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Unions: Time For a New Model

June 6, 2012

Wisconsin’s Recall Election, and the Importance of Law Above Power

by J. Andrew Zalucky

Introduction

When people start to argue from tradition, I think they’ve clearly lost the argument. Hearing a Conservative argue from tradition is something I’ve come to expect, but to hear it from Liberals is a little disheartening. What I’m driving at here is the current issue surrounding Labor Unions, both in the public and private sector, a conversation prompted by the re-call election of Wisconsin Governor Scott Walker. Many Liberals and Progressives rightly point out that “Unions help built this nation”, but they should note their own emphasis on the past tense here. The principles behind the labor movement are admirable ones: fair pay, employee representation, reasonable working hours and conditions- no one should dispute this, or the strides that the movement made to enshrine these in the workplace. However, one cannot deny the practical problems and potential moral hazards involved in a unionized labor force in the modern world. And while I am not calling for the universal busting of all Unions, I think some major restructuring needs to take place.

In a truly inspirational piece in The American Interest called “The Once and Future Liberalism“*, Walter Russell Mead writes about post-war American economy’s reliance on what was called The Iron Triangle, shorthand for the three-way partnership between The Government, Big Business, and Labor Unions:

In the old system, most blue-collar and white-collar workers held stable, lifetime jobs with defined benefit pensions, and a career civil service administered a growing state as living standards for all social classes steadily rose. Gaps between the classes remained fairly consistent in an industrial economy characterized by strong unions in stable, government-brokered arrangements with large corporations…High school graduates were pretty much guaranteed lifetime employment in a job that provided a comfortable lower middle-class lifestyle; college graduates could expect a better paid and equally secure future. An increasing “social dividend”, meanwhile, accrued in various forms: longer vacations, more and cheaper state-supported education, earlier retirement, shorter work weeks, more social and literal mobility, and more diverse forms of affordable entertainment. Call all this, taken together, the blue model.

Sounds pretty good doesn’t it? Here’s the problem, the model itself was able to survive due to the United States’ position as the only leading superpower whose industry was unscathed by the Second World War. But what happens when that begins to change?

The blue model began to decay in the 1970s. Foreign manufacturers recovered from the devastation of World War II and in many cases had more efficient and advanced factories than lazy, sclerotic American firms. German and Japanese goods challenged American automobile and electronic companies. The growth of offshore financial markets forced the U.S. financial services industry to become more flexible as both borrowers and lenders were increasingly able to work around the regulations and the oligopolies of the domestic market.

These changes meant a challenge to the model’s existence, and Unions were no exception.

The Private and Public Sectors

Last year, when I was still working as a temp for a large Fortune 500 organization in the construction equipment rental industry, I had a good conversation with the representative in charge of Union relations (since I haven’t consulted them first, I’ll leave the gentleman’s and the companies identities out for the moment). He explained to me the problems he had run into with the unionization of the drivers that run supplies from one location to another. The company itself had a merit-based contest that allowed for the drivers with the best performance record to be able to own their own trucks. While many workers liked this, some of the union officials in New Jersey balked at this, claiming that “no one should be made to feel less valuable than anyone else.” I realize this example may sound like a straw man, but the idea itself holds true for many unionized jobs. Basically, the representative explained to me that sure, many union workers still took pride in being union and put their hearts into it, but in most cases all unionization produced was a race to the bottom.

Turning again to history, Mead points out that

As industry became more competitive, private-sector managers had to shed bureaucratic habits of thought. Lifetime employment had to go. Especially productive workers had to be lured with high pay. The costs of unionization grew; in the old days, government regulators simply allowed unionized firms to charge higher prices to compensate for their higher wage costs, but that no longer worked in the face of greater competition. High wages in the United States drove manufacturers toward greater automation even as low wage labor in Asia and elsewhere began to make inroads in manufacturing.

“But Drew, the Scott Walker re-call had to do with legislation related to public sector Unions.”

Well, let’s look at Unions in terms of their agreements. In a way, public sector Unions deserve even more scrutiny than their private sector counterparts. In the private sector, when you look at many AFL-CIO agreements and turn to the section covering wages, you will often see that they go up on a yearly basis irrespective of performance. If you were to implement this in the public sector, this would entail a continual increase in cost to the taxpayer every year. And that’s not even taking into account pension agreements, which a Reason article rightly titled “The State Pension Time Bomb” details that:

State officials estimated their plans’ unfunded liabilities at $452 billion, with total liabilities of $2.8 trillion. But when economist Andrew Biggs of the American Enterprise Institute calculated the figure with the methods used by private-sector pensions, he found that total liabilities amount to over $5 trillion, with the unfunded liability at $3 trillion.

In discussing public sector Unions, Mead points out that:

powerful non-industrial (or “trade”) unions…“produce” only paper and process, imposing high transactional costs to the economy. The result is a governmental sector too unproductive, too unresponsive and too expensive to do what needs to be done at a reasonable cost. Government also retains the anti-consumer mentality of the old blue monopolies: If you don’t like the lousy services government provides, you can…move. This is why public schools are increasingly expensive and yet do not provide improved services. Education, health care, the legal system and government are four crucial economic sectors in which costs have been rising faster than inflation for much of the last generation.

And while there are many reasons not to like Scott Walker (his support for voter ID laws and rejection of healthcare grants are particularly obnoxious), its worth noting what the results of his reforms have been, as an article in Forbes points out:

The centerpiece of Walker’s legislative victory last year, of course, was slashing costs by making government-sector workers chip in a bit of the price of their Cadillac benefits and restricting some of their collective-bargaining rights and organizing powers. The move saved Wisconsin taxpayers an estimated $1 billion so far, enabled the state and school districts to avoid laying off teachers and other workers, led to renegotiating of some local contracts that taxpayers now can afford, and gave some districts revenues that they could then plow back into other line items on their budgets. Statewide property taxes fell by 0.4 percent last year, the first time for a decline since 1998.

From a strategic standpoint, one could argue that Scott Walker overreached when he targeted collective bargaining rights, something his Ohio contemporary John Kasich is paying for dearly himself. But the point here is that he’s begun the reforming of the state’s public sector into one that its residents can pay for, and this could allow for more investment elsewhere later on. And despite fears to the contrary, the unemployment rate in Wisconsin has actually decreased from 7.5 in April 2011 to 6.7 in April 2012 (I pulled the info from the Bureau of Labor Statistics). From a tactical standpoint, I think the Wisconsin Democrats could have picked a stronger candidate, and for that matter- should have waited until the next election to put Walker’s record up for a referendum. Instead, they made chose a fight and got burned badly.

Looking Forward

Last year, in my article on Occupy Wall Street, I outlined the case that one part of one sector of the economy should not be able to hold reigns of government through its spending power and landed interest. Similarly, I would argue that one institution should not be able to obligate its members to hold the entire economy ransom because of a needed fiscal restructuring. To be fair, a lot of Unions now have “No-Strike” clauses written into their agreements. But this is merely an example of an adaptation leading to the old model’s phasing out. Although it stands as a defeat of a cherished piece of post-war American life, Ezra Klien’s blog today points to a possible silver-lining or shift in priorities for American Liberals hidden in today’s headlines:

But if you take labor’s decline as a given, then another question presents itself: How do you limit the resulting corporate power over elections and legislators? And that’s much more possible, even in a post-Citizens United world. There’s legislation, like the Fair Elections Now Act, that could publicly finance elections. There’s legislation, like the DISCLOSE Act, that could force so much transparency on corporate spending that it ceases to be an attractive option.

For my part, I think we should frame our thinking on the issue around the concept of LAW above POWER. Like I said, the goals and principles behind the labor movement are sound, but they should be enshrined in the LAW, NOT in the hands of old, corrupt, monolithic institutions that hold the POWER to push its agenda without consideration of that law. They should be enshrined in laws like The Fair Labor Standards Act, The Family and Medical Leave Act, and of course, The 1964 Civil Rights Act. So called “Progressives” may not appreciate this concept, but Liberals absolutely must if the name means anything. Before these and other laws were put in place, old-fashioned Unions stood as a bulwark against discriminatory practices and unfair working conditions. Good on them, their legacy should reflect the best in American values of fairness and dignity. But technology has moved on, economics has moved on, and perhaps most telling, Globalization has moved on. It’s time for the American labor force to move on as well.

The destination has not changed, but the vehicle we once used to get there belongs in a museum.

*PS: I highly recommend you all read Mead’s article. I plan on using it for another discussion about the future of Liberalism. Here is the link again.

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