FRED SIEGEL 'The New Tammany Hall'
A GREAT WSJ OPINION ARTICLE By MATTHEW KAMINSKI
'What has the country so angry," says Fred Siegel, "is the sense that crony capitalism has produced a population that lives off the rest of us without contributing. They're right. It's not paranoid."
The economic historian of the American city has spent a lot of this autumn on Wall Street. He met many of the protesters who camped out at Zuccotti Park, before the city's finest cleared them out last week. He also knows the bankers and finds the theater of the Occupy movement ironic.
"They're on the same side of the street politically," he says. "They're both in favor of big government. The Wall Street people I talk to, they get it completely." What he means is that the Bush and Obama administrations bailed out the large banks, and that economic stimulus and near-zero interest rates kept them flush. "Obama's crony capitalism has been very good for New York's crony capitalism," he says. Over at Zuccotti Park, "there are a few people there who do get it, but very little of their animosity follows from this."
One can appreciate why the "we are the 99%" militants might resist Mr. Siegel's logic. He links the liberalism of the 1960s, not any excess of the free market, to today's crisis. The Great Society put the state on growth hormones. Less widely appreciated, the era gave birth to a powerful new political force, the public-sector union. For the first time in American history there was an interest dedicated wholly to lobbying for a larger government and the taxes and debt to pay for it.
A former editor of the left-leaning Dissent magazine, Mr. Siegel has written several well-received books on New York, including the 1997 "The Future Once Happened Here." He calls his hometown "the model for cross subsidies" in America. "Wall Street makes money off the bonds that have to be floated to pay the public sector workers in New York."
Thanks to union clout, he notes, salaries and benefits for teachers, bus drivers and city secretaries have outgained the private sector during this sluggish economy. "Spending is never ratcheted down. It's unconnected to productivity. That can only be sustained by a boom or these extraordinary subsidies we're getting now from the Federal Reserve. But that's gonna stop at some point. And then what happens?"
Other countries have managed to find a way out. During its own "lost decade" after 1993, Canada shaped up its finances and it has weathered the latest economic crises well. New Zealand's Roger Douglas in the 1980s and Germany's Gerhard Schröder in the early 2000s cut into expensive welfare states. In all these cases, Mr. Siegel notes, center-left parties carried out painful reform. "They did this out of necessity." Sooner or later, American politicians will face the "unavoidable" reckoning, he adds. "It's not the mean tea partiers who force this. It's the facts on the ground."
And the ground may already be moving. Many American localities are already at the crisis point. Rhode Island's legislature last week sharply cut retirement benefits for current and retired public workers. "A 300% Democratic state!" marvels Mr. Siegel, who was one of the first to sound the warning on the public pensions crisis.
While new Democratic Governors Dan Malloy of Connecticut and New York's Andrew Cuomo are tinkering with reforms, Mr. Siegel calls them "cosmetic" and argues that both men "are playing for time [and] counting on a recovery, which will solve their problems for them." California's Jerry Brown has dealt with his budget shortfalls by pushing the costs down to cities and counties. New Jersey governors used the same tactic before Republican Chris Christie came in. He has been able to persuade enough local Democratic politicians sensitive to the budget problem to win some concessions.
In Mr. Siegel's estimation, only Wisconsin Gov. Scott Walker has tried the needed fix after last year's elections. "Part of the reason Walker has become such a lightning rod" is that he pushed "straight up, unambiguous structural reform." His move to restrict collective bargaining for state employees isn't as important, says Mr. Siegel, as ending the requirement that state workers pay union dues. On his first day in the governor's mansion in 2005, Indiana's Mitch Daniels also stopped deducting dues automatically; most workers chose not to pay. "The union has a guaranteed flow of income, which they then use to lobby the government," says Mr. Siegel. This reform, he adds, "evens the playing field."
Dues money is the coin of political influence for organized labor. So not surprisingly, it is bankrolling the pushback. Mr. Walker faces a recall campaign. Ohio voters this month overturned Gov. John Kasich's legislation to limit collective bargaining for state workers. Mr. Kasich should have eliminated the dues "check off" instead, according to Mr. Siegel, and worked harder to connect with voters. "Too many Republicans treat workers as if they are their employees," he says. "The virtue of Ronald Reagan is he talked to workers as one of them."
Born in 1945 and raised in the Bronx, Mr. Siegel got his first political education by listening to feverish debates at home about Bundists and Bolsheviks. His grandfather, a militantly anti-Communist socialist, was vice president of the International Ladies' Garment Workers' Union and a strong influence on him. In 1972, Mr. Siegel worked on the McGovern campaign—"you shouldn't print that!"—and calls his discussions with the Democratic candidate "enormously consequential" in shifting his world view. "I like to say I was center left before I became center right," he says.
It is often forgotten how many New Deal Democrats were skeptical about public-sector unions. Franklin Delano Roosevelt called the idea of strikes by government workers "unthinkable and intolerable." New York Mayor Fiorello La Guardia said, "I do not want any of the pinochle club atmosphere to take hold among city workers." But union organizers would eventually tap into the language of the civil rights movement to present collective bargaining as another overdue "right."
New York Mayor Robert Wagner extended collective-bargaining rights to government employees in 1958. He saw early that, says Mr. Siegel, "public sector unions are displacing political machines as the turnout mechanism for the Democratic Party. They are the new Tammany Hall." Coming off a nail biter of an election, President John F. Kennedy saw this future as well. In 1962, he signed Executive Order 10988 to give federal workers the right to unionize, though not to collectively bargain. By 1980, half of all delegates to the Democratic convention worked for the government. Government-employee rolls kept growing through the Reagan years. During the presidency of George W. Bush, the number of government workers who belong to a union surpassed the number of unionized private workers.
Mr. Siegel observes that public-sector unions have "become a vanguard movement within liberalism. And the reason for that is it's the public sector that comes closest to the statist ideals of McGovern and post-McGovern liberals. And that is, there's no connection between effort and reward. You're guaranteed your job. You're guaranteed your salary increase. There's a kind of bureaucratic equality."
In turn, he continues, "this vanguard becomes in the eyes of many liberals the model for the middle class. Public-sector unions are what all workers should be like. Their benefits are the kind of benefits everyone should get."
The future of his city worries Mr. Siegel. Forty years ago, New York had the most manufacturing jobs in America. But as the finance sector's share of the national economy grew to 23% in 2007 from 7% in 1980, New York turned almost into a one-company town. Meantime, the growing claims on the public purse by those who make little to no contribution to the economy have driven up taxes and the costs of doing business. The city creates jobs in tourism, hotels and restaurants at the lower end of the scale. "What we don't create are private-sector middle-class jobs," says Mr. Siegel. "We have a ladder with the middle rungs missing."
Government workers make up a growing share of the middle class. And perversely, says Mr. Siegel, unions can justifiably claim to defend the interests of the middle-class worker. "That's because the costs that they've imposed have driven out the private-sector middle class. They are the disease of which they proclaim themselves the cure."
Democrats have been shut out of the mayor's office since 1993. Even so, spending lobbies have held their dominant position and, with the exception of the police, efforts to reform government are stillborn. Mayor Rudy Giuliani, who tinkered with the civil service, was distracted by personal problems in his second term, says Mr. Siegel. His feelings about Mayor Mike Bloomberg come unfiltered. He chose to court rather than confront the teacher unions and "the race racketeers" (in Mr. Siegel's phrase) like Rev. Al Sharpton. "[Bloomberg] had the leverage. He didn't have the guts. Instead of being influenced by interest groups, he buys the interest groups. The outcome is the same. The interest groups get what they want."
The institutional barriers to change have grown, too. The Working Families Party, founded in 1998, is the political arm of government unions and a driver of turnout in local elections. Though little known outside New York, the influence of this third party can be seen on the City Council, which has come to tilt heavily left. So far, says Mr. Siegel, the party has a better political track record than Tammany. "With the exception of Giuliani, they've never lost an election. No matter who wins, they're OK."
He adds: "We are what the tea party fears for the rest of the country. Crony capitalism, and low-end work, and the loss of mobility, and no place to do business if you're a small business."
These symptoms call to mind the crisis-ridden European Union economies weighed down by debt and held hostage by their own public-sector unions. "We are becoming France-ified," says Mr. Siegel, who once spent a year teaching at Paris's Sorbonne. "Comes with the yuppie food."