The Battle Ahead: Public Sector Unions

From The Economist:

Politicians have repeatedly given in, usually sneakily–by swelling pensions, adding yet more holidays or dropping reforms, rather than by increasing pay. This time they have to fight because they are so short of money. But it is crucial that the war with the public-sector unions is won in the right way. For amid all the pain ahead sits a huge opportunity–to redesign government. That means focusing on productivity and improving services, not just cutting costs. (Indeed, in some cases it may entail paying good people more; one reason why Singapore has arguably the best civil service in the world is that it pays some of them more than $2m a year.)

The immediate battle will be over benefits, not pay. Here the issue is parity. Holidays are often absurdly generous, but the real issue is pensions. Too many state workers can retire in their mid-50s on close to full pay. America’s states have as much as $5 trillion in unfunded pension liabilities. Historic liabilities have to be honoured (and properly accounted for, rather than hidden off the government’s balance-sheet). But there is no excuse for continuing them. Sixty-five should be a minimum age for retirement for people who spend their lives in classrooms and offices; and new civil servants should be switched to defined-contribution pensions.

Another battleground will be the unions’ legal privileges.

It is not that long since politicians of all persuasions were uncomfortable with the idea of government workers joining unions. (Franklin Roosevelt opposed this on the grounds that public servants had “special relations” and “special obligations” to the government and the rest of the public.) It would be perverse to ban public-sector unions outright at a time when governments are trying to make public services more like private ones. But their right to strike should be more tightly limited; and the rules governing political donations and even unionisation itself should be changed to “opt-in” ones, in which a member decides whether to give or join.

The productivity imperative

Fixing the public sector must not be allowed to degenerate into demonising it. Its health is vital to the health of society as a whole, not least because of its impact on economic growth. Bad teachers mean a lousy talent-pool for employers. Allowing a subway driver to retire at 50 on an artificially inflated pension means less to spend on infrastructure: just look at America’s highways and railways. Even if many public services are monopolies, private capital is mobile: it goes to places where government works. With ageing populations needing ever more state help, the left should have as much interest as the right in an efficient state sector (perhaps more so, as it thinks government is the way to right society’s ills).

Private-sector productivity has soared in the West over the past quarter-century, even in old industries such as steel and carmaking. Companies have achieved this because they have the freedom to manage–to experiment, to expand successful innovations, to close down bad ones, to promote talented people (see article). Across the public sector, unions have fought all this, most cruelly in education (see article). It can be harder to restructure government than business, but even small productivity gains can bring big savings.

The coming battle should be about delivering better services, not about cutting resources. Focusing on productivity should help politicians redefine the debate. The imminent retirement of the baby-boomers is a chance to hire a new generation of workers with different contracts. Politicians face a choice: push ahead, reform and create jobs in the long term; or give in again, and cut more services and raise more taxes.

Read the whole thing here.


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