If we want things to stay as they are, some things will still have to change. City government is one of those things. While at the level of rhetoric, Democrats continue to embrace the blue social model and liberal urban Democrats in particular sing the praises of public sector unions and bureaucratic government structures, reality is driving reform almost as radical as the Republicans have tried in Wisconsin. President Obama’s former chief of staff Rahm Emanuel is governing very realistically in Chicago, for example, requiring government agencies to bid against private contractors for various city jobs. From The Economist:
Greater privatisation of Chicago’s waste collection has been on the agenda for a while. However the new mayor has decided that the private sector must compete with the public sector to see who gets to continue to collect the city’s recycling. Each company has been allocated similar areas of the city to service, and their cost and performance will be compared with that of the public sector.
The idea reflects an eternal dilemma for governments everywhere. While the private-sector ought to be cheaper at providing services, often after the contract is won either the price goes up, or the quality of the service down; sometimes both. The city of Chicago is not the first to try what some authorities call “managed competition”. It has been used in Charlotte, Indianapolis and in Phoenix, where the idea has a long history. One study found that in Phoenix between 1979 and 1994 the private sector won 34 contracts while the public sector won 22. In Chicago, the two firms in the “competition” actually already have seven-year contracts. However, the city insists that the companies concerned are well aware there is a competition, that their performance will be reviewed next year, and that contracts can and will be terminated if the companies fail to perform as well as the public sector does.
This approach sounds about right as far as it goes. If something can be done more efficiently and cheaply by a private contractor, the jobs should be outsourced. Where the municipal workforce is more effective, then they should stay on the job. Over time a competitive approach should improve the performance of both public and private sector bidders.
There are dangers to privatizing municipal services; the Soprano family, readers will recall, was in the waste disposal business in New Jersey and competed very effectively for contracts — not always on price alone. Chicago, home of one of the great American political machines, might not be wholly exempt from contracting processes that are less than fully transparent.
Beyond that, there are built in institutional biases. Accounting is tricky. Many city and state governments are using unrealistic pension assumptions. They have offered government workers fat pensions (and developed systems that alert workers can game to maximize pension payouts) and then, to avoid raising taxes or cutting services, they found ways to understate the final costs. One way they do that is to assume unrealistic rates of return on pension investments.
Measures like these, which generally lead to understating the cost of government operations, systemically understate the cost of business as usual. Whatever yardsticks are used to compare inside bids from government workers with private contractors from outside need to be accurate and fair. Shedding these unfunded and unstated costs is one of the primary benefits of shifting from the current workforce to a privately employed one; accurate accounting of the total lifetime cost of municipal workers would be one key to making a mixed public and private bidding competition work.
Another interesting approach would build on what many large private sector companies do when putting jobs out for bid: demanding cost reductions up front. It would be interesting to see what you got if you demanded that both public and private bidders had to come in with offers that were ten percent under your current cost — and continue to require cuts each time a contract is renewed. This is one of the ways that big retailers have forced increasing efficiency on their suppliers; perhaps states and cities could do the same thing.
Finally, Via Meadia would like to see bidding programs like these offer the chance for groups of city and state workers to organize themselves into independent firms to bid on the jobs. Turning bureaucrats into entrepreneurs should be a goal of American social policy at all levels of government. I would like to see groups of talented and committed teachers organizing to form charter schools that they would own and operate under contract. A kind of cooperative approach to government, giving professionals and employees the chance to form “coops” or firms that could bid for city jobs or compete for vouchers from parents and other consumers of government service does not just offer ways to cut government cost while improving services. It also creates a new group of property-owning, enterprise managing entrepreneurs.
In any case, it’s important to understand that the fiscal crisis now besetting all levels of government is more opportunity than curse. We need to reinvent and re-engineer the way some of our most basic institutions work. The cost squeeze will force our cities and states to become incubators of new ideas and new practices.
Interestingly, even as political rhetoric escalates and people all over the country wring their hands about our bitter polarization and gridlock, both left and right seem to be moving in the same general direction. In Scott Walker’s Wisconsin and Rahm Emanuel’s Chicago, financial reality is forcing flexibility and innovation. The Tea Party Republican and the Obama consigliere are both taking on encrusted work practices and inefficient, expensive union labor.
My guess is that over time the gap between the sides will narrow as the realities of local governance and politics shape the options available to politicians — and as we learn more about the fastest and best way to make changes that are increasingly necessary. The reality is in fact less polarizing than the politics.
There are three basic classes of voters when it comes to these issues: those who need government services and want more of them, those who don’t need them and don’t want to pay for services for others, and those who produce those services and want to be paid as much as possible for doing so.
The reality is that two of these three groups can unite around a program of efficient government: those who want services and those who don’t like paying for them can agree that government services should be provided as efficiently as possible. The question is what to do about those who want to get paid as highly as possible for producing them. Democrats generally count government workers as part of their coalition and so want to conciliate those workers as much as possible; Republicans like Scott Walker figure that the benefits of a more confrontational approach to state workers outweigh the costs.
On the GOP side, the backlash in Wisconsin, Ohio and other states is going to encourage politicians to look at getting the reform job done without arousing such a focused and biter opposition. Over the long haul of American politics, it seldom pays to demonize a significant sector of the voting public. It makes a lot of electoral sense for Republicans to find approaches to government reform that don’t lead to month long occupations of state capitol buildings. Figuring out ways to turn bureaucrats into coop entrepreneurs is one way to make radical change without necessarily turning the state and municipal labor force into an army of opposition that will fight you tooth and nail at the ballot box — and do everything possible to sabotage your administration if you win. Republicans who can get the job of reform done while attracting less focused and active opposition are likely as time goes by to get elected more often and get more done than their more polarizing competitors. Ronald Reagan could be a very smooth operator.
On the Democratic side, fiscal reality will drive a new moderation. Blue states and cities do not have the money to go on in the old way, but Democratic voters still want government services. Parents want their kids to get good educations, homeowners and renters both want the fire department to respond quickly to fires, and everybody wants the trash removed.
Over time, public sector unions seem fated to lose some of their power. The same fiscal realities that force reform agendas on blue mayors and governors will also undercut the hold the unions have on their members. When union leaders can’t deliver regular wages and pension increases, and when they can’t protect you from higher medical costs or from layoffs, and when younger members go into two-tier wage and pension programs, union leaders can’t command quite the same loyalty and respect. One of the reasons the private sector labor movement weakened so dramatically over the last thirty years was the inability of the union movement to counter the facts of economic life. Raise wages too high and the factory moves to China or introduces robots. Why pay dues to a union (or fight to get one organized) when the return on investment is small?
These factors are likely to undercut the public sector union movement as well now that financial constraints are making themselves felt in the world of government service. Privatization and layoffs due to fiscal constraints will reduce the size of the unionized workforce. Additionally, the public worker unions will be divided by interests. The sanitation workers want good schools for their kids and if that means fighting the teachers over charter schools, so be it. The firefighters want the trash picked up — and they want their property taxes low. Just as private sector union workers often disregard the official endorsements of their leaders when it comes to voting, the public sector union movement is likely to face a diminishing ability to deliver votes on Election Day.
The political goal for both Republicans and Democrats will be to deliver the most services at the least cost while eliciting the least impassioned opposition from organized labor. This suggests a gradual convergence on a flexible reform program, with reform accelerating over time as best practices develop and as labor slowly loses its clout.
We have seen something very much like this happening in the field of public education. Democrats like President Obama now take positions that would have been unthinkable ten years ago; despite the continuing power of teacher unions, the discussion about reforming the system has moved steadily toward alternatives like charter schools. There is more bipartisanship on education than on most other subjects, and even when the parties are apart, the discussion in both parties continues to move in a pro-reform direction.
Ultimately, Americans are a problem solving people. We are pragmatists and we like things to work. Our government today is not working as well as we need it to: it costs too much and achieves too little. That needs to change, and it will change. Politicians who get on the right side of this change will prosper; those who don’t will be swept aside. Politicians don’t like to get swept aside, and that is one reason I am optimistic that we are going to get the reforms that we need — sooner, perhaps, than many think.