“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker

Thursday, March 3, 2011

Why Public Sector Unions Are Different Than Private Sector Unions- Part 2

Last Friday I wrote this post, which I intended to be fairly comprehensive. But, more recently, I wrote this post on my companion business blog, and realized, as I composed it, that I omitted an important dimension of the public-private sector union differences in that first post.

It became apparent when I wrote this in the more recent post,

"With the rise of hostile takeovers and raiders taking their targets private, or into Chapter 11, many more businessmen learned about the PBGC. The Pension Benefit Guaranty Corporation is the federal agency which is charged with administering the failed, under-funded pensions of bankrupt firms.

The truth is, the private sector has seen, for some thirty years, a series of sectors experience bankruptcies which dumped underfunded pension plans onto the PBGC. At the same time, many other companies switched to defined-contribution plans, terminating their defined-benefit plans and putting the resulting lump sum into the former.

In short, private industry has learned, over the past three decades, that the defined-benefit pensions are, for the most part, illusory and unworkable.

What's happening now is that public sector employees are discovering the same truth. The major difference, however, is that because state and local governments foolishly agreed to these plans, the public sector unions have, as a counterparty, an entity that cannot, as easily as a private sector company, declare bankruptcy and subsequently renegotiate the pension obligations."

From a political perspective, that last paragraph is a gross understatement.

In past decades, when steel, railroad, airline and other heavily-unionized firms finally buckled under the weight of pension and labor costs, they filed for bankruptcy. Pension plans went to the PBGC funded as was.

Simply put, contracts between parties became settled, in breach, in bankruptcy courts. If unions and their members foolishly pushed too hard on a company and helped it become uncompetitive and, ultimately, unprofitable, then they bore the consequences in the form of unmet financial obligations.

Companies are born, and die. Relying on a private enterprise for long term financial obligations is, at its root, risky business.

But making your employment, pension and health care contract with a town, city, county or state is a different matter. Having it written into a state's constitution? You're in clover.

That's why public sector union rights such as collective bargaining are so pernicious and dangerous. When a private company goes bankrupt, it's not news.

But we bridle at towns and states filing for bankruptcy. Cloaking financial promises in the authority of local or state government means that your counterparty risk is much lower than if your employer is a private entity.

I don't know if AFSCME, NEA and SEIU leaders fully understood this thirty years ago, but by the time steelworkers were losing their pension and healthcare benefits, I'm pretty sure they did. Then it was full speed ahead.

Because when they combined the now-commonly understood virtuous- for union leaders- cycle of having state and local government deduct union dues from paychecks and pay them directly to union bosses, who then funded election campaigns of union- and government-spending-friendly candidates, who then created more government (union) jobs with this special counterparty status, it was organized labor heaven.

Notice that nobody is removing the right of a union to collectively bargain on wages. What the Midwestern Republican governors and legislatures want to remove is collective bargaining on work rules and the non-wage and benefit terms which add so much to the cost of public sector administration. For example, Ohio Governor John Kasich noted that a town had to terminate 27 lower-ranked policemen in order to fire a sargeant.

So, take a step back and look at how public sector unions are different in this regard. They don't negotiate with a counterparty which, when overburdened with the onerous costs of the public sector unions' demands, can and will easily just vanish, leaving the union employees out of pocket. No, they are dealing with governmental entities which either can't, or can only with great difficulty declare bankruptcy.

It's a very special situation in which the union and its employees bear very little risk for pushing their demands to the extreme, without a logical counterweight to stop them.

That's why we need to eliminate collective bargaining powers- they aren't rights in the first place- for all public sector union employees.

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