A Less Perfect Union

A Less Perfect Union
By Andrew J. Coulson from the June 2011 issue

Student achievement at the end of high school has stagnated or declined, depending on the subject, since we started keeping track around 1970. Over that period, the cost of sending a child through the K-12 public system tripled, even after adjusting for inflation. Public school employee unions, the National Education Association and American Federation of Teachers, are partly to blame for this, but the attention focused on collective bargaining in particular has been misplaced. The unions' success in driving up costs and protecting even low-performing teachers stems less from their power at the bargaining table than from the monopoly status of their employer. Taxpayers, and most families, have no place else to go.

In his post-apocalyptic film Sleeper, Woody Allen explained the apocalypse with the line: "a man named Albert Shanker got hold of a nuclear warhead." This was in 1973, when Shanker headed New York City's muscle-flexing teachers' union. In those days, the goals of school employee unions were widely understood: uniformly better compensation, greater job security, and reduced workloads for their members. That's what labor unions are for. If NEA and AFT leadership failed to pursue those goals, their members would replace them with people who would.

But for a while, during the sustained economic growth of the '80s, '90s, and early '00s, the public ceased to think very much about these unions as unions. The NEA and AFT have often portrayed themselves as selfless champions of children, who sought only to improve the quality of American education. It's hard to say how widely their PR puffery was believed, but certainly it was the dominant framing in the media and was seldom challenged by more realistic appraisals. (Except, ironically, by Shanker himself, who once declared that he would "start representing schoolchildren" when they "start paying union dues.")

Since the late fiscal unpleasantness began in 2008, all that has changed. It has changed because the money has run out. Think of public schooling as a game of Monopoly in which one of the players, the unions, owns 90 percent of the properties (9 out of 10 American students attend public schools). The other players, taxpayers, have some cash and a few properties of their own, but they can't make it around the board without paying ever-increasing union rents-just as, in real life, taxpayers must continue funding public schools no matter how much they cost. They can survive for a while, of course, and while they do the unions reap handsome rewards. Eventually, though, the taxpayers run out of money. Game over.

In the board game, we'd call the unions the "winners." In reality, their victory is Pyrrhic. They've been so successful in protecting their members' jobs (including those of the mediocre and inept), raising salaries and benefits, and reducing workloads (by inducing more hiring to lower the student/teacher ratio), that they have precipitated budget crises all over the country, derailing their own gravy train.

Where has all that extra money gone, if not toward improving quality? Some has fueled higher salaries and benefits for teachers, who enjoy total compensation 42 percent higher than their private-sector colleagues. More has gone into expanding the public school workforce. Astonishingly, employment in public schools has grown 10 times faster than enrollment over the past four decades (Figure 2).
















So while every other service or product has gotten better, more affordable, or both, public school productivity has collapsed. It is now costing us more to teach kids less. If our schools had merely maintained the level of productivity they enjoyed in 1970-not improved as other fields have, just held their ground-American taxpayers would be saving roughly $300 billion a year. In California alone, the $26 billion budget deficit would be instantly wiped out and replaced with a $10 billion surplus.

HOW DID THIS HAPPEN? How did unions grow the public school workforce so much faster than enrollment? For those familiar with the overall trend in unionization, their feat at first seems miraculous. Because while the teachers unions were growing extravagantly, unions nationwide were shriveling up. In the private sector, union membership declined from 31 percent to less than 7 percent of the workforce since 1960. Among public school employees, it doubled from 35 percent to 70 percent over the same period.

Upon reflection, it isn't hard to explain this divergence. In the private sector, unionization is self-regulating. In the public sector, it is not. When a business makes excessive concessions to a union and is thereby forced to raise prices above those of its competitors, it loses customers. As it loses customers, it lays off workers, eroding the union's power. If this situation continues, the business fails and the union members who sought above-market compensation lose their jobs. Overly aggressive unions thus price their own workers out of the workforce. Conversely, less aggressive unions have little appeal to workers because they offer costs (in the form of dues) without value (in the form of above-market wages or benefits).

The easier it is for consumers to shop around, the less value unions can add, because consumers can more easily place their orders with competitors. And thanks to advances in technology comparison-shopping has been getting progressively easier for decades. That's made it increasingly difficult for private sector unions to win above-market wages or benefits.

More than that, the heightened competitiveness of modern markets has meant that the interests of workers and management are more closely aligned than ever. A business that tried to raise profits by paying below-market wages would risk losing its best employees to its competitors or to businesses in related fields, injuring its productivity and ultimately its profitability.

None of this has been lost on the workers themselves. As the usefulness of private sector unions has declined, so has their membership.

But what happens in an industry in which one producer is able to give its product away for "free," draws its revenues from compulsory taxation, is able to hide the full cost of its operations from the public, and is legally required to remain in business? Obviously the unions representing workers in that industry can win substantially above-market compensation and pad their membership dramatically without fear of putting themselves out of business in the short or even the medium term. That, of course, is what has happened in our nation's state-run school systems. The self-regulating aspects of union action in competitive markets do not exist in the public sector.

BUT AFTER NEARLY HALF A CENTURY, public school employee unions have finally begun to suffer from their own success. State-run schooling has become so profligate under their ministrations that America can no longer afford it. In an effort to moderate the teachers unions' voracious consumption of tax dollars, governors and legislators in several states have sought to curtail their collective bargaining powers. So it's useful to ask: what role have these powers actually played in the unions' ability to drive up spending?

When I reviewed the scholarly evidence on this question for the Cato Journal last year, I was surprised to discover that the answer is: not much. Depending on the study, the existence of collective bargaining has little or no impact on school district spending. The real mechanism by which unions have driven up their membership and compensation has been lobbying in state and federal legislatures and packing school boards with their supporters.

The public school employee unions have been the single biggest political contributors at the federal level over the past 20 years. The $56 million they've spent is roughly equal to the combined contributions of Chevron, Exxon Mobil, the NRA, and Lockheed Martin.

But it is at the state level that their lobbying efforts are focused, because that is the level at which the nation's public school monopolies are legally enshrined. So long as they protect that monopoly on roughly $600 billion in tax dollars, they will face no meaningful competition, and so long as they are without competition, they will be able to secure wages, benefits, and staffing levels far above what a competitive market would bear.

In New York State, for example, teachers unions spent $6.6 million on political activities in 2008. The year before, they paid $571,012 to a single luxury hotel, the Desmond, in the state capital of Albany, to facilitate their lobbying efforts. Those efforts have sought to limit competition from charter and private schools and raise public school spending. They've been largely successful. New York is by no means exceptional in this regard: California's teachers unions accounted for half of the state's total initiative campaign expenditures in the first five months of 2009.

At the local school board level, teachers union power can be even greater. Education journalist Joe Williams reported that "United Teachers Los Angeles had such a tight grip on its school board in 2004 that union leaders actually instructed [board members] on important policies and made no attempt to hide their hand signals to school board members during meetings."

Given the fact that political lobbying and the capture of school boards have been the means by which teachers unions have won their above-market concessions, and that collective bargaining per se seems to have played a relatively minor role in their success, it seems unlikely that curtailing collective bargaining will return fiscal sanity to American education.

Others have argued that the balance of power can be restored if states stop automatically garnishing teachers' paychecks in the amount of compulsory union dues and sending the money to the unions. If unions are forced to collect the money themselves, they reason, it will make it harder for them to raise the vast sums they've been spending on political action. This view relies on the improbable assumption that public school employees are ignorant of their own interests. Given their huge wage and benefit advantage over the competitive private sector, union dues are the safest and best investment most public school employees could hope to make. At the moment, dues are returning around 2,000 percent annually (public school teachers enjoy a $17,000 annual compensation premium over their private sector counterparts, and dues run only about $800). Where else could they get a return like that without the use of firearms?

IF CURBS ON collective bargaining and mandatory government dues collection won't rein in the unions' budget-busting political action, what will? The answer is to take advantage of the same freedoms and incentives that have prevented unions from going off the rails in the private sector: give parents and taxpayers real choice, and give public schools real competition.

At present, private schools are at a massive disadvantage to state-run schools because the latter have a monopoly on $13,000 per pupil of government spending annually. That makes it hard for parents, and impossible for taxpayers, to seek out private sector alternatives to the state-run schools. And contrary to widespread perception, public schools spend roughly 50 percent more, on average, than do private schools-including all sources of revenue, not just tuition.

The simplest way to simultaneously give taxpayers and parents educational choice is to cut the taxes on families that pay for their own children's education. Such cuts, called "direct" or "personal use" education tax credits, already exist on a small scale in Iowa and Illinois. If adopted in other states and increased in value they would bring the option of independent, privately operated schools within reach of most Americans. And since the credits need not cover the full cost of private school tuition, the migration from public to independent schools would save taxpayers a great deal of money.

Effective as they are, such direct credits have an obvious limitation: they can only help parents with non-negligible state/local tax liabilities. Most lower-income families owe little in taxes and so wouldn't benefit, leaving them stuck in the deficient, inefficient, state schools. Fortunately, there is a simple solution: cut taxes on individuals and businesses who pay tuition for other people's children. Seven states already have such programs, including Arizona, Pennsylvania, and Florida. Called "scholarship donation" tax credits, they cut the taxes on those who donate to non-profit Scholarship Granting Organizations (SGOs). The SGOs, in turn, help families pay for K-12 independent schooling.

What makes scholarship tax credits unique among school choice programs serving low-income children is that they offer choice not just to parents but to taxpayers themselves. No one is compelled to donate to an SGO, and if you choose to do so you select the organization that receives your funds. Think that the organization you're currently supporting is no longer helping families as effectively as it should? You can send your money elsewhere. This forces the SGOs to compete with one another in terms of efficiency and service to families, just as other charitable organizations must.

Combining these two types of tax credits and allowing them to expand in response to public demand would end the unions' half-century stranglehold on education funding. As in every other field, the public would finally be able to seek out the best, most cost-effective providers. The result would be the same in education as it has been in other fields: in the presence of efficient markets, salaries and benefits would depend on performance. The best teachers would easily command much larger salaries than the largest any public school teacher enjoys today. In sectors of the education industry that already operate within the free enterprise system, such as the Asian after-school tutoring market, the top teachers reach tens of thousands of students via web lectures and earn millions of dollars a year (yes, millions) thanks to profit sharing with their employers. Schools that charged more than their competitors for a similar or lower-quality education would lose students and fail. With the end of the state school monopoly, unions would no longer be able to bleed taxpayers for above-market compensation.

EDUCATIONAL FREEDOM would thus end the reign of state school employee unions as a powerbroker in American politics. The Democratic Party would be hardest hit. The NEA has given $30 million in federal campaign contributions since 1990, 93 percent of which has gone to Democrats or the Democratic Party. The AFT has contributed $26 million to federal campaigns, of which 99 percent has gone to Democrats.

This perhaps explains why Democratic lawmakers from Indiana and Wisconsin fled their states this spring, in an effort to block legislation that was expected to curb teachers union power. And it perhaps explains why President Obama, Education Secretary Arne Duncan, and congressional Democrats killed a small private school choice program in Washington, D.C. (which was subsequently reinstated by Republicans in April as part of the budget agreement).

If Democrats continue to cling to the union-dominated state school monopoly as their salvation, they will ride it, like the Titanic, beneath the waves. It is a ship with a yawning gash beneath the waterline. Most elected Democrats, from President Obama on down, want to deal with that catastrophe by shoveling more money into the furnaces. The longer they do this, the less time they'll have to abandon ship when they realize, belatedly, that the system is doomed.

Sooner or later, the public will no longer be able to maintain school employees in the numbers or in the manner to which they have become accustomed. Our state school monopoly is simply not sustainable, and as Herbert Stein observed, things that can't go on forever...don't. When Americans finally discard this system, they will look around to see who fought to preserve it until the last possible moment. If the answer is "Democrats," it will not only be the Democratic Party that is hurt.

Single-party government has not tended to equate to good government. If Republicans enjoy unitary control of Congress and the presidency for some years while Democrats search for a new base of political support, we will not be blessed by a period of cautious, limited government. But Democrats can avert their own irrelevance by acknowledging today the inherent defects of the union-captured monopoly school system, and championing educational freedom in its place. This would give them a platform they could successfully take to voters: educational excellence, educational freedom, fiscal sanity. A platform they could be proud of.

There are indications that such a shift is possible. Florida has the largest private school choice program in the nation-a scholarship donation tax credit serving 33,000 students, which is set to grow by 25 percent annually in the coming years. It received a single Democratic vote when enacted in 2002. Today it enjoys the support of half the state's Democratic caucus. Hopefully, Democrats nationwide will take Florida as a model. The alternative, for themselves and the nation, is bleak.