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January 11, 2011

Why Public Sector Unions Are Worse Than Private Sector Unions

by Brad Warbiany

Kevin Drum, as usual, gets it wrong on public sector unions:

Public sector unions are a lot like that: conservatives don’t like them in the first place, and crippling them would also seriously cut into a major funding source for the Democratic Party. It’s another twofer. And as Surowiecki notes, they’re a ripe target right now.

I left the below comment over there:

I’m as free-market libertarian as they come, but yet I understand the potential benefits of private sector unions. If a union is smart, they position themselves as creating value both for workers and for the employer — i.e. a union can take the place of eseentially an outsourced HR division from the employer. By doing so, the union through collective bargaining can take the responsibility to negotiate individual salaries (obviously this is most important in jobs where individual workers have low differentiation) and work conditions. Collective bargaining has a place.

But there’s a key — in the private sector, there is always a profit/loss number. The employer has a constraint on behavior in that if he cannot generate enough revenue to pay his workers and still make a profit, he must either cut costs or go out of business. Thus, sometimes he has a responsibility to the company to tell the union “No” with regards to a request. A union that understands this and works with an employer (i.e. the exact opposite of UAW behavior) to find solutions that protect the workers and helps the employer stay in business adds value. A union that won’t acknowledge a symbiotic relationship with the employer, or an employer who fails to say “No” when necessary will be punished by the market — and the Big Three & UAW are perfect examples of both.

The problem with public-sector unions is that there is no profit/loss. The unions are in a position of power because “management” (i.e. politicians) are not punished for their failure to say “No”. In fact, the story of politics is promising the moon and figuring out a way to deliver later, whether it be a promise to the voters or a promise to the unions. Coupled with a media that is typically pro-unionization (after all, what reporter wants to be seen as “anti-worker”), and the politician WILL be punished by public opinion for standing up to the union and saying no. All the incentives align not to have a union and politicians form a symbiotic relationship to be both efficient and responsible, the incentives align for the union & politician to push for the most lavish benefits possible, and put the taxpayer on the hook. Then, when the excrement hits the air circulation device, they scream about cuts to pension programs and fall back on their tried-and-true response, raising taxes.

The reason that “the Right” is so against public sector unions may partially be due to an overall anti-union sentiment. However, they’ve got ample reasons to be especially critical of public sector unions, as the natural check on their outrageous demands (i.e. the market) doesn’t exist for government.

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9 Comments

  1. Spot on.

    Either they don’t understand economics, or the union leadership understands (too well) that they will get their cut whether the relationship works or not!

    Comment by KDaunt — January 11, 2011 @ 2:40 pm
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  3. I don’t believe government workers should even be *allowed* to unionize for the simple fact that they work for us. I would like to put the “servant” back in public service. Public servants should not work with the expectation that they should have better benefits or pay than the rest of us (the rest of us who are paying their salaries BTW).

    Comment by Stephen Littau — January 11, 2011 @ 3:35 pm
  4. Stephen,

    Again, I’m not opposed to public workers unionizing based on them “working for us”. I’m opposed to public workers unionizing because we, as voters and taxpayers, don’t exert an effective control over what those working for us are paid.

    In much the same way as common (voting) stockholders of a corporation don’t have much control over its day-to-day operations, individual voters & taxpayers don’t have much control over how a government is run. But unlike selling the shares of a company that you believe is being poorly run, it’s difficult to “sell” your share of your government’s spending…

    Comment by Brad Warbiany — January 11, 2011 @ 4:27 pm
  5. Brad, I think we’re pretty much on the same page. If we cannot have a say in the negotiations, we should be able to “sell our share.” Of course this being government, we can’t really do that.

    Comment by Stephen Littau — January 11, 2011 @ 5:14 pm
  6. they’ve got ample reasons to be especially critical of public sector unions, as the natural check on their outrageous demands (i.e. the market) doesn’t exist for government.

    I used to be the kind of free-market libertarian that I think you probably are. Used to. I am no more. Why? Because I came to realize something that quite a few (if not the vast majority of) free-market libertarians have yet to realize, which is that governments don’t exist outside of the market and aren’t different from corporations in any way other than the fact that they use force as a means of gaining revenue. You yourself treat governments and corporations as though they are two different things; they aren’t. Governments are simply a specific kind of corporation. What separates them from all others is that they’ve secured a monopoly on the use of violence as a means of securing revenue. That’s it. All of the services that governments provide to people who, for the most part, never asked for them and many times would rather they weren’t provided can be and have been provided by the private sector. Governments are simply massive conglomerates whose names are United States, Great Britain, Mexico, Canada, China, and so on. They are parent companies of companies called Department of Defense, Department of Agriculture, Department of Homeland Security, and so on (though the names may change, the functions typically remain the same). The parent companies have board members called legislators and executives called executives and internal dispute resolution services called courts. There’s no real difference between governments and corporations other than their names and how they’re viewed by the masses.

    The market does impose checks on governments – it’s called collapse. Though it doesn’t happen nearly as frequently as it does with private-sector corporations (because there are fewer of them), it does happen with regularity. Maybe you’ve heard of a couple governments that have collapsed? Sometimes they collapse for economic reasons. Sometimes they collapse because they were violently overthrown by competing governments (which were sometimes erected by people who they claimed as their market base). However you refer to it, it’s a market function because the market is humanity and ALL governments are simply groups of people out of the whole of humanity who are operating within the larger market.

    Comment by Justin Bowen — January 11, 2011 @ 8:12 pm
  7. Justin,

    Actually, I’m not going to disagree with you nearly as much as you probably think I am. At core, much of what you say here is spot-on. I oversimplify in the post a bit, but it is obvious that there are *some* constraints on government. It’s the reason that government won’t just raise income taxes to 80% in order to fund their desires — that level would be enough to destroy their monopoly on the use of force (because the economy would go underground and the people would revolt).

    That said, I have to point out a few things:

    1) Governments have a monopoly on the use of force for A LOT MORE than raising revenue — they have “police powers”, for good or ill, affecting pretty much all areas of life. Sometimes that’s doing things like throwing murderers in jail. Sometimes that’s shooting innocent citizens as “collateral damage” in the drug war — the power to make drug use illegal itself an abrogation of power well beyond that of taxation.

    2) Governments also have a territorial monopoly on these functions. There are conglomerates such as Great Britain, Mexico, China, etc… If I don’t like the USA’s services, I can’t decide I want to switch to China’s services without picking up and moving a few thousand miles.

    What you say is mostly correct — there are a lot of similarities between governments and corporations that are overlooked. It’s also true that a lot of free-market libertarians excuse behavior from corporations that is identical to behavior they’d decry from governments. But there are some critical differences, and those differences make it impossible to suggest that the only differences are “their names and how they’re viewed by the masses”.

    Comment by Brad Warbiany — January 11, 2011 @ 10:36 pm
  8. The problem with public sector unions is that there’s a public sector.

    Comment by Thomas L. Knapp — January 12, 2011 @ 6:33 am
  9. I think both public and private sector unions damage people in society. Only, private sector unions damage society (# jobs available *and* labor price-fixing) when they are not working as intended. Often times, a private sector union will be just an added catalyst for either human position eliminated, or, an added incentive for a multi-national corporation to move operations overseas.

    Public sector are just slime to me. Artificial labor price fixing ON TOP OF artificially high labor costs??? WTFE!

    Comment by procopius — January 12, 2011 @ 4:35 pm

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