Why Public Sector Unions Are Different and Why it Matters

Back in my college days, before Al Gore invented the internet, when Osborne was the luggable computer of choice, and my weight was in balance with my height, I was a member of the University of Oregon's Debate Team and our topic for that year surrounded labor unions and whether or not to strengthen them. This topic was my second favorite of my collegiate years (my favorite related to the Constitutional Right to Privacy - but I digress).Additionally, I need to state for the record I actually have 5 vesting credits in Laborer's Union Local 308 and I have represented/audited both union related benefit plans and signatory employers to labor union contracts. Accordingly, I have first hand understanding of the benefits (and costs) of labor unions. Also, I believe I understand why the Wisconsin lead challenge resonates with so many while simultaneously offends others.I think that we can all accept the fact that in many, if not most, circumstances, the management/labor relationship is beyond repair. All one needs to do is look at the major unionized industries like airlines to witness first hand the results that occur when management and labor stop working together to satisfy customers. And even worse, labor frequently negotiates like it is 1911 instead of 2011 and hasn't learned that in a knowledge economy, the physical power associated with brute force is less valuable than an informed mind.The primary issue involved in the public employee unionization of labor is that the basic management/labor contract previously mentioned doesn't apply to public sector employees. And the result of this misunderstanding has lead to our current frustrating situation where in too many areas, public sector union employees receive associated wages and benefits that are above (and frequently not just by a small amount) those of competing alternatives and hence this inequity (whether perceived or real) (wow - this makes me think of the old Mutual of Omaha animal series where the events were either real or simulated to reflect real events LOL) between the forces that exist in a traditional profit focused employment environment and one of public service has become too extreme for many people of sound mind and character to accept. Something has to change. And from what I understand about human nature - those that receive the King's benefits rarely give them up without a fight. So, we fight (in that spiritual sense at least)Yet, how did we get here? Well, even though I was fairly knowledgeable on this topic back in the Reagan Administration, I may have forgotten a thing or two, but I think I have enough of a memory to discuss some thoughts and offer at least one solution. A long long time ago (before Star Wars IV for you Gen X, Y, Z folks) people who elected to work for governments in Civil Service (or its equivalent) essentially were provided with jobs that would generally pay less (note the less here) than the prevailing market based alternatives and in for that lower pay, they received in exchange (generally at least) greater security (government workers are rarely fired/terminated even when violating laws and community standards let alone for something like being lazy, insubordinate, etc. - example - a bus driver in Portland accidentally ran over several bicyclists/pedestrians while making an illegal triple lane change and it took a formal hearing to revoke her bus/commercial driver's license and I suspect she is appealing it - now, outside of Civil Service - I am certain that illegal operation of the bus followed by deaths - should indicate beyond any reasonable doubt that bus driving shouldn't be in this person's future, even if it was just a really bad day and an accident simply demonstrates how out of sync the Civil Service "unionized" employment system is broken.The original intent may have been fine. The public service at less the full market wages but receiving other benefits was fair. Yet now it has become unfair? Why/How?Well - the number one problem is that the negotiations are held in the wrong pricing/value quadrant. What? You don't know about pricing/value quadrants - you simply may have missed that lecture in your free market economics lecture. What? Your university didn't have free market economists? That is most likely because your professors were part of a .............Union (LOL).. Ok let me explain (I owe Ron Baker for this education and I am certain that at least one of his extensive literary writings dealing with the economics of professional knowledge firms (AKA Firm's of the Future; Value Pricing, Pricing on Purpose, etc.) will handle this topic in grand detail (and far better than I - but he isn't writing this, I am {so there}). I shall move on.There are four ways to spend money. And each of the four have their own quadrant. The parties to the four quadrants are: Who Pays and Who Benefits. These can be described as follows;Quadrants 1 and 2 have the 1st person spending money (this is known as "I" am paying. Quadrants 3 and 4 therefore have "others" paying (this makes complete sense since either "I" pay or "you" pay. The other aspects of this equation relate to who benefits in that either "I" can benefit or "you" can benefit. So Quadrants 1 and 3 have "me" benefiting and Quadrants 2 and 4 have "others" benefiting. Go ahead - grid this out yourself - it is easy and heck you might actually be able to demonstrate this with your children (or your team members - which ever require the education first).Quadrant 1: Here I am spending my money on me. So, by the very definition I seek to maximize my "value" - on any form of valuation that you can determine. For, if I don't or can't determine if I will, receive value for my money, then I won't spend it. For those of you that might not grasp this - here is an example: Screaming Eagle is a vineyard that produces "cult" wines that are prices north of $1,000 per bottle (if you can get it). I have yet to purchase a bottle because, well I am not Bill Gates wealthy enough to receive the value for the money. My choice, my values, my money. Contrast that with say a bottle of Pine Ridge Vineyards Howell Mountain Cabernet (appox $100/bottle). I have several bottles of this wine as I can appreciate the value. Quadrant 1: My money on me - so I seek value for me.Quadrant 2: Here I am spending my money on say "you" - or anyone other than me. Here I will seek enough value for you - for (think a gift). If I can't find a gift that I value enough for you, I can always just give you money and allow you to move to your own Quadrant 1. (notice how gift cards work now - this is moving from Quadrant 2 to Quadrant 1) (pretty smart huh) - Now in my Screaming Eagle wine analogy - this would never happen and may only rarely happen with the Howell Mountain for say someone really special. For my beer friends - they get a six pack and I get the nice bottle of wine.Quadrant 3: Now this is a fun one. I benefit and you pay. Think expense reports. So now I am in Vegas at a fancy restaurant with customers wining and dining and that bottle of Screaming Eagle is just begging me to buy it since that will be buried in my expense report and the "boss" will pay (or maybe the boss is there too). But regardless, people naturally move up value selection when they benefit and yet don't pay - just think about all of those group dinners you have attended where that one friend always orders Lobsters because the bill will be split and allocated evenly per person. And you know this person if they were paying would have stayed with the AARP special but they take advantage of others as they benefit and others pay.Quadrant 4: This is where it gets messy. Here Other people pay (taxpayers) and other people benefit (union members). {Yes, I understand that civil servants pay taxes - but not 100% of their wages so they still benefit in this model}. So, effectively there is no incentive to maximize value for the money spent because the spenders don't benefit and it isn't their money. And this is where the problem with collective bargaining and public employees is. The people negotiating aren't spending their own money and they don't benefit from the spending (other than in votes) (and to think our country has issues with Payola).The issue facing Wisconsin and the other states & municipalities is a Quadrant 4 problem. There simply are mismatched incentives. Add to this challenge the voting power of unionized public employees, the ability to use union dues to fund campaigns (and big spenders they are these unions) and the fact that politicians desire to be reelected, and you have a recipe for Quad 4 abuse. And that is what we have now.Solutions could include requiring the general taxpayers to vote on all bargaining agreements, compensation, benefits, etc. that politicians have negotiated (like the Senate having the veto power on foreign treaties the President negotiates). Or, maybe non-politician citizens negotiate on behalf of taxpayers with a final vote, override, veto power vested in the citizens. This way we have alignment - I can agree to spend my money on things I value but can also elect to save my money for alternatives. This adds balance to the system.Employees can retain their collective bargaining rights, they simply have to negotiate with those that pay their salaries and benefits. In this way, order can be restored, rights protected, taxpayers protected, and the news reports can focus on goodness over badness and we will all be happy.