more hours per year than British workers, and 499 more hours per year than French workers."

Americans, in fact, are the most overworked people in the First World.

We're the only industrialized nation without a national paid parental leave benefit. We're the only nation without a legally mandated annual leave. We're the only First World nation with no required paid sick days.

All of this, of course, is due to the fact that organized labor in the U.S. is much weaker than other industrialized nations. In fact, unions having been going downhill since Ronald Reagan declared war on them in the 1980s.

But getting back to the original point of this article. One might ask: what does all this have to do with America's competitiveness?

A lot, actually.

It's clear that unions haven't been a hindrance to the economies of nations like Japan and Germany. In fact, it's clear that organized labor has been a key part of both those nations' success in growing their high-tech manufacturing export powerhouse economies.

If this sounds counterintuitive, consider the following question. Why has the U.S. consistently had a difficult time competing in high-tech manufacturing in recent decades? It's clear that a good part of the reason is that (unlike their counterparts in Germany and Japan), U.S. corporations have long been short-sighted.

While German and Japanese corporations typically plan decades ahead, U.S. corporations look no further ahead than the next fiscal quarter. In short, U.S. corporations have sacrificed their long-term health in return for short-term profit.

Which raises a question: why, exactly, have German and Japanese corporations consistently always planned way ahead? For example, why are both nations now working hard on industries of the future---industries that may take decades to reap financial rewards (think high-speed trains, advanced wind power, solar power and other green technologies).

The answer to this question is the fact that both nations have strong unions and pro-worker laws.

The fact that it is very difficult to fire workers in both nations seems like a recipe for economic decline. The reality is the total opposite. Japanese and German corporations plan very far ahead because they are forced to.

When it is extremely difficult to lay off staff, corporations find that they must take a very long-term view. It isn't sufficient (as is the case with U.S. corporations) to simply plan ahead for the next fiscal quarter. Instead, Japanese and German corporations must plan ahead at least a decade. And the lack of mass layoffs in both nations---which helps social harmony---is a bonus of the system.

Another advantage that unions bring the Japanese and Germans is the very fact that they work to bring generous benefits and pay to workers in those nations. When workers enjoy 6 weeks paid vacation, as the Germans do, you tend to have a workforce that isn't chronically burned out.

Another advantage: workforce stability, which encourages corporations to spend heavily on worker training. (U.S. corporations spend much less on training workers than Japanese and German corporations do).

If you've ever driven a top-of-the-line Porsche, an Audi, a BMW, or a Mercedes, you know that the Germans make some of the highest quality products on earth. You don't get high-quality, top-of-the-line manufactured products when your nation's workforce is burned out (as most American workers are these days).

True, the Japanese have a reputation for being hard-working people. But this is (at least compared to overworked American employees) an increasingly outdated stereotype. As I mentioned previously, Japanese workers these days actually work less hours than do Americans. And the laws preventing layoffs in Japan are even stronger than those in Germany.

In short, one could say that strong unions have the effect of "disciplining" corporations into taking the long-term view. Since organized labor in the U.S. is very weak, American corporations are under little pressure to look far ahead. Hence the short-sighted U.S. CEOs who only work to ensure that the next fiscal quarter is as profitable as possible.

Such short-sightedness has long been a disaster for U.S. industry. For example, Detroit's short-sighted policies have transformed U.S. automakers from a formerly world-beating industry into one that is currently only a pale shadow of its former self. Detroit's short-sightedness for example, was a disaster in the 1970s when U.S. automakers were cranking out gas-guzzling monsters that rapidly fell out of favor with consumers after the 1973 oil shocks. Detroit never really recovered.

True, there are other factors behind the strong high-tech manufacturing prowess of Germany and Japan. These include strong secondary public education, patient capital, and smart industrial and trade policies. But it's clear that unions and strong pro-labor laws play a key role, as well.

Posted by Marc McDonald at 7:41 PM

How Unions Make a Nation Competitive

[mawilson 2,133]

Fair and balanced - LOL

[JohnSmith2007 353]

Trouble is, one story is about public unions (the original post) and the other is about private sector unions. Apples and oranges. They are not the same.

[peejay 327]

Private sector unions are also political machines. I haven't worked union since the 1970's, but remember well that our dues were used for political purposes even then. For the most part it was labor issues. We were often instructed to boycott products of companies that were on strike or had labor disputes. Back then I was young and apolitical, so it was no big deal for me. Also, America was quite different than it is today.

My younger brother is currently a private sector union worker and he resents his dues being used to support political causes and politicians that run counter to his core beliefs. The unions have expanded their scope not only to include labor issues, but social issues as well. He has been thinking about chunking his union membership since this is an option in TX since it is a right to work state. He often gets into heated arguments with some of the union shop stewards when they spout off with their Leftist liberal bullshit he doesn't buy into. Why should he support that ####### with his hard earned money? Of course he will be a pariah at work if he quits the union, but he really doesn't give a sh*t. You gotta be true to yourself.

I agree.