Politicians have repeatedly given in, usually sneakily—by swelling pensions, adding yet more holidays or dropping reforms, rather than by increasing pay. This time they have to fight because they are so short of money. But it is crucial that the war with the public-sector unions is won in the right way. For amid all the pain ahead sits a huge opportunity—to redesign government. That means focusing on productivity and improving services, not just cutting costs. (Indeed, in some cases it may entail paying good people more; one reason why Singapore has arguably the best civil service in the world is that it pays some of them more than $2m a year.)
The immediate battle will be over benefits, not pay. Here the issue is parity. Holidays are often absurdly generous, but the real issue is pensions. Too many state workers can retire in their mid-50s on close to full pay. America’s states have as much as $5 trillion in unfunded pension liabilities. Historic liabilities have to be honoured (and properly accounted for, rather than hidden off the government’s balance-sheet). But there is no excuse for continuing them. Sixty-five should be a minimum age for retirement for people who spend their lives in classrooms and offices; and new civil servants should be switched to defined-contribution pensions.
I’m torn on this issue. Throughout American history, civil service has been viewed as a low-prestige occupation and Americans have typically viewed the idea of a well-paid professionalized public sector with populist suspicion. That is why we do not have one.
In the private sector, the market determines pay; in the public sector, politics does.
So on the one hand, it makes sense to me that with public opinion leaning against them, civil servants would want to form unions to extract higher pay than voters want to give them, and shield themselves from cuts when budgets are tight.
On the other hand, the difficulty of firing unproductive workers or rewarding exceptional talent in the public sector should be deeply disturbing to anyone who wants to see more and better public services. There’s nothing progressive about keeping in place workers who perform badly. There’s nothing progressive about committing a larger and larger portion of the budget to paying for retirees’ consumption at the expense of doing more stuff.
The goal of civil service is not a welfare program for government employees – it is the provision of services that the market does not provide, or under-provides.
In order to do this well, the public sector needs to professionalize by more closely modeling its Human Resources practices on those in the private sector. One thing that should mean is taking the question of pay and benefits out of the arena of electoral politics, and handing it off to an HR administrator who will have fewer conflicting incentives in determining the true value created by employees.