February 6, 2016

Political Issues Have Gotten Too Complex

Many critical political issues are so complex that they are incomprehensible to even the best-educated voters. Moreover, well-educated voters also realize that, to influence lawmakers, they require so much effort that they disengage, rather than fighting. Leaving a state, or even causing a global company to reincorporate outside the United States is often easily the course of action that best meets the fiduciary goal of maximizing shareholder value, which is what Boards and CEOs of large public companies are required to do. Exceptionally wealthy people who have dual citizenship can also stop living in America completely, and move to the other country in which they are citizens.

Many people have complained about the power of the public sector unions. However, union leaders master complex issues, and are single-minded and organized, and have continuity, whereas their potential opponents, although intellectually high-powered, have little comparable ability to master those same issues.  The system works if both parties are equally informed and the government officials negotiating collective bargaining agreements are keenly attuned to the public interest and unions occupy that point at which the interests of their members and the public intersect.  However, when one side knows far more than the other and has a single-minded objective of gaining maximum advantage for its constituents, and the other is relatively uninformed, the result is not going to be optimal for the broad public interest.

On every issue, there are academic and independent think tanks that do a superb job analyzing issues, but a well-educated individual has to take the time to read and understand these analyses, and to figure out a way to make his or her voice heard. In the past, advocacy would be accomplished through the business community or through the party out of power. Those options are increasingly ineffective.

The business community in Connecticut and the party out of power used to be powerful voices in Hartford, but several things have happened in the last few decades that make very large businesses a non-factor in Hartford and the Republican Party less of a check-and-balance:

  • The headquarters staffs of many Connecticut businesses have thinned out. There is no one with the time or capacity to master the many individually small, but cumulatively large, steps the State takes that increase the burden on State taxpayers. Even the associations and chambers of commerce do not have the active member engagement they had 20 years ago
  • The Republican Party is no longer a major competitive force in Connecticut. In the last two gubernatorial elections and the last two U.S. Senate elections, the candidates were wealthy individuals who ran without the grass roots organizations and enthusiasm that the Unions created for their Democratic opponents.
  • We have lost many headquarters operations in the past two decades, and we have also lost the big employment concentrations of large companies headquartered elsewhere.
  • The population of young people willing to engage in politics has severely shrunk. I assembled pools of volunteers to help me with my advocacy work in the 1980’s and early 1990’s. Those volunteer pools no longer exist.

There is another big issue. The pathologies that make Connecticut an increasingly hostile place to do business are buried in hundreds, if not thousands, of non-transparent budget line items, regulations, collective bargaining agreement and civil service rules, and federal mandates that accompany the federal funding on which Connecticut is increasingly dependent.  There is no single individual or stakeholder who is at fault, and, indeed, looking for someone to blame is counterproductive.  If no one steps up and points out the problems with these many budget decisions, regulations, collective bargaining provisions, and civil service rules, then decisions will be made on a narrower and sub-optimal basis.

Let’s use the huge and unfunded pension liability as an example. Union negotiators understand pension accounting and cash flow exceptionally well; few others do in most states:

A pension obligation is usually determined by the following factors:

  • A “final pay” calculation;
  • A percentage of pay determined by years of service;
  • Life expectancy at time of retirement;
  • Investment return assumptions on the monies set aside to pay the pension in the future;
  • The discount rate for future liabilities for a lump sum payout at retirement; and, if relevant to a particular plan,
  • Any ongoing adjustments, such as “cost-of-living escalators.