THE NEWSLETTER OF THE MACKINAC CENTER FOR PUBLIC POLICY • SPRING 2002 Contents: Senior VP’s Message...... 2 Center Trips Up State Strength in Numbers...... 8 Internet Plan...... 5 Education, Social In Defense of Security Examined...... 3 Reed Tours Africa ...... 6 Outsourcing ...... 10 Media Highlights ...... 4 Center Inspires Free-Market Library ...... 10 Labor Legislation ...... 7 Nobel Laureate Speaks Labor Team at Education Conference . 5 Holman Enlightens State .. 8 Meets with Bush ...... 12 Public School Teachers Reject Compulsory Unionism ne reason the Mackinac Center for OPublic Policy emphasizes a long- term view of progress in the battle for liberty over a short-term out- look is that ideas take time to percolate and filter through society. But once they do, action can be swift.

In 1998, a Mackinac Center study recommended that school districts hindrance than and their employees remove a help (in October 2001, from union contracts com- about alterna- teachers at another charter pulsory support clauses that tives to compulsory unionism school, Island City Academy, unfairly force school employ- for their employees. voted 12-1 to oust the MEA ees to financially support a after collecting enough peti- union, whether or not they The contract specifies that tion signatures to call for are members. One public union dues, which average a decertification election). school recently applied that about $600 annually, will be They also point out that recommendation by negotiat- deducted only after a teacher many teachers vote against ing a contract that permits has chosen to join the union. union representation in the individual teachers to decide Mid-Michigan is the only first place. At Mid-Michigan, for themselves whether or unionized public school in 25 percent of teachers voted not to support the union. the state with such an against unionization in Janu- arrangement. (Although all ary 2000. Mid-Michigan Public School Michigan public school Academy, a Lansing charter employees can technically Mackinac Center labor school, and the local Mich- refuse union membership, experts frequently work with igan Education Association other districts require school boards to help them (MEA) affiliate signed the employees to be fired if implement this, and other, contract on Jan. 8, after it they refuse to pay a union recommendations. was unanimously ratified by fee, regardless of member- teachers at a December meet- ship status.) The contract expires at the ing. Prior to contract nego- end of this school year.! tiations, Mackinac Center Teachers who support vol- experts advised members of untary provisions say that the school’s board of directors unions are often more of a

“The Mackinac Center is widely credited with influencing the debate that led to new laws allowing charter schools and easing restrictions on school boards’ privatization . . . .” —Education Week, Feb. 20, 2002 SENIORSENIOR VICEVICE PRESIDENT’SPRESIDENT’S MESSAGEMESSAGE

Board of Directors D. Joseph Olson, Chairman Lawrence Reed, President Richard Antonini Rodney Lockwood, Jr. Peter Cook Joseph Maguire Mr. Smith Is in Washington Hon. Paul Gadola Richard McLellan Richard Haworth James Rodney Mara Letica Linda Rodney was invited to the White House last year to discuss how Edward Levy, Jr. state-based research institutes like the Mackinac Center for Board of Scholars Public Policy could work with Bush administration officials I to advance meaningful reform. I was reminded of the Dr. Donald Alexander Annette Kirk Western Michigan University Russell Kirk Center for encounter in recent weeks as President Bush called for tariffs Cultural Renewal Dr. John Attarian Joseph Overton on imported steel, signed the largest federal intervention in Freelance Writer Dr. Robert Kleiman Oakland University Senior Vice President education in U.S. history, prepared to direct more federal subsi- Dr. Thomas Bertonneau Writer and Independent Scholar Dr. Dale Matcheck dies to religious institutions, and released plans to take $100 Dr. million from hard-working American families and spend it on federal marriage George Mason University Dr. Paul McCracken University of Michigan instruction programs. Dr. John Bornhofen Grand Valley State University Dr. George Nastas III Marketing Consultants Now this may sound like a prelude to criticism of our president. After all, Dr. William Browne Central Michigan University Dr. John Pafford these measures are certainly contrary to the principles espoused by the Mackinac Northwood University Dr. Stephen Colarelli Center, and several even exceed the authority granted to Congress by the U.S. Central Michigan University Dr. Mark Perry University of Michigan - Flint Constitution. But that would miss the point. Andrew Coulson Mackinac Center for Public Policy Dr. Leonard Plachta Central Michigan University Dr. Keith Crocker The problem is the good people Bush hired. This is the first time I have had University of Michigan Dr. Karen Potter-Witter Michigan State University so many personal friends and freedom-movement colleagues appointed to key Robert Crowner Eastern Michigan University Gregory Rehmke positions within a presidential administration. And in the months since I sat in Foundation for Dr. Richard Cutler Economic Education the Old Executive Office Building last year listening to them, I have been struck Michigan Association of Scholars Dr. Steve Safranek by the contrast. One day they were emphasizing that education is a state or Robert Daddow Ave Maria School of Law Oakland County Executive local issue, the next day they were federally mandating the testing of every Louis Schimmel, Jr. public school child in America. One day they were bemoaning $5 trillion worth Dr. Stephen Dresch Municipal Advisory Jhéön & Associates Council of Michigan of failed Great Society programs, the next day they were in the newspapers Dr. Richard Ebeling James Sheehan defending federal marriage instruction. Hillsdale College Competitive Enterprise Institute Dr. Jefferson Edgens Rev. Robert Sirico University of Kentucky Acton Institute for the Too many people today continue to invest their lives and their money in the Study of Religion and Liberty Alfredo G. Esposto fanciful hope—call it the Frank Capra Theory—that someday Mr. Smith will go to Eastern Michigan University Dr. John Taylor Wayne State University Washington, end the corruption, and restore our liberties. I am here to say that I Dr. Wayland Gardner Western Michigan University Prof. Harry Veryser, Jr. know Mr. Smith, he went to Washington, and he lost his soul. As thoughtful and Walsh College Dr. Dale Haywood well intentioned as he is, he was sucked into the Northwood University John Walter, Jr. Dow Corning Corporation (ret.) vortex of political pragmatism and transformed Dr. Michael Heberling Too many people continue Baker College Dr. William Wilson into a welfare state apologist. He is now mocking Ernst & Young to invest in the fanciful Dr. Ormand Hook those who believe in principled, limited gov- Mecosta-Osceola Dr. Martin Wing ernment and helping perpetuate the debilitating Intermediate School District Kettering University hope—call it the Frank modern myth that it is wise and right to take Prof. Harry Hutchison Dr. Gary Wolfram Capra Theory—that University of Detroit Law School Hillsdale College resources from our communities and send them someday Mr. Smith will Dr. David Janda to Washington. Institute for Preventative Sports Medicine go to Washington, end I have turned down several opportunities to go the corruption, and restore IMPACT! to Washington for one simple reason: This is a our liberties. David Bardallis Editor bottom-up revolution. Working at the state and Samuel Walker local levels, the Mackinac Center does the tough Assistant Editor work of building a constituency of informed leaders who will one day change Daniel Montgomery their communities, then their states, and ultimately their nation. If you are Graphic Designer reading this and still dreaming about a Washington revolution, pull out the IMPACT! is a quarterly publication of the Mackinac Center for membership envelope and join us. Fighting for freedom closer to home may not Public Policy, a nonprofit, nonpartisan, tax-exempt research and educational organization classified under section 501(c)(3) of the be as glamorous, but it’s real. IRS code.

Mackinac Center for Public Policy 140 West Main Street P.O. Box 568 Midland, Michigan 48640 (989) 631-0900 • Fax (989) 631-0964 www.mackinac.org • [email protected] Experts Explore Retirement , Education Investing

s the Enron bankruptcy a Issues and Ideas Luncheons of a constituency cautionary tale that should of 2002, held in Lansing. that will become a make citizens reluctant to dominant political Ientrust their Social Secu- On Jan. 18, John Hood, pres- force in the years rity tax dollars to private ident of the John Locke ahead. retirement accounts? Will Foundation in Raleigh, N.C., Michigan parents have wider explained to assembled jour- Approximately 70 school choice options as a nalists, lawmakers, and legis- policy-makers, lative staffers education reform- how the ers, and other offi- Enron scan- cials crowded the dal shows the Mackinac Room in danger of put- the House Office ting all one’s Building Feb. 25 to eggs in one hear U.S. Rep. Pete Hood explains the merits of Social Security privatization, a policy the Mackinac Center called for basket. The Hoekstra, R-Mich., in a 1999 report. big basket of discuss recent fed- Social Secu- eral education reforms and state scholarship funds and rity, he said, his own tax-credit legislation, public schools since 1998. is headed for the “Voluntary Opportunities the same fate to Increase Contributions to Issues and Ideas luncheons as Enron Education (VOICE) Act.” are monthly forums designed unless cit- VOICE would allow a 75-per- to offer government officials a izens are cent tax credit for individual broader philosophical per- allowed to contributions of up to $500 spective on current topics, As little as 65 cents of every federal education dollar is diversify (or $100,000 for corporations) emphasizing free-market actually spent in the classroom, Congressman Hoekstra tells their govern- to qualified tuition scholar- solutions to important policy policy-makers and officials. ment-man- ship funds. Hoekstra, a questions. ! result of President Bush’s dated baskets with private member of the U.S. House education reform proposals? retirement accounts. Hood Education and the Workforce elaborated with examples and House Budget commit- These and other questions from his new book, “Investor tees, cited the success of were the focus of the Politics,” in which he says Arizona’s tax-credit program, Mackinac Center for Public Social Security privatization which has resulted in over Policy’s first two monthly will contribute to the creation $33 million in donations to Educators:Educators: WinWin aa PalmPalm m100m100 Have you ever had to comply with a school regulation that was an affront to common sense? Think of the most ridiculous, outrageous, or onerous state-imposed regulation and send it to us by April 1. The person who submits the state rule or regulation that makes the least amount of sense (as judged by our staff) will win a Palm m100 personal digital assistant. Email your entries to [email protected] or send via postal mail to: Outrageous Rule Department • c/o Mackinac Center for Public Policy 140 West Main Street, Midland, Michigan 48640 • 989-631-0900 Fax 989-631-0964

Mackinac Center for Public Policy IMPACT! Spring 2002 3 Center’s Influence Felt on Panoply of Issues

hether the sub- the National Labor Relations Analyst Michael LaFaive stitution to allow a universal ject was high- Board (NLRB) to uphold researched the flaws inherent tuition tax credit for educa- speed Internet union workers’ Beck right not in Gov. Engler’s plan for a tional expenses and contribu- Waccess, labor to be forced to finance Big state takeover of Michigan’s tions to scholarship funds. policy, education reform, or Labor’s politicking, he must high-speed Internet network • The following month, coping with a sluggish econ- replace current NLRB mem- omy, both state and national bers with ones more sensitive media sought out Mackinac to workers’ freedom of asso- Center for Public Policy ciation. That sage advice was experts for timely and reli- dispensed to Wall Street Jour- able economic research. Here nal readers in a Jan. 21 letter are some highlights: to the editor by Director of Labor Policy Robert Hunter. • The Center got a boost Several weeks earlier, Hunter Dec. 18 when Thomas Bray and Labor Research Associate wrote his weekly column Paul Kersey met with the for ’s president and top federal OpinionJournal.com web site labor officials to discuss labor on the Mackinac Center and reform strategies (see story its impact on public policy on page 12). At a Feb. 27 in Michigan. Bray called the conference, anti-Beck NLRB Center “one of the chief lab- Chairman Peter Hurtgen oratories for the laboratories stated the president has of democracy,” and hailed its decided not to retain three of rise from humble beginnings the NLRB’s current four mem- in 1988 to become “a model” bers, including Hurtgen. not only for state-based think • The Feb. 20 issue of Edu- tanks, but even for think cation Week, a national jour- tanks with a nationwide nal, carried a major feature focus. on education policy research • If President Bush wants that stated “the Mackinac (see story on page 5). Both Reed’s commentary in The Center is widely credited with pointed out how the private Detroit News called on influencing the debate that sector is efficiently meeting lawmakers not to delay led to new laws allowing the demand for Internet implementation of scheduled charter schools and easing access and that state inter- income and business tax cuts restrictions on school boards’ vention would only disrupt due to a sluggish economy. privatization . . . .” The this process. Katz offered • In a two-part series on $2,000 story also revealed the Mich- the free-market perspective school budget woes in Michi- finder’s fee igan Education Association’s in a Detroit Free Press point- gan, The Detroit News chided for New Hires! transparent attempt to route counterpoint commentary the Redford Union school dis- money through a front group and LaFaive in Associated trict for turning down the Senior fundraising and that paid professors to Press interviews and a View- Mackinac Center’s offer to education positions are “analyze” Mackinac Center point commentary printed in guarantee up to $350,000 in open at the research the union finds numerous papers statewide, savings if it would privatize objectionable. The story co-authored with Western transportation, cafeteria, and Mackinac Center quotes one of those profes- Michigan University econom- janitorial services rather than for Public Policy. sors saying that think tanks ics professor and Adjunct follow through on planned Earn $2,000 for a like the Mackinac Center Scholar Donald Alexander. teacher layoffs. ! have “coupled their docu- • In December, President successful referral! See ments with a very sophisti- Lawrence Reed and U.S. Rep. “Career Opportunities” at cated publications and media Pete Hoekstra, R-Mich., co- www.mackinac.org or strategy.” authored an article for The • Director of Science, Envi- Detroit News in which they call (989) 631-0900. ronment, and Technology offered “Proposal A+,” a plan Policy Diane Katz and Policy to amend the Michigan Con- 4 IMPACT! Spring 2002 Mackinac Center for Public Policy Friedman Says Vouchers and Tax Credits Useful Route to Greater School Choice ompetition among national officials, legislative attendants on the continued schools is the key to staffers, parents, and educa- success of that state’s educa- successful education tion reformers and activists tion tax credit at fostering a Creform, according to how tuition tax credits have true education marketplace. Nobel Laureate Dr. Milton increased opportunities for Friedman, the keynote low-income and other stu- Education Excellence Utah speaker at a recent con- dents in such states as Ari- organized the conference as ference held in Salt Lake zona and Pennsylvania. part of its effort to advance City and co-sponsored by the school choice in the Beehive Mackinac Center for Public Friedman predicted that Pres- State. The group is pro- Policy. ident Bush’s recently signed moting the “Utah Education education bill will have little Investment Act,” a bill that The Jan. 18 conference positive impact because it incorporates features of the brought together national increases spending without Mackinac Center’s Universal experts on education reform, doing much to expand school Tuition Tax Credit proposal. including Friedman and choice. Utah state Sen. D. Chris Buttars talks The bill would allow for a with Nobel Laureate Milton Friedman Mackinac Center Director of about Buttars’ tuition tax credit bill, credit of up to $2,100 per Leadership Development Other featured speakers developed with help from Mackinac student for individual taxpay- Mary Gifford, to discuss ways included panelists from Center education analysts. ers who contribute to tuition of expanding educational co-sponsoring organizations scholarship programs.! choice and freedom through American Legislative such instruments as tax cred- Exchange Council, the Milton Instruction Lisa Keegan, with its or vouchers. and Rose Friedman Foun- whom Gifford worked closely dation, and the Heritage as director of the Goldwater Gifford explained to the crowd Foundation. Former Arizona Institute’s Center for Mar- of roughly 300 state and Superintendent of Public ket-Based Education, updated Center Research Blunts Reach of Dubious State Internet Plan

nly days after its Katz and Energy Committee Mackinac Center comment official launch, the Policy demanded major changes in on the broadband plan also Mackinac Center Analyst the proposal before moving was featured prominently in Ofor Public Policy’s Michael the bills to the Senate floor. newspapers including the new Science, Environment, LaFaive’s Detroit Free Press and Ann and Technology (SET) Initia- methodi- At a packed committee Arbor News and on numer- tive began making its pres- cal dissec- hearing on Jan. 9, for exam- ous radio talk shows through- ence felt in a key debate tion of the ple, Sen. Burton Leland, out the state. raging in Lansing over high- broadband D-Detroit, cited a Mackinac speed Internet access. legislation Center analysis in question- Although substantive Mackinac Center exposed a scholar Dr. Donald ing Public Service Commis- changes have been made to Late last year, Gov. Engler variety of Alexander examined sion Chair Laura Chappelle the original legislation, the unveiled a plan to wire unsub- the benefits of a free on why Lansing should broadband proposal remains the state for high-speed, or stantiated market in Internet compete with the private flawed. The Mackinac broadband, Internet access to claims access in a 1999 study sector—which is already Center will continue to debunking the “need” regions deemed to be “under- underly- for government efficiently meeting consum- explain the benefits of free served” by private providers. ing the intervention. ers’ demand—in offering markets over new govern- But the plan has met with governor’s high-speed Internet access. ment spending and regu- opposition in the Legislature plan and identified vast Leland’s citation of Mackinac lation as action on the following a string of analyses potential for higher costs Center research drew governor’s plan moves to the by SET Director Diane Katz and fewer choices for con- applause from the audience, House.! released and distributed to sumers. Presented with according to the Michigan legislators during four hear- such evidence, members of Information and Research ings in the Senate. the Senate Technology and Service.

Mackinac Center for Public Policy IMPACT! Spring 2002 5 Reed Helps Establish Freedom Movement in Africa

hether it be vacation,” generously privatization in underwritten by several Rwanda or the anonymous donors. His Wfounding of a first stop was Nairobi, new free-market think tank in Kenya, as the guest of Kenya, the man one newspa- James Shikwati, founder per called “the Indiana Jones and president of the Inter of Michigan” continues to Region Economic Network log the miles promoting eco- (IREN), the first free-market nomic liberty around the think tank in east Africa. world. There, Reed delivered two lectures on economics to In January, Mackinac an eager cross-section of Center for Public Policy Kenyan media, business, President Lawrence Reed and academic leaders. traveled to Africa for two Shikwati was introduced to weeks on his latest “working free-market ideas in part The Rwandan government produces a bimonthly magazine entitled Rwanda Privatization, a recent issue of which stated the government’s desire to “pull out of all its industrial and commercial activities.” frontline free-market orga- of Kigali, Rwanda. In a coun- nization in Africa is now try torn by ethnic violence assured.” and, more recently, natural disaster, a bold revolution “I think our man in Kenya in free-market economics is is a diamond,” Reed afterward taking shape, Reed discovered reported to the Atlas Founda- in a two-hour interview with tion, which provided start-up Robert Bayigamba, the gov- capital to Shikwati. “I predict ernment’s secretary of priva- IREN will become a model for tization. Since 1996, Rwanda the rest of Africa.” has been selling off floun- dering state-owned hotels, “Privatization: A Loss? No chicken hatcheries, paper Way” was the sign that mills, and even water and greeted Reed at his next stop electrical utilities.

Reed (speaking in Nairobi, above) will help other groups such as IREN in his new role as a board member of the International Policy Network, a nonprofit organization dedicated to promoting the institutions of a free society in countries around the world. through Reed’s column in Ideas on Liberty, the monthly journal of the New York- based Foundation for Eco- nomic Education.

“I would like to thank you . . . for delivering the first ever pro- speech in the East African region,” Shi- IREN founder and president James kwati wrote in a letter Shikwati will travel to Michigan to to Reed. “Your speeches learn the mechanics of managing and organizing an effective think tank at helped boost IREN’s image the Mackinac Center’s May Leadership locally and internationally . Rwandan safaris to observe some of the only 670 mountain gorillas left in the world Conference. . . . IREN’s future as a are all conducted by private, native-owned, and locally run companies.

6 IMPACT! Spring 2002 Mackinac Center for Public Policy “When freedom blos- soms in one country, its cause is strengthened everywhere,” says Reed. “It’s exciting to see what is now developing in Kenya and Rwanda, and all of us in the free-market movement should look forward to lever- aging these successes into important victories in other parts of the world.”

More information about IREN is available at www.irenkenya.org and www.mackinac.org/4099. More information on Rwandan privatization can Women in business, considered taboo in Rwanda until recently, are flourishing be found at Rwanda and Kenya under the country’s new spirit of enterprise. The Association of Rwandan www.mackinac.org/4100.! photos by Lawrence Reed. Businesswomen strongly supports the government’s privatization efforts. Center-Inspired Legislation Would Hold Unions Accountable

ichigan public-sec- authored by Mackinac Center their unions’ fiscal priorities tor employees will Director of Labor Policy and financial health. have a much Robert Hunter, Labor Mbetter idea of Research Associate Paul “Government employees what their unions are doing Kersey, and former across the state pay more with their dues dollars if the researcher Shawn Miller, is than $100 million in manda- Michigan Legislature passes, entitled “The Michigan Union tory union dues each year, and Gov. Engler signs, a Accountability Act: A Step yet, as the law stands, they bill inspired by the Mackinac Toward Accountability and receive no accounting for Center for Public Policy’s Democracy in Labor Organi- how their unions spend this labor policy team. zations.” money,” said Hunter. “Michi- gan workers who are forced to The bill, introduced in the Gosselin’s legislation would support a union have a right House Jan. 24, would require require annual financial to know how their money is public-sector unions operat- reports from unions repre- being spent.” ing in Michigan to report senting government employ- Rep. Gosselin’s bill, inspired by a their financial dealings to the Center report, would apply financial ees in Michigan. It calls for “I commend the Mackinac same extent as businesses disclosure laws similar to those on the unions to report their spend- Center for its hard work and and corporations in order to books for corporations since the 1930s ing in a variety of functional input in bringing this impor- ensure that workers’ manda- to public-sector unions such as the categories, including bargain- tant issue to the attention of tory dues are spent in ways Michigan Education Association, which ing, grievances, campaign Michigan citizens,” Gosselin spends millions of dollars every election that those workers approve. cycle to influence political races. contributions, and issue advo- stated.! cacy. Annual reports would This blow for worker rights be audited by independent is being struck because a Gosselin, R-Troy, chairman accountants to assure accu- Mackinac Center report of the House Committee on racy. The information would released in December caught Employment Relations, Train- discourage waste and fraud the attention of Rep. Robert ing, and Safety. The report, and help workers to assess

Mackinac Center for Public Policy IMPACT! Spring 2002 7 ADVANCEMENTADVANCEMENT IMPACTIMPACT Entrepreneur Holman Enlightens Michigan

cott Holman has merce, as well as community The most recent issue of MPR always had a flare for and public policy. I take all features Holman’s own solu- entrepreneurial ven- of them very seriously and tion to the problem of a Stures. A native of each has contributed to my neglected lighthouse on Lake Ishpeming in the Upper Pen- success and my happiness.” Superior’s Granite Island. In insula, he funded his college 1999, he and his wife Martine education at Northern Michi- Holman’s interest and exper- purchased the island from gan University by operating tise in the public-policy arena the federal government for a scuba diving business from match his knack for business $86,000 and privately reno- 1961 to 1965. Now, as owner, success. As a U.S. Chamber vated the historic lighthouse, president, and CEO of Bay of Commerce official, he has which had fallen into disrepair Cast Technologies, a manu- testified before Congress on under government ownership. facturing concern located in regulatory and environmental Bay City, Holman believes he issues. And as a contributor Holman’s business and per- has found the formula for to the Mackinac Center for sonal efforts have won him happiness. Scott and Martine Holman, pictured Public Policy, he has helped numerous awards and honors, here in a December 2001 expedition the Center produce Michigan including the 1998 Blue Chip “I have tried to lead a bal- to Antarctica, chronicle their successful Privatization Report (MPR), a Enterprise Award from the anced life,” he says. “That private renovation of a historic quarterly journal read by U.S. Chamber and the 1989 Michigan lighthouse on balance is supported by four www.graniteisland.com. The thousands of state and local Distinguished Alumni Award pillars: family first, philan- Mackinac Center called for the officials interested in learning from his alma mater, on thropy of both time and privatization of historic lighthouses in about private-sector solutions whose board he serves.! money, business and com- 1996. to public-policy challenges.

Strength in Numbers

n December alone, the to main- legislators. The web site each year before they Mackinac Center for tain a base is the first of its kind any- spend dues money on polit- Public Policy’s Freedom of support where and receives almost ical or other non-work- IFund welcomed 58 new from 60,000 “hits” per month. place-related activities. members. To us, this is far every Go to the site and tell your more than just a number. It region of representative your opin- • Joining forces with U.S. represents 58 new partners Michigan. ion: It’s free. Rep. Pete Hoekstra, for advancing sound policy. R-Mich., to protect taxpay- In light of the traumatic events Here are • Promoting a Teachers’ Bill ers with Proposal A+, of 2001 and the economic just a few of Rights that would end which would preserve the downturn that took place in David Aussicker, Vice examples compulsory unionism for Proposal A tax structure their wake, we consider 58 President for of what teachers and inform them while adding benefits of new members to be a resound- Advancement these of their rights. a tax credit for education ing expression of support. members are helping us expenses. accomplish: • Educating Michigan law- These new members—like makers on the benefits of Be sure to tell your friends all our contributors—so value • MichiganVotes.org, our a Right-to-Work law that what we’re doing for the qual- our efforts on behalf of lim- newest web site, enables would protect the right of ity of life in the great state ited government, free mar- anyone to find out what workers to abstain from of Michigan—and encourage kets, and political liberty that bills and amendments are union membership. them to use the enclosed they are willing to dig into proposed in the Michigan envelope to join the Mackinac their discretionary income Legislature, their current • Paycheck protection for Center team!! despite economically difficult status, whether they 41,000 Michigan state times. Their sacrifice helps passed, who voted for or employees, requiring us not only to meet our against, and also to exam- unions to obtain written budgetary needs, but also ine the voting records of approval from workers

8 IMPACT! Spring 2002 Mackinac Center for Public Policy FREE-MARKETFREE-MARKET FUNDAMENTALSFUNDAMENTALS In Defense of Outsourcing by Steven Piraino

year ago, Harvard services that different work- employers and employees position. Well-intentioned students occupied a ers can perform. In other can unknowingly take into activists look at a particular university building words, suppose Bill is a good account information about business and, correctly, see A to demand that all computer programmer but scarcities and preferences that its employees would be Harvard employees be paid a an excellent web designer. they could not possibly know better off if the company wage that reflects the cost of Which job should Bill take? any other way. Without were forced to pay a wage a decent lifestyle in the city At first, the answer seems honest market determination that reflects some benchmark of Cambridge, Mass. The out- obvious. Bill should design of wages, this information living standard rather than come of this six-week charade web pages. However, what if would simply be lost. Work- the principles of supply and was a series of committee good computer programmers ers would unwittingly accept demand. The resulting misdi- hearings led by Harvard econ- are hard to come by, and web jobs they were overqualified rection of labor and underem- omist Lawrence Katz. And designers are a dime a dozen? to hold, and companies would ployment, however, means these hearings have, in turn, unwittingly hire that overall real wages tend to produced the “Katz Report.” In this case, individuals fall, not rise. One of the supposedly damn- the ruthless What labor activists see who, under a ing conclusions of this report forces of as a victory for labor free market, What labor activists see as a is that Harvard has been supply and is typically a victory for would know victory for labor is typically outsourcing its employees to demand their services a victory for relatively relatively overpaid, avoid paying above-market ensure that are more highly overpaid, underemployed, wages and benefits. the wages of underemployed, union- valued else- union-protected workers over computer pro- protected workers over where. The unskilled, unprotected work- There is no denying that the grammers are unskilled, unprotected poor, of course, ers and consumers. Nor argument against outsourcing higher than workers and consumers. would be the can these unintended conse- has a certain amount of the wages of greatest losers quences be ameliorated by appeal when applied to Har- web design- of all. Without extending the same “protec- vard University, whose $14 ers. As a result, Bill gets the the right to accept lower tion” from market forces to billion endowment has been “signal” that taking a job as wages, they would be labor as a whole. Instead, acquired, at least partially, at a web designer would be a deprived of their only com- such a policy would utterly taxpayer expense. However, waste of his highly valuable petitive advantage over more destroy the very market- it is quite another thing alto- computer programming tal- highly skilled workers. determined division of labor gether to believe that out- ents. that accounts for the “first sourcing is, in general, a Though it sounds nice to say world” nature of our society. “deplorable” practice, as a Or, consider the example of that each laborer’s compensa- writer for the Harvard Crim- a company deciding which tion should reflect his needs, While there are specific, eth- son recently suggested. of two applicants, Smith or the implementation of this ical arguments that can be Jones, to hire as a package view would entail losing all of used against the practice of After all, why shouldn’t firms deliveryman. Smith is the benefits of the division of outsourcing at an extremely outsource? Why shouldn’t slightly more qualified, but labor. Instead of flowing to rich institution like Harvard, the worker who is willing to Smith is also qualified to take those jobs that will produce these arguments cannot be render the best services for a more productive job as, say, the most valuable goods for extended to labor as a whole. the least pay be the one who an airline mechanic. Smith consumers, labor would be Ignorance of this truth gets the job? Instinctively, should really become an allocated according to the explains why some campus most of us recoil in disgust airline mechanic and leave politicized vagaries of some activists may have become at the suggestion that wages the package delivery job for kind of official bargaining dupes of the narrow, antiso- should reflect nothing more Jones, who has a more lim- process. Who would gain cial interests of union labor.! than the cold calculus of ited skill set. However, only under this framework? If supply and demand. Yet few the free market can ensure the experience of Cuba, North Steven Piraino is an economics of us realize just how essen- that the more urgent need for Korea, Soviet Russia, and major at Harvard University. tial this “cold calculus” is for airline mechanics is reflected Communist China is any This article originally appeared the long-run welfare of labor- in a higher wage. guide, no one. on Mises.org, the web site of the ers themselves. Ludwig von in Both of these examples illus- The fallacy of the outsourc- Auburn, Ala., and is reprinted In a free market, wages trate how, thanks to the ing-is-always-wrong crowd is with permission. reflect the scarcity of those price system, prospective essentially a fallacy of com-

Mackinac Center for Public Policy IMPACT! Spring 2002 9 New Web Feature Links to Viewpoint Commentaries Mackinac Center Media Coverage Proposed Legislation a License to Kill Competitors he Mackinac Center for Big Auto Dealers for Public Policy’s January 2002 V2002-01 reputation for solid Far from deterring fraud, legisla- T research and knowl- tion to require small-time “curb- edgeable experts guarantees side” auto dealers to obtain a that journalists will turn to state license before they could the Center for dependable sell cars would raise barriers to background information for new competitors of larger dealers their stories on labor reform, and restrict consumers’ choices. taxation, education, priva- tization, the environment, Should D-DOT Work and other important policy Weekends? issues. Michigan news- January 2002 V2002-02 papers and journals ref- Union contracts that stipulate erenced Mackinac Center a strict Monday through Friday ideas roughly 1,200 times work schedule for Detroit Depart- in just the last year and ment of Transportation employ- ees ensure city services are less national media are increas- reliable and more expensive. ingly seeking out Center expertise as well. Consumer, Not Corporate, “Greed” Is Ultimately In fact, the Mackinac Center The new feature is updated as high-profile Internet sites such Behind Layoffs is mentioned in the public news develops with links to as ’s January 2002 V2002-03 square so frequently that newspaper stories that feature Townhall.com, “Mackinac Layoffs attributed to “corporate keeping up with it all has quotations from Mackinac Center in the News” is a great greed” are ultimately the result become quite a chore. Center policy analysts, cita- way to keep up-to-date on the of consumers’ decisions about That’s why the Center’s tions of Center research, or issues affecting Michigan and which firms to support, or not communications and infor- commentaries from Center our nation. support, with their business. mation technology teams scholars. Together with the have launched a new web web site’s “Current Comment” Be sure to check Graduation Rates an Imperfect Measure of site feature, “Mackinac feature, a daily dose of policy www.mackinac.org fre- School Excellence Center in the News.” insight frequently linked by quently for the latest!! January 2002 V2002-04 The only sure way to know whether schools are providing a quality education is to introduce more choice and competition into the system, so that schools have incentives to improve. Gladstone, Michigan: A Little Town with a Big Name February 2002 V2002-05 Being an informed citizen The little town of Gladstone, in Michigan’s Upper Peninsula, is named after William Gladstone, a 19th-century British prime minis- has never been this easy. ter who was a champion of liberty. “Teach for America” Success Points the Way Your legislator’s entire to Teacher Certification voting record is at your Reform February 2002 V2002-06 fingertips, 24 hours a day. A new study highlights the good

10 IMPACT! Spring 2002 Mackinac Center for Public Policy job that Teach for America, a pri- ues its policy of sugar protection- vate teacher program, is doing ism, which costs U.S. consumers to place thousands of qualified nearly $2 billion every year. and talented volunteer teachers in some of the nation’s most Michigan Public School troubled schools. Teachers Launch a Non-Union Revolution Government “Condemnation” Power March 2002 V2002-12 Makes Property Rights Public schools and their employ- Less Secure ees don’t win many battles against the Michigan Education February 2002 V2002-07 Association, but recent victories Government abuse of its so- over compulsory unionism in called condemnation power has two charter schools could signal unjustly deprived ordinary citi- a new dynamic in Michigan’s sector unions, is needed but zens of their private property for public school system. unlikely in the current political the benefit of big-league develop- climate. Michigan can take ers. Special the lead by passing its own Journals Seven Principles of Union Accountability Act, requir- Good News for the New Sound Public Policy ing annual financial disclosure Year: Americans Living reports and independent audits Michigan SP2002-01 $3.00 Longer Than Ever of public-sector union affiliates Education Report Mackinac Center President Law- active in the Great Lakes State. February 2002 V2002-08 rence Reed’s speech to the Eco- MER2002-01 $3.00 35 pages. Americans are living longer than Features include what the new nomic Club of Detroit is a at any time in history, a powerful changes in federal education law testimony to both the vibrancy of nature and the industrial and How to Order technological progress fueled by free minds and free markets. VIEWPOINTS: Viewpoints on Public Issues are two-page com- Historic Principles mentaries on current Michigan over Government policy issues. Three or four “Historic Districts” are published each month. Indi- March 2002 V2002-09 vidual Viewpoints are 50¢ each. When buildings get to be of a Please call for bulk discounts. certain age, they often take on All publications are available at historic significance. But is it no charge via the Internet at necessary for that significance to www.mackinac.org. overshadow time-honored prin- For telephone orders, please call ciples of limited government, the Mackinac Center at individual liberty, and private concise “dismal science” guide (989) 631-0900. The Center mean for Michigan schools, how property rights? for policy-makers and an eco- accepts Visa, MasterCard, and teachers at one charter school nomic primer for students and Discover/NOVUS for your conve- Great Lakes Drilling: voted to remove the Michigan other citizens. 8 pages. nience. Please have your card Environmental Threat Education Association as their and item title(s) handy when or Phantom Menace? bargaining representative, and a calling. If you do not have the former U.S. Department of Edu- Mackinac Center for Public Poli- March 2002 V2002-10 cation official’s solution to the Reports cy’s current publications catalog, There may be aesthetic reasons “teacher shortage.” 12 pages. The Michigan Union please request your free copy to support the Michigan Legisla- when ordering. ture’s recent ban on oil and Michigan Accountability Act: gas drilling beneath the Great Privatization Report A Step Toward Account- Lakes, but insurance data con- ability and Democracy MPR2002-01 $3.00 firm that the environmental risks in Labor Organizations Features include the successful are remote. S2001-02 $5.00 privatization of a historic Mich- Unions in Michigan represent igan lighthouse, Amtrak priva- Free Trade a Sweeter over 900,000 workers and take in tization, how state laws are Deal for Everyone more than $250 million in mem- friendly to government agencies bership dues annually. But in March 2002 V2002-11 that want to contract with pri- spite of their expansive wealth Despite more than two centuries vate-sector businesses, and a and political power, require- of economic scholarship showing new study praising private edu- ments that unions disclose their that protective tariffs and quotas cation providers that are teach- financial dealings are minimal. on imported goods make nations ing low-income students. Reform of the federal reporting poorer, the contin- 16 pages. system, which governs private- Mackinac Center for Public Policy IMPACT! Spring 2002 11 Labor Team Talks Policy with President Bush, Top Aides

ackinac Center for Beck enforcement. The Wall Public Policy labor Street Journal recently pub- experts were lished Hunter’s comments Mamong a select on current Beck enforcement group of 20 policy analysts efforts. who visited the White House for a Dec. 12 meeting with Hunter and Kersey also pro- President Bush and other top moted the findings of their federal officials. new study, “The Michigan Union Accountability Act,” Director of Labor Policy which calls for applying Robert Hunter and Labor financial disclosure laws, sim- Research Associate Paul ilar to those for corporations, Kersey represented the to labor organizations (see Center at an event attended story on page 7). by specialists from the nation’s most influential Director of Labor Policy Robert Hunter snapped this photo of President Bush “There are a number of state-based think tanks. The speaking to attendees of the American Conservative Union’s “The Statehouse Meets things Bush officials can do to highlight of the visit was a the White House” program. improve labor relations and half-hour briefing with the federal protection of worker president, during which he Assistant Secretary of Labor the performance of their rights,” says Hunter, who reviewed the “war on terror- Chris Spear. At the meetings, union’s employee representa- served on the National Labor ism” and how it affects his Hunter urged the adminis- tion duties. Relations Board under Presi- domestic agenda. tration to protect union work- dent Reagan. “Our research ers’ rights by enforcing the Hunter questioned the will help them make the Earlier in the day Hunter Supreme Court’s 1988 Beck wisdom of the administra- most of the opportunities and Kersey met with Senior decision, which mandates tion’s decision to enlist Team- they have.”! Advisor to the President Karl that workers not be forced ster support for its energy Rove, Director of Strategic Ini- to pay any dues or fees plan, fearing that a political tiatives Barry Jackson, and beyond those necessary for tradeoff would delay proper

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