Where will the labor defections take us?

Posted: Aug 01, 2005 12:00 AM
  The joke goes that the difference between neurotics and psychotics is that neurotics build castles in the sky and psychotics live in them. A corollary to this would be that reality is an important thing to be in touch with.

This is the message to think about in the context of the big union breakup news of the last week.

The Service Employees International Union and the Teamsters are leaving the AFL-CIO to form a new Change to Win Coalition. There is legitimate concern about shrinking union membership.

The dissidents want to see less money spent on politics and more on organizing and recruiting. On an individual level, a lot of union members are conservatives, many Christian conservatives, and they are sick of paying dues to an organization that has been a rubber stamp of the left and the Democratic Party.

The operative question, however, is whether the Change to Win Coalition represents a new era of union realism or whether these dissident unions are simply moving into a new castle in the sky.

There is good reason to believe it is the latter, and that the laborers who are staking their lives and futures on this change would be well advised to do their own personal reality check.

Think, for instance, about the prospects for two central issues of traditional union activism _ health care and retirement benefits. The real changes necessary to bolster these areas are in the direction away from employer control and toward individual ownership and management. This means less and less relevance for unions.

This is why the AFL-CIO has been an opponent of the kinds of health care and retirement benefits reforms we all need.

Consider the employer-provided health-care model that Americans have taken for granted for years. There is good reason to believe this stalwart institution that unions work so hard to preserve is part of the health-care problem we are trying to solve.

Third-party-payer health care, as in employer health-care plans, where the patient does not bear direct responsibility for paying the bills, has been a prime mover of escalating health-care costs. Why think twice about going to the doctor when someone else is paying the bill? When is the last time you asked a doctor how much a test costs he suggests you ought to have?

Despite the fact that employer-provided health care seems as part of American culture as July Fourth fireworks, it is a relic of the World War II economy. Because of wage controls, firms started providing health benefits in order to compete for workers. When the IRS required that these benefits be reported as taxable income, Congress passed legislation allowing that company health benefits be tax-exempt.

Thus began an era in which health care, through the tax code, received special treatment, subsidizing its delivery through companies and encouraging its consumption (why not have employer-provided groceries?).

In 1946, health-care expenditures amounted to 4.5 percent of America's GDP. Today it is 15 percent.

Escalating health-care costs are of mounting concern to everyone. We need to get away from a regime that uniquely encourages one form of health-care delivery. Special tax treatment for employer plans should end. We need to get the third-party intermediary out of the equation and get new products into the marketplace aimed directly at consumers.

But change is always politically hard. Will the Change to Win Coalition be different from the AFL-CIO by encouraging rather than impeding change?

Retirement benefits constitute another area undergoing dramatic change. As in other areas, the direction for reform is away from centralized control and paternalism and toward individual ownership and management. Company defined-benefit plans, another fading American institution, are rapidly being replaced by defined-contribution 401(k) plans. There are 26,000 defined-benefit plans nationwide today, compared to 128,000 in 1978.

Social Security is part of this equation. The central control model doesn't work. We need to go to individual accounts, like the 401(k)s and IRAs. One reason why this change has been so politically difficult has been because of aggressive opposition by unions. The only way that Social Security in its existing form can continue is through some combination of benefit cuts, tax increases and raising the retirement age. Can you think of any reason that a union worker would want any of this?

So, why have the unions worked so hard to defend the current system? Moving toward individual control undermines union political power. That simple. The unions clearly work against the interests of their own members.

Few Americans don't realize that we are in a new era. We need flexibility and individual ownership and control that will allow for quick adjustments in a dynamic marketplace.

Unions simply appear to be on the wrong side of history.