David Warsh: Scott Walker: Political asset stripper

SOMERVILLE, Mass..

This appeared in economicprincipals.com last spring.

Republican Party business interests and  centrists have rallied around Jeb Bush. Tea Party conservatives so far seem to prefer Wisconsin Gov. Scott Walker to the rest of the list of would-be contenders – Chris Christie, Ted Cruz, Mike Huckabee, Rand Paul, Rick Perry, Marco Rubio, and Rick Santorum. {Editor's note: This was written before the recent rise of Donald Trump.}

The first state primary is still  months away.  But to understand the appeal of Bush and Walker to their respective constituencies, it helps to know something about the situation on the ground in Wisconsin.

Walker, 47, who rose from state legislator in 1993 to county executive for Milwaukee to governor, achieved national prominence in 2011 when he successfully campaigned to strip the state’s public unions of most of their collective bargaining rights.  He survived a recall election and, in 2014, won a second term.

Recently he picked a new fight with organized labor when he said he would sign “right-to-work” legislation on the verge of passage in the Republican-led legislature. The measure would deprive unions of their right to charge non-member workers the equivalent of dues.

Robert Samuels, of The Washington Post, spent time in the state recently and found the public unions reeling. Describing an ill-attended meeting in a union hall in a small town in central Wisconsin, his report began:

The anti-union law passed here four years ago, which made Gov. Scott Walker a national Republican star and a possible presidential candidate, has turned out to be even more transformative than many had predicted.

Walker had vowed that union power would shrink, workers would be judged on their merits, and local governments would save money. Unions had warned that workers would lose benefits and be forced to take on second jobs or find new careers.

Many of those changes came to pass, but the once-thriving public sector unions were not just shrunken — they were crippled….

The state branch of the National Education Association, once 100,000 strong, has seen its membership drop by a third. The American Federation of Teachers, which organized in the college system, saw a 50 percent decline. The 70,000-person membership in the state employees union has fallen by 70 percent.

The story artfully hints at the disparities in job security, wages, and benefits that exist between union and non-union jobs.  Statistics are hard to come by, but where government workers 50 years ago routinely accepted lower levels of compensation in return for greater job security and reliable pension benefits, anecdotal evidence suggests that government salaries in recent decades have tended to equal and often surpass comparable private-sector employment opportunities.

Samuels writes,

While some union members have been energized by the fight, they say they notice a new, more vocal animosity toward them. It has been particularly pronounced in rural areas, where public-sector jobs were some of the most prized gigs in town.

In King [Wis], population 1,700, [union steward Terry] Magnant said she couldn’t change a sign at the union hall without someone giving her the finger. Farther west, in Stanley, prison workers said they ditched their favorite pizza pub because the owner stood by while other customers called them “leeches.”

In Reedsburg, that tension surprised Ginny Bourgeois, 52, who clerks at a local Kwik Trip. The community had always been divided, defined as much by the factories manufacturing car parts as it was by cornfields now blanketed in snow. Still, it was a place where the community got together for spaghetti and corn feeds and filled bleachers to watch the Reedsburg Beavers play. Now, she said, people were fighting over politics at gas stations.

Still, she felt unions needed to sacrifice.

“Everyone knows teachers’ insurance was some of the best you could get,” Bourgeois added. “They do fairly well around here, and they do a good job teaching. But everyone in this town has had to tighten their belts. They should too.”

Judy Brey, a 58-year-old speech therapist who taught in the community for 22 years, said such sentiment hurt teachers’ morale. She said she grew up admiring her dad, who put six children through college on his union-supported job as a forester. “I don’t make a lot, but we’ll be okay with retirement, ” she said he told her. That, she was taught, was the reward for public service in Wisconsin.

“Now I’m always nervous that everyone will think they’re moochers,” Brey said. “That I’m a moocher.”

The history of the union movement can only be understood in the larger context of American business in the 20th Century – but it seldom is,   Even the broad outlines of the story of American business are not well understood.

Alfred Chandler, the great historian of business, who spent his last 40  years at  Harvard Business School, worked tirelessly to demonstrate the importance for economic growth of giant corporations – not just in the US, but in Britain, Europe and Japan, too.  First in Structure and Strategy: Chapters in the History of American Industrial Enterprise (MIT, 1962), then in The Visible Hand: The Managerial Revolution in American Business, (Harvard, 1977) and finally in Scale and Scope: The Dynamics of Industrial Capitalism (Harvard, 1990), Chandler described and analyzed the stability that arose when industries became oligopolies, markets dominated by a handful of first-movers, each with substantial power to set prices, all determined to compete on other grounds.

But when the time came for an international conference in 1994 to celebrate what was clearly a triumph of empirical economics, Big Business and the Wealth of Nations (Cambridge, 1997), European unions were barely mentioned. and American unions had no place at all in the index. Moreover, it was already apparent that market conditions had changed dramatically since the 1970s  – that the twin forces of innovation and globalization were undermining familiar arrangements of enterprise that had begun taking shape more than a hundred years before.

No comparable economic history of the labor movement exists, though Atlantic Crossings: Social Politics in a Progressive Age (Harvard, 1998), by Daniel T. Rodgers, of Princeton University, made a very good start.  Steven Greenhouse, for  19 years a labor reporter for The NewYork Times, contributed The Big Squeeze: Tough Times for the American Worker (Knopf, 2008) before he retired earlier this year to begin another book. In the mid-1950s, 35 percent of American workers belonged to unions, Greenhouse writes; in 2008, the number was 12.1 percent and declining, just 7.5 percent in private sector unions -- the lowest proportion since 1901.  But those numbers come toward the end of the book, not the beginning.

The story of the last  40 years has been one of pell-mell corporate  restructuring in industrial economies and newly industrializing ones around the world.  Call it what you like: deregulation, a Big Bang, the Leap Outward, Perestroika. Private unions have been intimately affected by the turmoil, public unions somewhat less so.

In the US, the   Employment Retirement Security Act of 1974, known as ERISA, spelled out rules under which companies could legally freeze their pension plans.  Few have hesitated to do so.

But no such measure was undertaken for public pensions.  As Mary Williams Walsh, the dean of pension reporters, wrote recently inThe New York Times,  cracks have started to appear in the legal foundation of government pensions, the  doctrine of “vested rights:”

First in Detroit, then in Stockton, Calif., now in New Jersey, judges and other top officials are challenging the widespread belief that public pensions are untouchable.

Walker is clearly part of this evolution.  He should be seen to have begun doing something that needs to be done – albeit in an especially combative way.  Just as corporate restructuring called forth a gallery of types over the years – entrepreneurial geniuses and private equity kings, roll-up artists and spin-off wizards, merger mavens and makeover masters – so the restructuring of labor markets eventually will be seen to have produced a few basic sorts of innovative leaders.  Walker is one such rxample..

Among corporate chieftains, the lowest rung is reserved for those known as asset-strippers, a term of no great precision, except that the community knows one when it sees one —  raiders who borrow heavily and then sell off assets to pay down debt with no clearer goal than the accumulation of riches. My hunch is that is the category in which Walker will come to be placed – a political asset-stripper of uncommon ambition, who sought to convert a policy of smug confrontation to personal gain.

It’s Wisconsin, a state of sharply divergent traditions, not Indiana or Michigan; maybe it could not have been done any other way. But Scott Walker is very unlikely to become the Republican nominee, much less president of the United States.

David Warsh, proprietor of economicprincipals.com,  is a  longtime economic historian and financial journalist.

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David Warsh: The meaning of the Scott Walker phenomenon

SOMERVILLE, Mass.

Republican Party business interests and  centrists have rallied around Jeb Bush. Tea Party conservatives so far seem to prefer Wisconsin Gov. Scott Walker to the rest of the list of would-be contenders – Chris Christie, Ted Cruz, Mike Huckabee, Rand Paul, Rick Perry, Marco Rubio and Rick Santorum. The first state primary is still 11 months away.  But to understand the appeal of Bush and Walker to their respective constituencies, it helps to know something about the situation on the ground in Wisconsin.

Walker, 47, who rose from state legislator in 1993 to county executive for Milwaukee to governor, achieved national prominence in 2011, when he successfully campaigned to strip the state’s public unions of most of their collective bargaining rights.  He survived a recall election and, in 2014, won a second term.

Recently he picked a new fight with organized labor when he said he would sign “right-to-work” legislation on the verge of passage in the Republican-led legislature. The measure would deprive unions of their right to charge non-member workers the equivalent of dues.

Robert Samuels, of The Washington Post, spent time in the state recently and found the public unions reeling. Describing an ill-attended meeting in a union hall in a small town in central Wisconsin, his report began:

'The anti-union law passed here four years ago, which made Gov. Scott Walker a national Republican star and a possible presidential candidate, has turned out to be even more transformative than many had predicted.

'Walker had vowed that union power would shrink, workers would be judged on their merits, and local governments would save money. Unions had warned that workers would lose benefits and be forced to take on second jobs or find new careers.

'Many of those changes came to pass, but the once-thriving public sector unions were not just shrunken — they were crippled….

'The state branch of the National Education Association, once 100,000 strong, has seen its membership drop by a third. The American Federation of Teachers, which organized in the college system, saw a 50 percent decline. The 70,000-person membership in the state employees union has fallen by 70 percent.''

The story artfully hints at the disparities in job security, wages, and benefits that exist between union and non-union jobs.  Statistics are hard to come by, but where government workers fifty years ago routinely accepted lower levels of compensation in return for greater job security and reliable pension benefits, anecdotal evidence suggests that government salaries in recent decades have tended to equal and often surpass comparable private sector employment opportunities.

Samuels writes,

''While some union members have been energized by the fight, they say they notice a new, more vocal animosity toward them. It has been particularly pronounced in rural areas, where public-sector jobs were some of the most prized gigs in town.

''In King [Wis], population 1,700, [union steward Terry] Magnant said she couldn’t change a sign at the union hall without someone giving her the finger. Farther west, in Stanley, prison workers said they ditched their favorite pizza pub because the owner stood by while other customers called them 'leeches.'

''In Reedsburg, that tension surprised Ginny Bourgeois, 52, who clerks at a local Kwik Trip. The community had always been divided, defined as much by the factories manufacturing car parts as it was by cornfields now blanketed in snow. Still, it was a place where the community got together for spaghetti and corn feeds and filled bleachers to watch the Reedsburg Beavers play. Now, she said, people were fighting over politics at gas stations.

''Still, she felt unions needed to sacrifice.

'“Everyone knows teachers’ insurance was some of the best you could get,' Bourgeois added. 'They do fairly well around here, and they do a good job teaching. But everyone in this town has had to tighten their belts. They should too.'

''Judy Brey, a 58-year-old speech therapist who taught in the community for 22 years, said such sentiment hurt teachers’ morale. She said she grew up admiring her dad, who put six children through college on his union-supported job as a forester. 'I don’t make a lot, but we’ll be okay with retirement, ' she said he told her. That, she was taught, was the reward for public service in Wisconsin.

“'Now I’m always nervous that everyone will think they’re moochers,' Brey said.  'That I’m a moocher.”'

The history of the union movement can only be understood in the larger context of American business in the 20th Century – but it seldom is,   Even the broad outlines of the story of American business are not well understood.

Alfred Chandler, the great historian of business, who spent his last 40  years at  the Harvard Business School, worked tirelessly to demonstrate the importance for economic growth of giant corporations – not just in the US, but in Great Britain, Europe and Japan.  First in Structure and Strategy: Chapters in the History of American Industrial Enterprise (MIT, 1962), then in The Visible Hand: The Managerial Revolution in American Business, (Harvard, 1977) and finally in Scale and Scope: The Dynamics of Industrial Capitalism (Harvard, 1990), Chandler described and analyzed the stability that arose when industries became oligopolies, markets dominated by a handful of first-movers, each with substantial power to set prices, all determined to compete on other grounds.

But when the time came for an international conference in 1994 to celebrate what was clearly a triumph of empirical economics, Big Business and the Wealth of Nations (Cambridge, 1997), European unions were barely mentioned. and American unions had no place at all in the index. Moreover, it was already apparent that market conditions had changed dramatically since the 1970s  – that the twin forces of innovation and globalization were undermining familiar arrangements of enterprise that had begun taking shape more than a hundred years before.

No comparable economic history of the labor movement exists, though Atlantic Crossings: Social Politics in a Progressive Age (Harvard, 1998), by Daniel T. Rodgers, of Princeton University, made a very good start.  Steven Greenhouse, for 19 years a labor reporter for The New York Times, contributed The Big Squeeze: Tough Times for the American Worker (Knopf, 2008) before he retired earlier this year to begin another book. In the mid-1950s, 35 percent of American workers belonged to unions, Greenhouse writes; in 2008, the number was 12.1 percent and declining, just 7.5 percent in private sector unions — the lowest proportion since 1901.  But those numbers come toward the end of the book, not the beginning.

The story of the last 40 years has been one of pell-mell corporate  restructuring in industrial economies and newly industrializing ones around the world.  Call it what you like: deregulation, a Big Bang, the Leap Outward, Perestroika. Private unions have been intimately affected by the turmoil, public unions somewhat less so.

In the U.S., the   Employment Retirement Security Act of 1974, known as ERISA, spelled out rules under which companies could legally freeze their pension plans.  Few have hesitated to do so.

But no such measure was undertaken for public pensions.  As Mary Williams Walsh, the dean of pension reporters, wrote recently in The New York Times,  cracks have started to appear in the legal foundation of government pensions, the  doctrine of “vested rights:”

''First in Detroit, then in Stockton, Calif., now in New Jersey, judges and other top officials are challenging the widespread belief that public pensions are untouchable.''

Walker is clearly part of this evolution.  He should be seen to have begun doing something that needs to be done – albeit in an especially combative way.  Just as corporate restructuring called forth a gallery of types over the years – entrepreneurial geniuses and private equity kings, roll-up artists and spin-off wizards, merger mavens and makeover masters – so the restructuring of labor markets eventually will be seen to have produced a few basic sorts of innovative leaders.  Walker is one such example..

Among corporate chieftains, the lowest rung is reserved for those known as asset-strippers, a term of no great precision, except that the community knows one when it sees one —  raiders who borrow heavily and then sell off assets to pay down debt with no clearer goal than the accumulation of riches. My hunch is that is the category in which Walker will come to be placed – a political asset-stripper of uncommon ambition, who sought to convert a policy of smug confrontation to personal gain.

It’s Wisconsin, a state of sharply divergent traditions, not Indiana or Michigan; maybe it could not have been done any other way. But Scott Walker is very unlikely to become the Republican nominee, much less president of the United States.

David Warsh, a longtime financial journalist and  economic historian, is proprietor of economicprincipals.com