January 8, 2011

AS IN THE PRIVATE SECTOR...:

The battle ahead: The struggle with public-sector unions should be about productivity and parity, not just spending cuts (The Economist, Jan 6th 2011)

Politicians have repeatedly given in, usually sneakily—by swelling pensions, adding yet more holidays or dropping reforms, rather than by increasing pay. This time they have to fight because they are so short of money. But it is crucial that the war with the public-sector unions is won in the right way. For amid all the pain ahead sits a huge opportunity—to redesign government. That means focusing on productivity and improving services, not just cutting costs. (Indeed, in some cases it may entail paying good people more; one reason why Singapore has arguably the best civil service in the world is that it pays some of them more than $2m a year.)

The immediate battle will be over benefits, not pay. Here the issue is parity. Holidays are often absurdly generous, but the real issue is pensions. Too many state workers can retire in their mid-50s on close to full pay. America’s states have as much as $5 trillion in unfunded pension liabilities. Historic liabilities have to be honoured (and properly accounted for, rather than hidden off the government’s balance-sheet). But there is no excuse for continuing them. Sixty-five should be a minimum age for retirement for people who spend their lives in classrooms and offices; and new civil servants should be switched to defined-contribution pensions.

Another battleground will be the unions’ legal privileges. It is not that long since politicians of all persuasions were uncomfortable with the idea of government workers joining unions. (Franklin Roosevelt opposed this on the grounds that public servants had “special relations” and “special obligations” to the government and the rest of the public.) It would be perverse to ban public-sector unions outright at a time when governments are trying to make public services more like private ones. But their right to strike should be more tightly limited; and the rules governing political donations and even unionisation itself should be changed to “opt-in” ones, in which a member decides whether to give or join.


...improving productivity is just a matter of cutting the workforce.

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Posted by Orrin Judd at January 8, 2011 8:56 AM
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