Union Made

Tuesday, March 29, 2011

Labor relations in the public sector continue to unravel. President Obama signed a $26 billion bailout bill some months ago for states that cannot afford to keep teachers and other municipal employees on their payrolls. At the same time, the embattled Chicago Teachers Union (CTU) was suing the Chicago Public Schools (CPS) in federal district court to reverse the layoffs of close to 1,000 teachers and assorted other academic personnel. The CTU complaint insisted that the teachers’ contracts were protected property interests that could be terminated for unsatisfactory performance only with an individualized hearing that would drag on long past the start of the next school year.

The layoffs won’t put a dent in the Chicago schools’ $370 million budget deficit. So we should forget the niceties of this collective bargaining agreement and arrange a showdown in which both sides are likely to blink, knowing that a compromise only postpones the day of reckoning.

The great temptation in dealing with such situations is to throw some temporary patch over a larger problem that only gets worse. But no longer can we duck the two deeper questions behind these endless legislative and judicial struggles. First, what institutional arrangements give rise to these constant showdowns? Second, what can be done to fix them—not only for teachers but also for prison guards, police, firefighters, and all other state and municipal workers?

Start with this brutal reality. Private sector employees outnumber public employees by about five to one. Yet with the recent collapse of the automobile and construction industries, public sector union members, at 7.9 million, outnumber the 7.4 million union members in the private sector. Put otherwise, the penetration rate of labor unions in the private sector is at an all-time low, 7.2 percent. The similar number for public employees is around 43 percent.

The great temptation is to throw some temporary patch over a larger problem that only gets worse. It’s too late for that.

These figures are no accident. Major states like California, Illinois, and New York require state agencies and local governments to negotiate with unions. To avoid strikes, compliant public officials grant unions guaranteed wage and pension contracts that shift all the risk of the economic downturn onto the public treasury. Bad times have led to a collapse in the stock market and a decline in tax revenues. So what if private citizens are taken to the cleaners? Who cares if discretionary public services are cut? The union ship continues to ride high and untroubled on the roiling seas.

The public fury grows with each new social dislocation. To finesse the blow, clever union leaders try, as in New York state, to direct all cuts to future union members, thereby leaving untouched the wage and pension package for current employees and pensioners. Too little, too late. Deep cuts must be made today, not in a generation.

The only serious solution: do two things and avoid a third. First, launch a frontal assault on the protected status of public unions. Second, cut pension benefits for present and future union retirees. Third, forbid the use of federal tax money to bail out failing states and municipalities.

Regarding the first step, Calvin Coolidge underestimated the risks of public unions when he famously said, “There is no right to strike against the public safety by anyone, anywhere, any time.” No-strike laws address this risk but create another one in its stead: excessive monopoly power through the power of mandatory arbitration. The correct solution is more comprehensive. No public body should ever be required or allowed to confer monopoly power on an employee union—period.

In education, for example, we forbid powerful unions to block charter schools, vouchers, or homeschooling. Any school, public or private, should operate with an explicit legislative guarantee that all teachers and other employers must agree not to join a union as a condition of employment. The “best interests of the student” cannot be allowed to become a fig leaf for protectionist union legislation. Alternative paths of education are the best way to reduce government expenditures and blunt union power.

No public body should ever be required or allowed to confer monopoly power on an employee union—period.

As for step two, the sweetheart pension agreements between union leaders and sympathetic legislators, far from being sacred property rights, represent the worst form of self-dealing. Some legislators sell out their constituents in exchange for modest campaign contributions; others yield to union threats of massive electoral retaliation if they do not go along with union demands.

No taxpayer has ever been allowed to challenge these questionable deals in court before they took effect. This must change. Any self-dealing between a corporate board and its key officers wouldn’t last a minute; these bloated union contracts should fare no better. They should be set aside as unfairly obtained. Exactly how they should be trimmed is hard to say.

Voters in Colorado, Minnesota, and North Dakota recently voted to eliminate cost-of-living increases for present and future pensioners. It’s a start, but it won’t be enough. In the end, the ultimate objective should be to reduce pensions for public employees to the levels received by their peers in private industry.

Three: no federal bailouts, like the recent $26 billion congressional giveaway. Rewarding the profligate at the expense of the frugal is an open invitation to another round of bloated union contracts. The federal government should not tax away the budget accomplishments of fiscally responsible states—think Governor Chris Christie in New Jersey—to subsidize the profligate ways of other states. We need to level up, not down.

In the end, this battle over union contracts and union pensions is part of a larger political struggle. One the one side are those who think that more regulation, more taxation, and more spending are required to dig this nation out its current hole. Berkeley economist Robert Reich has suggested that the federal government spend heavily to give interest-free loans to states in financial stress.

No dice. We need to move in the opposite direction: deregulate, lower taxes, and slash budgets. The choices could not be more stark.