By Anthony Ogorek
Buffalo, NY – Change is perhaps the defining characteristic of our age. Jack Welch, the former CEO of General Electric, likes to advise others that intelligent people change before they are forced to. There is more wisdom packed into this phrase than may be apparent at first blush. Welch not only acknowledges change, but opines that the most successful way of dealing with it is to embrace it, acknowledge its reality, and adapt to it on your own terms; rather than choosing from a limited menu of options when change is forced upon us. Upon reflection, it would seem that in many ways, as a state and region, we profess to want positive change, however, we fight meaningful change at every turn.
Politicians tend to bear the brunt of this criticism, and perhaps rightly so. It can also be said that politicians are responsive to their citizens. If we want better politicians, we have to be better citizens. By that I mean we have to be less parochial; we have to look beyond our self interest. We must stop formulating policy based on what worked for past generations and focus our policy decisions on nurturing our region's most precious resource, our future generations. The challenge we as citizens face is to ensure that our politicians are properly incentivized in other words, how can we set their rewards, namely re-election, in such a way as to derive outcomes that benefit society in general, rather than the self-interest of the politician or a handful of special interest groups?
Incentives are an acknowledgement that all people act in what they perceive to be their best interests. This is neither good, nor bad; it is human nature. The science of economics is the study of setting incentives to achieve certain outcomes.
For a look at how improperly set executive incentives have crippled a business, we need look no further than General Motors. After controlling more than half of the automotive market in 1955, GM is down to about half that figure today.
GM got into its current bind by not dealing rationally with its unions over the past 25 years. Instead of taking on the union's unrealistic demands, management caved and actually agreed to pay a laid off worker 95% of their pre-layoff salary. General Motors also agreed to offer lifetime medical coverage with minimal co-pays to its employees as well as their spouses. Let us not be mislead, many of the assembly line jobs over the years were dirty, dangerous and monotonous. No one begrudges the workers a fair days pay, however, the deals that the company cut with the unions bought labor peace at the price of endangering the future competitiveness of the corporation.
The $64,000 question is, "why did management cave to the unions?" When we look at the incentive packages that were offered to management, the answer becomes clear. The financial rewards to upper management in terms of stock options and pension benefits were so great that management could not risk a strike that would tank the corporations profitability as well as its stock price. So they bought labor peace at any price. The incentive packages encouraged management to merely kick the can further down the road, rather than fixing what needed to be fixed so that the company could successfully compete in the future.
In a similar vein, the policies espoused by the leaders of our state and local governments are endangering the present, as well as future competitiveness of our region. Politicians are motivated by thoughts of reelection or higher office. The very nature of their jobs can engender electoral loyalty from selected suppliers to employee unions as well as political appointees. As with the management of GM, the temptation is to make decisions based on self interest, rather than enhancing future competitiveness.
Politicians need to resist essentially buying the votes of employee unions in an attempt to ensure reelection. Just like GM, our state and region are losing market share with no end in sight. It is time to tie electoral success to demonstrable outcomes that make our region more competitive with the rest of America, as well as the world.
"The Ogorek Letter" with Commentator Anthony Ogorek is a monthly feature of WBFO News.