Sunday, December 12, 2010

Tales of Worker-Management Cronyism

The auto industry, civil service, and our old friend health care – three separate very troubled American industries. But if you look at them critically, it seems to me they have a certain sameness, which then makes me think they might reflect a more general American problem.

I have recounted the tale of the auto industry before (see Paul Ingrassia’s book, Crash Course.) The auto industry was a major success of modern industrialization. Three large companies emerged with one large union. The UAW wrested very high wages and benefits from employers, extensive and strict work rules, company pay for union organizing jobs, and a job bank where workers were paid for years not to work. The success that liberals now celebrate was that, thanks to union power, line workers entered the middle class. I, too, like to see people do well, but in this case the collateral damage was really unacceptable.

As the UAW thrived, management didn’t do its job. They not only caved to the UAW, they also pursued their own slothful and self-indulgent agenda. The managers were not unhappy to see workers’ pay improve, because they simply applied a multiple of that pay to compute their own. They exerted no quality and efficiency discipline, they continued to populate their own managerial ranks with the mediocre products of local feeder educational institutions, and they passed costs onto the public. When Japanese competition appeared the American auto industry had so little muscle and so much fat that they simply went lifeless, dead by their own hand and evil constitution.

We are also now facing a crisis in civil service. I don’t know how it arose, but the civil service deal has been a tradeoff of lower wages for better benefits and security. The civil service was supposed to be quiescent and not union organized. The deal started to unravel when unionization was allowed. We are now faced with civil service workers who retain their security, but who now have generous pay and benefits while they work, and pension plans that will soon bankrupt the country. Civil servants can retire after 30 years of service, sometimes even earlier, which lets many retire before they do in France or Greece, at nearly full salary. Not content with that, many have plans whereby they get a percentage, sometimes 100%, of their highest yearly salary. They can accrue vacation time and other bonuses until one year when they get a large spike of salary, and that’s the base they figure from. These retirement benefits are generally unfunded. That is, they need to be paid for by others than those who granted the benefits, because they were future benefits.

Who was on the other side of the bargaining when these deals were struck? Civil servant managers and politicians. The problem was that as soon as you have unions, you have political campaign contributions – the best example in the world being the California prison guards union. In addition, city and county managers responsible for recommending solutions to the political powers are similar to the auto managers. The managers’ financial fate is aligned with that of the other workers, rather than opposed. So, we have had managers who will benefit by caving into union demands, and politicians who can curry present favor in exchange for someone in the future having to deal with it.

As a result, we are in the soup. Unfunded obligations simply hang over us. As with auto management and workers, politicians and civil service workers act more like cronies than adversaries, and the public takes it in the neck.

Finally, the health care industry also has common elements. Hospitals drive health care costs. Hospitals can compete with each other for business, but if they cut costs and become more efficient, what have the managers really gained? The way health care is set up, a lower cost provider doesn’t really gain anything. Because patients and referring physicians do not pay much of the cost directly themselves, it is better for a hospital to be fat with patient amenities, and fat with rich physician “directorships” of various services and departments, and fat by giving into the relentless demands of the nursing unions and SEIU. A larger hospital budget translates into larger manager salaries and perks. Let the pubic pay, now just about to the breaking point.

These three industries seem to have the same dynamic – lack of competition to discipline the managers, and a resultant cronyism between management and workers to the detriment of the public. It would be nice if managerial professionalism led the managers to stand up for the public interest, but people being people, that doesn’t happen. Would that there would be the equivalent of the Hippocratic Oath for professional managers and politicians, but that doesn’t even work consistently for physicians.

In our mixed economy, when a market isn’t working, government is supposed to intervene, and either make rules to create a market that works, or to enforce an administrative solution. You can see how that didn’t work in the auto industry, is not yet working in health care, and government is itself the problem in civil service. My own sense is that government could be made to work in all three instances if we had the will and wisdom. A stronger government more impervious to business influence could adjust cases one and three, and governmentally appointed independent commissions could have warded off the civil service disaster.

Government needs to be better, smarter, more professional, more independent -- just better. We need leaders! We don’t need Plato’s guardians, but do need big guys, smart guys, aggressive guys on our side. Guys like my hero, Elizabeth Warren. We don’t need bigger government, we need better government.

Which is why I support the Goldman School of Public Policy at the University of California, Berkeley, my alma mater. Maybe fine professional schools harbor the long term solution. We should think up a professional oath for them.

So what do we do in the meanwhile? Yesterday my wife and I went shopping in downtown San Francisco. It was a sunny day in the low 60’s with happy crowds. We walked in the sun, we ate lunch, the fries were really good, we laughed. Life goes on.

I was buying baubles at Gumps, where we had somehow wound up, and Ann took little 10 month old Lola outside to wait for me. She is a happy baby, but this time she sat down on the sidewalk and cried. As Ann picked her up, a nice man on the way into the store said wryly, “I wish I could do that, sit down on the sidewalk and cry!”

Sometimes, so do I.

Budd Shenkin

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