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The Engine of Spending

As Jennifer referred to this morning, Andy Stern, the head of the Service Employees International Union (SEIU) is not happy with the idea of scaling back health-care “reform.” It is not exactly hard to see why Stern is upset. He represents over one million health-care workers. He also represents over a million government workers and a government takeover of health care is very much in his interest.

Andy Stern and the SEIU are the exemplars of the modern union movement, as the old union movement, personified by Walter Reuther and John L. Lewis, that was so influential in the mid-20th century is a shadow of its former self. Union membership peaked in the early 1950’s at about 35 percent of the nation’s workforce, virtually all of them in the private sector. It’s been declining ever since and is now at 7.2 percent of the workforce in the private sector, about where it was in 1900. What has been growing is union membership among government workers and non-profits such as hospitals: 37.4 percent of the public sector workforce is now unionized and these public-sector workers now constitute more than 50 percent of all union members.

As Daniel Henninger of the Wall Street Journal made clear on Thursday, this is a very dangerous situation. The public service unions have acquired disproportionate political influence, pouring millions in dues money (more than $100 million in 2008) into political campaigns to elect Democrats, the party of government. They pour millions more into ads opposing any reform in government spending, even in states on the brink of bankruptcy, and pushing for higher taxes instead. In Massachusetts public safety spending is up by 139 percent in the last twenty years, education up by 44 percent, Medicaid up by 163 percent.

A big part of the problem is that the laws in place that cover collective bargaining were devised in the 1930’s when public-sector unions didn’t exist. A corporation is a wealth-creation machine and collective bargaining is a negotiation over how to divide the profits between stockholders and labor. Each side knows that if they drive too hard a bargain, they will injure the goose that lays the profit eggs. If labor is paid too much, the company will be less competitive. If it is paid too little, good workers will leave for better-paying jobs elsewhere. But in the public sector, unions and the bureaucrats who negotiate with them are playing with someone else’s money (yours, to be precise), and have overlapping interests in spending more of it. Bureaucrats, after all, measure their prestige by the size of the budget they control and the number of people who report to them.

The result has been an explosion in public-sector compensation. Federal workers now earn, in wages and benefits, about twice what their private-sector equivalents get paid. State workers often have Cadillac health plans and retirement benefits far above the private sector average: 80 percent of public-sector workers have pension benefits, only 50 percent in the private sector. Many can retire at age 50.

The public-sector unions have become the engine behind ballooning state and federal budgets. There will be no cure for excess government spending until their power is decisively curbed. It would be a winning issue for a Republican presidential candidate in 2012. The Democratic candidate, deeply beholden to Andy Stern, who has visited the White House more than anyone else not in government since Obama has been in office, will be very hard pressed to defend against such an attack but will have no option but to try.



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