Conflicts of Interest on A Grand Scale

Undermining the Body Politic

We were watching recently as one of the more astute analysts on Fox was taking the audience through the conflicts of interest inherent in state sector unions. We have long argued for the de-registration of all state sector unions on the grounds that they are inherently corrupt.

Consider the situation if company law were to require that company employees elect the CEO, HR Manager, the Financial Controller, and the Board. The conflicts of interest would be obvious and palpable. Employees would control who would sit across the table from them to bargain over wages. Naturally, maximising personal utility would result in "worker friendly" candidates being elected, who would then repay the "loyalty" of the staff by ensuring that employee expectations and demands were met.

Question: who would want to invest in such companies? No-one. The real owners would be the employees; if they did not stump up capital, the company would fold. In order to meet higher and higher employee costs, the company would inevitably destroy its balance sheet with excessive borrowing, resulting eventually in insolvency and collapse.

This is precisely the situation that applies, mutatis mutandis, in the state sector. State sector unions here in New Zealand (and to our knowledge everywhere else) overwhelmingly favour politicians and political parties that are "union friendly" and advocate state expropriation via the taxation system from the more wealthy to the less wealthy. The state unions know that if they enable the election of such left-wing politicians when it comes to pay negotiations the negotiator on the other side of the table will be positively disposed to their demands.

At the same time, the left-wing politicians and parties actively court the unions, including the state unions, for electoral support, relying on them for finance, volunteers, and party stalwarts.

During the former left-wing Labour government in New Zealand we saw both rapid rises in state sector wages, well above the rate of inflation, and even state funding to help unions "do their work". Political blogger, David Farrar posted the following in 2009:

Once upon a time public sector staff got paid less than those in the private sector. This was because they didn’t have the challenge of actually generating revenue, had better conditions such as study costs covered etc etc.
The situation in the last few years has reversed. Surveys have shown public sector CEOs now get paid more than private sector ones. And a study has shown that there is now a premium of just over 20% for public sector jobs.

So in 2003, the premium was under 5%. Over the next four years it has increased to a massive 22%. And the study adjusted for other variables.
Now this is not an accident. Part of it was that Labour had no fiscal discipline at all with the state sector. Part of it is a deliberate strategy. Ministers encouraged Departments to sign off on higher wage levels or bonuses if people joined the PSA. So taxpayers would pay higher wages to public servants if they joined the PSA. So of course more people would join the PSA, and then the PSA has more money to spent in election year telling people not to vote National. They were the 2nd largest third party spender last election.

The state sector union--Labour Party conspiracy paid off.  Within a few years, state unions had "negotiated" a 20 percent pay premium to the private sector.  Also they enjoyed government support, "buying" additional union membership.  Very cosy.  

Several months ago we witnessed public disruption, violence, intimidation, anger, and strikes as the governments of Greece, Ireland, the UK, France, and Spain--facing financial collapse--began to rein in spending.  Unions revolted.  Now it is the turn of the US.  In New Jersey, Indiana, Wisconsin the state sector unions are out in force.  In Wisconsin their Democratic Party state legislature lackeys have absconded, fled so that they will not have to vote on the pegging back of state sector union featherbedding.  Meanwhile, Wisconsin is trying to "plug" a $3bn budget deficit.  The state is in the maw of insolvency.  And it is not alone.  California, New York and Illinois are facing similar crises.  The pattern is the same. 

These states have been ridden to the ground substantially by state sector unions teaming up with Democratic politicians to extract entitlements from other taxpayers. 

State sector unions should all be de-registered.  The conflicts of interest are just too great.  The outcome in the end is unsustainable state spending to the damage and hurt of all. 

Postscript: For a thorough, objective, non-partisan analysis of the state of public finance in the United States, this paper is worth a look.