Friday, June 24, 2011

public choice and debt/deficits vs. servant leadership and inverted pyramids

Public choice theory says that politicians act out of self-interest. That's fine as long as we can get their self-interest to match the general welfare of the broad public. So let's review what needs to happen to go from our current three sided losing game of public choice/special interests/unknowing citizens to the public servant model of leadership where we all play to win for America.

Organizations of all kinds either operate in top down fashion or through a servant leadership approach. Here's the model for winning. Think of an inverted pyramid where the people being served are at the top and their servant leaders are at the bottom. It's as simple as that. Organizations exist solely to serve people. Accordingly, people properly serving organizations dedicate their efforts to serving other people. In business, it's often the shareholder being served, but in government, it's the general public. Not some people but all the people.

My view is that this is all coming to a head in our country. And it's way overdue. Since water runs downhill, the real action will occur at the State and local levels. In warfare, cutting off the supply lines of the enemy is often critical to success. If the supplies and reinforcements keep coming, however, it's very hard to stop the enemy's advance and ultimate victory.

In our current debt and deficit ridden society, the supply of funds is at risk of being curtailed if not cut off. And that's not a bad thing as we strive to get our "house" in order.

In particular, the States have come to rely upon the federal government for 30% of State budgets each year. In turn, local governments rely upon the State for the major part of their spending on education, their biggest expenditure.

Now that our federal politicians are belatedly but of necessity addressing the national spending, deficit and debt issues, the "supplies" to State and local governments will be curtailed meaningfully. That means States and municipalities will have to make choices with respect to spending limited funds. That's not been happening to any measurable degree. Just look around at all the nice new buildings and such that we the taxpayers have been building for our "public servants", educators and other interested parties with "public choice decision driven" funding. And while you're at it, take time to look at the promised retirement benefits for these public employees which are either at best underfunded.

The bills for all this are coming due shortly. What choices will we make? More taxes, fewer public employees, including reduced pay and benefits, higher property and other local taxes, or all of the above? We'll have to get involved and knowledgeable to make informed decisions. Unless, of course, we want to trust those same "public servants" to continue to do as they've done until now. It's our choice. Oversight, anyone?

Now don't misunderstand what I'm saying. If the good citizens of Laguna Beach, Calififornia want to pay retired lifeguards annual pensions of $113,000 (see below), that's fine with me. And if the citizens of any community want to pay public employees more than their private sector counterparts, that's ok with me, too. And what's wrong with a Taj Mahal or two, assuming we will pay for it? It's our money, so it's our choice.

In any case, someone has to properly align the choices of the constituents with their elected representatives. Alas, it doesn't appear that the interests of the governed and those doing the governing are currently well aligned. As we get involved, we'll have plenty of interesting choices to make in light of the limited supplies/resources available (due to the debt and deficits).

So far the State and local news is developing favorably. The inverted pyramid servant leadership model may be starting to take the place of the public choice model. At least there's the beginning of a healthy debate starting to take place. And when the debate is over, we'll have decided how to apply our scarce resources to the unlimited choices available. Or we'll have decided to pay much higher taxes and keep doing what we're doing, thereby accepting the consequences of lower economic growth and high unemployment for the indefinite future.

As for me, I'm confident that we'll make the right choices about our future. As Winston Churchill once said, "Americans can always be counted on to do the right thing...after they have exhausted all other possibilities." That time to "do the right thing" has arrived.

Finally, let's look at some examples of relevant current State and local activity throughout our great country.

In a sign of bipartisan leadership, New Jersey politicians of both parties just yesterday made a momentous choice to practice servant leadership despite the passionate opposition of public employee unions and some affiliated Democratic party allies (N.J.Slashes Public-Worker Benefits). While one swallow does not a summer make, it's a good start and a strong step in the right direction. Chris Christie is making a difference.

An even better start comes from the city of Atlanta. The Atlanta mayor is proposing to lead his city (and the country as well) to transition from a pension benefit plan to a 401k defined contribution plan for public employees (New Front in Benefits Fight, Atlanta May Drop Pensions) due to a shortfall ($1.5 billion) in funding levels.

As an aside, the overall retirement funding shortfall nationally for States, excluding cities, is approximately $1 trillion. Thus, there will continue to be lots of activity in this defined contribution (401k/IRA) versus defined benefit (pension) discussion in the months and years ahead. As the Atlanta mayor puts it, "The steps we are taking are going to have to be done across the country." He's right about that.

For a different and somewhat less enlightened perspective, consider Calfifornia and the aforementioned Laguna Beach lifeguard who retired at age 57 with a $113,000-a-year pension (Public Unions Take On Boss to Win Big Pensions). The biggest reason to read this lengthy article is to learn about the effects of the less-than-arms-length-negotiating process that has occurred routinely between union represented public employees and their government employers. Public choice theory in action, in other words.

And finally, there is the article comparing the situation that exists between Indiana and its neighboring States of Illinois and Ohio (The Indiana Exception? Yes, but...).

To summarize, the battleground action will now take place more and more at the State and local levels. Perhaps the national politics will get most of the headlines, but that's not what matters most to our future American way of life.

I'm betting on servant leadership and inverted pyramids.

Thanks. Bob.

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