Wednesday, February 8, 2012

When in Rome, Do as the Romans Do? The Greeks? The Americans?

In government affairs, the expression "When in Rome, do as the Romans do" hopefully won't ever apply to America.

However, it's clearly applicable to Greece and potentially for us as well. Let's hope the citizens of the U.S. wise up and reverse the course of ever escalating government spending while there's still ample time to do so.

I'm referring specifically to the negative effects of union influence on government growth and the related danger of a society's entitlement mentality. When such a mentality becomes widespread and an accepted way of life, seemingly insurmountable obstacles endanger the citizens' future economic health.

That's because the society as a whole has to pay for those ever growing entitlements, and at some point it's simply unable to do so. And this existential danger especially applies to self governing democracies such as ours.

In my view, the size and reach of our government is the real issue needing resolution, and only U.S. citizens can effectively curtail our government's spendthrift ways. Along that line, unions (both public and private sector) and pandering politicians won't make the government's big spender problem an easy one to solve.

So let's take a brief look at Rome and Athens to get a glimpse of what hopefully doesn't lie ahead for Americans.

Rome vs. the Unions says this about the Italian situation:

"Relative to Italy's debt problems, the country's biggest impediment to growth gets relatively little international press. Burdensome labor regulations are nothing new to Italians. But even discussing the possibility of modernizing these laws has long been politically taboo.

The most onerous law is a relic of the 1970s and a touted accomplishment of Italy's trade unions. Article 18 of the Workers' Statute makes it impossible to fire even the most grossly incompetent employees. Perversely, it causes that which it seeks to prevent: unemployment.

According to the law, employers need to demonstrate not only that a terminated employee has failed in fulfilling work "objectives" and "expected performance," but also must prove "the concrete and wanton negligence of the employee in achieving the work's obligations." . . .

The courts aren't exactly impartial, either. Andrea Ichino, an economist at the European University Institute, found that justices sided with the terminated employee much more frequently in regions with high unemployment than in regions with low unemployment. With a court system slanted against business, entrepreneurs just don't want to take the risk of hiring new employees whom they may not want or need in the future.

This perverse regulatory environment has helped Italy earn the World Bank's second worst "Doing Business" ranking out of all OECD countries. Only Greece is worse. Dr. Stefano Scarpetta of the OECD found that new Italian firms increase their headcounts by 20% in their first two years, compared to 160% in the United States.

Italy's labor laws favor insiders who already have jobs at the expense of outside job seekers. Ironically, these laws hurt the very people upon whom those insiders will depend to support their pensions when they retire—the young. Italy's youth unemployment rates consistently rank among the highest in the EU. It averaged 5.8 percentage points above the EU average from 2001 to 2010, according to Eurostat.

Meanwhile, the labor force is getting older by the year. Between 2001 and 2010, the share of total employment among Italian workers between ages 50 and 70 steadily increased, while it decreased among workers younger than 50, according to OECD data. . . .

But most past attempts at reform have run up against Italian politicians' cowardice in taking on the country's powerful unions."

Just how bad is the Italian labor situation. Read what Notable & Quotable says about the life threatening example of Pietro Ichino:

"Pietro Ichino, a professor of labor law at the University of Milan and a senator in the Italian legislature, is known as the author of several "neoliberal" books and studies recommending that the Italian government relax its extraordinarily stringent regulation of employers' hiring and firing decisions. As Bloomberg Business Week reports, that means that Prof. Ichino must fear for his life: "For the past 10 years, the academic and parliamentarian has lived under armed escort, traveling exclusively by armored car, and almost never without the company of two plainclothes policemen. The protection is provided by the Italian government, which has reason to believe that people want to murder Ichino for his views."

They're not just being alarmist. In 1999 and 2002 leftist gunmen associated with the Red Brigades murdered two other reformist labor law professors, Massimo D'Antona and Mario Biagi. . . .

Like his slain colleague Biagi, Ichino started out as a man of the Left—a Communist parliamentarian, in fact—who became convinced that the state-enforced equivalent of lifetime job security actually worked against the interests of ordinary young workers, who were increasingly frozen out from being offered jobs in the first place. Increasingly, moderate European opinion is coming to see that view as persuasive—even if few show as much courage as Prof. Ichino in voicing it."

But let's be fair. What about the Greeks? What do they have to say?

Greek Workers Strike Against New Round of Austerity describes the on-the-ground situation in Greece and the unions' reaction:

"Greek workers walked off the job on Tuesday to protest a new barrage of austerity measures being demanded by the country's foreign creditors in exchange for a second bailout of $170 billion without which Greece faces a potentially catastrophic default within weeks.

The general strike, the second this year, comes as government officials continued tense talks with representatives of the so-called troika of foreign lenders — the European Commission, the European Central Bank and the International Monetary Fund — on the terms of a new loan program. Negotiations on a crucial writedown on Greek debt, expected to wipe $130 billion off the country’s debt, were continuing in parallel but depend on the success of the bailout deal.

Although airports operated as normal, other transport services were disrupted. Ferries remained moored in the country’s ports and train services were suspended. Public transport workers ran a limited service in Athens to allow protesters to join rallies in the city center. The police said about 10,000 people marched peacefully to Parliament. There was also a separate demonstration by about 10,000 Communist unionists. No arrests or injuries were reported.

The walkout also closes government offices, schools and courts and left hospitals operating on emergency staff. Many shopkeepers, exasperated at the impact of higher taxes and reduced consumer spending, closed down for the day.

The country’s two labor unions are appealing to austerity-weary Greeks to come out in force and protest the measures proposed by creditors which include cuts of around 20 percent in private sector wages, reductions in supplemental pensions, thousands of civil service layoffs and additional cuts to state spending. The measures follow two years of tax increases and wage cuts in the state sector that have pushed the country into a deep recession. Unemployment stands at 19 percent and is quickly rising while the economy, in its fourth year of recession, is expected to contract by 6 percent, according to estimates by the I.M.F.

Unions condemn the proposed measures, touted as the only alternative to bankruptcy for Greece, as extortion. “It is a brutal, cynical blackmail against an entire nation,” said the head of the private sector workers’ union, Yiannis Panagopoulos. “This is not a negotiation,” he said, referring to the talks between government officials and creditors which have dragged on for days."

But how is this remotely connected to the U.S., you ask. Well, let's just allow a public sector union leader to speak for himself as he does in Pennsylvania Plan Sees a Slimmer Capital City:

"A state-appointed financial custodian released a recovery plan Monday for Harrisburg that includes the sale or lease of city assets and concessions by unions, moving Pennsylvania's cash-strapped capital closer to resolving its financial crisis.

The plan drafted by David Unkovic, Harrisburg's receiver, requires the city to sell or lease its failed incinerator, which is at the center of its debt trouble, as well as parking garages, one of its top revenue generators.

Concessions also are needed from unions to help fix a city operating deficit, said Mr. Unkovic, whose plan must be approved by a state judge within 60 days.

Dave Gash, a staff representative at an American Federation of State, County and Municipal Employees local that represents city workers, said the union is open to discussing concessions related to the city's debt. "We don't consider it our fault. The reality is everybody is stuck with it," he said.

If Harrisburg fails to complete the sale or lease of assets by June, Mr. Unkovic said the city may have to file for bankruptcy-court protection to maintain city services. The city's total debt of $459 million is seven times its general annual operating budget. . . .

An audit of the incinerator financing commissioned by the city and released last month said Harrisburg officials and advisers failed to heed risks that the plant would be unable to repay its debt, and proceeded with bond deals anyway. The incinerator incurred debt of $301 million through bonds and loans."

Summing Up

The union leader is right about one thing. It's not the union's "fault" that Pennsylvania's capital city is broke. The politicians bear ultimate responsibility for governing, including what pay and benefits are granted to public sector workers. And including borrowing for ill advised projects instead of making taxpayers choose upfront between accepting tax increases or rejecting the proposed project.

But that said, the Europeans by their actions are "telling" us not to let our financial problems get too far out of hand. That includes government spending, taxation, deficits and debt, of course.

But it also includes the number of public employees, the wages of those employees, their benefits, their productivity, the approval of ill-advised local "projects," unnecessary education spending and many other public sector related factors, all of which contribute to the continuously growing financial burdens of our various U. S. governments and agencies.

Something has to change in our own entitlement land. And that something involves both the size and scope of U.S. governments' spending at the local, state and national levels inclusive.

Unless and until that occurs, we will continue on the current slow motion path toward an underfunded and no-to-slow growing social democratic European welfare state.

Then who will come to our rescue and bail us out? The unions? The politicians? Greece? Italy? England? Germany, France? India? The Chinese? Dream on.

It's up to us, and that's just as it should be. We're on our own. All in this together.

Thanks. Bob.

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