Lessons Not Learned From Greece
Public sector unions are on strike again in Greece. The country, saddled with heavy debt, primarily from overly generous entitlement programs, is continuing with austerity measures required as part of a bailout from the European Union. An objective observer has a hard time understanding why simple mathematics is so difficult for unions to grasp.
Public sector unions have gained ground and political power throughout Latin America, and while they claim to be protecting workers rights, their leadership is most often far left-of-center to outright socialist. That means they often espouse plans and programs that in fact hurt working families, by dissuading investment, necessitating a higher tax burden, and impeding a competitive market of employers.
In Greece, consider that public sector wages rose by 50 percent between the day the country joined the European Union and the day when it became apparent that the country was too far in debt to save itself.
Puerto Rico faces a similar crisis now with its massive debt and unfunded or underfunded pension programs for public employees. Unfortunately, however, when the previous administration took steps to cut employees to try to balance the budget, unions took to the streets in massive protests and strikes.
Curiously, it is illegal for the public employees to strike under the original law passed under the Rosselló administration in the 1990’s — but that didn’t stop them from pouting and ignoring their responsibilities.
While working as a reporter for WOSO Radio in San Juan, as the bill to unionize the public sector was on its way to his desk, I asked the then governor what he would do if the unions went on strike. Would he fire them if they did? His answer: “I haven’t thought about it,” as he hurried away to his car and away from my prying questions.
The unions eventually did go on strike with a big one in 2009 and in case you were wondering did not get fired, nor did the unions lose their certification.
The current governor, Alejandro Garcia Padilla, defends his island from criticism in major financial magazines like Forbes, arguing that “The United States is not Greece and Puerto Rico is not Detroit” But his real answer to the bad media is that the articles were placed by people with political interests on the island to hurt his administration. In other words, the articles were “planted” by the other major political party. (Garcia Padilla is from the pro-commonwealth Popular Democratic Party, while the New Progressive Party is pro statehood.)
So, in a nutshell, Puerto Rico’s problems are all political.
On that point I will have to concede the governor is correct. Puerto Rico’s problems are all political. The political aversion to making tough decisions, the political habit of blaming the “other” party, the political power and agenda of public sector unions and the political stranglehold of a territorial status.
The current governor is also correct that the United States is not Greece and Puerto Rico is not Detroit. This year the US debt-to-GDP ratio will exceed the Greece “danger” level, and based on sheer numbers it represents an economic catastrophe of biblical proportions: US$17 trillion in federal debt, US$60 trillion in total debt, and US$125 trillion in unfunded liabilities. By comparison, total global annual economic activity is around 60 trillion dollars without the United States.
While Puerto Rico’s government often acts like it is not part of the United States, it remains susceptible to whatever happens in the on the US mainland. Meanwhile, the island has its own set of problems. Current debt is reportedly US$70 billion, with an additional US$30 billion in unfunded pension obligations. The debt alone now exceeds the Gross National Product of the island, but remains below the Gross Domestic Product. However, when you factor in those pension obligations, all of which are to the public sector unions, the debt-to-GDP ratio is right at 100 percent.
That debt far exceeds Detroit’s obligations of about US$20 billion.
Puerto Rico’s leadership must stop the partisan bickering and bring union leaders and the government into the real world of economics. Better yet, repeal the public employee union laws all together and the next time they strike, take a lesson from Ronald Reagan and send them packing.