Revolting Civil Servants

by futurist Richard Worzel, C.F.A.

What follows is an excerpt from a chapter of the book I’m currently writing. This section is quite topical right now because of what’s happening in Wisconsin and elsewhere, so rather than wait for the book to appear, I’m publishing this excerpt. The book should be out in the late Spring or early Summer of 2011.

“Illinois is now the world’s eighth most-likely-to-default government, following only Venezuela, Greece, Argentina, Ukraine, Pakistan, Dubai, and Iraq, and just ahead of Iceland and Romania.”

– CFA magazine[1]

“Do the public exist to serve public-sector workers with their high pay and inflated benefits, or do public-sector workers exist to serve the public?”[2]

– Attributed to New Jersey governor Chris Christie

Let me state, right at the outset, that under the law, civil servants and the civil service unions are absolutely entitled to the pay and benefits they enjoy, and if it were purely a matter of legality, this would be an open-and-shut case. However, it’s not purely a matter of legality, it’s also a matter of what’s possible, and the truth is that federal, state, and local governments cannot afford to give their civil servants what they’ve promised them, and will, ultimately, renege on their promises.

This is not unique to American governments, either. It’s true of governments throughout the developed world:

[American union membership]… has fallen from a third in 1979 to just 7% today. In Britain it has dropped from 44% to 15% … less than a fifth of workers in the OECD belong to unions. There is one big exception to this story of decline, however: the public sector. In the Canadian public sector union density has increased from 12% in 1960 to more than 70% today. [3]

And unions have steadily, relentlessly, increased both their membership, and the pay and benefits of their members. This is what union leaders are elected to do, so it’s hardly fair to criticize them for doing so.

Yet, they might also have considered the health and welfare of the governments that hired them as a long-term consideration, because civil service unions, and civil servants in general, are destroying the governments that pay them. This is not through maliciousness or out of intent. It is more through short-sightedness and greed, and as I’ve spent the previous two chapters describing, this is a quality that is not unique to civil servants. It’s hard to fault them for trying to make a better life and gain better pay and working conditions.

So, if it were a question of right and wrong, this would be a very short chapter: civil servants are in the right. But that’s not going to be the end of the story, even if the courts back the unions and the civil service all along the line, because governments cannot afford to deliver what they’ve promised. And there’s also a separate argument that civil servants have not delivered value-for-money. This is not a requirement of a civil service; they are supposed to deliver what they agree to deliver, whether it’s good value or not. But value-for-money is not an unreasonable expectation. Let’s start with that, even though it is not central to this issue.

Are civil servants worth the money?

It would be impossible to make or verify a blanket statement about whether civil servants deliver value-for-money. There are hundreds of millions or billions of people working as public servants around the world, and it’s hard to generalize about any group of this size. As well, it’s hard to quantify the value of many of the services they deliver. I know many civil servants are well worth what they’re paid or more, from teachers to police and firefighters to soldiers to traffic safety engineers, and so on. There are many people who work in public service out of a sense of dedication and duty, some even accepting less pay than they might make in the private sector. It’s not true, as the clichés and jokes avow, that all bureaucrats are lazy or overpaid.

Yet, I’m equally sure that there are also many civil servants who are not worth their pay, if only because statistically it’s impossible for this not to be the case. In many ways, the issue is not so much the civil servants themselves, but the unions that represent them.

One of the major aspects of being in a civil service, in America or almost anywhere, is that they are protected from market forces, and it is typically hard, if not impossible, to fire them. Just these two factors by themselves will tend, over time, to cause many civil servants to drift away from working as hard as their private sector counterparts, and will also tend to lead them to think that they are entitled to receive more each year, whether they are or not. I would therefore argue that there is a natural temptation for many civil servants to gradually become less and less worth what they cost their employers.

In theory, this is ultimately the fault of employers. It really is up to the elected officials who set policy, and the senior civil servants who implement it, to ensure that civil service jobs do not become cozy niches for people promoted beyond their competence, and to make sure that all civil servants work to their potential, fulfill the requirements of their jobs, and earn what they receive. Yet, elected officials come and go, typically have short attention spans, and usually are more concerned about appearances than realities because that’s what wins elections. And voters, who in theory have the final say, are more interested in their immediate needs than the fine details of how much overtime a given civil servant works, or how much she gets paid per hour. Besides, a ballot is a very blunt instrument; you can vote an elected official in or out of office, with all the many actions that may produce, but that gives you virtually no say over individual civil servants or even much influence over the kinds of civil service jobs that are created. So this leaves the primary burden of management on the shoulders of the senior managers who administer the civil service on a day-to-day basis on behalf of the electorate and elected officials.

But there’s an innate conflict-of-interest in this set-up, because the senior managers of a civil service are themselves civil servants, and share in the benefits won for their juniors. This is not to say that such senior managers don’t take their responsibilities seriously, but it clearly creates temptation. And it means that the ability to restrain excess in a civil service – any civil service, anywhere – relies as much on the restraint and work ethic of the civil servants themselves as it does on the management that supervises them. And as happens with such a situation, some perform well – and others exploit the situation to their own advantage

Why civil servants will be vilified

There’s another, much higher profile example where this kind of natural conflict-of-interest exists and has led to abuse: the CEOs of publicly traded corporations. They typically have close, personal relationships with the Boards of Directors that are supposed to supervise them, and there are no clear checks-and-balances to prevent them from continually nudging their pay up to ridiculous, obscene, and clearly unwarranted levels. The result is that not only are they paid well beyond their worth, but they have a haughty sense of entitlement that seems impervious to shame or reason.

Civil service salaries are nowhere near these obscene levels on an individual basis, but collectively many have produced an even worse burden on economic activity because they come out of the poorly-guarded public purse, and because many civil service jobs are not directly related to increasing economic activity. And it’s absolutely clear that many – but not all – civil servants have the same kind of sense of innate entitlement.

These issues are starting to be reported in almost all major media outlets in all major developed countries that are feeling the financial and fiscal pinch I’ve talked about before. And while such stories are anecdotal, the overall economic effect is ultimately more important, but will get much less attention. So while rationally it’s not especially relevant to the argument over whether governments can afford to pay what they’ve promised, let me cite some anecdotes that indicate why the reaction from the tax-paying public is going to be so negative, now that the financial eggs are starting to hit the fan:

• “In America, pay and benefits have grown twice as fast in the public sector as they have in the private sector. … [and] public-sector workers earn, on average, a third more than their private-sector counterparts.”[4]

• In Great Britain, workers in the private sector work an average of 23% more hours than their civil servants counterparts over the course of their careers.[5]

• As one example of how civil service jobs tend to persist and multiply beyond reason, Buffalo, New York, had as many civil servants in 2006 as it did in 1950, despite the fact that the city’s population has plummeted by half. The civil service did not shrink as the city – and its economic prospects – went into decline.[6]

• To illustrate how hard it can be to get rid of civil servants who do not perform, or even abuse their positions of trust, in the period of time from 2000 to 2010, the Los Angeles school district tried to fire seven of the 33,000 teachers it employs. It was successful in getting rid of only five of these seven, and it cost them $3.5 million in legal fees to do so. This is pretty typical of teachers’ unions around the country: “Americans refer to the ‘dance of the lemons’—the practice of reassigning bad teachers to new schools rather than getting rid of them.”[7]

• One Hawaiian public school principal fired a teacher who would often quite openly leave his class for a ‘quickie’ sex break at home, and then joke about it later. The children in his class were regularly left alone without announcement or preparation, and the teacher next door was asked to handle his class in addition to her own. But because he was a tenured teacher, it took the principal three years to finally make the firing stick.[8] Somehow, teachers’ unions appear to believe that there is no such thing as an incompetent or abusive teacher, and that older teachers are automatically better than younger teachers, despite any evidence to the contrary.

• “Eric Hanushek, an economist at Stanford University, argues that replacing the bottom 5-8% of American teachers with merely average performers could move the United States from near the bottom to near the top of the international math and science rankings.”[9]

• “…according to the National Institute for Education Statistics, in 2007-08, the average annual base salary of all regular full-time public school teachers ($49,600) was [more than 36%] higher than the average annual base salary of regular full-time private school teachers ($36,300).”[10]

• Because police and firefighters in San Jose, California can retire at age 50, some with pensions that are greater than their pre-retirement salaries, and because they receive health and dental insurance for life, plus lump-sum payments for unused sick leave that can sometimes amount to hundreds of thousands of dollars, the cost to the city of employing each individual police or firefighter amounts to more than $180,000 a year.[11]

• “…82% of senior California Highway Patrol officers discover a disabling injury about a year before they retire [which entitles them to collect disability compensation as well as retirement benefits].”[12]

• CALPERS, the pension fund for California state employees, has over 9,000 recipients who collect more than $100,000 a year apiece. That amounts to $900 million a year for a small fraction of California’s civil service retirees.[13]

• In New Brunswick, Canada, the cost of civil service pensions, which are guaranteed for life and indexed to the cost of living, have almost doubled that province’s deficit over the past 10 years. And even that underestimates the burden, because the assumed rate of return on the pension fund assets is higher than the return actually received. This is typical of the way state and local government pensions are being run, and of their costs and effects.[14]

• “In New York City, the No. 2 guy in the fire department retired on a pension worth $242,000 a year. In New York State, a single official holding two jobs and one pension took in $641,000. A lieutenant with the Port Authority police retired with an annual pension of $196,767 … Fully one-third of all New York City cops who retired during a recent 17-month period did so on disability. They have dangerous jobs, we all know – but not nearly as dangerous as Long Island Rail Road workers. Almost all of them retired on disability.”[15]

Like the CEOs of publicly traded companies, civil servants, as a group, are going to be publicly vilified for what are seen as unwarranted levels of pay and benefits in a backlash that, at times, is going to resemble the street riots of Greece or France. This will start to take on really nasty overtones as private sector workers find they can’t afford to retire, or that they will have to live in poverty when they do retire, and that the pension and health care benefits they were expecting aren’t going to be there. Meanwhile, their taxes are going up to fund the pensions and benefits of their public sector neighbors. This will raise a firestorm of resentment, and unfortunately, many dedicated public servants who do not deserve it will be hit by the same resentment.

This backlash has already started, and will lead to sharp conflicts, up to and including strikes, sabotage, work-to-rule campaigns, riots, and outright violence. It is going to get truly ugly. And yet, civil service pay and benefits will have to be curtailed, because an incredible number of jurisdictions around the world, including federal, state, and local governments in America, cannot afford to pay what they’ve so glibly promised.

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[1]Rubino, John; “Failed States and Cities”, CFA Magazine, Nov-Dec 2010, p.38.

[2] “(Government) workers of the world unite!”, Economist, Jan. 8, 2011, pp.21.

[3] ibid.

[4] ibid.

[5] ibid.

[6] ibid.

[7] ibid.

[8] Forsloff, Carol; “Opinion: Unions must address ‘Waiting for Superman’s’ failing schools”, Digital Journal Website, Feb. 21, 2011, http://www.digitaljournal.com/article/303886.

[9] Economist, op. cit., Jan. 8, 2011.

[10] Lane, Charles; “On Wisconsin, again”, Washington Post website, Feb. 22, 2011, http://voices.washingtonpost.com/postpartisan/2011/02/on_wisconsin_again.html.

[11] “A gold-plated burden”, Economist, Oct. 16, 2010, pp.95-6.

[12] Economist, op cit., Jan. 8, 2011.

[13] Economist, op cit., Oct. 16, 2010.

[14] Bundale,Brett; “Public-sector pensions skyrocketing – report”, The Daily Gleaner website, Feb. 3, 2011, http://dailygleaner.canadaeast.com/news/article/1376744.

[15] Cohen, Richard; “Government pensions, an obesity epidemic”, Washington Post website, Feb. 21, 2011, http://www.washingtonpost.com/wp-dyn/content/article/2011/02/21/AR2011022103775.html.