Two of the writers on my Blogroll have been kinda singing from the same songbook recently: Karl Denninger and Mike (Mish) Shedlock – re the side bar. One of their pet peeves of late has been Unions in general, and Public Sector Unions in particular. On the one hand I do know where they are coming from, although on the other hand I also think there is more to this whole story than they have mentioned. So in the first instance, lets look at the arguments they have raised.
On the subjects of unions in general, going on strike for better pay and conditions when a company is in trouble is probably not the best way to advance your cause. In fact that could well be a perfect way to send the company that employs you under; or cause them to fold their tent, pack up and move way (as in – overseas). Then you are left with nothing. I suppose that rather comes down to whether you trust and believe anything that comes out of the mouths of the management of the company you work for. And if you don’t have a sneaking little thought in the back of your mind that if the company went belly up, then while that might be hard on you too, you really wouldn’t shed too many tears and would consider that a subtle justice for a company that deserved it.
So the arguments comes down to: are you cutting off your nose to spite your face? If you need to take a pay cut to save your job, is that better than no job at all? Do unions need to be more flexible and realistic, particularly during tough economic times?
The subject of public sector unions is even more tricky. If only because the situation with public sector Unions in the United States is significantly complicated by their Federal. State and local body structures. The argument of Mike and Karl is that in order for politicians to secure a support base, they have pandered to public sector unions and thereby created an unholy alliance that has run away to extremes. They are claiming that by capturing the political process, these unions have managed to effectively extort outrageous pay, working conditions and pension provisions that are far in excess of anything anyone gets in the private sector. As well as, incidentally, providing worse and worse services to boot – that being a result of being a monopoly provider, amongst other causes. Mike in particular goes so far as to declare that he would make public sector unions either illegal, or at the very least make it illegal for them to go on strike.
I wont bother going into all the reasons here for why he feels this way, and I do have some sympathy for his position. (go to his website and do a Search for “unions” if you are interested) The problems he highlights are real and do need urgent attention. They are issues that will arise in any situation and country that has similar institutions and politics. On the other hand, are they problems caused by the Unions, or is that just a symptom, a response to wider issues within the economy and the political system?
Our economic system, in fact any economic system, is always in a state of flux and will evolve in response to the factors working on it. Over the last couple of decades, one of the predominant themes has been out-sourcing and the transplantation of jobs to cheaper-labour countries. The rational is simple enough – it is cheaper, it cuts costs and therefore products can be brought to market and sold more cheaply. At least at face value, that is good for the economy on several levels. As always though, the consequences and cost tend to be hidden, or lost in the shuffle.
And one of the cost and consequences is the public sector union and the “runaway” costs attached.
Talk to anyone actually in a public sector union however and they will vehemently deny that they aren’t being paid or compensated outrageously at all, and that they have in fact been going backwards for years, their cost of living is moving up faster than their pay. Also, in order to be able to retire they better damn well have a gold plated retirement scheme, because otherwise just like everything else, they will end up being nickeled and dimed into penury.
So there you have it, the two sides of the arguments: why should public servants get better pay and conditions than anyone else – particularly when the services they are suppose to provide are so poor anyway, and, “we are barely on a living wage anyway”.
As it happens, I think they are both right, and that dichotomy has completely failed to identify the real problem.
For an economy to work, you need to have a chain of consequences. Worker – producer – product – wholesaler – retailer – customer – and back to worker. If you break the chain somewhere, then the rest of the system will fall apart. In fact, if the worker at the bottom of the pyramid is unemployed, then the whole superstructure built on that base falls over. Outsourcing jobs to another country is not a recipe for success. If you can replace those lost jobs with other productive enterprises then fine. But if all you have done is simply wiped out a whole tier of the economy, then it is all going to collapse sooner or later. Which brings us back to the unions.
Over the last hundred years or so, unions have become an integral part of the political and economic system. It did not happen overnight, or without a lot of trouble and conflict along the way. However inspite of all the problems, Unions, productivity, the economy and the standard of living, all managed to rise together. Unions need not be an obstacle to progress and prosperity. They have done much to improve the working and living conditions for everyone. The weekend and the eight hour day came from union movement. Would anyone want to go backwards from that? But we are.
If you have a business that is solely instituted and tasked with providing a quarterly profit to its shareholders, is constrained by tax, material, utility costs that cannot be reduced or avoided, then the only way left to reduce total costs is to look at the labour component – the wage bill. Either you cut the number of workers, cut the pay of the workers, or move the work to another country where labour cost are lower. That is simplistic of course but nevertheless, true in essence. In fact it is so true that large sections of the worlds manufacturing have moved to Asia; notably China and India, with a few other lesser countries thrown in for good measure. Good for Asia, bad for the original countries.
It means two things, labour costs everywhere trend back towards the lowest common denominator, or they trend to zero in those jobs that have been outsourced. Progressively what was being paid to the workers and recycled back into the domestic economy is getting shrunk more and more as the trend continues – and then accelerates due to tighter and tighter economic conditions. One part of the economy can’t be isolated from another, they all ultimately feed back into each other. Begger one part and you eventually begger them all
Except that some areas are more resilient, or resistant, than others. If your job has just been sent offshore then you are screwed, there is nothing you can do about it. However, there are some jobs that simply cannot be outsourced. Government sector jobs particularly. So as more private sector jobs vanish, it becomes more and more incumbent for the government to supply jobs at home, and the easiest way to do that is expand the public sector. There are a couple of other sectors as well that also can’t be outsourced, like the building trade. I am quite sure it is no coincidence that the runaway growth in the housing market and in government departments over the last decade/s were infact linked together by macro economic changes that include outsourcing. The sectors that could be shrunk were – and the ones that couldn’t, tried to expand in consequence. Government in so many way has become the resource of last resort. From a “golden” age around the Sixties with good paying jobs and full employment – instead of increasing wealth, productivity and education generating more prosperity and security; things have paradoxically slid the other way.
I won’t spent any time here analysing why things have gone the way they have, I will simply focus on the proposition that the natural instinct of people to hold onto what they have got has lead to a situation where the jobs that couldn’t be defended have capitulated and gone, while the ones that can be defended have remained, but come under more and more pressure. The unions have fought to maintain relativity and cost of living increases – and then only moderately successfully. While everyone else has gone backwards to the point that they are in second place now. Actually, everyone has lost, just some more than others. Blaming each other for being the problem is to miss the point.
Yes, bureaucratic incompetence and oppression is a genuine problem, but blaming the unions for that is misguided. Yes, megalithic and monolithic government is undesirable, but under the prevailing conditions, what were the options. More particularly in an unplanned, evolving system, the actions and responses were entirely natural – even rational. The government did what it is supposed to do; it does its best to protect the people/electorate. If the jobs are disappearing, then the government pays the unemployed a minimal benefit, expands the public sector to provide more jobs, and attempts to provide services that the rest of the economy can’t or wont. Of course that is doomed to failure because it is unsustainable. The current preferred political option of borrowing billions is definitely a dead-end, because pretty much nowhere in that is there any actual productivity and production.
What is needed is private sector jobs that actually genuinely produce something. And you know what, no-one really has come up with a good answer to that question to date. We simply don’t know what to do to make our societies work. We have spread manufacturing industries around the world, and made them more efficient and productive, but there still simply aren’t enough of those jobs to go around. What’s more, they migrate to where the cheapest labour is, thereby dragging down all incomes via global arbitrage. And even then, how much of our productive potential is diverted into trivial, inane endeavours like making knick-knacks and other rubbish that doesn’t last and is thrown away broken within a couple of years. We are wasting our resources; time, money and energy, doing effectively nothing. As a comment I read just a couple of days ago said, with cheap oil came a multitude of ways to waste it: jetski’s, private yachts, world travel and tourism, 4×4’s, etc, etc, etc. We waste what we have, and can’t really think of anything useful to do either. As it stands, there simply aren’t enough jobs to go around for everyone on earth.
Not jobs that pay well enough to ensure we can achieve our aspirational dreams anyway – even leaving aside how asinine most of those aspirational dreams are. So what happens is what always happens, people protect their patch. Unions, governments, even corporations and businesses are just doing the best they can to hold it together in their own sphere of interest. Pity there isn’t really any wider analysis of our problems.
It is OK for one sector of society to stand on the shoulders of another, everything in fact ultimately stands on the shoulders of our farmers who are the irreducible base of all of our societies. But it also has to be balanced – and it’s not. Starting from the bottom, we need to have a pretty clear vision and understanding of what is needed and what we are trying to achieve within every sector of our societies. Each has its part to play, but can’t be allowed to have free reign either. Government and the public sector is needed, but must stay within rational bounds. It can’t be left to try and compensate for every other failing in society. This is an organic system, and in that sense, the analogy the best fits our current dilemma is cancer.
We are being hollowed out, even as the tumour grows. Unfortunately, cutting out a tumour wont necessarily solve your problems, a tumour will result from a carcinogen, it is not the cause of it. We need a radical shift in lifestyle and priorities if we are going to be healthy again. We have binged on things we shouldn’t have, and neglected the things we needed. Like an addict, we can’t get better until we finally decide we are the problem, and we have to be the change we want. Fighting amongst ourselves won’t help, and miss-identifying the problem also wont help. Having said that… cutting out the cancers isn’t a bad thing either. Recision is definitely a necessary first step.
After that it becomes [more] complicated, we need to address our real problems.
There is a topic for another essay.