Public Sector Labor-Management Cooperation and Unions
In unionized settings labor-management cooperation usually means unionmanagement
cooperation. Typically, the cooperation with management that unions are
most interested in is the sort that protects the status quo – e.g., protects existing union
jobs, job descriptions, and terms and conditions of employment. Changes, except those
that increase union dues collections, are often perceived by unions as threats to their
security that must be resisted.
Increasing globalization of market competition has forced private sector
enterprises of all sizes to be nimble in adjusting to ceaseless changes in supply, demand
and technology. Entrepreneurs, ever alert to profit opportunities created by changes in
market conditions, have to be free to change the ways they operate, where they operate,
and even their organizational architectures without the burdens of coping with union
resistance to change. Employee involvement in enterprise decisionmaking and other
forms of labor-management cooperation continue to be a growing means through which
the necessary flexibility is achieved. Increasing labor-management cooperation in the
search for flexibility in union-free firms has worked well. It has not work as well in
unionized enterprises. As a result union-impaired firms often lose market share to unionfree
firms (consider the auto, steel and airline industries for example) and hence are
unable to provide as much job security as their union-free counterparts. This, in turn,
explains much of the low and declining rates of unionization in the private sector.
Unionism is not declining in the public sector, nor is it likely to do so in the
foreseeable future; so labor-management cooperation in the public sector is, and will
continue to be, largely union-management cooperation. There are several reasons why
this is true, but among the most important is the lack of competition in the provision of
public goods and services. Governments and the multitude of government agencies that
actually employ public sector workers are, within their jurisdictions, monopoly providers
of goods and services to taxpayers who cannot refuse to pay for those services whether
they want them or not. Taxpayers do not have competing courts, police agencies, fire
departments, welfare bureaus, garbage collectors, government schools, etc. from which to
select. Any monopoly that hires workers can more easily pass on inflated labor costs to
its customers than can enterprises which face competitors. Moreover, in the government
sector employers and employees have a common interest – viz. to seek more and more
resources from taxpayers. So union-management cooperation in the government sector
can be detrimental to the public interest.
The purpose of public sector labor-management cooperation ought to be the
efficient provision of public goods and services to the taxpayers who pay for them. In
economics, efficiency is defined as minimizing the value of means used to achieve any
specified set of ends. Another way of expressing the same concept is maximizing the
value of ends that are achieved with any given set of means. In the private sector,
entrepreneurs constantly strive for efficiency because, under the rules of voluntary
exchange (which rule out force and fraud), that is the only effective way to seek profit. In
the government sector the profit-seeking incentive is absent.
Think about the kinds of knowledge that are relevant to the quest for economic
efficiency. They include knowledge of tastes and preferences of actual and potential
customers (taxpayers), knowledge of the multitude of existing and potential alternative
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means that can be used to achieve each of the various ends that could be worthwhile to
pursue, and knowledge of the value of such ends in alternative uses. Such knowledge
exists nowhere in its entirety. No one individual or group of individuals possesses such
knowledge. Rather, it is widely dispersed among millions of people who each possess
some bits of it – those bits that concern his or her unique circumstances of time, place,
perception and imagination.
In the private sector this natural division of knowledge gives rise to what
economists call the coordination problem. How can the economic plans and actions of
millions of individual people, each planning and acting on the basis of his or her own bits
of knowledge, ever come to be consistent with each other? For example, some people
may plan to produce and sell particular quantities and varieties of software using
particular resources in particular ways at particular places and times. How can such plans
be carried out if other people are not planning to acquire such quantities and varieties of
software at those places and times and still other people are planning to use the same
resources for different purposes, at different places and times? How can such economic
plans and actions be coordinated? Space doesn’t permit me to explain the answer in
detail; but, in brief, the answer is through prices. The prices that emerge during the
voluntary exchange process, as all individuals try to do the best they can for themselves
in light of what they discover others are willing to do, guide individual plans and actions
toward coordination. Not just any old prices will do. The prices have to be formed by the
process itself if they are to tell the truth about relative scarcities and possibilities. Without
such market-determined prices it is impossible for decisionmakers to calculate the
benefits and costs of alternative courses of action
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Decisionmakers in the public sector who strive to serve the public interest also
must cope with the natural division of knowledge and its concomitant coordination
problem. This requires them to be alert to changing market conditions and to be
sufficiently flexible to respond to those changes in ways that create value for taxpayers.
Good service to taxpayers requires that public sector decisionmakers respond to marketgenerated
prices and opportunities. Since they lack the profit incentive to do so, some
other incentive structure must be discovered.
The possibility of privatization of the provision of public goods and services is
one means to force public sector decisionmakers always to keep at least one eye on the
truths that market-determined prices communicate. If one thinks carefully about which
government services cannot be productively privatized the resulting list is very short.
National defense, the judiciary, and the police are all that I can think of. Other commonly
cited public goods and services – e.g., education, roads, garbage collection, health care,
etc, – can all be provided by the private sector. If government must be involved its role
could be limited to subsidizing purchases of such goods by targeted populations. This is
what the idea of school vouchers is all about. While a case can be made that government
has a legitimate interest in education, education doesn’t have to be provided by
government schools. It can be provided by private schools using taxpayer funds
distributed to target populations to enable them to pay the private school tuitions.
This, of course, is where public sector union-management cooperation runs up
against the efficient provision of public goods and services. Government worker unions –
e.g., teacher unions, firefighter unions, garbage collector unions, construction worker
unions, etc. -- understandably resist having to compete. For providers of goods and
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services monopoly is always more comfortable than competition. But it is not just the
unions. Those on the management side of public sector union-management cooperation
also, understandably, prefer monopoly to competition; and, unlike their counterparts in
the private sector, they are not playing with their own money. This makes them less
willing than their private sector counterparts to stand up to the unions with which they
must bargain. In the public sector, the appearance of peace and harmony between unions
and management often seems more important than the interests of taxpayers. Ultimately,
as in everything political, eternal vigilance is the taxpayer’s only reliable friend